Night of the bank guarantee: Big questions remain unanswered

The night of September 29th, 2008, will be forever be etched in the history of the Republic, with the then government issuing a systemic guarantee that potentially put the State on the hook to cover €440 billion of customer deposits and banks’ own borrowings.

Piecing together the events on that fateful night in Government Buildings is one of the key tasks of the Oireachtas banking inquiry, which is investigating the events that led to the banking crash.

After eight days of hearings with various bank executives in the nexus phase, what do we now know about the night of the guarantee?

Richard Burrows, who was chairman of Bank of Ireland in 2008, outlined in some detail yesterday the events of September 29th. On that morning, Bank of Ireland was requested by the Central Bank to "consider acquiring" Irish Life & Permanent.

In the afternoon Burrows held a meeting with Anglo Irish Bank chairman Sean FitzPatrick, who issued a "plea for help", asking Bank of Ireland to consider acquiring the bank or at least some part of it.

The meeting lasted 30-45 minutes but Anglo’s request was rejected.

Burrows recounted how the bank later held a prescheduled meeting with Central Bank governor John Hurley to discuss issues around wholesale funding.

Bank of Ireland outlined its concerns about the liquidity default risk at Anglo and asked if any plan was being considered to deal with the situation. He was “somewhat surprised” to discover there was not a plan, and it was suggested by the governor that he should make an approach to government.

Burrows and Bank of Ireland chief executive Brian Goggin "resolved to make sure that the government was fully aware of the severity of the situation facing Anglo". He rang then AIB chairman Dermot Gleeson, and they agreed to seek a meeting with the government that evening.

According to Burrows, a call was made from Bank of Ireland’s head office on Baggot Street to the Department of the Taoiseach to arrange the meeting.

Testimony diverges

Executives from both banks arrived at Government Buildings at about 9.30pm. It is here that the testimony of the various executives diverges.

Gleeson told the inquiry that a four-bank guarantee was sought, covering AIB, Bank of Ireland, EBS and IL&P. Anglo and Irish Nationwide would be “taken down” by the following weekend.

Gleeson and Eugene Sheehy, then AIB chief executive, have both said they learned of the blanket guarantee from the media early the following morning and that the decision surprised them.

This contradicts evidence given by the Bank of Ireland executives.

Burrows said they were told by the government of its decision to issue a blanket guarantee that night, at which point they left the building.

Burrows said the only guarantee sought by the bank related to the repayment of €5 billion in emergency liquidity funding for Anglo that had been requested on the night by the government from both Bank of Ireland and AIB.

Goggin told the inquiry that at about 2am the banks informed the government that they could raise this funding for Anglo and there was a “palpable sense of relief” in the room.

“It was at that juncture that my recollection is that we were informed that the government had decided they were providing a blanket guarantee for all banks.”

When Goggin left Government Buildings at about 3.30am, there was “no ambiguity” about the decision that had been made.

There is also conflicting evidence between Goggin and Burrows. Goggin told the committee he had asked the government to cover dated subordinated debt in the guarantee.

Burrows said no such request was made. “In my recollection it did not happen,” was his answer to persistent questioning on the matter.

It is not clear why the executives would have such different recollections of this important night in their lives, except to suggest that the passage of time might have dulled memories.

In many ways, the most illuminating evidence was given on the first day of the nexus phase by National Asset Management Agency chief executive Brendan McDonagh. In September 2008, McDonagh was the finance director of the National Treasury Management Agency. He recalled arriving at Government Buildings at around 9pm and spending the entire evening in an ante-room with Oliver Whelan, then head of debt management at NTMA, William Beausang, then assistant secretary of the Department of Finance, and Pádraig Ó Ríordáin, then managing partner of law firm Arthur Cox.

At around 1am, McDonagh said he was told by senior civil servant Kevin Cardiff of the government's guarantee decision. About an hour later, McDonagh met then taoiseach Brian Cowen and then attorney general Paul Gallagher to discuss technical issues about overseas subsidiaries of Irish banks included in the guarantee. This meeting lasted 90 seconds.

Implications

The NTMA manages the State’s national debt and its relationship with capital markets. It seems extraordinary that the government didn’t seek McDonagh’s view on its plan for a blanket guarantee in advance of the decision being taken, given the potential implications for the sovereign’s ability to raise funds from bond markets.

Many questions remain to be answered about the night of the guarantee. Why did the government choose a six-bank guarantee when neither AIB nor Bank of Ireland appear to have lobbied for it? Why six banks and not four? Why was all subordinated debt included? And who made the final decision?

Questions might also be asked as to why executives from Anglo weren’t present in Government Buildings, given that the institution was so central to the decision being made.

And we might learn if, in fact, AIB and Bank of Ireland presented their own proposals for a guarantee on the night. Documents secured by the inquiry suggest that they did, but executives from both banks say they have no recollection of this.

Cowen's evidence won't be heard until July. Hurley will appear on May 21st, while former financial regulator Patrick Neary will go before the committee on May 28th. Senior civil servants and government advisers present on the night are also due to attend.

Only then might we get the full picture of the events that night. It won’t change the outcome but it might at least bring some closure on a decision that ultimately cost the State €64 billion to bail out the domestic banks.