Anglo badly exposed over customer loans

Tuesday 24 February 2009 12.30
Anglo Irish Bank - Annual Report published
Anglo Irish Bank - Annual Report published

A PricewaterhouseCoopers report has found that Anglo Irish Bank has a number of very large exposures, with 15 of the bank's customers having loans of over €500m each.

The report also describes how the bank's strategy was to deliberately develop deep relationships with its strongest customers and that a small number of customers are involved in a large number of transactions and represent a significant proportion of the Bank's loan portfolio.

The consultants warned in November however, that there were a number of customers, all of whom exhibit potentially serious cash-flow difficulties who were not on the bank's ‘watch or impairment’ lists.

The report said Anglo had about 15 customers who owed more than €500m each and that the size of these exposures increased the risk profile of the bank.

The report warned that there were likely to be significant losses in store for individual property developers that would in turn result in significant losses for the bank.

It said that the bank was owed almost €12bn by just 20 customers who borrowed for investment purposes and another €6.4bn by its top 20development customers.

The report also clearly warned that the controversial €7bn back-to-back deposit arrangement involving Irish Life and Permanent had the effect of grossing up the bank's balance sheet, boosting its customer deposits and interbank assets but that €6bn of this was unwound within three days of the financial year-end.

The report into the bank on behalf of the Government also found that the bank lost €5.4bn in deposits in one week alone during September.

As a result of these outflows of deposits the report says that the bank was forecasting that it was heading for a cash shortfall of at least €12bn by the middle of October.

In a statement tonight, Minister for Finance Brian Lenihan said the report clearly demonstrates that the Government was correct to guarantee the financial system last September.

Anglo loaned €451m to 'long-standing' clients

Anglo Irish Bank loaned a total of €451m to ten 'long-standing customers' last year to buy shares in the bank.

Previous estimates had put the figure at €300m.

In its annual report covering the year to the end of September, Anglo Irish said €83m of the €451m had been repaid.

Read the report in full
View timeline of events

The report said the bank would set aside €300m in its results for the six months to the end of March to account for losses on money it loaned out using only shares in the bank as security.

This figure also includes losses from loans to directors.

The bank also said it was reviewing controversial deposits of over €7bn made by Irish Life & Permanent with Anglo last year.

The report also reveals that at the end of September, loans to former chairman Sean FitzPatrick totalled €83.3m.

A total of €179m was loaned to other directors.

The bank paid a total of €11.5m to directors in the year to the end of September, including a €3.75m payment to Tom Browne, who retired in November 2007, 'in recognition of his contribution to the group'.

The report also shows that the bank paid rent totalling €31,500 to 'close family members' of Sean FitzPatrick for the use of a property in the UK which was used to accommodate the bank's staff on a temporary basis.

Anglo Irish Bank Executive Chairman Donal O'Connor said the bank was likely to take a financial hit in the six months to the end of March linked to these loans, as a result of the deterioration in the bank's share price.

Mr O'Connor (right) also acknowledged the sense of hurt, outrage and disappointment that people feel towards the bank.Anglo Irish Bank Chairman Donal O'Connor

He said the bank was carrying out a detailed review of all of these deals, including the legal advice it received and its consultations with the financial authorities.

The report also shows that former chief executive David Drumm, who resigned in December, was paid just over €2m in the year to the end of September 2008, down from €3.2m the previous year.

Former chairman Sean FitzPatrick, who also resigned in December in the controversy over concealed directors' loans, was paid almost €540,000.

The Taoiseach said that the current investigation into Anglo Irish Bank's dealings in shareholdings should be brought to a conclusion as soon as possible, so that the identities of the bank's ten investors could be provided to the public.

While Minister for Finance Brian Lenihan described the conduct at the bank as unacceptable and promised that the issues identified in the report would be properly addressed.

Minister for Communications Eamon Ryan has said there will be no hiding and no evasion for anyone guilty of wrongdoing in the banking scandal.

Mr Ryan said that no resources would be spared to ensure that the truth was uncovered, as it was vital to restore confidence in the banking system.

Speaking on Six One, Prof Niamh Brennan, UCD’s Business School, said that it was very unusual that the auditors withdrew an original report and issued a new one.

She said she had never seen that done before in relation to a single set of financial statements.

She also said that statements at the bottom of the audit report on the website indicate that the auditors are distancing themselves from prior reports.

This, she said, indicated that tensions between the auditors and management must have been extreme in the last two months.

In a statement tonight, auditors Ernst and Young says this analysis was incorrect.

The statement went on to say that ‘These statements at the bottom of the audit report deal with the maintenance of the company's website. They note that the maintenance of the company's website is the responsibility of the directors, and go to state that ''...the auditors accept no responsibility for any changes that may have occured to the financial statements since they were initially presented on the website''.'

‘Professor Brennan appears to be mistaking this as relating to the preliminary results announcement.’

‘These statements are of course mandatory when audit reports are put up on a website and do not appear on the hardcopy audit report. For an example of similar practice see page 181 of AIB's 2007 Annual Report on AIB's Website.’

McEvaddy praises 'Golden Circle'

Businessman Ulick McEvaddy earlier described the ten members of the so-called Golden Circle as heroes.

The name refers to the group of ten individuals were loaned money to buy shares in the bank.

Mr McEvaddy insisted the ten 'hadn't done anything wrong' and had no reason to conceal their identities.

Speaking to RTÉ News, he said he would have joined the group, had he been approached, as it was the right thing to do.

He dismissed the controversy surrounding the incident as 'misplaced uproar' and said Anglo Irish was an 'iconic' bank, which helped stimulate the Irish economy and create the Celtic Tiger.

Listen to Ulick McEvaddy & Joe Higgins on Today with Pat Kenny

Watch Mr McEvaddy's comments to RTÉ News




The Government said it is examining ways of making public the names of the 'Golden Circle'.

Leaders such as Fine Gael's Enda Kenny and the Green Party's John Gormley have previously called for the names to be made public.