Banks & Finance – Page 29

It's just a 'hypothetical' crisis

And still the commentators and analysts are insisting that a crucial part of any reorganisation of the banking sector has to mean that those who caused the mess must be fired, they must be made accountable. Here’s what AIB CEO Eugene Sheehy, one of those responsible, thinks of that attitude (New at One, 2nd report 1st item).

“We have no comment to make.”

“You have nothing to say to reassure your shareholders and customers.”

“They read what they read but we have no comment to make.”

“But people are very concerned about the situation.”

“The Government and the banks are talking to each other, we have no further comment.”

“It’s the taxpayer who is potentially poised to rescue the banks should there be a serious problem, don’t you not think the least you could do is make a short comment on it.”

“It’s a hypothetical situation you put there, we have no comment.”

So, there you have it. A €480 billion guarantee from the taxpayer with anything up to a €15 billion pay out in real money and, according to this greedy, irresponsible and incompetent banker – it’s all just a hypothetical situation.

Questions, questions…

It’s inevitable that the banks will be recapitalised, probably this week.

It’s the other ‘range of measures’ that Cowen mentioned that remain a mystery. Here are some of the questions I think the Government, the Financial Regulator and the banks might be chewing over.

How do we recapitalise using taxpayer’s money but at the same time ensure that the banks are not penalised in any way?

How do we ensure that the greedy chancers who caused the crisis keep their jobs?

Home Choice Loan scheme – It's all clear now

I wasn’t completely clear on the motives for the Government’s new Home Choice Loan scheme for first time buyers until I watched Prime Time last night.

There are at least 50,000 newly built houses lying empty in ghost estates across the country. Most of these houses will have been built by ‘Fianna Fail friendly’ developers who now find themselves unable to repay big bank loans – Time to call in some favours.

The new scheme will, in effect, transfer responsibility for repaying these loans from rich developers to poor taxpayers. This is obvious from the conditions laid down for applicants. Only new houses are included in the scheme. Applicants must be first time buyers who have been twice refused a mortgage from a bank or building society.

Effectively, the Government is creating its very own sub prime market by giving first time buyers, whose credit rating is so risky that regular lending agencies won’t touch them with a barge pole, up to 92% mortgages in a rapidly falling market. Inevitably, many will be unable to keep up payments and taxpayers will be forced to make good the losses.

Developers’ interests looked after, bankers’ interests looked after, taxpayer’s screwed.

It’s all clear now.

Quinn Insurance fines – Suspicious

My first reaction to the news that Sean Quinn is standing down as director and chairman of Quinn Insurance following breaches of regulatory requirements is – Suspicion.

The punishment meted out to Quinn Insurance is what we would expect to see imposed by a real regulator in a functional democracy. And this is what bothers me – The Irish Financial Regulator doesn’t really regulate but rather acts as facilitator to help financial institutions get out of trouble.

We know, for instance, that for years the Financial Regulator stood idly by as various financial institutions robbed millions from consumers. We also know that the regulator strictly enforces draconian secrecy laws that are designed to protect the financial institutions to the detriment of consumers.

Last week, for example, I rang the regulator to confirm reports that the chairman of Anglo Irish Bank, Sean Fitzpatrick, was under investigation over allegations of insider trading.

I was firmly told that section 33AK of the Central Bank Act 1942 that was inserted by section 26 of the Central Bank and Financial Services Authority of Ireland Act 2003 prevented the regulator from answering my question.

This law and its strict enforcement protects Sean Fitzpatrick and Anglo Irish Bank but puts consumers and especially shareholders in Anglo Irish Bank at a very serious disadvantage.

Keeping all this in mind let’s look at some of the details of the Quinn case and how it was handled.

The Financial Regulator imposed a fine of €3,250,000 on Quinn Insurance and fined Sean Quinn €200,000 because it had

“reasonable cause to suspect that breaches of regulatory requirements occurred in relation to QIL.”

What? The largest fines ever imposed in the history of the State on the basis of a ‘reasonable cause to suspect’. Over the years the Regulator has had incontrovertible evidence of widespread fraud in the financial sector and failed to take any action whatsoever.

So what, according to the Regulator, was the great crime committed by QIL?

“These breaches related to contraventions by QIL of obligations under the Insurance Acts and Regulations, including failure to notify the Financial Regulator prior to providing loans to related companies.”

This seems pretty tame stuff in comparison to other breaches of the law throughout the Irish business world. For example, in 2004 the Director of Corporate Enforcement (ODCE) reported that directors and connected persons returned approximately €100 million in loans from their companies.

The law prohibits directors from taking loans from their companies in excess of 10 per cent of relevant assets yet some of these directors had potentially illegal loans in excess of €1million from their companies.

According to the ODCE:

“In a number of individual cases these loans were for substantial sums or represented a large part of the value of the company and were very substantially in excess of the permitted limits.”

To my knowledge no action was taken against any of these directors, they just paid back the money and all was forgiven.

I suspect that there’s more to all this than meets the eye, it’s all too pat. Substantial details are thin on the ground and the manner in which the whole matter has been dealt is very suspicious.

Quinn himself is far too relaxed in the face of such a massive fine, even if he’s a billionaire. The ODCE is also very coy about the whole matter, simply stating that he was informed of the regulator’s sanction.

Can we take a clue from Quinn’s auditors and lawyers when they say that there are no corporate governance issues? Could the imposition of these extraordinary sanctions be a cover for something even more serious? Time may tell.

Copy to:
ODCE
Financial Regulator

A flawed and deadly assumption

On 4th Oct last I wrote:

“There will be no sacking of senior bank management, there will be no appointment of outsiders to bank boards or if there is they will be given the job of making the coffee. There will be no financial cost to the banks; there will be no strings attached to the deal because it is the banks that are calling the shots.”

Here’s what happened.

No banker has been sacked.
No banker has had his pay reduced or capped.
No banker has suffered any restriction on bonuses or share options.
The committee set up to oversee bonuses and pay for bankers is a joke.
No independent outsiders are being appointed to bank boards. The observers being appointed will be chosen by the bankers from a panel approved by the Minister. These observers will have no power whatsoever; they are nothing more than window dressing.

Ireland is the only Western state that has failed to take effective action against the greedy and irresponsible bankers – Why?

Again, on 4th Oct I gave the answer:

“We at Public Inquiry have been shouting the message for years – Ireland is a corrupt state, the politicians do not work in the interests of the people, the civil servants for the most part serve the politicians and the Government, not the people. Banks and other big business do as they please with impunity; they are never, ever brought to account. How long will it take before the message gets through?”

Let me be even more precise. Instead of acting in the interests of the State and its people the Government, the regulators and the bankers are acting to protect the corrupt system of administration that has evolved in Ireland over recent decades.

This is not to say that any person involved in the present scandal are themselves corrupt individuals. It is to say that the actions of those involved are exactly what can be expected from those who are making decisions within a corrupt system.

This is why people like Shane Ross, David McWilliams and others always express puzzlement at the reaction of politicians and regulatory authorities to these scandals.

Their mindset includes an assumption that Ireland is just like any other any other Western democracy. They assume that the Government and regulatory authorities will always act in the best interests of the State and its people. This assumption is the fatal flaw in their reasoning.

During the period when we were waiting to see the details of the guarantee scheme that the Government and regulatory authorities were working out with the greedy and irresponsible bankers these financial experts expressed views on what action would or should be taken.

They are now expressing shock that all their predictions and analysis turned out to be wrong. They have expressed astonishment that the Government has, in effect, allowed the bankers off the hook.

Why is it that we here at Public Inquiry can make an accurate prediction of how the authorities are going to act based on our analysis of the situation and all the experts get it wrong? The answer is simple – We start off from the undeniable fact that the administration of Ireland is intrinsically corrupt.

Once this fact is accepted everything else falls into place. There will be no surprise when banks and other financial institutions are allowed to rob their customers, no surprise when state authorities fail to act against stock market fraudsters, no surprise when politicians who blatantly commit perjury are not made accountable.

Nothing will change in this country until the reality of what we are as a nation is accepted. No individual, organisation or state can begin to reform itself until the reality of their situation is faced and accepted, it is only when that point is reached that the rot can be cut out.

We are a long way from that place.

Copy to:
Senator Ross
Financial Regulator

The nightmare facing Irish taxpayers

Understandably, all attention will be on today’s hair shirt budget but believe me it is a minor event in comparison to the following statement from the CEO of the Financial Regulator, Patrick Neary, to the Joint Oireachtas Committee on Economic Regulatory Affairs (RTE News, 1st report).

“The six Irish banks covered by the (guarantee) scheme have a total regulatory capital base of €42 billion. This figure takes account of provisions of €2.1 billion against impaired loans totally €3.6 billion. Speculative lending to construction and property development in Ireland amounts to €39.1 billion of which €24 billion is supported by additional collateral or alternative sources of cash flow and realisable security. This leaves a balance of €15 billion secured directly on the underlying property.”

This, in effect, means that the six banks in question are insolvent and will have to be bailed out by the taxpayer.

The €15 billion that Neary mentioned is only a minimum estimate of the massive bill facing Irish taxpayers. It is very likely that at least a portion of the €24 billion allegedly supported by ‘additional collateral or alternative sources of cash flow and realisable security’ will also prove to be lost money recklessly loaned out by greedy bankers.

Neither did Neary make any mention of taxpayer’s exposure as a result of the extended government guarantee to a number of non Irish banks last week.

Irish taxpayer’s could be facing a bill of between €20 and €25 billion.

Here’s what the so called Financial Regulator is going to do in response to the disaster.

“We will immediately recruit an additional 20 senior supervisory staff with banking experience to be placed on site (pun, I assume, not intended) in key banks to monitor developments. We are now requiring banks to set out new business plans focusing on the need to reduce their risk profile and how their models of banking are sustainable in the new environment. There will be enhanced reporting obligations in relation to capital, asset quality and individual large loans to supplement our daily liquidity reporting requirements.”

This, of course, is pure bullshit. What’s the point of requiring banks that are now insolvent because of their reckless greed to focus on their need to reduce risk?

It is, of course, no accident that Neary announced the full extent of the nightmare facing Irish taxpayers on hair shirt budget day. He’s using the event as a means of covering up his own incompetence.

But then again he’s only following the example of the Government who are hiding behind the global financial crisis to cover up the crucial part they played in allowing bankers and property speculators to destroy the economy.

Neary on Prime Time recently:

Fitzpatrick – Tripped up by his ego

The chairman of Anglo Irish Bank, Sean Fitzpatrick, is being investigated by the Irish Stock Exchange over allegations of insider trading. The investigation will, of course, be a farce. The ISE, like the Financial Regulator, doesn’t really do regulation.

Fitzpatrick bought €1.1 million worth of Anglo Irish shares after talks had opened between the banks, the Financial Regulator, the Central Bank and the Government.

The banker turned a tidy little profit of €326,000 from the deal when Anglo Irish shares increased by 18pc after the Government bail out was announced.

Still, despite having nothing to fear from the ISE, Fitzpatrick was foolish to allow himself to be ambushed by Marian Finucane in a recent interview (Sat. 4th Oct).

Finucane very cleverly massaged Fitzpatrick’s ego by asking him how influential he was in the €400 billion government deal with bankers.

Fitzpatrick couldn’t resist asserting his self importance; here are some of his comments before he finally realised he was being set up by Finucane.

“I knew lots of things were happening because we had discussions obviously with the Central Bank and the Financial Regulator and the Dept of Finance over the previous weeks.”

“Well, I met the Dept of Finance officials and I met the Minister and clearly I spoke on a regular basis with the regulator and the central bank.”

Finucane asked him about his contact with Minister for Finance Brian Lenihan.

“I was explaining the difficulties and he was explaining the difficulties they had, there was lots of things being discussed by lots of people in different ways… We had to get the difference between what was happening externally and get that across and remove the issue about the bad debts…which we eventually did and he saw that very, very clearly.”

“What I was trying to do was explain the situation to him, we certainly exchanged ideas”.

Fitzpatrick finally realised he was being set up when Finucane asked him about a report in the Sunday Independent concerning allegations of insider trading. Suddenly, the banker wasn’t so influential.

“Did you have a sense that the Government was going to bail out the banks, asked Finucane?”

“No, I didn’t.”

“Did you not know before hand that the Government was going to bail the banks out?”

“Of course I didn’t, that wasn’t out until Monday night.”

“But you had been talking to the Minister the previous week.”

“I had been talking to the Minister the previous seven days about various issues, about what he could do but I wasn’t sure what he was going to do..”

“Were the banks all talking to each other at this stage?”

“Not on a constant basis…there was no cohesive, no group meeting with the Government at all.”

AIB: Gut instinct

There’s been a lot of speculation on which Irish bank is most vulnerable to collapse in the present crisis. Most commentators seem to think that Anglo Irish will be the first to go but I think AIB is most at risk.

After all, AIB is the most powerful and most ruthless of all the banks. It has always been allowed to operate pretty much as it likes, has never been properly investigated despite robbing millions from its own customers and the State.

It seems obvious that such a powerful and untouchable entity would be much more likely to take huge risks in property speculation and development confident that a facilitatory regulatory regime was always close to hand should things go wrong.

Of course, this is just gut instinct on my part.

Politicians: Nothing more than messenger boys

It is widely assumed that the banks were pleading for help when they rang the Minister for Finance, Brian Lenihan last Sunday night.

Wrong – The banks were summoning the Minister to instruct him on what action they required of him.

And it’s not just the Minister who jumps when the banks come calling; the so called Financial Regulator and Central Bank also dance to whatever tune the banks are playing.

Up until last weekend the tune was simple – No matter what the evidence is, no matter how stupid you look, you are to maintain the charade that Irish banks, unique in the world, are not in any kind of trouble, you are to deny all suggestions that we have recklessly loaned out billions to property speculators and developers.

As recently as 6th Sep last Lenihan was doing what he was told.

“I can assure your listeners that the Regulator has maintained a very detailed supervision of Irish banks and that the Irish banks are not in anything like the difficulties that their counterparts in the US are.”

Here’s what I had to say about the Minister’s comments (Link as above).

“This Minister knows nothing about the real situation because his information comes from the Central Bank and the so called Financial Regulator who take their orders from the banks. Taxpayers should hold on tightly to their wallets, the banks will soon be looking to do some more pick pocketing.”

Now, €400 billion later the Minister, regulatory authorities and the taxpayer are dancing to the banker’s new tune.

Even the experts don’t seem to know what’s really happening. Economist David McWilliams, who was first to openly state that Irish banks were in trouble, is naïve in the extreme when it comes to his views on how the banks should pay for their sins. He’s worth quoting at length (RTE, 1st report, 2nd item).

“I would hope that the Government moves very quickly to replace the senior management of many of the banks that have behaved extremely recklessly. And that means by making board appointments of outside people, not civil servants, but people who have the national interest at heart. The Government guarantee cannot come for free, it can’t be a blank cheque, it has to come with strings attached…Brian Lenihan and his advisors are in the driving seat and if they think about their position they can change the way Irish banking works.”

“We’ve got to get rid of Gombeenism; we’ve got to get rid of the proximity between developers, banks and the Government. We’ve got to get rid of these idiosyncratic ways in which our society was run for the last four or five years.”

Like most Irish citizens, McWilliams seems to be completely and innocently unaware of the kind of country he lives in; he genuinely seems to believe that Ireland is a normal democratic country.

His reference to Gombeenism and our idiosyncratic ways might just be the beginning of a realisation that Ireland is unlike any other Western state, that there is something seriously dysfunctional about the way our country is governed.

We at Public Inquiry have been shouting the message for years – Ireland is a corrupt state, the politicians do not work in the interests of the people, the civil servants for the most part serve the politicians and the Government, not the people. Banks and other big business do as they please with impunity; they are never, ever brought to account. How long will it take before the message gets through?

Next week, when the bankers finally reveal the details of their plan, when they tell us what decisions they have made regarding the future of our country, we will hear a lot waffle, a lot of weasel words and a lot of breast beating from our politicians but believe me there will be no challenge to the status quo.

There will be no sacking of senior bank management, there will be no appointment of outsiders to bank boards or if there is they will be given the job of making the coffee. There will be no financial cost to the banks; there will be no strings attached to the deal because it is the banks that are calling the shots.

Our politicians are nothing more than messenger boys for the real power in this country.

Now I'm really scared

Obviously something needed to be done about the ongoing financial crisis but only time will tell whether the Government has made the right decision.

In America everybody knew what was going on, the Opposition was actively and centrally involved and ordinary Americans were listened to as they expressed their anger at the prospect of greedy bankers being allowed off the hook.

The deal was rejected and now everybody is back at the table trying to work out a deal. It is virtually certain that ordinary American taxpayers will get a better deal; that strict new regulations will be introduced and enforced and already some bankers are under investigation by the FBI.

In Ireland the Government met in the dead of night with the Financial Regulator and bankers to work out a deal. Nobody else was consulted; the Opposition was kept in the dark, the views of ordinary people don’t count. It’s now nearly 24 hours since the deal was announced and we still don’t know what conditions are being imposed on the bankers.

Here’s my guess – Absolute minimum conditions will be enacted in the legislation but even these will never be enforced. Neither will any bank or bank official be investigated; no Irish government or financial regulator have ever acted against the banks. There’s no reason to believe that things will be any different on this occasion.

The Irish Government can act like this because we effectively live in a one party state where democracy has been diluted to the point of irrelevance.

America, the richest and most powerful economy in history is spending $700 billion in an attempt to save their economy and by extension save the world from global recession.

The Irish government is spending €400 billion, more than half what the Americans are committing, in an attempt to bail out six banks that recklessly and greedily lost the run of themselves during the building bubble.

According to an expert on Prime Time last night; Irish banks have loans out totaling €110 billion and can expect losses of at least 10 to 20 billion.

The $700 billion represents $5,000 for every American citizen. The €400 billion represents €100,000 for every Irish citizen – Mention that to your banker the next time you apply for a loan.

Minister for Defence, Willie (Groucho) O’Dea confidently told the nation on Prime Time that the assets of Irish banks exceeded their liabilities and that Irish citizens were not at risk.

Now I’m really scared.