Category Archives: Anglo Irish Bank

12/6/16: Few Thoughts on Anglo Trial Verdicts

A friend recently did me a small service by summing up my comments on twitter on the Anglo Irish Bank - Irish Life & Permanent roundabout loans verdict:

I have provided an expert testimony on the matter in April in a court case involving the Central Bank, the Department of Finance and the Attorney General of Ireland, focusing precisely on the nature of the relationship between the Irish Financial Regulation authorities and the misconduct by banks and banks boards prior to 2008 Global Financial Crisis.  Quoting from my expert opinion:

"Part 4: Regulatory enforcement effectiveness and efficiency

46. In my opinion, and based on literature referenced herein, objectives of the function of enforcement in financial regulation are best served by structuring enforcement processes and taking robust actions so as to:
1. Target first and foremost the core breaches of regulatory and supervisory regimes, starting with systemic-level breaches prior to proceeding to specific institutional or individual level infringements [Targeting];
2. Timely execute enforcement actions, both in the context of market participants’ timing and timing relevant to the efficiency and effectiveness of uncovering the actual facts of specific alleged infringements [Timely execution];
3. Prevent or at the very least reduce, monitor and address any potential conflicts of interest in enforcement-related actions [Conflict of interest minimisation];
4. Assure that enforcement actions are taken within the constraints of the regulatory regime applicable at the time of alleged committing of regulatory breaches, while following well-defined and ex ante transparent processes [Applicability and quality of regulation and enforcement];
5. Assure that regulatory enforcement actions do not contradict or duplicate other forms of enforcement and remedial measures, including legal settlements [Consistency of legal and administrative frameworks]."

In simple terms, systemic lack of imposition of meaningful sanctions on senior policy, regulatory and supervisory decision-makers active in the Irish financial services in the period prior to the Global Financial Crisis severely undermines the signalling and deterrence functions of regulatory enforcements. Convicting bankers for mis-deeds is fine, but not sanctioning regulatory and supervisory officials is not conducive to establishing any tangible credibility to the regulatory enforcement regime. Worse, it establishes a false sense of security that the system has been repaired and strengthened by convictions achieved, whilst in reality, the system remains vulnerable to exactly the same dynamics and risks of collusion between regulators and supervisors and the new financial services executives.

It is, perhaps, telling that my counterparts providing expert opinions in the case on behalf of the Central Bank, Department of Finance and the Attorney General of Ireland have based their analysis on the axiomatic assumption that no regulatory, supervisory and enforcement staff can ever be held liable for their actions or inactions in the events and processes that led to the Global Financial Crisis. No matter what they have done or refused to do. Full impunity must apply.

17/6/2015: Mr. John Flynn’s Letter to the Banking Inquiry

Here is a letter by Mr. John Flynn informing the Banking Inquiry Chairman, Ciaran Lynch, T.D. about the issue of overcharging at the Anglo Irish Bank, subsequent extent of the problem in legacy-resolution institutions and detailing the substance of the developments in the U.S. court case relating to Anglo overcharging:

Note: I was informed by Mr. Flynn that he received no substantive reply to his communications to the Banking Inquiry.

Note: You can follow the topic of overcharging and other sharp practices and questionable strategies deployed in the post-banking crisis resolution process in Ireland here:

  1. Deputy Peter Mathews June 2015 speech on the issue of overcharging by Anglo, its legacy and issues relating to Nama was covered here:
  2. My summary view of the Anglo’s sharp practices toxic legacy:
  3. Mr. Declan Ganley’s Affidavit from 2013 concerning overcharging:
  4. Deputy Mick Wallace’s speech in June 2015 delivered in the Dail on the subject of Nama and Anglo legacy with my introduction of the concept of value destruction: 
  5. Mr. John Morrissey’s legal letter on overcharging: 
  6. Nama value destruction contextualised in a sample of 10 deals concluded by the agency:
  7. Mr. John Flynn’s letter to the members of the Dail covering Irish and U.S. evidence on overcharging: 

17/6/15: Mr. John Flynn Letter to TDs on Anglo/IBRC/Nama Overcharging

Here are the direct exerts from the correspondence sent by Mr. John Flynn to a number of TDs in relation to the Banking Inquiry on December 22, 2014. Italics in bold are mine (for emphasis). 

“I am attaching various information …which results from BankCheck …report into overcharging at Anglo Irish Bank.  Following a three year (and ongoing) investigation, I am attaching its interim report of May 2014.  

The overcharging identified continues to fall on borrowers to this day through Anglo Irish Bank legacy loans inherited by IBRC, NAMA and the various Private Equity funds that have acquired them, because both methods of overcharging that were discovered continue to rack up excess interest.”

Note: this is aserious allegation that echoes other claims submitted on the subject. The reason is simple: investment funds acquired distressed and other loans priced based on current interest yield (at least in part). If the current yield incorporated overchraging, and this was not disclosed to the buyers of the assets, then the sale of these instruments can be of questionable validity and can be potentially contested by the buyers of these assets. Likewise, any parties that continue overcharging while holding the loans can also be subject to legal action and incur costs of such practice. Beyond continued overcharging, the legacy of this sharp practice by the Anglo is also contained in those cases where a new (legitimate) interest rate applies on past interest charges incurred under the TIBOR. The can of worms gets bigger and bigger with every day the situtation remains unresolved.

“As admitted when questioned by us in the IBRC Chapter 15 Bankruptcy proceedings in the United States Bankruptcy Court for the District of Delaware, on October 8th 2013, the IBRC Special Liquidators stated that IBRC “did realise that it had an overcharging issue”. The IBRC purportedly set up a steering committee, chaired by Mr Mike Aynsley to deal with that issue. Reports were prepared and finalised by the end of 2010. The said reports were then forwarded to the board of IBRC, the Regulator and the Central Bank for their review and comment in order to, “make sure that everybody was comfortable in the work that was undertaken, and trying to get to the bottom of the cost of funds issue, which they (sic) contractual rate of interest that was being charged was different than the actual rate of interest being charged.” That report and the report of the Special Liquidator which examined the the IBRC report has never been published and their contents are unknown to the public.”

So what we have here is the allegation that:
1) IBRC knows and recognises the problem;
2) IBRC – alongside others – have notified the problem to the authorities;
3) No action has been taken by anyone; and
4) No action has been taken identify other injured parties and to inform the public.
Draw your own conclusions what these points, taken together, amount to.

There is more when it comes to the overcharging allegations: “The attached BankCheck report mainly addresses the matter of manually altered systemic LIBOR/DIBOR/EURIBOR manipulation from 1990 to 2004 and not the 360/365 systematic computer generated overcharging from 2002 to date, whereby the bank overcharged its customers with an extra 5 days interest per annum - as held by Ms. Justice Finlay Geoghegan in her Judgment of October 2014 in Anglo Irish Bank v John Morrissey (Record No. 2011/1548). The reason for the limitation of the BankCheck investigation is that while the 360/365 "scam" could possibly be explained away as "a computer error”  the daily random manipulation of the LIBOR rate could not.  The Report is currently being updated, as further information has been made available to us since May 2014.”

This raises the second point of overcharging – on top of the original. Not only Anglo imposed false charges on its customers, it also altered the base (the duration) over which the interest accrued. By switching from 360 days contracted arrangement to 365 days basis for calculation of interest charges, while retaining the rate, Anglo de facto, it has been found, charged an extra 5-days/per annum premium on the loans. Explaining this as a computer error is a bit generous, but even if we allow for such, there is a pesky issue of compensation for an error and culpability. After all, remember an actual computer systems error in the case of the Ulster Bank for which the bank was fined heavily and paid out compensation to its clients?

Here is an interesting bit: per Mr. John Flynn, “I have not included back up data (including fallacious daily LIBOR term sheets published from within Anglo Irish Bank) with this initial email as it is voluminous, but it is available …. if you wish to pursue the matter further.”

According to Mr. Flynn, neither the banking inquiry, nor anyone else contacted in the Dail, have requested the evidence. Worse, with exception of standardised replies from two TDs, there has been no engagement with the author of the statement and the holder of the evidence.

Please note, the allegations contained in the quotes below are those of the author of the letter, and I am simply providing these clearly separate from my comments on these.

You can follow the topic of overcharging and other sharp practices and questionable strategies deployed in the post-banking crisis resolution process in Ireland here:
1) Deputy Peter Mathews June 2015 speech on the issue of overcharging by Anglo, its legacy and issues relating to Nama was covered here:
2) My summary view of the Anglo’s sharp practices toxic legacy:
3) Mr. Declan Ganley’s Affidavit from 2013 concerning overcharging:
4) Deputy Mick Wallace’s speech in June 2015 delivered in the Dail on the subject of Nama and Anglo legacy with my introduction of the concept of value destruction: 
5) John Morrissey’s legal letter on overcharging: 
6) Nama value destruction contextualised in a sample of 10 deals concluded by the agency: 

12/6/15: Anglo Overcharging Saga: Ganley Affidavit of 2013

Here are some select quotes from the Affidavit, filed by Mr. Declan Ganley on August 12, 2013 with respect to his knowledge about the share interest rate rigging practices at the Anglo Irish Bank as covered in my earlier posts here:
and implications of which are discussed here:

Per Mr .Ganley's Affidavit: he met Mr. R.K. - former executive in Anglo Irish Bank in October 2010 and during the course of his discussion with Mr. R.K., Mr. R.K. "told me that one of several areas that should be pursued should be the opportunistic over charging of interest rates targeting multiple customers of Anglo. He said that it wasn't a great secret within Anglo and that it had been standard practice for many years. He said that the skim on these loans was jokingly known as "TIBOR" after a Mr. Tiarnan O'Mahoney, who he said oversaw this practice at the bank. He explained that TIBOR was the fake rate that Anglo would apply, pretending that it was the daily DIBOR rate. He said that it would be easy to check, by just looking into what the actual DIBOR rate was on a given day and then checking what Anglo had reported it to be to various customers. The resulting mark up would go to Anglo's coffers."

Now, take a slightly different angle on this. Suppose you go to a Bank and ask for a tracker mortgage loan. Suppose you get a quote of "ECB rate plus 1%". You take the loan and subsequently receive a statement that your interest rate charged in the past month was 1.35%. Except that 1.35% = ECB rate of 0.05% + 1% declared margin + 0.3% clerk-own make up margin. You contracted to pay 1.05%. You paid 1.35%. The clerk pocketed 0.3% as personal gain. How fast would the law be brought down on that clerk's case? Oh, in a nanosecond.

In Anglo's DIBOR case, there is no law being brought down on anyone. Because a bank engaged in defrauding customers is not the same as a clerk engaging in defrauding customers.

"I expressed a certain degree of disbelief that such a practice could run for more than a year or two without someone spotting it, a regulator, auditor, a professional investor (e.g. a bond investor) or other. I also said it was hard to imagine that the practice was well known."

"Mr. R.K. then said that not only was it the case but that he even had a copy of internal Anglo Irish Bank minutes where it was covered as a matter of fact practice."

Now, note, the above alleges explicitly that the fraud was conducted repeatedly, regularly, knowingly and was approved by the bank.

"He offered to show me a copy, I said "yes" and he proceeded to produce a copy of a document that appeared to be minutes of an Anglo Irish Bank meeting covering TIBOR. I then made arrangements to forward a copy of the document to a media outlet in London, who proceeded to use their documents as part of their basis for a report on the "TIBOR" story…

One of the pages was a schedule of "TIBOR" rates that the bank has charged to their clients as genuine DIBOR rates over a provisos period. I checked these rates against the official rates for the same period and confirmed that none of the rates replicated the actual published DIBOR rates. It appeared from the documents that, per Mr. R.K.'description, the official DIBOR rates had all been randomly and substantially loaded by differing amounts by Anglo Irish Bank."

Now, let us return to that clerk in your local bank example. Suppose that there is evidence showing that the said clerk perpetrated the same fraud time after time after time with all borrowers who came to his office to secure a mortgage. And that he notified his superior of this fraud and arranged to report regularly on his progress of defrauding banks' clients. How long will it be, in your view, before the weight of law is brought down onto the bank clerk's superior?

We had several cases in the past when bank employees would engage in stealing clients funds. These cases were prosecuted, wrong was addressed and clients were compensated. But when it comes to "TIBOR", even after two courts establish evidence that Anglo Irish Bank engaged in sharp practices, and years after this is notified to the Irish authorities by the likes of Mr. Ganley and John Morrissey and John Flynn and others, there is static silence in the air on the topic from all Irish authorities concerned.

And this is a simple, established, evidence-backed case. What can we expect from a much more complex inquiry into business dealings of IBRC? And more importantly, what can we expect from any attempt by the State to even look into how Nama has been running its business?

Nope, I don't have much of conviction we will see a definitive conclusion to this Anglo/IBRC saga any time soon.

Note: Mr. Ganley's affidavit references the fact that in late 2010 the TIBOR scandal was made public in international press and through other media channels. In other words, Irish Government and authorities were aware of the problem since then. They are yet to reply on how it can be rectified.

11/6/15: Full Letter Concerning IBRC Overcharging

Yesterday, I posted about Deputy peter Mathews' speech in the Dail concerning the egregious sharp practices in the Anglo Irish Bank and IBRC (link here). Today, I posted my point of view taking these practices to the macro level in relation to the remaining legacy of Anglo/IBRC (link here).

In his speech, deputy Mathews quoted from the Black & Company Solicitors' letter on behalf of Mr. John Morrissey and I quoted from the same some more in my post (linked above).

Here is the actual copy of the letter (I had to break it into segments in order to post on this platform). All sections are sequential and reproduce the letter in its entirety. You can click on each segment to enlarge.

I provide no comment beyond what has been already provided in the two posts linked above.