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Regulator Is ‘Cosy Irish Capitalism At Its Worst’

Posted on: December 23rd, 2008 1 Comment

LAST week Brian Lenihan was browsing through the annual report of Anglo Irish Banks. Not a rivetting way for a Minister for Finance to spend his spare time.

Lenihan is not a natural number cruncher , but according to witnesses, he scratched his head. Observers say that the minister called one of the eggheads in Finance.

How in the name of God, he asked, did the Anglo directors clock up such loans to themselves? Anglo revealed a far bigger concentration of loans to board members than other banks. A good spot by the minister.

The ball started to roll. The hapless Financial Regulator was back on the carpet.

We know the rest. Chairman Sean FitzPatrick — the €87m loan man — was gone in 24 hours. David Drumm followed immediately.

Only the wretched Regulator failed to put its hands up. Instead, it started another investigation! A small problem for the investigators: the investigator is the chief suspect.

According to all reliable reports, staff at the Regulator had known about these mega-loans since January. According to the same reports, Mr FitzPatrick had been concealing his €87m loans for eight years.

The loans only surfaced when staff at the Regulator accidentally stumbled upon the FitzPatrick €87m loan in the books of the Irish Nationwide. No one told the minister.

Nobody else seems to have spotted it. Not the auditors, not even the board.

Apparently, not even PwC, the auditors who dissected all the banks’ books recently.

The boss at the Regulator, Paddy Neary, was in the dock. He should have packed his bags on the spot.

Regulators do not seem to understand resignations.

On Friday night, a board meeting of the Regulatory Authority was adjourned in deadlock. At a time of loss of confidence in the banking system, they failed to reach the only possible decision: that the Regulator should go.

Instead, the Authority seemed paralysed.

Typically, the last thought on the Financial Regulator’s agenda was informing the public. No information was forthcoming. They looked like idiots. They have a press office that has done the state no service with its secretive ways.

On Saturday, confidence in the entire Irish banking system — not just the bankers — was ebbing by the hour. In yesterday’s Financial Times, the influential Lex column was withering. It spoke of “belated regulatory intervention” and concluded that the shenanigans were “cosy Irish capitalism at its worst”.

It hurts to admit it. Lex is right. Cosy Irish capitalism is at the heart of the crisis. Our Regulator has been inexplicably kind to Anglo Irish Banks. Last March it ordered an absurd investigation into short-selling of shares in Anglo. The “investigation” came to nothing. True to form the Regulator had responded sympathetically to panic in Anglo management at the collapse of its share price.

Its instincts to protect the bankers were wrong. The market was right. Investors had sensed that all was not quite right in the way Anglo did its business. The share price tanked anyway.

Then in mid-summer, the Regulator again moved to protect the bankers. It banned short-selling in financial shares. The main victim of short-selling had been Anglo.

Another move designed to shield Anglo bosses and others from the ravages of the markets failed. Neither an investigation, nor the more direct protection of a ban on short selling, saved Anglo.

The shares last traded at 27¢ on Friday. Despite all the Regulator’s efforts, the market was signalling armageddon.

By yesterday morning investors overseas had lost confidence in Ireland’s Financial Regulator. Stories surfaced of finger-pointing inside the Regulator’s Office. Those who knew about the loans stalled making a decision, but the end was inevitable.

The indecision was deeply damaging. Far more damaging than the antics of a single bank. The entire edifice is now in question.

And the departure of FitzPatrick, Drumm, Bradshaw and even the Regulator will not solve the problem. It will be a start, but the entire sector is sick.

It is staffed by career bankers deeply embedded in an incestuous culture. The bosses of the three quoted banks, Brian Goggin (BoI), Eugene Sheehy (AIB) and David Drumm (Anglo) are all long-time disciples of the diseased Irish banking world. Ditto Paddy Neary, a financial regulator for decades. Their natural successors spring from the same unhealthy stable.

Today’s Irish banks need outsiders with an independent pedigree.

Otherwise when you next hear that line in the radio advertisement supposedly reassuring you that “Anglo Irish Banks is regulated by the Financial Regulator”, you will be hard pushed not to burst out laughing.