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.