ANALYSIS:Events suggest bank directors inhabit an ethical cocoon. Their vision of what is right and wrong is glaringly at odds with the morality of the outside world, writes ARTHUR BEESLEY
THE UPHEAVAL in the banking system claimed its third chief executive yesterday when Denis Casey took leave of Irish Life Permanent (ILP), the day after its board declined to accept his resignation. Attention dwells now on ILP chairwoman Gillian Bowler, who initially failed to hold Casey to account for the institution’s deeply unorthodox support for Anglo Irish Bank.
ILP made a series of multi-billion-euro lodgements with Anglo, transfers which helped the bank conceal a drastic loss of deposits as it came near the end of its fiscal year last September. While we already know a culture of concealment and moral laxity held sway at Anglo, ILP’s complicity contaminates its reputation and further stains the international standing of Irish banking.
This is bad news for everyone. Deposit flight from Anglo led Minister for Finance Brian Lenihan to contemplate nationalisation of the bank last September. Lenihan chose instead to guarantee the liabilities of all Irish financial institutions, a guarantee that would bankrupt the State were it ever called in.
It was a calculated decision, the merits of which may well be debated for decades. Meanwhile, the disruption caused to the Government’s original plan to recapitalise Allied Irish Banks and Bank of Ireland after the nationalisation of Anglo Irish Bank demonstrates the banking system is prone to shock.
Amid acute weakness in the Irish economy, it behoves the boards of each State-guaranteed institution to do all in their power to restore the reputation of a sector suffering from a collapse in investor confidence. The response of the ILP board to the disclosure of its extraordinary support to Anglo did the opposite.
Indeed, it suggests the institution’s directors inhabit an ethical cocoon in which the sense of what is right or wrong is at odds with standards in the outside world. That other Irish boards have displayed similar moral ambivalence makes it no less wrong.
By its own account, the ILP board itself was never informed of the specific manner in which it supported Anglo. Yet when Casey offered his resignation on Thursday, his co-directors refused to accept it. Two of his top lieutenants lost their jobs – prompting Bowler to offer platitudes in praise of their “integrity and professionalism” – but not the top man. She was summoned a second time in two days to explain the board’s stance to Lenihan. However, Casey was on his way. Cue further soft talk from Bowler, who praised his “integrity and honour”. If such expressions of support are part of corporate ritual, they are at variance with the issues raised by ILP’s lodgements with Anglo.
It is a given that the threat to Anglo had the potential to bring down other Irish institutions. But even in the hothouse atmosphere that pertained last September, ILP’s manoeuvres with Anglo exposed it to the very damage that has now been inflicted on its business.
The following questions arise: How did the ILP executives determine there was implicit support for the manoeuvre last September from the Financial Regulator? Did ILP believe there was Government support? Did it expect anything in return?
Perhaps the most extraordinary aspect of this affair are ILP’s claims, in private, that its actions were in keeping with a “green jersey agenda”.
The implication is that the institution was somehow acting in the supposed “national interest” in its interactions with Anglo, with dealings which led to the bank’s production of essentially bogus financial accounts.
The public, the market and investors were all misled by those accounts at time taxpayers were already on the hook for Anglo’s liabilities. Whatever about the evaporation of Anglo’s deposit base, the manner of ILP’s support for the bank cannot in any circumstances be deemed to be in the national interest.
ILP assumed, of course, that the truth would never come out. That Casey would be backed by his board even after ILP deployed the “green jersey” argument suggests the directors are seriously out of touch.
Their shares are down 83 per cent in 12 months; their liabilities are fully guaranteed by the Government; they may yet have to accept new State capital; and they successfully fought off Government pressure to engage in merger talks with Bank of Ireland. Yet still they did not waver in their support for Casey.
The ILP board is composed of heavy-hitters accustomed to the corporate world. It includes Liam O’Reilly, former chief of the Financial Regulator, and various other notables whose experience and background suggests they should have known better.
What would Roy Keenan’s colleagues on the board of Met Life Europe make of the performance of the ILP board? And what do members of the Society of Actuaries make of the performance of a board whose members include their past president, Eamonn Heffernan?
The question now for Bowler, one of Ireland’s most prominent business people, is whether she can continue to lead the board of a major financial institution through storms of unprecedented magnitude. She has admitted mistakes, but there is little room for error in the current situation.
Arthur Beesley is Senior Business Correspondent