Anglo Irish Bank Caused Earthquake, Aftershocks Still Rattling

The death of former Anglo Irish bank chief Sean Fitzpatrick earlier this week has prompted another bout of reflection on the impact of the financial crisis and the institution at its heart.

At half the cost of the bailout, Anglo was the bank that broke Ireland.

The most aggressive of all Irish lenders, both foreign and locally owned, Anglo carved out a lucrative niche for itself as the preferred backer of a relatively small group of large property developers during the Celtic Tiger.

The aggressive and sometimes reckless attitude to risk displayed by Fitzpatrick and his executive team, who dumped money into Ireland’s frenetic property market by giving up, set the standard for the sector as a whole.

Where the Anglo went, followed by AIB, Bank of Ireland, Ulster Bank and the rest, all chasing great yields on residences, office buildings, and shopping centres, straight to the brink and then over it, causing the largest systemic banking system. crisis in history.

Primarily using wholesale funding and working on the thinnest margin of equity capital allowed, the bank went into the rings of speculative lending – essentially doing a dangerous tightrope between Ireland’s volatile economy and volatile financial markets.

When the Anglo finally fell in 2008, it crashed right through every safety net and then the basement, causing an economic earthquake whose aftershocks are still felt to this day.

The epilogue, which featured criminal prosecutions, Irish tax-paying bankruptcies and losses, still plays out as liquidators still sell off Anglo’s last dilapidated assets.

But Anglo has not always been synonymous with arrogance and failure.

Indeed, on its way to the top, the bank was praised by commentators and rewarded by investors for years before its collapse.

When Fitzpatrick took over as CEO in 1986, Anglo was a relatively young bank by Irish standards, founded in 1964 as a commercial and commercial lender and floated on the stock market in 1971.

FitzPatrick began a period of explosive growth for the company, through acquisitions at home and abroad, and through the development of new product lines such as Wealth Management.

Throughout his tenure, Anglo has become known as a bank that can get a quick answer on a job offer or lending opportunity. That was her competitive advantage: decisiveness.

Where other banks might tie a request for financing into due diligence or negotiation, Anglo had a much simpler process, with people getting deals across the line.

More often than not, especially since real estate has become of central commercial importance since the late 1990s, the answer Anglo would quickly get was “yes”.

It would have been fine if Angelo had not leaned heavily on the property madness of Ireland in the 2000s, when robust job growth, tax cuts and deregulation in the early Celtic tiger economy outpaced a wave of debt-driven property deals. Buying a home.

When Fitzpatrick went from CEO to chairman in 2005, making way for young David Drum, it wasn’t easy to see that the bank was headed for failure due to its heavy exposure to Irish property and the men who built it.

In fact, Anglo was breaking earnings records every year and delivery returns to its shareholders that other banks looked on with envy.

In 2007, management consultant Oliver Wyman described Angelo as “the best bank in the world”.

However, in reality, it was already a dead bank going.

Concerns about subprime mortgages in the US are starting to rock global markets, and the air that once filled the real estate bubble across the developed world is slowly losing air.

With the onset of the credit crunch, highly leveraged banks – like Anglo – were finding it more difficult to secure financing from wholesale investors – a sign of worse days to come.

However, in November of that year, Anglo made a record profit of €1.24 billion with money flowing in from previous development projects.

However, what Drumm hasn’t reckoned is money that won’t circulate in the coming years due to funding depletion.

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David Drum had hoped to buy back the bank’s bonds at a discount to support his balance sheet

David Drum had hoped to buy back the bank’s bonds at a discount to support his balance sheet

In fact, by January 2008, even he knew Angelo was in trouble. As revealed in Anglo Tapes, Drumm had hoped to buy back the bank’s bonds at a discount to support its balance sheet.

Instead, the bank plunged into the stock markets during the St. Patrick’s Day massacre, when US authorities had to bail out Bear Stearns and investors dumped Irish bank shares as if they were radioactive. Anglo dropped 30pc in one day.

By the time Lehman Brothers collapsed in September, Angelo was in dire straits.

The bank was struggling to refinance its borrowing, its customers stopped paying their loans and new business started to dry up. It was a nightmare scenario for a lender who relied on forward momentum to survive, like a shark having to swim to breathe.

What happened next was the infamous Bank Guarantee, which inextricably linked the fate of the Irish banking sector to public money.

As revealed by Anglo Tapes, executives frantically tried to secure a €7 billion loan from the central bank just before the guarantee.

Now the reality was impossible to deny and things quickly fell apart.

Angelo announced record declines and provisions in its annual results in December, hoping the kitchen would “sink” the problem. The government pledged to recapitalize the bank in the amount of 1.5 billion euros – a laughably small figure later – but was forced to nationalize the entire institution in January 2009.

Ultimately, the bill to cover the bank’s losses will reach 34 billion euros.

While the bank was visibly collapsing on the outside, the dignitaries inside were frantically fighting the fires.

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The Anglo Irish Bank name was removed from its former headquarters at St Stephen’s Green in Dublin in 2013. Photo Brian O’Leary / Photocall

The Anglo Irish Bank name was removed from its former headquarters at St Stephen’s Green in Dublin in 2013. Photo Brian O’Leary / Photocall

One major problem was Sean Quinn, a Border County businessman whose family and company were major Anglo borrowers while he was a major shareholder.

Cowen built a shadow stake in Anglo of more than 20% using a financial instrument called Contracts for Difference. Angelo was famous for organizing a group of investors, financed by the bank, to buy up the accumulated debt, which led to legal problems for Drum later.

By 2010 Angelo had been raided by guards and Fitzpatrick was arrested, although he was eventually acquitted in 2017 due to flawed investigative methods by the Office of the Director of Corporate Enforcement.

However, he did not escape bankruptcy, having defaulted on his multimillion-euro loans to his bank.

Drum spent three years in prison for his role in creating fraudulent accounts showing that Angelo had 7.2 billion euros more in deposits than he actually did.

Finally, Anglo combined with its bad rival also Irish Nationwide to form the Irish Bank Resolution Corporation, essentially a vehicle for winding up the two bad banks.

IBRC CEO Mike Ainsley oversaw a period in which the corporation moved many of its most viable assets to Nama to be disposed of by the state agency.

By 2013, liquidator Kieran Wallace was appointed to operate through the remaining assets, a process continuing into 2012.

According to the latest update by the Public Accounts Committee, this process will not be completed until 2024 – two years later than planned and 15 years after the taxpayer was forced to bail out Anglo from failure.

The cost of the liquidation so far is 327 million euros.

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