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An exclusive extract appeared in the Sunday Independent in November.
26 November, 2008
It was the bankers’ last supper. The banking crisis was at fever pitch; the nation’s finances were in peril; but Ireland’s banking elite was celebrating in a private room in a discreet hostelry near Dublin’s St Stephen’s Green.
The occasion was ostensibly to mark the retirement of the chairman of the Financial Regulator, Brian Patterson. At the time the watchdog was in the wars, but Ireland’s bankers wanted to give Patterson a good send-off. Patterson had, in fact, retired seven months earlier, but his departure was a good hook for a meeting of allies under siege.
Dinner with the watchdogs was part of the job; but it was important that no news of the party leaked to the media. Nor did it. The bankers were all careful not to be spotted as they entered and left. Any media story that the regulators were living it up with the bankers would have been dynamite. A view that the two groups were far too cosy was gaining credibility with the public by the day.
Patterson’s chief executive at the Financial Regulator, the beleaguered Patrick Neary, was another guest of honour at the dinner. During the previous six weeks Neary had been the target of a wave of media criticism for his handling of the unfolding crisis that had caused the Government to guarantee the liabilities of the Irish banks.
Not used to the spotlight, Neary had made matters worse.
A disastrous interview on RTE’s Prime Time programme on 2 October had exposed the normally camera-shy regulator to tough scrutiny. Two weeks later Neary had been grilled by an Oireachtas committee. Calls for his resignation were surfacing as he tried to explain his failure to cool the bankers’ lending to the property market.
Michael Casey, a retired economist at the Central Bank, had broken ranks with his former employer and exposed the watchdog’s flaws. In the Irish Times of 14 October he had highlighted the crux of the problem: “Close relationships between regulators and banks — difficult to avoid in a small country — will have to be ended.”
The hush-hush dinner was a sure sign that the relationship was still close, despite public unease about the mutual admiration between bankers and regulators. Pat Neary was in his comfort zone that night as he tucked into the striploin of tender beef. Mary O’Dea, Neary’s high- profile number two, and Con Horan, the watchdog’s prudential director, were happily mixing it with those whom they so often supervised.
Jim Farrell, Patterson’s successor in the chair, was there too, dining at the only table in the room, laid for 22.
Farrell was a popular choice of successor for the bankers as he himself had been one of their own over a 30-year career with Citibank.
Brian Patterson was not the only diner in the departure lounge on that November night. Within months, many of the invitees would find that this was their last bankers’ supper.
Eugene Sheehy, the smooth-talking head of AIB, was enjoying the evening, exuding his trademark calm amid the turmoil in the industry. According to one of those sitting close to him, “Nothing seemed to be ruffling Eugene”. Sheehy would be on the way out from AIB within six months, having been forced into a humiliating climbdown from his proud boast that AIB would not accept government funding.
Close to Sheehy sat Richie Boucher, the Zambian-born chief executive of Bank of Ireland’s Irish retail division.
Barely three months later, Boucher would succeed Brian Goggin as chief executive after Bank of Ireland too accepted a State bail-out.
Irish Life sent along its top man, Denis Casey, a workaholic with an inscrutable manner. Casey was no great partygoer, but dinner with the regulators was a diplomatic and political imperative.
Within three months, Casey was out of a job.
Fergus Murphy, the new chief executive of the EBS, attended this gathering of the oligarchy, nursing the fear that his own building society was another that might soon need a leg-up from the State. Murphy, untainted by EBS’s disastrous move into commercial property just as the market was peaking, would later emerge as one of the few survivors of the last supper.
His rival at Irish Nationwide Building Society, Michael Fingleton, sent his apologies. Around the table the diners speculated that the controversial ‘Fingers’ was a no-show because he was smarting from a recent humiliation. He was the only Irish banker ever to have been fined by Neary or any other watchdog. A month earlier, provoked by constant taunting about his softness on the banks, Neary had fined Irish Nationwide €50,000 after Fingers’s son — a London employee of the building society — had referred to the Irish Government’s guarantee of bank liabilities in an email seeking deposits from UK-based customers.
His action was politically sensitive because Minister for Finance Brian Lenihan had already faced down opposition from the British government over its claim that the guarantee would give Irish banks an unfair competitive advantage.
Lenihan made his displeasure known, and the fine followed swiftly; but it was a one-off, a token gesture.
Anglo Irish Bank chief executive David Drumm, a regular at bankers’ bashes, accepted the invitation but pulled out at the last minute. A few months earlier Drumm had attended a similar event to honour the retiring chairman of the Revenue Commissioners, Frank Daly. In a weird twist of fate, before the end of the year Daly was to be appointed a director of none other than Anglo.
On this November night, two months on from the State guarantee that was generally viewed as having been enacted to save Anglo, Drumm sent along a senior director, Peter Butler, in his place. Within four weeks Drumm would resign from Anglo when it was discovered that his chairman, Sean FitzPatrick, had been playing ducks and drakes with his personal loans from the battered bank. The Financial Regulator had never noticed.
FitzPatrick was not invited to the dinner as it was not for chairmen like himself, AIB’s Dermot Gleeson, Irish Life’s Gillian Bowler, the EBS’s Mark Moran, Irish Nationwide’s Michael Walsh, or the clubbable Richard Burrows of Bank of Ireland.
All bar Bowler would be shafted within months.
Pat Neary was one of the most popular people at the party. He had been assuring all those around him that Ireland’s banks were well capitalised and that the Financial Regulator was working effectively.
Neary was in denial.
In fact, denial was the common dish at the dinner, happily shared by both bankers and watchdog. Two months earlier, on 18 September, Neary had done the bankers a big favour when he banned short selling of bank stocks. But he could not save himself. Six weeks on from the congenial bankers’ dinner, he would be smelling the roses as he surveyed the carnage he left behind him.
The dinner was hosted by Pat Farrell, the president of the Irish Banking Federation. Farrell, a former Fianna Fail general secretary, was believed to have the ear of the Minister for Finance.
Farrell welcomed everyone, uttered a few kind words about “Brian” and handed over to Patterson.
The departing chairman defended his tenure at the helm, insisting that the “principles-based” system of monitoring the banks had encouraged overseas banks to come to Ireland. In fact, it was a euphemism for a policy of letting the bankers run their own shows.
Here was the Irish banking aristocracy in action, wining and dining their regulators in undisturbed luxury just as a local volcano was erupting before their eyes.
29 Sept, 2008
On the evening of Monday, 29 September, 2008, Bank of Ireland chief executive Brian Goggin found himself entering Government Buildings in the company of governor (ie, chairman) of the Bank of Ireland Richard Burrows, chairman of AIB Dermot Gleeson, and AIB chief executive Eugene Sheehy.
The two chairmen sought a meeting with Minister for Finance Brian Lenihan, after the worst ever day for Irish banking shares.
The four bankers entered Government Buildings at 9.30pm (the following Saturday, Sean FitzPatrick would tell the nation on Marian Finucane’s radio programme that at that very hour he arrived home, having had dinner out with a friend, and watched some TV before turning in at 11).
The meeting had been initiated by a phone call from Sheehy to Lenihan’s office. Although Sheehy’s call was unexpected, Lenihan had been on alert since the previous Saturday, when the beleaguered minister was enjoying a rare moment of leisure at a Fianna Fail fundraiser at Gowran Park in Kilkenny for local TDs John McGuinness and Bobby Aylward.
Lenihan was working the 30 tables of Fianna Fail supporters, each of whom had paid €200 for the privilege, when he received an urgent telephone call. It was not a tip for the 4.30 race. It was the personal assistant to Jean-Claude Trichet, president of the European Central Bank. The minister was advised to expect an urgent message from the governor of the Irish Central Bank, John Hurley, later that afternoon.
The minister headed for the Gowran Park manager’s office and rang Hurley. Trichet had been in touch, warning of banks in trouble all over Europe.
The next morning, Sunday, 28 September, Lenihan slipped quietly into the Central Bank’s Dublin Dame Street headquarters to meet Hurley in his top-floor office. Hurley relayed a grim message from Trichet. European banks were in crisis.
Fortis of Holland, which has a joint venture with An Post, and Depfa bank, which had headquarters in the International Financial Services Centre, were in peril.
A day later, with Ireland’s top four bankers in his presence, it was clear to Lenihan that he had an even bigger problem.
The atmosphere in Merrion Street was far from relaxed. Top bankers are not used to seeking favours, let alone salvation.
On 29 September, for once, the bankers were not in command. Their tails were deeply buried between their legs. They were desperate.
The big bank bosses were kept waiting for two hours in the celebrated Sycamore Room, so called because of its table of bleached sycamore with Fota Island yew. Playing second fiddle to the politicians was a new experience for the bankers.
Spar sandwiches — the menu for the late-night crisis meeting — were not their usual fare.
The financial War Cabinet was already in situ. Side meetings were taking place everywhere. The principal mandarins in the Department of Finance — secretary general David Doyle and second secretary Kevin Cardiff — had been holed up all day. Central Bank governor John Hurley was in constant touch with the Financial Regulator’s Patrick Neary.
Lenihan and Cowen had a separate meeting.
Despite the frenzied atmosphere — the most stressful day in the history of the Department of Finance — the minister managed to abandon the ship of State for an important matter. September 29 was a big day in the Lenihan family calendar. In mid-afternoon Lenihan announced to his bemused staff that he was heading off for his Castleknock home to help blow out the candles on his daughter Clare’s 13th birthday cake. The break fortified him for the long night ahead.
When all the key parties finally met in one room that evening, with the Attorney- General Paul Gallagher present, Dermot Gleeson let rip. According to the AIB boss, liquidity was flowing out of the system. He embarked on a tirade against Anglo and Irish Nationwide. He made it clear that the traditional game plan — that the Big Two would take over an institution in trouble — was not a runner this time. Anglo Irish — whose shares had lost 46 per cent of their value that day — might not survive the week: deposits were pouring out of Seanie’s bank. If the Government did not act immediately, the whole financial system could be brought down. AIB and Bank of Ireland could tumble.
Gleeson had good reason to fear a domino effect. No bank could remain above the fray during a wholesale loss of confidence in Irish banks, as the carnage on the stock markets over recent months had illustrated. He was aware that many of the builders in debt to Anglo had huge liabilities to AIB and, to a lesser extent, Bank of Ireland. The Irish banks had common bondholders. If foreign depositors lost faith in one Irish bank, the others might see consequent withdrawals of money.
Gleeson must also have feared that if queues formed outside Anglo the next day, it would be a matter of hours before savers were assembling outside AIB branches all over Ireland.
No bank would be immune from an outbreak of depositor panic. Gleeson wanted the government to nationalise Anglo or let it collapse to detach it from the others. Dramatic action was needed before seven the next morning, when the stock markets opened.
While Monday’s cataclysm in Dublin markets was itself potentially lethal for all Irish banks, a second blow had been struck across the Atlantic later in the day. The shock defeat in the US House of Representatives of a $700bn bank rescue package had caused carnage on Wall Street — the Dow was down by 777 points at the close, its worst day for 20 years — and Asian markets bombed in early trading. The four bankers feared that European bank shares would be hammered at the opening on Tuesday.
The bankers were thanked by Cowen and then ushered from the room. Little camaraderie was evident between the two sides. A surprisingly short discussion followed. Lenihan was reported to have pondered the nationalisation of Anglo alone but Cowen, characteristically cautious and fearing a legal challenge, was unwilling to discriminate between Irish banks.
The combined wisdom of Ireland’s top politicians and civil servants quickly settled on the cleanest choice. The Government would guarantee all the liabilities — the customer and interbank deposits, and also the vast majority of bonds — of the six Irish banks. This solution had already been canvassed by David McWilliams and Dermot Desmond.
The four bankers were recalled to be told of the decision and asked to “reflect” on it. There would, naturally, be strings attached to the guarantee, but the finer detail would be agreed later. Legislation was already being drafted by bleary-eyed civil servants. AIB’s Gleeson and Sheehy were dispatched back to the Sycamore Room, while Bank of Ireland’s Burrows and Goggin were given their own privacy in the dining room.
All four made telephone calls to senior staff so that they’d know about the new regime when the banks opened in a matter of hours.
Department of Finance officials and the Financial Regulator meanwhile made frantic telephone calls to the chairmen of the other four Irish banks — Anglo, Irish Life & Permanent, EBS and Irish Nationwide — to convey the news.
Reaching the chairmen was not the easiest task. Sean Fitz- Patrick could not be roused from his slumber, so the department settled for his chief executive, David Drumm.
Michael Fingleton, the legendary boss of Irish Nationwide, had been aware something was going on as early as seven in the evening, but did not know it had turned into an all-night drama until he was phoned at home by his chairman, Professor Michael Walsh, at 7.30 in the morning.
Walsh had been woken by a call from the Financial Regulator at 3am but saw no reason to disturb the longest-serving warhorse in the Irish banking business before the sun was up.
Patrick Neary reached EBS boss Mark Moran at around 2.30am. Moran immediately rang his own chief executive, Fergus Murphy, who was only just back in bed at his Enniskerry, Co Wicklow, home, having driven through the night from Donegal after holding an EBS members’ meeting in the north-west. Murphy had heard rumours of dramatic action all day Monday, but was relatively unperturbed as the outflow of deposits from EBS had been modest.
The decision was made; but the formalities still needed observing. Most members of the Cabinet were asleep, many unaware that they might be woken to ratify a historic deal between the Irish taxpayer and the tottering banks.
An “incorporeal” Cabinet meeting was convened via conference call. Foreign Minister Micheal Martin was thousands of miles away in Newark, New Jersey; but he was far easier to contact than Green Party leader John Gormley, enjoying a deep sleep at his Irishtown home only two miles down the road. Gormley, a man notoriously keen on an early bed, had allowed his mobile to run out of juice. So the Minister for the Environment had to be woken by gardai and told to ring in to the Cabinet meeting. Both he and his Green colleague in Cabinet, Eamon Ryan, readily agreed to the guarantee plan: Gormley had urged the guarantee route to Lenihan only a few days earlier.
Social and Family Affairs Minister Mary Hanafin had been on RTE’s Questions and Answers that night, having been forewarned that the banking topic was a mine- field because “something was going to happen”. Any answer she gave could have been overtaken by events. She acquitted herself skilfully.
As she left RTE, Hanafin received a midnight telephone call telling her to be on standby. She went to bed and was woken at 2.45am for the Cabinet meeting. She did the business from her bed.
Agriculture Minister Brendan Smith had spent the day in Brussels and returned late at night to be told that he might be required for a call later on. The Cavan-based minister also performed his affairs of state in his pyjamas from his brother’s residence in Dublin.
Cabinet secretary Dermot McCarthy briefed the politicians on the pending measures and took a few questions. The most important Cabinet meeting for decades lasted less than 30 minutes. Lenihan was given the go-ahead to clear the next obstacles.
At 3.30am the four bankers left. They had put the gun to the Government’s head and the ministers had delivered.
The markets would welcome the decisiveness and determination of the Irish Government; better still, their own jobs were not threatened. It was round one to the bankers.
18 December, 2008
On 18 December Sean FitzPatrick swallowed the poison pill: his transferring of personal loans from Anglo to Irish Nationwide every year for eight years in order to keep the loans out of Anglo’s accounts had come to light, and his position was finally untenable. Non-executive director Lar Bradshaw resigned along with FitzPatrick on the 18th; David Drumm, the chief executive, followed a day later.
David Drumm departed having set the all-Ireland banker’s pay record: in the four years that he served as boss of Anglo, he managed to garner €12.15m in rewards. In 2008 he surpassed Brian Goggin’s €4m figure from the previous year, with a €4.656m package that included a €2m bonus.
The other directors had also filled their boots before the end came. FitzPatrick managed a rise of 22.5 per cent in the year to September 2008, leapfrogging back into first position among bank chairmen at €539,000, just above the Bank of Ireland’s governor Richard Burrows (€512,000). Ten thousand a week for a part-time job presiding over a failing bank. The bank’s employees had an average pay of €99,000 per person in 2007, nearly double the amount taken away by AIB staff that year. Expense claims too were incomprehensible.
Declan Quilligan, who was promoted to the top job in the UK in 2006, was given €335,000 for “relocation costs”.
David Drumm departed a rich man, but he must regret that he never sold his 510,000 shares in Anglo. At one stage they were worth €9m. When he resigned they were just about worthless.
Drumm managed to spend some of his rich pickings on two US homes. According to Ronald Quinlan in the Sunday Independent, he paid $7.2m for two flashy houses in the top US resort of Cape Cod. The second house was bought on 30 September, the day after the bank guarantee was signed.
He had been a consistent buyer of US property during the annus horribilis for Anglo.
Anglo led the way in bankers’ pay, but all of the banks paid their top people at levels that are hard to understand. The common defence for the high salaries is — or was — that they needed to be paid “competitive” rates to retain them at home in their current positions.
Richard Burrows, governor of the Bank of Ireland, was one of the stoutest defenders of the level of pay for bankers. Speaking to the Sunday Independent on 12 October, 2008, just after the Government guarantee to the banks, he was adamant that pay was at the right level.
(Burrows, of course, was himself being paid €512,000 a year for his part-time job.) With an endearing lack of humility, Burrows insisted that “we have to put in remuneration levels which allow us to retain and attract the best people to run Bank of Ireland in the interests of the shareholder. And so that means we have to compare ourselves with the pay rates not just in Ireland, but further afield”.
It is to be hoped that Burrows read the Government’s review of Irish bankers’ pay in February 2009. It found no evidence that keeping senior staff was difficult, and pointed out that many of them came from within the organisation. While bonuses had increased abroad, many of these bonuses were deferred. Irish bank executives pocketed their beefed-up bonuses straight away. The review recommended cuts of up to 64 per cent in Irish bankers’ salaries.
There is not a shred of evidence that Goggin, Sheehy, Fingleton, Drumm or Casey were ever offered jobs that might have enticed them away from the happy home patch. Indeed, they were all rooted to the same bank for nearly all their working lives. No one can blame them.
A comparison with international bankers might have proved embarrassing for Burrows. Brian Goggin’s €4m package in 2007 and David Drumm’s €4.7m in 2008 appear over the top, even by the generous standards of global banking. Eric Daniels, the boss at Lloyds TSB, for example, was paid less than Goggin in 2007 despite delivering three-and-a-half times Bank of Ireland’s profits that year.
Goggin’s total package was 50 per cent more than that of Andy Hornby of HBOS, who collected €2.6m in 2007.
The Scottish giant made €6.988bn that year compared to Bank of Ireland’s €1.584bn.
European comparisons are even less flattering to the top brass at Irish banks. Lord Terence Burns, who chaired Abbey National (a bank of comparable size to AIB and Bank of Ireland) and sat on the board of its owner, Spanish banking giant Grupo Santander, received just €135,000 for his troubles in 2007. Sean FitzPatrick, Dermot Gleeson and Richard Burrows were all paid more than three times this amount.
Comparisons with other industries also show how Irish bankers’ pay had bolted out of hand. Michael O’Leary, the most successful Irish businessman of his generation, earned a basic wage of €595,000 in 2008, compared with Brian Goggin’s €1.2m. The airline chief ‘s total take-home package amounted to €1.2m against Goggin’s €3m in the same year.
While being a banker was a licence to print money, being an ex-banker was sometimes even better. Possibly the most outrageous aspect of Irish bankers’ pay is the reward for failure gifted to departing executives by their boards. Anglo Irish again tops the “hard luck” league by a distance. The rationale for the pay-offs in Anglo is probably indefensible.
In the years 2004–2007, the bank paid €8.7m to three executives when they left. All three appear to have been given these vast sums as comfort money, in sympathy for not being awarded the top job won by David Drumm. Tom Browne (€3.75m), Tiarnan O’Mahoney (€3.9m) and John Rowan (€1.1m) were the lucky losers. Gary Kennedy left AIB with a €738,000 payment, plus €2.01m for his pension fund, after being pipped at the post for the chief executive’s job by Eugene Sheehy.
When Mike Soden, apparently voluntarily, resigned from the Bank of Ireland after breaking his own rules on viewing videos, much was made about the honourable course he was taking. He asserted that, as he had set the rules, he should be the first to obey them and to pay the penalty for breaching them. His honour was rewarded with a payment of €2.3m and a special lump sum of €0.4m into his pension fund.
But possibly the most sensational pay-off of all was the €1.87m bonanza given to EBS chief executive Ted McGovern when he resigned in September 2007 after a series of boardroom rows.
McGovern’s reign at EBS was marked by infighting and boardroom turmoil. His price for leaving a “mutual” building society, dedicated to the benefit of its humble members, would have done Ireland’s fattest bankers proud.