The interview with David Drumm took place over two hours in his lawyer’s offices in Midtown Manhattan in mid-November.
Ironically, the venue was only blocks away from the former headquarters of Lehmann Brothers, whose collapse in 2008 led to the ever-spiraling economic disaster we are still undergoing.
Until Lehmann’s collapse, David Drumm was convinced that Anglo Irish would survive the downturn that had become manifest in the Irish property market.
After Lehmann, the world shifted axis and the collapse inexorably began. It is a period Drumm recalls with great lucidity.
He says he felt he was part of team Ireland, trying to salvage Anglo and the Irish banking system. He says the lesson of the Lehman collapse was that it was a mistake to let it fail.
He believed all the major decision makers from the Taoiseach on down were fundamentally motivated by a belief it would be an equally fatal error to let any Irish bank fail.
Decisions were made in that frenetic period that will haunt the Irish for decades to come.
The decisions made will certainly haunt David Drumm.
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He believes in terms of Anglo, every decision, including the deeply controversial Maple Ten funding to buy up Sean Quinn’s shares, was known about and approved at the very highest levels of the Irish government.
“Everyone was on the same team back then, then came the scattering match” is how he puts it.
Drumm admits to waking up depressed many days and to wondering when the relentless spotlight will shift away from him and his family and why so many of the actors who made those fateful decisions have faded to quiet obscurity while he is still a choice target.
He firmly believes he was no better or no worse than most of the participants during that hectic time, that he acted in good faith and he has been unfairly targeted when others were just as culpable.
Once he was Anglo’s swashbuckling CEO, driving profits ever higher at the bank then memorably described as the best in the world.
He still calls himself an Anglo man, who rose the currents to power at the bank that was the envy of its competitors.
Now that same bank is pursuing him Javert-like through complicated bankruptcy procedures in Boston, for what he claims he does not have as he has offered them everything, including his pension, to pay off the loans he took.
He ironically believes Irish taxpayers money is being squandered in the relentless pursuit of him, and that the new regime at Anglo have much to answer for in how they have spent their time in vendettas against him and others since taking over.
At one point he shows a stack of newspaper articles, at least a few feet high, concerning coverage of his case. That is about ten percent of the coverage, he says.
When will it end, he asks, an unknowable question. Meanwhile, life for David Drumm has taken on a surreal quality as he waits to know his fate.
We began by discussing why he has moved away from Boston his former home.
NOD: What has your life been like since you came to America.
DD: Well, I came here back in 2009 obviously I had a long history here. I came over here in 1998 to set up the bank in Boston and worked for the bank through to 2003 before going back to Ireland. So we put down some good roots here and made good friends back in that time. So coming back then in the middle of 09 was kind of natural. I had lost my job in Ireland and the prospects of getting a job were pretty dismal. So I came back here and tried to pick up the pieces and rebuild it. Shortly after that lawsuits from the bank came out, that that was the second part of 09 and that has dominated my life since.
NOD: Just in a personal sense, how has it affected you to have this incredible negativity coming at you from Ireland?
DD: It lives with you every day of the week and takes up an inordinate amount of time, at the same time you have to get up in the morning, go to work, earn a living, raise your family, do family things and carry this thing around.
NOD: How has the affect been on your family life in terms of the amount of pressure that you feel?
DD: Extremely difficult because it’s seven days a week, because the time that I have to work on the law suit and everything else is really the time after work, or time at the weekend.
To say the least it’s extremely difficult because I am one of eight children. My mother is still alive, she is at home and has to read this every day and watch it on the nine o’clock news. My siblings don’t see me; they hear me on the phone every now and again but they read it, they have to talk to people every day who say ‘what’s going on with your brother?’
It has been very hard watching over two-to-three years people who knew me for years, who would have been firmly in my camp, so to speak, be worn down by all of the rhetoric, just worn down to the point where, they either believe it or they want to talk about it anymore, friendships kind of get broken up.
We have had to move state because my kids have had journalists at their school, journalists and photographers have camped outside our house for literally days. They have come from Ireland and the UK and they have sat in cars outside our driveway. I have had to run out of the house with my kids hiding in the backseat. I had to send one of my kids one day, up the road on her bicycle to see if they media were waiting at the top of the street for us to come out.
I have had the great Charlie Bird banging on my door on a Sunday night, it was my daughter’s 15th birthday, which she’ll never forget and I have moved them around and around to try and keep them away from the media. That’s what it’s like.
NOD: That sounds pretty devastating, how about your wife?
DD: My wife, we cope and we do tell ourselves that we will be OK and that we are good people and what have you. The way you cope with this is you convince yourself there are worse things in life and you constantly look for perspective, somebody that you know that has got cancer, somebody dies, somebody has a sick child God forbid, you say all I have is this ridiculous media thing, these lawsuits and what have you, but me, my wife and my two children are healthy. That’s how you cope.
NOD: Do see you seen an end to it, or is this your life?
DD: You could not survive if you didn’t think it would end. The day you don’t think it will end if the day you have lost hope and then you just couldn’t get up in the morning. When I get up in the morning, I start in a very negative tone of mind, that’s the way it is and then I convince myself that it will pass and we will get through it, there will be another day. The big hit is the damage to the children, because you don’t get that back. Moving them and them watching me, watching what I have to do, at their age, they are seeing the stuff on the web anyway. Not having a normal life of interaction, because we have had to keep a low profile, so why don’t we go to other people’s houses, why don’t people come to our house, that kind of stuff.
NOD: So who is on your side now?
DD: People who know you, my mother my siblings and what have you, it’s very, very hard on them, but they are always there , they don’t waver, they take a huge amount of pressure. In my mother’s case, she is 76 and people will make Smart Alec remarks to her, which she just does not deserve whatever. People who know me and have known me for years, there are a small group of people that just have not wavered. But I have lost friends.
NOD: Because of the coverage?
DD: Boston was in some way an upsetting experience, because I made great friendships there over a number of years and I kept up with them ever after I moved home to Ireland, we came back every year, we had a vacation home.
NOD: How do you answer people who say ‘I accept that but think of the damage the banks did in Ireland,' or people who are out of work or forced to emigrate. How do you relate to that?
DD: That’s what you want the debate to move to, or the discussion to move to is, the much broader reality than that other than it was one rogue bank and that nothing else mattered. Ireland had a 15-year boom, unprecedented and the Celtic Tiger. There wasn’t a person in Ireland in 2005/06/07, not a person, who did not believe Ireland would just rage on for decades. There was a report done by, I think it was NCB Stockbrokers, I think it was in 2005 or 06 and it was called 20:20. It predicted this economic miracle going on and it would be 2020 before this extraordinary growth, which I think was averaging like six percent year, would ever waver, because everybody believed it.
Bertie Ahern got up on the stump up in Donegal in the middle of 07 and said anyone who talks Ireland down should actually kill themselves. When I was on the road with the bank, with investors and what have you, we talked about Ireland, we talked about it because we believed in it, in the most positive terms. Young people, a young demographic, that critical 25-35 age group of people coming through, smart, educated, hungry, English speaking , meaning we had an edge from a U.S. perspective and from the U.S. coming into Europe perspective, productivity, ingenuity, a 12.5 percent tax rate, just everything that could be good for a country was there. And that Ireland was actually not booming, it was correcting to where it belonged. And there wasn’t a person you would meet in Ireland and in the UK, in Europe and the U.S., where I traveled with the bank for the years that I was CEO, who wouldn’t agree with that.
NOD: Do you think you will ever see Ireland again?
DD: I hope so.
NOD: People say well why don’t you come back?
DD: I would not be treated fairly. This is a country that I, I spent 16 years in the bank, I was beyond loyal to that bank, maybe too loyal, and a country that I believed in 100 percent, marketed 100 percent as I was marketing the bank, I was marketing the country, everywhere I went. Now the way that I am being depicted by that country, by the country’s media, or participants is completely and utterly unfair. I am here trying to make a living and raise my family, which I am entitled to do. Why would I go somewhere which has stated, politicians, senior ministers and even High Court Judges have more of less stated that there is a witch hunt on and we are going to get him, why would somebody put their family at risk by signing up for that.
NOD: Being viewed as public enemy number one or two, but do you feel that this is a completely incorrect characterization of your role in Anglo Irish, obviously a critical part of that role was your relationship with Sean Fitzpatrick. What is your opinion of him now?
DD: Perspective, the bank for 21-years in a row increased its profits; it went from making nothing to making a billion. But it wasn’t a flash in the pan that happened for two years, like some sort of scheme. The bank started in very humble beginnings, City Dublin Bank and Irish Bank of Commerce merging in the mid-1980s and grew it’s business progressively over time, first in Ireland, then into the UK and then ultimately into the U.S. doing the same thing everywhere. There was no big change in the model or running after real estate of what have you. The bank was always a real estate lender. If you got as far as 2007, as you said, the profits of the bank that year were a billion. At the same time the end of 07 start of 08, the global financial crisis began and at the same time the Irish housing market had begun to correct, it was overbuilt.
The governor of the Central Bank said to me during the earlier part of 2008 that Ireland could handle its own correction in the housing market, that it was stable enough to do that but could not handle both; i.e. the international meltdown and its own domestic correction. The fiscal situation was appalling at that stage in Ireland because all of the tax money that had come in from this boom had been spent expanding the public purse and it was very hard to turn that profit back.
The bank was a causality of that, not out of recklessness but because we did have a correction in Ireland, as every bank was going to have. We ran out of cash because the international money markets that couldn’t lend us enough, stopped lending us any and that is what happened in 2008. When confidence goes in a bank, it’s over and the year 2008, I focus on 2008 because it was not a problem in 2007. When the confidence goes in a bank, your entire balance sheet relies on lenders, international banking lenders, lending to you and that that goes, it’s over. That was not just the problem for Anglo, it was the problem for Allied Irish Bank, for Bank of Ireland, for the other banks and ergo a problem for the State, because it had to protect it’s banking system, everybody was working together to that.
Now what’s happened after that, when we move into 2009 was Ireland made some decisions, which really have come back to blight us.
One of them was transferring assets from the banking system into NAMA and marking all of the assets to market. Recognizing losses that no other country did, here in the U.S they have just more experience and they had seen this before, no bank was forced to mark all its assets down at a time when you couldn’t sell anything. The UK didn’t do it, nobody in Europe did it, so Ireland stood alone and by marking this thing down Ireland separated itself down.
Now the cost to me, personally because I was a member of the Anglo team, was Anglo’s loss were marked down by that transfer to Nama in 2009. A great way to juxtaposition that is if you look at the sale of the U.S. loan book of the bank, they got more than 80 percent on the dollar.
NOD: What are they getting on NAMA?
DD: They marked it down by 60 percent, who knows what they will get. But that was artificial, a state owned bank, selling assets to a state owned entity at a price that they made up.
NOD: Let me ask you about David Drumm and Sean Fitzpatrick, On theory is that you were a young guy, who was plucked from relative obscurity, and made CEO right as the ship began to sink and that FitzPatrick did that very deliberately.
DD: Sean was a very, very powerful person; he was a controlling person not just of the executives, but of the non-executives. He ran the board, in a highly premeditated, controlled manner there were meeting before board meetings to make sure he got what he wanted and so on. Sean was like that before I became CEO, he was 18-years as CEO and he wasn’t planning on changing. So as chairman he was an executive chairman for all intents and purposes and a highly controlling one, there is no doubt in that. Anyone that knows him, knows that is true.
NOD: Do you feel in any way that you were brought into that job, because you were the least experienced of the people applying for it and that he was then able to control you?
DD: I am pretty sure I was his candidate, he thought I could do the job, I worked for the bank for many years and done a lot of good things in the bank for many years but as the youngest person there, I was the likely person who would give the least resistance. I think that is true.
NOD: You are being pursued in earnest by the bank now, What’s your feeling about that?
DD: I borrowed money from the bank at the end of 2007, to invest in the bank at the request of the bank because we had the start of the financial crisis then with Northern Rock going bust in the UK.
The board made a decision at the time that we all had these options, share options. With a share option you can just sit and wait for it to come into value, you don’t have to exercise it. It’s a one-way bet. But the board decided, really under Sean’s direction that executives should exercise shares and your non-executives should buy shares and the markets should know about that. You had to tell the market when you bought shares and that was the purpose of it. They’re investing shares, showing confidence in the bank and I really had no issue with investing in the bank in that time.
So I borrowed the money, but there is a conception that I borrowed money and bought houses in America, the houses in America were bought after the after-tax money I earned. The money I borrowed from the bank, went into the bank and went to the taxman. So I had this loan, when I left the bank at the end of 2008, the loan had matured and the bank offered me a one-year extension and I agreed to the one-year extension on the basis that, at the end of that one year which would have been 2009, that they would sit down with me and agree a long-term repayment plan.
The shares were gone, my job was gone, I did not have eight million or seven-and-a-half million or whatever it was waiting in the bank to repay the loan and I knew that we would have to do a deal, as I had done with many clients over many years, spread it out over time and figure out a way to sell assets and figure out a payment plan. They agreed to that.
Then Brian Lenihan agreed the relationship framework document in the mid 09s, June or July 2009, that transferred the authority and power over directors loans at Anglo to the Government, to the Minister of Finance, which took the authority away from the bank. Then they appointed a new CEO (Mike Aynsley) and the first thing he did was call in my loans. They were demand loans, he was legally entitled to do that , but it was outrageous to call it in because first of all a bank operating properly would never do that and B they had a contract with me, not to do that in the long term plan.
It resulted in a lawsuit in Ireland which I ended up having to defend and I didn’t want to be in lawsuit, I couldn’t afford to run a lawsuit so I tried desperately, over a period from January 10 to October 10 when I ended up filing for bankruptcy, to settle.
And what settling meant was offering the bank all of my assets, which they would get anyway in a bankruptcy if you like, and my pension. To give you perspective on that, the assets were probably worth four million, my pension was worth six. So 10 million. They couldn’t possible settle, it took me a while to accept that.
The attorneys were telling me that politically they cannot be seen to settle with you. In writing I am putting all my money on the table, I’m giving them my pension it’s protected from creditors at all costs under Irish law, they have to settle, but they didn’t settle. And I ended up doing something that in my wildest nightmares I would never have seen happening, filing for bankruptcy. I filed for bankruptcy there being no other options.
That has been presented as some kind of smart-Alecy move by me. Anyone who lives in this country will know, when you put yourself into that process, you have exhausted all other avenues.
So I tried desperately to give them back the money and they wouldn’t take it. After I file for bankruptcy I once again offered them my pension and they did not give me an answer.
NOD: So you feel they are targeting you and they are just going to come after you irrespective of what you offered them.
DD: Correct. And I don’t know, I understand the media push but I don’t know what a commercial bank, whose job, and they are all well paid at the top of that bank, whose job is to collect the assets and maximize the return for the taxpayers, is doing spending millions of dollars by their own admission doesn’t make sense, chasing somebody who is now bankrupt and all of his assets are in control of a trustee and will be paid over to the bank. Why do you do that?
NOD: Why? Is it because the bank is vindictive?
DD: Well since the bank was nationalized a new CEO appointed and a new management team, I have not seen one comment in the media as to , can you please tell me on what benchmark the management of the bank is being measured for the collection of the assets. Do they just write everything off and if they collect one cent then they are heroes? Has somebody said that the ten million dollar loan should recover at nine million, or is it that if he only gets a million, or if he spends 12 chasing the ten, is that OK too? So if my case is indicative of how they are being measured, taxpayers’ money is being absolutely destroyed there, day by day by day.
I think that if my case is indicative of, could be indicative of a wider problem and I don’t think they are being held to task.
NOD: Turning to Anglo’s downfall who knew, what, when, is a huge issue in Ireland, particularly on the collapse of Anglo.
DD: This bit about is being presented about who knew what, is like you are kind of trying to put it into like a Watergate thing, like who knew this scheming thing was going on? That is actually not the reality of of things, because everybody was on the same team in 2008.
NOD: But later on, say with regard to the Maple Ten, who knew?
DD: The financial regulator and the Central Bank were in every meeting with me and other directors of the bank throughout 2008 and I have to tell you, that was team work, because it was a common problem.
NOD: But the Maple Ten loan was ... ?
DD: Yeah, I am getting to that. That was the solution to a problem, which went to the very destruction of the Irish financial system and hence the government, and through it’s offices through the Central Bank and through the regulator were pushing the bank like hell to fix the problem.
The bank of course was pushing itself and the board was pushing to fix the problem because it was a threat to the bank. We tried everything and with their agreement and their co-operation and their help, we went out to the Middle East, we came here to U.S., we tried to place Sean Quinn’s stock and everything failed and I think that had more to do with the environment we were in, it was very difficult times.
We ended up taking our least favored route, which was to place it with private investors. Why was that least favorite, because the banks share register, up until Mr Quinn developed his 25 percent ownership was pristine and we were quite proud of it.
That mean people like Willy McAteer directors before me and everyone else and me then afterwards had gone around the world banging on doors of large investment houses, all these great investment houses, telling them the story of the bank and getting them to invest. So we looked at the share register of the bank, it was determined like that.
NOD: I can accept that but the Maple Ten was an insane proposition the bank loaned them the money to buy stock in Anglo Irish?
DD: Well it was to take stock out of a very dangerous derivative position.
NOD: But no bank in the world could claim that that was a legitimate transaction, could they?
DD: Lending money to on a secure basis to good customers is the business of a bank. It was an unusual thing to have to do in that it was very, very difficult and unusual times and more importantly it was agreed with our regulator.
NOD: Who else in addition to the regulator knew? He must have told the department of finance that he was doing this.
DD: John Carney told me, John was the governor of the Central Bank, I spent a huge amount of time with John. He told me that the he was reporting it daily to the Minister for Finance. The whole thing was so dangerous to the country at the time, that everybody , Conn Horgan in one of his depositions, said that the working group ,the whole national apparatus jumped on it so the financial regulatory authority, the financial regulator himself, the Central Bank, the department of finance and this working committee were meeting daily, weekly. They were called the domestic standing group. They were as disappointed as us and expressed it when various attempts failed. We attempted to complete a transaction with Rabo bank, it failed they were very, very disappointed. When we came back from the Middle East empty handed, they were devastated. They called me day, after day, after day, to find out how it was going and when we called them up and said we are thinking of doing something with private investors, I then went down and sat with them and explained what we were going to do, frankly they were thrilled, chirpy ‘let’s get this done,' because the fear factor was just huge.
NOD: So this was the Department of Finance, the Central Bank ...
DD: My connection would have always been the Central Bank and the regulator together.
NOD: But the department of finance, the minister would have known about this?
DD: Well based on what John Hurley said, the importance of what was going on was going right to the minister for finance and most likely the Taoiseach was fully aware of it at the time as well . Put it this way, I cannot imagine, there was so much fear amongst everybody about the consequences for the country, that is the Taoiseach didn’t know about it, he should have.
NOD: Leading up to that how could Sean Quinn take these positions on the banks and buy so much stock without you knowing?
DD: The dogs on the street were talking in 2007 about the fact that Sean Quinn potentially had a share holding in the bank and we discussed it at the board. The first couple of times we brought it up we didn’t do anything about it, but then the chatter got a little bit louder and the board instructed myself and Sean Fitzpatrick to go ask him what’s going on. We never really got into what percentages, but around the board, there would have been, certainly in my own mind, there would have been an expectation that if he held stock, it was probably like in the low to mid single digits.
NOD: At what point did it spark danger?
DD: You have to notify the stock exchange at three percent, he didn’t have to notify anybody. So lets just take another example, if you saw another investor getting up nine/ten percent, if they did get up to ten percent they would have to go to the Central Bank for approval by the way, that they were going the direct route, you would sort of say, well what’s the attention. The investment community would worry about one big shareholder, what if he sells out and so on. So we in our heads thought maybe he had five percent or six percent, so we go up to the Ardboyne hotel we meet Sean Quinn and Liam McCaffrey.
It was just staggering. Sean’s sitting here, we were in the hotel room , Sean Quinn there and Liam McCaffrey is sitting opposite me and Sean then proudly tells us that he has 25 percent of the bank, even at that time he had 28 . I looked immediately at the chairman and I tell people the story, he physically moved backwards with the shock. We had it in our own heads, maybe it was single digits. So immediately we knew it was an issue for the bank, Quinn realized in our faces that he had missed something about it.
NOD: What do you think he thought your reaction would be?
DD: That maybe it was a compliment to us, that he was buying a big chunk of the bank. What he didn’t realize , this is the unfortunate sad bit about it, he was a great entrepreneur , built huge businesses and employed a huge amount of people in areas that would not have seen employment. What he missed was the manner in which he did it, he went to these investment banks, nine investment banks and he went on margin. So they went out and bought the stock but because they had the stock on this CFD thing, they were able to lend the stock to hedge funds. A way for an investor/broker to make additional money on CFD is to actually use the physical stock to lend it out and they make a margin, they charge two or three percent margin on it. I am sure he wasn’t aware of it, the more of these CFD’s you do, the more there is available to short and the easier it us to short the bank and give yourself a problem. He didn’t get advice and he will tell you that himself.
NOD: So he made a three billion dollar mistaken basically?
DD: As it turns out, but he contributed to the weakness of the bank in 2008 by doing it.
NOD: How significant was that weakness?
DD: It was very, very significant because all banks were struggling in the market internationally, life was tough, we got this additional spot light on us because of the Quinn perceived vulnerability and the hedge funds in London rightly took a view that if you push, push, push this guy maybe his stock will be sold, the bank will collapse and they get like a payday.
He fashioned a rod for his own back and ergo our back, the bank’s back. So you couldn’t blame one particular thing, but we had this additional burden right absolute worst possible time that you would want something like that, during an international financial meltdown. We were coping with that at the same time.
NOD: What do you think now when he has declared bankruptcy.
DD: He’s doing what I guess he has to do.
NOD: To go from being the richest man in Ireland to having $15,000 in your bank account?
DD: it’s sad, because he was and maybe he comes again, but he did a lot of great things. There is a lot of collateral damage.
NOD: The whole operation is in danger as well.
DD: Ya and he ran that operation very well and created a lot of jobs and now it’s in receivership.
NOD: Why didn’t the bank buy it’s own shares?
DD: Am, why couldn’t the bank ... you can’t do that. It’s against the law.
NOD: But they were also in huge debt, the ten people who owed you billions.
DD: They were big customers of the bank, they were, hindsight is great and 20:20, but their loans were fully secure, a lot of them were income producing; shopping centers and hotels and office investment properties and so on. They would have a very high net worth, it was not unusual for them to have 200 to 300 million of a net worth.
So you are lending them money on the basis that you have got the collateral, the stock, and you have got recourse to them for a good chunk of it, 25 percent of it, so the margin of error. So you knew that that was fully collectable. It made total sense and it made sense to us, it made sense to the regulator, it made sense to the Central Bank, it made sense to Morgan Stanley who were advising us, it made sense to our legal advisors.
NOD: Yeah, but the counter to that would be the banks misled the government about the extent of debt, is that a fair comment?
DD: No that is another misrepresentation and myth. What happened was, you will hear the words liquidity and solvency get batted around. In 2008 the problem was liquidity, literally cash flow. So I have got a loan of 100 million from Deutsche Bank and it’s maturing on the 18 of November. A year earlier, I didn’t have to think about the loan, they would roll that loan over for another month of three months or six months or whatever the terms of it was.
Now in 2008 my issue was that Deutche Bank were actually going to take that money and not come back. So once it was matured they would just take it because everyone was just pulling their money back to what they perceived to be their safe haven. Be it Citi Group back to America, Deutsche Bank bringing it back to Germany, boom, boom, boom.
So you have got a liquidity problem, literally your daily cash flow is suffering. Now your loans are sitting there and it’s money you have already put out, are fully secured, are performing and so on. You’ve got your element of loans for are non-performing, or that you have made bad provisions in, they are just sitting there and nothing is really changing. The market is getting a bit tighter so your bad debt provisions are going up. But it is not like a catastrophic issue here. That issue of asset quality really only started to kick in, after the first quarter of 2009 when the Irish economy went off the deep end and then there was massive damage to all the banks loan books.
PWC did a review of Anglo’s loan book at the end of 2008 for the government and agreed with Anglo’s level of bad debt provisioning. I am sure they did the same with the other banks, I know they did they same with the other banks because of the year that was in it.
In 2008 they board of the bank agreed given the times that were in it that the non-executive board away from the executive should independently review it’s loan book and they did so under the tutelage of Donal O’Connor, who took over the bank after Sean went and Lar Bradshaw, who used to be the head of McKinsey. Experienced guys went and reviewed the reviewers, the risk department. They reviewed all of the loans, came back to the board when the 2008 accounts were being signed off and said we agree with the provisions and that they actually are prudential.
So this issue of lying about the bad debts is just not true.
NOD: But how about the Sean Fitzpatrick money, PWC didn’t know about that?
DD: Sean Fitzpatrick’s warehousing scheme was known to the financial regulator back to around December of 2007. The level of his loans, the Central Bank of Ireland got and still gets I am sure from all banks, every month a report with all the loans and large exposures from different categories. They can come in any time they want and review any loans.
Sean Fitzpatrick’s loans were not hidden in any way within the bank and they were on the central bank returns. When the financial regulator went into Irish Nationwide, it would have been late 2007. They found Sean’s loans sitting there. When they came back to the bank in December of 07, spoke to Willy McAteer about the loans, he was the finance director and said to Willy what is the story with these loans. Willy went and spoke to the chairman and said yeah he had discreet finance with him temporarily with Irish Nationwide. The first question they asked Willy was ‘is that reciprocal?, is Sean Fitzpatrick doing it for Michael Fingleton?’ The answer was no. The second question was are there any Companies Act implications, legal issues? So Willy went to out external council and got a legal opinion that it was not.
Funny enough the bank actually confirmed that in their own report, that it was not illegal and Willy gave that advice to the financial regulator. And then their third and last question was, ‘what are you going to do about it?’ and Willy went to Sean and Sean said well I am actually refinancing with the Bank of Ireland, which he was, that’s actually very true. He was in the process of taking all the loans and getting them away to BOI and they said fine and dropped it.
Now I have to be honest, at that time, when that was going on, nobody put that in the context of where it became and then in December 2008 when it became such a damage to the bank in terms of credibility and so on. It was just like one more thing that we dealt with and we answered properly and gave it to the regulator and now lets get back to fighting the massive amount of other fires that were coming.
So it was actually at the time a small thing and of course it became devastating just from a credibility perspective.
NOD: Looking back what could have been done differently?
DD: Oh…(laughs), how broad do you want to be? The group think in 2004 could have been like ‘you know what maybe we are in a bubble’.
NOD: In terms of what happened with Anglo?
DD: You have to keep in the context of what was going on generally. All Irish banks went abroad borrowed easily, built the balance sheets to a half a trillion. The size of the Irish banking system was three times the size of the economy.
Nobody thought that was an issue, I didn’t think it was an issue. I didn’t even look at it that way, either did the central bank, clearly either did the government or they would have done something about it. It’s like an Icelandic situation, the banks got very big.
That was all OK because everybody believed that we were in a unique situation in Ireland. We had a great economy, we had tremendous fundamentals that would see us through and therefore life was good and we would continue to grow over time. We were going into a bit of slow down perhaps and a correction in Ireland but generally our prospects were very, very good. To change history you would have to change what was happening at the macro level in Ireland.
NOD: The Celtic Tiger.
DD: The Celtic Tiger. Any one institution that would have had the brilliance to step out and say ‘you know what we think this is actually a bit of a mad bubble and we are going to stop’ would have been ridiculed.
No Irish media saw it coming. People like the guy in UCD saw it coming and very, very skillfully so. Nobody else saw it coming. The Irish media cheered it on. The bank was doing so well, they couldn’t say enough good things about us. Oliver Wyman (Global consulting group) in 2007 reviewed the bank and listed us in an international report as the best performing bank in the world, that was in 2006. Oliver Wyman! So everyone was caught up in that thing.
NOD: So do you ever wake up and think what happened?
DD: Ya, you go around and around and around it. You think, personally what if I hadn’t have taken the job? Why did I come back from America? There were four candidates in the pot and my life would have been very different if I didn’t get the job.
NOD: What’s your life going to be like?
DD: I hope that some day I can get back to living some kind of a normal life.
NOD: What’s your life right now, what’s your day, is it involved with legal stuff?
DD: It’s half and half. I have a day job and I am very, very grateful to have one.
NOD: You’re advising people on investments?
DD: Yeah, I work on mergers and acquisitions. It’s very interesting work and I get paid, which is important obviously, critical.
NOD: So who are the people you work with, were they clients in Anglo Irish years ago over here?
DD: Actually no, I actually work now for a very small consultancy company that I had no connections with before, who hired me to do a particular project where I worked on the due diligence on a particular asset sale and then I did a good job, you know I got employed. But it started with a project and they offered me a job. So you get involved in an acquisition that takes several months and then you hope there is going to be another one.
NOD: Psychologically the downfall it must be very tough to deal with? You were a rising star, 2006/07 the young executive on the rise.
DD: That piece never sat comfortable with me. I didn’t want the job for that very reason. It wasn’t that I didn’t think I could do the job. I did not want the public profile, it was never my form.
NOD: Do you regret the memos you issued regarding the Christmas party?
DD: Do I regret that? No, because at the time morale was very low in the bank. The bank of all things put it’s people first. Staff, we valued the people in the bank, very, very highly. The bank’s business model relied on their level of loyalty to the bank, protecting the bank at all times, their productivity, their can do attitude. There were just great people working in the bank. Great, great people. So 2008, there was a lot of negativity in the media, to the extent of the fact it could have impacted on our people.
You do something to try and lift the morale. Looking back of course, when you ask me did I regret it, if I knew then what I know now, I might have done it a different way. But I take your point that it doesn’t look good now. But I was adamant I wanted to lift the morale in the bank. So I don’t regret wanting to lift the moral in the bank, but when you look at it through the lens of today I can see why it was painted the way it has been painted.
NOD: Do you think it was incompetence, corruption? What was at the core of the whole downfall. The political zeitgeist now is that Cowen was not up to the job, the banks were out of control, the media was a willing partner in an awful lot of the hype. When you look back at it, was it a collective madness?
DD: It was a collective madness and it was a classic bubble. But being Irish we convinced ourselves we had something unique. That Ireland had finally arrived, we used to talk about the standard of living, you know we were only playing catch up, rather than booming. So it was just that Ireland was finally finding it’s place in Europe. So many of the people I knew over here (U.S.) would go in the early 2000’s to Dublin and say ‘what the hell, you people need to get a grip with what you are paying for land, bananas.'
When Ireland was in the punt you know your access to funding, as a financial institution was really restricted. Too much access, nobody saw the dangers from the political through to the people managing the banks, through the estate agents, the lawyers, who by the way, the lawyers who closed all these loans are the same people who are chasing me now. They were all in there, everybody including me believed it.
NOD: After the bankruptcy hearing ends, what are you going to do then?
DD: I will just try to rebuild.
NOD: Are you able to stay in the States?
DD: Yeah and I would like to. There are good opportunities here and good opportunities for my family.
NOD: Is that through the investment visa?
DD: No, I have a job here, so I have a full employment visa, contrary to what they report in the media,so the visa is not the issue. Time is the issue, but these things are mind numbingly difficult, just trying to balance the time constraints.
These days having a job is a huge thing. You need to hold on to it, I need to hold onto mine. Trying to fight the other fires, I have to do both, I am not moaning, I just have to do both. If the day comes, and I have to hope that it will, that I will not have that burden. I could devote myself more to my job, even though I give it everything I have got.
NOD: What do you say as one of the most reviled people in the media in Ireland, what do you say to people in Ireland that they need to know about you?
DD: That during 2008, it’s the year that matters at this stage. I worked as hard as I could. I did my best working with regulators and with the bank and the board, all of us did. There are people in the regulator and in the central bank that would feel that same way, that they tried their best within their own ability to fix things. I wish I could have done more, I wish I knew more, I wish I was better than what I was. But I did try my best. All the time I was trying to protect the bank, I had 15years of that attitude, that didn’t change, it became even more intense in me when I became CEO, so I was doing my job and doing my best and I failed and of course I regret it.
I was looking after the bank because it was my responsibility but my partners saw it in the bigger picture.
NOD: For people in Ireland,a lot of the negativity is about the big house you lived inhere, the optics of it all.
DD: The so-called mansion, we purchased that house at the end of 2007. I was earning a lot of money in the bank. You think that the world is not going to end, the way it did. It was kind of the one extravagant thing that we did. We did absolutely love it. We loved Cape Cod and Chatham and saw ourselves coming back there. In the rear view mirror, spending that kind of money on a house, I just wouldn’t do it again. But you have got to look at it though the lens of the time.
The reason we went back to that house, is because it was our house. That was a positive of having to move the kids again because there was a home there they were actually familiar with.
NOD: Two kids right?
DD: Yeah, two girls. That was one thing that made it a bit easier to move them, that they knew where they were going.
NOD: Do you find it tough on the family?
DD: I think that I can survive it if they can.
NOD When did you start to panic considering what was happening?
DD: The real panic, the real sense in Ireland within the system that we were in a real, real problem, was post Lehman. If you just look at the time line. Bear Stearns went bust here in the U.S. in mid March 08. That was like the first shock of an earthquake and Anglo had a mini run on it in March 08. It scared us, but it didn’t put us in a mindset that we were in real trouble. The share price was only a proxy for our funding.
Post Lehman, Lehman went bust on the 15 of September 2008. The whole world just went into complete and utter panic, there is no other way to describe it. The Irish banking system in that two week period at the end of September lost 30 billion and Anglo lost six. I’m running from half a billion to a billion a day, now those numbers are big, they are big in any context. In the context of the bank, in the balance sheet to see that kind of money flowing out was panic. Sitting down in the Central Bank every day frankly begging them to do something. I put a proposal to them to give us a loan. We had an unencumbered balance sheet, 73 billion.
So all of our loans were sitting there as assets, a bit like owning a property that you could use as collateral. So I said to the Central Bank, will you give us a loan? The central bank in any country is meant to be the lender at a last resort, such that when a bank gets in trouble, or any bank has a system that they’ve got money to protect the system of the country. It became apparent to us that they did not have the resources to do it.
So I went and looked for a secure loan, that I could have over collateralized three or four times, if they gave me seven billion I could have given them 20 billion collateral or whatever they wanted and that was the way I put it to them. They never gave me an answer. There never seemed to be one person between the governor and the regulator.
NOD: How come they wouldn’t have had the money?
DD: They told me that they had four billion in the system in a number of pockets. There is a naivety to that as well on my part, because you go down and say well we are in a bad place, now we need to go to the Central Bank. I never thought I would see myself doing this, but I am going down to Dame Street with the begging bowl. Saying ‘listen we are in real trouble now, you’ve got to do something’. But you expect the governor of the Central Bank will say ‘thank you, I’m glad that you are here, now here is our procedures for this. You need to do this, this and this and we are gonna’. But they were clueless, because they were not ready for it. We asked for a certain amount of money to be secured, we were never given an answer. The two weeks, I call it the two weeks of Lehman, because it was that between Lehman and the guarantee being issued, went by with us running around trying to get the Central Bank, the government, we put messages into the Department of Finance because the governor kept telling me ‘you know I am relying on the department of finance here and I have to keep asking them’. He wasn’t getting answers from them. So they were all gone into, I think of it like balls of little mercury, sort of scattered. They just weren’t joined up.
We came to the 30 of September, the 29 of September and we run out of money and I was down at the Central Bank and they said OK you are going to have to ask for emergency funding. Fine how do I do that? They sent me a draft of letter, I got it typed up, I signed it, we need two billion tomorrow to be able to open the doors. So signed that letter and then that was a long day, as you know. I could talk all day about that. We were down at BOI asking them to merge with us. But the end of the day was asking the Central Bank for the emergency funding, two billion. I went home, I ate my dinner and I went to bed and when I woke up in the morning I had several voicemails and messages on my phone and one of them was from Pat Neary to tell me that the government had guaranteed. Then of course I heard it on Morning Ireland. Anglo Irish did not ask them to do that, we asked for a secured loan.
What happened was Allied Irish Banks and Bank of Ireland went down to the Government and obviously talked them into provided a blanket guarantee.
NOD: Do you think that was a mistake?
DD: Most definitely.
NOD: How did they manage to convince them?
DD: Because I think everyone was trying to figure out what to do and it was panic. I am not criticizing them, everyone was panicking. So what did they do? Individual rescue packages or lending packages into the banks, which is what we were trying to achieve for Anglo might have staved it off, might have fixed it. They went with a sort of nuclear option, out of the bag, out of the box and we were, don’t get me wrong, we were extremely grateful. When we woke up that morning our problems were solved and we thought they were brave. The problem with the guarantee was it signed them up forever, they had no way back, it was blind. And then the thing they did next was self damaging, like Nama.
NOD: Did they think the entire debt was like seven or eight billion? Did they know what the real debt was?
DD: They knew they were issuing a guarantee to the effect of 500 billion, because that was the size of the liability. But they reasonably and it was reasonable to believe there wouldn’t be the level of bad debts in the banks, because they weren’t looking forward as to what might happen and what have you.
I think that is probably a reasonable view at the time. It was very brave to give the guarantee, but it was based on the banks are OK, Merrill Lynch and what have you. The two things in 2009 that then made that look like a poor decision, one was NAMA, because they fashioned that rod for their own back, they created losses in the bank they had just guaranteed.
Which I still cannot understand why anyone would do that. The second one would be the Irish economy did go into a real hockey stick dive, starting in the first quarter of 09 and then the loans started to deteriorate.
NOD: Did BOI and AIB mislead Lenihan and Cowen that night?
DD: No, I don’t think they mislead, I don’t think any of the banks believed there was anything like the bad debts that came afterwards. What they did know was that Anglo had run out of money, because we had been down to both of them, we had been down to BOI and we had talked to AIB but they were also running out of money and they wouldn’t last much longer. What pissed me off is they planted it entirely at the door of Anglo, Anglo owned a proportion of it, but they planted the whole thing at the door of Anglo and got themselves a guarantee. BOI told us they were having the same problems. ‘Were the big bank, but we’ll be OK, look at him, you better issue a guarantee, because he is going to bring us all down’. But they got the guarantee for their own benefit as well. They had actually very successfully pinned it all on Anglo, don’t mind some of it, but they pinned it all.
NOD: I just wanted to ask about Ireland at the moment, obviously it was home for a very long time and you mentioned your family. What has it been like watching Ireland deteriorate the way it has since you moved here in May 09?
DD: Terrible. You live in hope that it hits bottom or has hit bottom, what’s going on in the rest of Europe right now is very frightening as well. But you hope that the ingenuity, the things we have relied on in the past, the smartness, the education, youthfulness, energy and everything that is in Ireland lifts it out. Talking to family on the phone, one of my siblings was trying to get a job, applied for a van drivers job and was told don’t bother sending in the CV because there were 1,700 applications for it.
MM: When you hear stuff like that do you feel guilty in any way?
I have great regret that no one in any bank or any government agency or anybody at all saw it coming. It came out of America and it wreaked incredible damage.
Thank you David Drumm