FOR WEEKS the Government has struggled to agree terms for the recapitalisation of Allied Irish Banks and Bank of Ireland. What it least needed as it sought to restore investor confidence in the State’s financial institutions was fresh controversy to blight its efforts. Irish Life & Permanent’s (IL&P) confirmation that it placed up to €7 billion on deposit with Anglo Irish Bank last September has done just that.
It has again raised doubts about the reliability of information in the annual accounts and balance sheets of Irish banks in general and of Anglo in particular. In addition, it has posed major questions about IL&P’s motives in placing billions on deposit with another bank for a short period before withdrawing that money. IL&P’s transfer of funds had the effect of giving Anglo shareholders and customers a misleading impression of the true state of Anglo’s financial health.
IL&P has explained its actions in a brief and ambiguous three-line statement which raises as many questions as it answers. IL&P provided “exceptional” support to Anglo, in particular on September 30th, following the Government’s earlier announcement of a scheme to guarantee all bank deposits. That date, however, had additional significance. It was the final day of Anglo’s accounting year. IL&P’s justification for its investment was that: “During a period of unprecedented turmoil in global financial markers there was an acceptance that financial institutions would seek to provide each other with appropriate support where possible”.
It is neither clear how IL&P formed that view of “acceptance” nor what it meant by “appropriate support”. Certainly, there was no public awareness of such a policy, whereby banks might artificially bolster each other by placing temporary deposits amounting to many billions. Allied Irish Banks and Bank of Ireland have said they did not transfer any funds to Anglo Irish Bank in September. Equally, no one would accept that massive financial support from one bank to another, which had the effect (whatever the intention) of misleading shareholders and the public, could be appropriate in any circumstances. No more than loans taken out by Anglo’s former chairman, Seán FitzPatrick, amounting to €122 million in 2007, and transferred temporarily to Irish Nationwide in order to avoid disclosure in the bank’s annual accounts, was ever appropriate behaviour.
The Financial Regulator and the Government-appointed directors at Anglo are examining both these matters. It is important that they complete their investigations rapidly and take action to redress the serious damage to the reputation of Irish financial institutions by restoring the highest standards of corporate governance. It is time for the regulator to demonstrate that he can regulate. It is time for non-executive directors on the boards of banks to show they can protect and defend not just their shareholders, but the public, from mismanagement and indeed from fraud.
If that cannot be achieved quickly, the appointment of an inspector under the Companies Act may well be the only way to begin to restore public, investor and international confidence in our banking system.