Libya considered investing €1.5bn in Bank of Ireland

The Libyan investment authority considered investing €1.5 billion in Bank of Ireland in late 2010, according to the former head of the National Treasury Management Agency (NTMA) John Corrigan.

Speaking to the Oireachtas Banking Inquiry on Wednesday, Mr Corrigan confirmed that the NTMA met with the Libyan sovereign wealth fund in Tripoli in December 2010 with a view to it investing in Bank of Ireland. This was a time when Libya's disgraced former dictator Moammar Ghadaffi still led the country.

The Libyans made an approach to the NTMA in November 2010 and wanted to take €1 billion of preference shares held by the State and was prepared to pay €400 million for a 24 per cent stake in Bank of Ireland, Mr Corrigan said.

“We felt that it was an issue worth pursuing,” he told the committee, adding that the Libyan investment authority was “highly regarded” around the world at that time.

Mr Corrigan said it checked with the department of foreign affairs at the time about the appropriateness of the State considering an investment by the Libyan body. “They were comfortable for us to do so,” he explained.

In the event, the Libyan authority pulled back from the negotiations due to concerns that Bank of Ireland was going to need more capital in 2001, which turned out to be the case.

“They were not prepared to write a blank cheque,” Mr Corrigan said, adding that it was a “clever decision not to proceed”.

Fianna Fáil’s Michael McGrath asked Mr Corrigan how much might have been saved if the State had nationalised Anglo in late 2008 rather than January of the following year.

“I don’t know whether money would have been saved but we would have got our hands around the throat of the problem sooner,” he said, adding that “operating in the dark is never a comfortable position” to be in when dealing with such matters.

On the possibility of burning senior and junior bondholders in late 2010, Mr Corrigan said it was “very much an opening gambit” in discussions with the EU and IMF on a bailout.

He said the Troika would not accept burden sharing at that point and “the thing went no further”. The NTMA had engaged Lazards to advise on this matter.

Bailout plan

Mr Corrigan also recommended to the Government in November 2010 that Ireland enter a bailout programme with the EU and IMF.

He wrote to then minister for finance Brian Lenihan on November 21st, 2010 to press for Ireland to enter a bailout with the Troika to provide assistance to the domestic banking system and funding for the State.

“I envisaged that such assistance would provide for a capital strengthening of the banking system and, although likely to be expensive, would also provide sizable funding to the State,” he said.

Mr Corrigan stressed that appropriate liquidity support from the European Central Bank would be a necessary to complement a decision to apply.

“Unfortunately, such liquidity support was, in my view, only grudgingly provided by the ECB to the extent that their public utterances could have been more supportive in helping restore confidence in the banking system,” he said.

Mr Corrigan said the NTMA pressed for burden sharing with bondholders around the time of the bailout. It argued for an “aggressive liability management/resolution regime” with respect to the subordinated debt and senior unguaranteed debt on the balance sheets of the banks concerned.

This was “flatly rejected” by the G20 in Korea, he told the committee.

The ‘correct’ decision

Mr Corrigan said the decision to set up the National Asset Management Agency (Nama) in 2009 to take toxic loans off the balance sheets of Irish banks was the “correct one”.

“I am strongly of the view that its [NAMA’S]success played a huge role in Ireland later regaining access to the debt capital markets after it entered the EU/IMF financial assistance programme,” he said.

Mr Corrigan also told the committee that on December 13th 2008, he attended a day-long meeting in the department of finance where the question of bank recapitalisation was considered.

"We pressed strongly at that meeting for the nationalisation of Anglo Irish Bank, arguing that the potential represented by the State's purchase of preference shares in Anglo Irish Bank (the preferred option of the Department of Finance) for letting its subordinated debt holders off the hook was in itself a compelling argument for nationalisation, which was also the approach recommended by [Government advisers] Merrill Lynch," he said.

Broken model

The Government initially decided to recapitalise Anglo with a €1.5 billion injection of capital but this decision was overtaken in mid January 2009 when a decision was made to nationalise the institution.

Mr Corrigan said the NTMA held the view at the time that Anglo’s business model was broken.

The former NTMA chief said he was “taken aback” by the blanket bank guarantee decision of September 29th 2008. He was in the United States on business when the decision was taken and had no sense of the “impending doom” around the financial system before this trip.

Mr Corrigan said you could take the view that it was the “least bad decision...I don’t know”.

He said the NTMA “responded positively” in assisting the Government in the resolution of the banking crisis.

“Our involvement brought us into areas which were well outside what were our core functions,” he said. “This crisis was domestically generated but the complexity of its resolution was added to by the global banking crisis which had seen the collapse or State rescue of household names such as Lehman, AIG, RBS and HBOS and the major dislocation of the international inter-bank markets.

“The apparent absence of crisis management skills in the ECB (in contrast to the IMF) was, I believe also a complicating factor.

“Ultimately in Ireland’s case the crisis resulted in, among other things, capital markets being closed to us, a body blow that particularly resonated with the NTMA which had a very good relationship with investors.”

Mr Corrigan was CEO of the NTMA from December 2009 to January 2015.