Saturday, 17 July 2010

Cowen's €440bn Shot In Dark...

How Cowen took a €440bn shot in dark...

Government snub for own advisers:

THE Government was in the dark about the true scale of the banks’ massive losses when it ignored its own advisers and pushed ahead with a €440bn blanket state guarantee.

Losses at the banks have ended up being double the amount the Department of Finance assumed at the time of the bailout.

The €440bn bailout was undertaken on the basis that the banks had assets of €500bn. But in reality these assets were worth far less because of the property crash.

If the guarantee was called in at any time, taxpayers would face colossal losses that would dwarf the banking bill to date.

The startling revelations are revealed in newly released documents from a Dail committee investigating the banking crisis.

The documents revealed:

● Contingency plans to nationalise Anglo Irish Bank and Irish Nationwide were in place before the controversial guarantee was agreed on September 29.

● A special lending scheme proposed by advisers Merrill Lynch to keep the banks afloat was ignored by the Government.

● The Department of Finance thought Anglo Irish Bank would only lose €8.5bn – it later posted a world-record €15bn loss.

● Nationwide losses were estimated by Goldman Sachs at a “few €100m”, but these later soared to €2.5bn.

● At one point the idea of merging the country’s two biggest banks, Allied Irish Bank and Bank of Ireland, was floated.

● Anglo vastly overstated its financial health just two weeks before the guarantee was agreed.

Finance Minister Brian Lenihan said last night he went for a blanket guarantee so there could be no doubts about the Government’s determination to save all the banks.

“We took the view that we should guarantee all the debts to make sure that people knew that we were not going to let them close,” he told the Irish Independent.

He said the extra guarantee had not cost the taxpayer anything because, in the end, they had not had to repay the loans in question and the blanket guarantee would come to an end in September.

However, Fine Gael finance spokesman Michael Noonan said the dramatic documents released by the Oireachtas Public Accounts Committee confirm Taoiseach Brian Cowen and Mr Lenihan “torpedoed the Irish economy through a series of catastrophic decisions” made during the banking crisis.

“Merrill Lynch made it very clear that it saw no future for Anglo Irish Bank, and suggested that it might be immediately nationalised by the State and turned into a ‘bad bank’ used for the recovery of non-performing loans for the entire banking system. Despite this, right up to January 2009, the Taoiseach persisted in claiming that it was ‘business as usual’ for Anglo Irish Bank,” he said.


Merril Lynch warned Mr Cowen and Mr Lenihan the day before the introduction of the state guarantee that the cost to the six main banks could soar to €500bn, which the State could not afford to cover.

It said this would “almost certainly negatively impact the State's sovereign credit rating and raise issues as to its credibility”. However, the Government ignored the advice, believing the risk to the taxpayer from its €440bn guarantee scheme would be offset by €500bn in assets held by the banks.

The bank also admitted that “there is no right or wrong answer” to the problem facing the Government.

It also claimed that apart from liquidity concerns, “all of the Irish banks are profitable and well capitalised”.

But it warned liquidity for some could run out in days rather than weeks.

Mr Cowen last night insisted the decision to introduce the blanket state guarantee was the “right one” for the country.

“The guarantee decision that was made on the night was to ensure that there was sufficient funding for the banks.

“The policy decision taken that night proved to be the right one in meeting that objective,” he said.

Mr Cowen also denied that the Government had gone against the advice of Merrill Lynch, who had warned a blanket guarantee for all the banks could be a “mistake”.

“It wasn’t a question of going against . . . There were a number of options set out by Merrill Lynch.

“What we had to decide at that time was the best thing to do,” he said.

Fine Gael leader Enda Kenny accused Mr Cowen and the Government of ignoring widespread warnings about Anglo Irish Bank and Irish Nationwide.

“They then sought to deceive the Oireachtas and the Irish public about the nature of the advice that had been offered to them. That deception continues to this very day,” he said.

Yesterday the Irish Independent revealed former financial regulator Patrick Neary informed Mr Cowen that Anglo Irish Bank was in good health just 72 hours before the Government moved to rescue it.

At a meeting on September 25, 2008, Mr Neary insisted Anglo Irish Bank was not insolvent and that the bank had enough assets to cover its debts.

However, it quickly emerged Anglo was in far deeper trouble and the Government has since pumped more than €14bn into the nationalised bank.

Mr Neary was not available to comment at his family home in Dundrum yesterday.

One of his three adult sons said his father had no comment to make on the matter.

“He’s not here at the moment. I don’t think he wants to speak to the media so that is kind of the way he feels,” he told the Irish Independent.

Report by Emmet Oliver and Michael Brennan - Irish Independent

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