Anglo faced deposit flight and mounting losses

ANGLO IRISH BANK REPORT:TWO MONTHS after Seán FitzPatrick's hidden multimillion euro loans were revealed at Anglo Irish Bank, the bank's annual report has been published but it fails to answer crucial questions.

The report provides some new detail on the various controversies plaguing the bank, but does not reveal the names of the 10 “long-standing” customers, the so-called “golden circle”, that bought 10 per cent of the bank’s shares last year in a bid to protect the share price.

Hours after the Anglo Irish report came the summary of the Government commissioned PricewaterhouseCoopers (PwC) report into whether the bank has enough of a capital to absorb future losses.

It made for more fascinating reading, adding further detail about the increasing pressure the bank experienced in the days before the bank guarantee was introduced on September 30th and at the time it received €7 billion in deposits from Irish Life Permanent (ILP).

In the first of three snapshots taken of the bank between September and December, PwC found that Anglo Irish had – by September 27th – lost €10 billion in deposits, including €5.44 billion (€5 billion in corporate deposits and €440 million in regular customer deposits) in just one week.

The bank expected to have a negative cash position of €12 billion by the middle of October.

It’s little wonder that Anglo Irish turned to ILP for a cash boost over its year-end on September 30th and that the Government was forced into crisis talks on the following Monday, four days after PwC’s first review.

In its two later assessments, PwC found that Anglo Irish had a heavy concentration of its development loans among a small number of borrowers – the bank has a number of “very large exposures” with about 15 customers each owing more than €500 million.

By December PwC had found that developers had responded to housing crash by “mothballing” landbanks and building sites in south Dublin and Wicklow.

PwC said it would “take many years” to sell these sites and that the developers would not receive the current prices. The bank would find it difficult to forego interest from these developers and that there was “likely to be significant losses for individual developers and in turn the bank”.

For the first time, Anglo Irish revealed in its annual report that the bank had loaned €451 million – not €300 million as previously thought – to the group of 10 investors to buy the 10 per cent stake.

Of this, €83 million was repaid, but the bank is writing off €300 million as it does not expect to recover the remainder because 75 per cent of the loans were secured on the share themselves, which are worthless following the nationalisation of the bank.

The bank also showed that €9.535 million was paid to the bank’s directors. Five executive directors, who managed the bank during the year, received a combined €8.13 million.

David Drumm, who resigned last December, the day after Mr FitzPatrick’s loans were revealed, was paid €2.129 million, which includes a salary of €1.15 million.

Mr FitzPatrick received €539,000. The largest payment to an executive director was €3.921 million to Tom Browne, the former head of the bank’s Irish operations who retired in 2007.

The report also revealed that Anglo Irish has “engaged independent advisers” – understood to be Dublin law firm McCann Fitzgerald – to review the €7 billion deposit movements between the bank and ILP which bolstered the bank’s funding last September.

The Anglo report provides further details on the large loans drawn by the bank’s directors.

Some €255 million was advanced to 13 directors of the bank during its 2008 financial year to September 30th last, while €115 million was repaid.

The loans advanced to directors equal almost a third of the pretax profits made by Anglo in the year.

The outstanding amount owed by the directors at September 30th amounted to €179 million, of which €83.3 million was owed to the bank by Mr FitzPatrick.

The bank failed to provide any more detail on how much it expects to write off in bad debts over the coming year, only that the figure would increase given the “marked deterioration” in its Irish, UK and US markets, and that it was writing off the €300 million.