BUSINESS OPINION:Choosing external candidates to fill senior managerial roles would send out the right signal, writes SIMON CARSWELL

TOMORROW MARKS the first anniversary of the near death of Anglo Irish Bank. On September 29th, 2008, the bank’s stock plummeted as the weakest banks in Europe fell one by one into the arms of governments in aftershocks following the collapse of US bank Lehman Brothers. Had the Government not guaranteed Anglo and the rest of the Irish banking sector two days later, the bank would have suffered a terminal decline.

One year on and the bank has a new chief executive, Australian banker Mike Aynsley. He told staff in briefings last week that he had not moved to Ireland just to run the bank down but he believes that it has a viable future.

Anglo is expected to hold a board meeting shortly to approve a new business plan and chart its future course, with some talk circulating that the bank may try to reinvent itself as a lender to small and medium-sized enterprises (SMEs).

This would be some departure for a bank that was so concentrated on property that it has so far taken €4 billion from the Government to plug the hole left by losses due to the collapse in the construction sector. The National Asset Management Agency (Nama) will cut out the most infected part of the bank – €28 billion of development and related loans, or 39 per cent of the bank’s loan book – but the bank doesn’t have the branch network or infrastructure to play a meaningful role in the resurrection of SME lending and Nama can hardly cleanse Anglo’s battered reputation.

It is for this reason that Anglo should rightly not play any role in the creation of any merged bank that will be cobbled together by the Government to strengthen the banking sector. The bank is just too toxic to be merged successfully with any other lender.

The appointments of Aynsley and a new external chief risk officer, former Citibank executive Peter Rossiter, are to be welcomed, but many of the senior managers who manned the decks when Anglo ran aground last year remain in place and certain executives owe large loans to the bank, some of which are in default. Many senior managers also enthusiastically sold the now discredited full-year financial results to investors last December.

These results were signed off for the year to September 2008 and showed that Anglo had €2.5 billion in “past due” and impaired loans at that date. By the following March, after the nationalisation of the bank in mid-January, this figure had rocketed to €23.6 billion.

The property market has collapsed but not this sharply in just six months – the December figures just didn’t add up.

The Irish Timesreported last week that eight Anglo managers, who still hold senior positions at the bank, owed a total of €21.9 million at the end of the financial year to September 2008, with loans ranging from €835,000 to €7.1 million. Lower-ranking staff find it hard to believe that these executives are still holding on to their jobs, particularly at a time when the bank is planning a cull of several hundred staff under a restructuring plan that must be submitted to the European Commission under the terms of the State's bailout of the bank.

It is not known whether any of these loans were provided for property development and if they were, whether they could end up in Nama, or indeed whether they are secured on Anglo shares that are effectively worthless since the bank was taken into full State ownership.

The bank said in its half-year results to March last that a former director had a loan of €8 million backed by the bank’s shares. The fact that this loan was originally non-recourse shows the benefits bestowed on senior managers at the bank. The loan was renewed on a full personal recourse basis six months later, putting the former director firmly on the hook for his borrowings.

However, the bank has said that it has set side €31 million to cover losses on loans to former directors and that it will seek full repayment of these loans. To that end, the bank has stressed that measures have been put in place to ensure that the managers who owe the loans have no role in influencing the management of those loans. Former Revenue Commissioners chairman Frank Daly, a State director at the bank, told an Oireachtas committee last June that there are “Chinese walls to prevent conflicts of interest”.

The various investigations into the bank are moving at a snail’s pace with reports suggesting that it will take at least another year for the Garda inquiry to be completed.

Scant information has so far emerged about the secretive sale of a 10 per cent shareholding in the bank held indirectly by businessman Seán Quinn to 10 customers, the back-to-back deposits of €7.45 billion with Irish Life Permanent and the concealed loans of up to €122 million to former chairman Seán FitzPatrick.

Anglo’s chairman Donal O’Connor has said the bank will look internally and externally for a chief financial officer, a head of lending, head of treasury, head of operations and head of finance. The bank has recently signalled that any managers with impaired loans will not be considered.

While Anglo’s top executives – FitzPatrick, chief executive David Drumm and finance director Willie McAteer – were among the first casualties of the upheaval in Irish banking, senior managers who helped them run Anglo are still in their jobs and some owe large debts to the bank.

To restore a shred of credibility to the bank as it prepares statements for another financial year ending on Wednesday, Mike Aynsley should not just turn to external candidates to fill the vacant posts but ensure that some of the bank’s senior managers lead the queue of employees that face redundancy over the coming weeks.