Category Archives: Anglo Irish Bank

11/6/15: Anglo’s Toxic Legacy: It Is Still Around Us, Today…

Here is an edited version of a note from 4Q 2014 that I provided to a non-commercial party interested in the matters of the Anglo Irish Bank that outlines my view of the sharp practices at the bank and the spillover from these practices across Irish banking, economic and political systems.

"As you know, Ireland was forced by the ECB and the EU to bail out its banks. The most egregious case involved Anglo Irish Bank - a mono-line property lender that was nationalised on January 21, 2009 and bailed out using Irish Government funding to the tune of EUR29.3 billion.

Funds for this bailout came from a combination of the Troika loans and taxpayers-owned National Pension Reserve Fund and thus, de facto, amounted to taxpayer financing of the bank.

Nationalisation of the Anglo Irish Bank, as we now know, came on foot of the bank, the auditors and regulators failing to report egregious sharp practices in the bank when it comes to the regulatory rules that date from the early 1990s through 2008 and include systemic and wilful overcharging of customers, breaches of liquidity rules, bank providing funding for its own directors on the basis of preferential treatment of public disclosures in collusion with another bank, INBS, bank engaging in misclassification of loans as deposits, and bank providing funding to its own customers for share price support schemes.

Any one of these sharp practices would have resulted in either a bank closure in a properly regulated regime, such as, for example, the U.S., and/or a complete wipeout of the equity value of the bank in the markets.

Two Examples

Take one example of one such practice. The overcharging problem at the Anglo Irish Bank continued from 1990 through 2004, with clients billed on average 0.3% concealed margin on their loans without notification of the customers charged and without disclosure to the auditors. Bankcheck review of the large number of loans revealed that 80% of these were involving overcharging. More importantly, from the point of view of the current situation, the Irish Government agencies, such as the IBRC and Nama, as well as the purchasers of distressed loans from Anglo borrowers, continue to charge the rates that include the original fraudulent mark ups, despite at least one official judgement on the matter issued by the Irish court. Taken in perspective, the overcharging - officially and on the record exposed in Irish and US courts - represents a quantum of estimated EUR1 billion of overstatement of publicly recorded and audited profits declared by Anglo through the period of 2004, and although we have no means for ascertaining the quantum of overcharging since 2004, the figure of at least around EUR2 billion total over the span of 1990-2014 is most likely a conservative estimate. This overcharging was notified to the Irish authorities repeatedly and on the record, with no action taken in response to notifications by the current Government, the Financial Regulator and/or the Central Bank.

In another sharp practice, the bank lent money to a single customer to cover margin calls on CFDs held against the bank own shares and, subsequent to the accumulated loans in excess of EUR2 billion, the bank arranged and funded a buyout facility for 10 investors (also clients of the bank) who were lent funds by the bank predominantly on unsecured basis to purchase shares underlying the said CFD positions. In simple, most basic terms, the bank used its lending book to prevent a share price collapse that could have resulted from the disclosure to the markets of the cumulated CFD positions.


In effect, thus, Irish taxpayers were compelled by the European component of the Troika, the EU and the ECB, in contravention of the IMF advice, to underwrite losses in a bank that was neither systemic to the Irish economy (it had basically no retail deposits and conducted virtually no retail business) nor operated within the confines of banking regulations and laws. On foot of the Anglo Irish Bank rescue, we were compelled to rescue an equally egregious Irish Nationwide Building Society - a counterpart to some of the sharp practices carried out in the Anglo Irish Bank.

Between 2007 and 2013, Irish Government debt rose by EUR155.8 billion - the largest jump in debt relative to GDP of any country in the euro area, including Greece. More than 22 percent of this increase is down to Anglo Irish Bank and irish Nationwide Building Society rescues. 

The damage runs deeper than that, however. If the Irish Government was allowed by the ECB to shut down Anglo Irish Bank prior to nationalisation, Irish Government debt today would have been around 93% of GDP as opposed to the current level of 112%. But this does not take into the account the potential contagion that resulted from the Anglo Irish Bank collapse to other banking institutions in the country. At the time of the September 2008 banking Guarantee, the State and its advisers have argued that not rescuing Anglo Irish Bank would have spread market panic to other Irish banks. 

This claim is, in my opinion, dubious. It could have been as likely, if not more so, that shutting down a rogue institution (or, with INBS - two rogue institutions) in a public and transparent manner could have resulted in more confidence in the systems and procedures present within Irish regulatory and supervisory regime. By opting to preserve and secure Anglo Irish Bank and INBS, Irish Government at the time sent a signal to the markets that any institution, including that with questionable business model, strategy and practices will be preserved and protected. In turn, such a signal was consistent with telling the markets that Ireland has no will to or cannot (due to the limited regulatory abilities) distinguish rogue operators from legitimate and functional ones. The effect of this could have been undermining confidence in all Irish banks, in order to protect a rogue one.

Ireland opted for a solution of shoring up and covering up the structural vulnerabilities exposed by the Anglo Irish Bank practices in the system of our regulation and supervision, as well as governance. This is neither a sustainable strategy, nor is a markets-securing strategy.


The legacy of the Anglo Irish Bank-related debt remains with us. Currently, Irish Central Bank holds some EUR25 billion worth of long-term Government bonds issued to offset Emergency Liquidity Assistance credit line extended to the bank liquidators. Ireland is mandated by the EU and ECB to gradually sell these bonds into private markets. As we do so, the burden of this debt is befalling Irish people who will have to fund interest and principal on these bonds into perpetuity. 

There is an easy solution to this problem that ECB can enact within a minute: the bonds should be left in the Central Bank and cancelled at maturity. This implies no cost for European taxpayers and no new issuance of money by the ECB.

In ethical terms (moral hazard etc), such a move is warranted due to the sheer scale of deception and concealment of the facts of the Anglo Irish Bank operations that have been exposed to-date and are still being exposed and that were not disclosed at the time of the September 2008 Guarantee or, indeed, at the time of the 2010 Troika 'Bailout'. In other words, the argument can and should be made that both the Guarantee and the Bailout involved Irish commitments to lenders and lenders agreements that were not reflective of the full informational disclosures by the Anglo Irish Bank and the INBS.

In moral terms and economic terms, Irish people have paid a huge price for the crisis - far more than their fair share, given the fact that in rescuing Irish banks, we have underwritten a rescue of private bondholders and banks across the EU, the US. Irish people are paying for the crisis with dramatically higher rates of suicide, destroyed families, lost or endangered family homes, decimated health care system, devastated pensions, underfunded education and childcare, and an economy that in per capita GDP terms has sustained the third biggest drop across all Euro area countries. A large share of these costs is attributable to EU and ECB decision to force Irish Government to accept full losses in the Anglo Irish Bank and INBS - two rogue banking institutions that were not systemic to Ireland - which itself was predicated on incomplete information and misleading information being supplied to the Irish authorities at the time of decision making.

Furthermore, it is my opinion that the legacy of the Anglo and INBS - embodied in the continued process of disposal of the residual bonds on the insistence of the EU and ECB - is toxic to the democratic institutions of Ireland, from the point of view of the future. As long as Irish political elites are forced to deal with the legacy of the bonds disposals, there will remain an incentive for the Irish establishment to stay mute on the issues of systemic breaches in regulatory, supervisory and legal frameworks around the operations of the two rogue institutions. In return, official refusal to deal with the legacy fuels public mistrust of the core democratic institutions of the State, increasing the appeal of the extreme ideologies and political positions. 

The legacy of Anglo and INBS is so toxic that it prevents a rational, informed discovery of facts and debate of these facts as relating to the regulatory and supervisory breaches within Irish financial system. The only way we can functionally deal with this malfunctioning of the state systems is if the European authorities allow Ireland to move beyond the cost of carrying the repayments accruing from these liabilities on the State balance sheet. Only after shedding the immediate burden of having to finance their legacy can we, as a nation, move to the stage of addressing deeper, more structural problems exposed by the crisis.

Note: Details of overcharging sharp practices at Anglo Irish Bank that allegedly continued into IBRC and Nama are discussed here: Details of Mr. Morrissey letter quoted in the Dail (Irish parliament) are available here: Details of the affidavit filed by Mr. Declan Ganley with Irish authorities concerning overcharging allegations are available here: Details on evidence of Nama value destruction and other systemic problems are covered here:

10/6/2015: A Bombshell Goes Off on Anglo, IBRC & Nama

Here are the excerpts from the very important speech delivered today in the Dail by Deputy Peter Mathews. And I urge you – the public and professional readers of this blog – to read through the length of this.

My focus here is one core aspect of the IBRC scandal that remains largely ignored by the Government and the media and that Deputy Mathews raises. For those inclined, full official transcript is available here. In the quotes below, bold and italics are emphasising points of major importance and are added by me.

… I want to talk about how the so-called profits of IBRC were inflated for a period starting in 1993 and travelling forward to the present date. There were two ways this was done.”
Note, the word ‘inflated’ in relation to reported profits. If such inflation indeed take place, it would imply that Anglo reported profits were fraudulent. And this covers years from the early 1990s through 2003. That is a lot of years of potential major corporate fraud – fraud that (if proven such) would involve deliberate overcharging of clients, concealment of such overcharging and reporting this overcharging on the revenue and profits side of the company accounts.

The Act
“First was the direct manipulation of interest charges and the concealment of loaded interest, which happened in the majority of cases. An extensive exercise carried out by Bank Check revealed this. … Some 494 separate DIBOR-EURIBOR rates were reconciled and found to be loaded to a degree ranging from 0.5% in the early 1990s to between 0.03% and 0.05% in 2002 and 2003. Some 80% of all the loans examined, relating to many clients, were found to have this loading.” So the [alleged] fraud was systemic, not sporadic.

The Concealment
And it was actively concealed from the clients: “The statements which clients received never showed the breakdown of the base rate and the DIBOR 3-month rate plus a margin, which had been agreed by loan agreements, plus the reserve asset cost, RAC, if and when it applied.” Does this show an intent? For one has to ask if not intent, then how could this ‘error’ or ‘omission’ be perpetuated across 80% of examined cases?

The Size
The [alleged] fraud was also on a large enough scale to makes it material. “The quantum of the loaded overcharging was in the order of 0.3%. A margin of 1.5% would comprise two elements, namely, the amount that goes to cover overheads, which is usually about 0.9% of the 1.5%, and the remainder, 0.6%, which is the profit of the bank. A loaded secret dark pool profit of 0.3% would represent one third of the overall profits, including that dark pool profit.”

The letter from Mr. Morrissey’s solicitors that Deputy Mathews cites states the following: “Bankcheck has advised Mr. Morrissey that, in total, approximately EUR1 billion has been overcharged by you, the Special Liquidators, Nama, private equity and institutional buyers of former IBRC loans, IBRC and its predecessors. This is very material sum and represents a most material proportion of the bank’s declared profits over the past 25 years. You have been made aware of this on several occasions.” Note: “you” references in the above quote joint special liquidators of IBRC. And further note Nama mentioning in the above.

Boom! Remember the case against the Anglo directors that alleges wrongdoing relating to manipulations of the company accounts by means of loans and interbank deposits? Well, that is chips compared to the juicy chunk of meat contained in the above statements: thanks to over-billing of the customers, Anglo might have been over-inflating its margin by a third! Year, after year, after year. 

And, even more importantly, this information was known and is known to the current authorities and liquidators. Who did nothing with it.

Should former shareholders, current investors in ex-IBRC debt, former borrowers from Anglo, and possibly even auditors who were not given pertinent information by the Anglo and IBRC call in the legals now, the hit will be on the state.

Deputy Mathews went on: “That means the market valuation of Anglo Irish Bank in the 14 years up to 2002 when this was going on was overstated by one third. If it had been discovered by proper auditing the market would react with a collapse, …of at least one third of the value of the bank and this would affect the shareholders, creditors and depositors. That would happen irrespective of whether there was an international credit bust and a freeze of credit.

Systemic Failure that Continues Today
This has been brought to the attention of the NTMA, NAMA and others but it has been ignored to date. I have the evidence here and it is shocking.” Let us stress the fact that Irish authorities were and are aware of this.
  • An Irish court ruled on the matter in favour of Mr. Morrissey.
  • Mr Morrissey notified this to the bank.
  • Mr. Morrissey also notified this to Nama and the Department of Finance in early January 2015. It was notified to the Central Bank in late January 2015, and to the Minister for Finance in early March 2015, and subsequently again to the Central Bank in early March 2015. And the case is being ignored. Per Mr. Morrissey, he received no reply to his notifications from any official body.
  • Per Mr. Morrissey letter cited by deputy Mathews today, Mr. Morrissey notified the then Chairman of IBRC, Mr. Alan Dukes of overcharging as far back as in mid-January 2013. Simultaneously, he notified of the same matter the Department of Finance, the Central Bank and the Financial Regulator. 

Mr Morrissey has been ignored since then, according to the record set forth by his solicitors.

It gets worse. Recall that the liquidation of IBRC was undertaken under the procedure that all claims against IBRC were to be notified before the end of 1Q 2015. And again, the notifications in the case of Mr. Morrissey were filed on time. We are at the end of 2Q 2015 and he received no response on these notifications. So the deadline established by the IBRC liquidation procedures has now expired. And the IBRC and by extension the State have not replied to Mr. Morrissey before the expiration of that deadline, effectively undermining the very process of liquidation they themselves set out.
Is this a collusive behaviour? In economics, such actions would be viewed as potentially collusive: all parties responsible and empowered knew, none responded, the wrong remains unaddressed.

The Legal Bits
Mr Morrissey solicitors letter cited by Deputy Mathews has this to say on the matter: “It appears numerous illegalities have been carried out by Anglo Irish Bank and its successors over these 25 years [from 1990 through today]. You, Mr. Wallace, have acknowledged under oath in the US Court proceedings the overcharging of interest by the bank. As the overcharging has continued under your watch, you are jointly and severally liable for same, together with the Minister and Department of Finance, the Central Bank of Ireland and the Financial Regulator.

And per official behaviour in response to the evidence presented: “we most strongly object to this glib attempt to absolve yourselves from responsibility and liability both for historic and current interest overcharging, or the consequences thereof, including the sustained misstatement of the bank’s publicly released annual accounts since 1990.”

The IBRC Inquiry
Deputy Mathews spoke in the context of the upcoming IBRC inquiry. But what he said is more important than an inquiry itself. Here is why. The inquiry is supposed to provide and independent and objective view of alleged, potential, possible wrongdoing at the IBRC. Deputy Mathews statement shows that in an actual, tangible, established and courts-confirmed case of misdeeds by the Anglo and IBRC, the State is unwilling to do anything to address these misdeeds. Thus, one has to ask a simple question: what’s the point of an inquiry into alleged wrongdoings, when actual wrongdoings are not being dealt with.

Now, take a trip through theory. An inquiry can come back with two possible outcomes: One: nothing found. Two: something worng is identified. In outcome One, under the above revelations about the Anglo overcharging case, one can be pretty certain that no one will believe the inquiry findings. There is no trust in our systems, there is no trust in our processes. No matter how well the inquiry works, its findings, were they to deliver inconclusive verdict, will always be subject to mistrust. In outcome Two, nothing will happen. Just as nothing is happening in the overcharging case. The outcome will be ignored. And so the inquiry, given the context of the cases such as cited by Deputy Mathews is hardly an exercise in building trust. For all its possible merits in design and execution, it is more likely going to be an exercise in further chipping at the little trust still left in this system.

Other Players in the Penalty Box
Deputy Mathews quotes from the letter from the Black solicitors, “following the John Morrissey case:It appears numerous illegalities have been carried out by Anglo Irish Bank and its successors over these 25 years. You, Mr. [Kieran] Wallace, have acknowledged under oath in US Court proceedings the overcharging of interest by the bank. As the overcharging has continued under your watch, you are jointly and severally liable for same, together with the Minister and Department of Finance, the Central Bank of Ireland and the Financial Regulator.””

But remember, there are other players beyond Mr. Morrissey who might want to ask few questions from the Government now that the word is getting out. As Deputy Mathews notes: “This is serious stuff. There are loans that are being operationally processed by the originators of those loans. Now those loans are owned by third parties, including hedge funds, and they are calculating interest on an unlawful basis, even though it has been brought to their attention. This is shocking.

Yes, we have on the line now:
  1.  Borrowers who were [potentially] defrauded of billions in false charges;
  2.  Investors in Anglo shares who were potentially defrauded by over-valuations of the bank;
  3. Investors in distressed loans purchased off Anglo-IBRC who are holding hot paper with [potential] fraud written all over it – the loans of the borrowers potentially defrauded;
  4. Potentially, the auditors of Anglo/IBRC who were possibly misled by non-disclosure of overcharging;
  5. And on top of all of them are the underwriters of the IBRC liquidation: taxpayers, who are facing huge bills for this.

And Another Bombshell
Deputy Mathews did not end just there. 

Here is another bombshell that exploded loud and clear in the Dail today, even through the repeated interruptions: “There is other evidence that NAMA knowingly----- allowed the information memorandum ----- -----for the Chicago Spire ----- to be negligently misleading, which has resulted in unnecessary huge losses for both the Irish people and the developer. I have the evidence for that.” That’s right – you’ve read it here. There are now allegations that Nama – not subject to the inquiry – has ‘mislead’ the markets participants to the tune of [potentially] hundreds of millions on just one, repeat, just one, asset sale.


These are mind-blowing revelations that expose more than just a systemic fraud [potentially] being perpetrated by a rogue bank. These are the revelations that show the current system wanting in respect of acting on the established legal case judgement in addressing the systemic [potential] fraud. And the worst bit is that even that is a tip of an iceberg, for Deputy Mathews statement about potential misrepresentation of the Chicago Spire case by Nama opens up the EUR77 billion can of worms over the Grand Canal. In this context, the current planned inquiry into 2009-2013 IBRC dealings is nothing more than a fig leaf of fake decorum on a rotten corpse of the Irish Solution to an Irish Crisis.

Still feel like the IBRC inquiry over 2009-2013 deals is going to be enough? Or should we not start systemically reviewing all post-crisis dealings and pre-crisis wrong still unaddressed by allagencies involved?