David Drumm: ‘There is a witch hunt ... I convince myself that this will pass’


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.