BACKGROUND:Authorities allowed bank sell guaranteed bond before 2008 results
THE GOVERNMENT bank guarantee opened up the previously closed international debt markets to the covered financial institutions following the shortage of liquidity during September 2008.
Minutes of a Central Bank-Financial Regulator meeting on November 6th, 2008, with the six guaranteed institutions shows that the authorities were keen to manage the first sequence of Government-guaranteed bond sales carefully in a co-ordinated manner.
It was agreed at a suggestion from Allied Irish Bank (AIB) that the institution with the strongest credit rating and best-regarded debt profile would go first followed by the next strongest and so on – AIB would be followed by Bank of Ireland, Irish Life & Permanent (IL&P), Anglo Irish Bank, EBS and Irish Nationwide.
The minutes said that it was “left open for any other bank to put forward alternative objective measures to the Department of Finance when applying for permission to grant an issue but in the absence of any other objective measures the proposed sequence could be followed subject to institutions being ready on time.”
The regulator said that the institutions felt that it was “in their mutual interest” to agree on the maximum bond size to allow others “further down the queue” also to raise loans and to agree on “mutual support for each issue”.
A cap of €2.5 billion was placed on each bond and before raising any guaranteed debt, the banks must consult the regulator and seek approval from the Department of Finance and the National Treasury Management Agency on behalf of the Minister for Finance.
In the weeks after the meeting, IL&P was told that the pre-agreed sequence was going to be broken and that Anglo would be going ahead of it in the queue with a bond sale.
This was highly unusual as the bank was approaching the markets days before releasing financial results into the public domain.
In the face of strong opposition from IL&P to the department, Anglo sold a guaranteed bond and raised €1.5 billion on December 2nd, 2008, just a day before its results.
These results have since been discredited for failing to account for the scale of losses facing the bank and because the bank didn’t disclose the €7 billion deposits with IL&P in September 2008 – which became known to the regulator and the department in the weeks leading up to the results.
Bumping IL&P out of the queue and pushing Anglo ahead of it allowed the bank to raise crucial funding before a very rocky period when revelations about internal practices led ultimately to its nationalisation.
