Questions for the Financial Regulator

Brendan Burgess

Brendan Burgess

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I have always tried to provide a balanced assessment of the Financial Regulator. I have been highly critical of some aspects of their behaviour but I have also sought to provide balance when everyone else seemed to want their heads to roll over the credit crisis.

But the Anglo Irish Bank issue raises some very serious questions for them to answer. Am I right in the following facts?

1) The Financial Regulator discovered the directors loans through its inspection of The Irish Nationwide in January 2008.
2) They took no action other than to tell Anglo to disclose these loans in the next set of published accounts.
3) They did not inform the Department of Finance or the Minister who spent the next few months sitting across the table from Seán Fitzpatrick and David Drumm not knowing the character of these individuals.
4) It was the directors of Anglo who informed the Department on last Thursday.

Question 1
Why did they not take action on the non disclosure of these loans immediately on discovering them? Such action should have resulted in the immediate public disclosure and resignation of the directors involved. Why wait 12 months?

I suspect that the Financial Regulator did not want to undermine confidence in the banking system at a very sensitive time by not disclosing this publicly.

Question 2
Why did they not inform the Department of Finance and the Minister for Finance?

I cannot think of any excuse for this.

Question 3
What is the Financial Regulator doing about the Irish Nationwide?
The Irish Times submitted the following questions to the Irish Nationwide yesterday and they responded that there was no impropriety.

Who in INBS sanctioned the loans that Seán FitzPatrick temporarily transferred from Anglo Irish Bank? Why did INBS sanction the loans?
Were the loans sanctioned with the approval of Mr Fingleton? Were they approved with the approval of Mr Walsh or Mr Cooney? Were they approved by the INBS credit committee? Did the loans fall into any special category in which specific board approval was required?
What does the INBS and its top management and board say to the suggestion that INBS inflated its own profits by granting loans of this nature to Mr FitzPatrick?
What does the INBS and its top management and board say to the suggestion that INBS facilitated improper transactions in this case which have tarnished the reputation of Irish banking and Irish business in general?
Did INBS’s internal or external auditors ever question the granting of such loans to Mr FitzPatrick? Were the internal or external auditors ever made aware of these loans? If not, did they uncover the loans themselves at any point?
What does INBS and its top management and board say to INBS members who fear that these loans have tarnished the standing of their own institution?
Is the INBS under investigation by the Financial Regulator in relation to these loans or any other transactions on its loan book?
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Boss, I too am a bit embarrrassed these days, having been prepared to give the FR the benefit of the doubt.:eek:

Brendan Keenan, as always, addresses the issue in a very balanced way in today's Indo. He points out that an FR is always striking a balance between disclosure and protection of the system's reputation in these sort of matters. Worst case is to cover up the matter and then be found out as has hapenned here. I presume PN was doing his job as best as he saw fit but events have shown him to have made a serious error of judgement.

But why did he not tell the Minister of Finance? A number of possible explanations:

1) He DID tell him:eek: Then we really do have a scandal.

2) If he has chosen the cover up option (with the best of intentions) then he can't tell the Minister. Wasn't it Oliver North called this giving the president "deniability". I think this is the reason.

3) He didn't think it that important. Bad error of judgement.

4) There is a whole heap more similar scams, where should he start? I hope and don't think this is the reason.

5) He was trying to protect the persons involved as part of an old pals act. Again I don't think this is the case.
 
So you think he was protecting the Minister by not telling him?

I know that this was hidden for 8 years, but at some stage it has to come out. Irish Nationwide might not have been in a position to repeat the trick this year which would have uncovered it.

I actually think he didn't think it was that important backed up by the Financial Regulator's indecision and hoping it might go away. The FR jumps into action when it sees a clear breach of some rule e.g. APR not disclosed in an ad. But if something doesn't break any law or if it can get a legal opinion to say that something does not break the law, the FR doesn't really have the courage to make its own judgement on a matter.

Hiding loans from the shareholders is wrong. It is a resigning matter. The FR might not have been able to impose a sanction, but they could have used moral suasion to force a few resignations. They seem to lack the courage to do this.

Brendan
 
Duke of Marmalade said:
...
But why did he not tell the Minister of Finance? A number of possible explanations: ...

4) There is a whole heap more similar scams, where should he start? I hope and don't think this is the reason.

5) He was trying to protect the persons involved as part of an old pals act. Again I don't think this is the case.
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4) There are "more similar scams" apparently - €150m's worth to date in Anglo alone (Fitz put his hands up for "only" €87m that I can see). Where did the €67m difference hide?

5) Why would that not be the case, given the auditors' Pontius Pilate stance and the old pals routine with Anglo's year end loan account with Fingleton's outfit? Is it conceivable that these were the only ones in on the numbers game?
 
It is inconceivable to me that the regulator would have not informed the minister of finance of the fitzpatrick loan issue at least by the time the government was negotiating the bank guarantee scheme

There has to be more to that story

If the FR believed that it was not an issue the government needed to be informed of and he took that decision himself,then he should have been fired this week. Why is an investigation even needed into this and why has the government not shown decisive action in dealing with the FR
This is what is making me think that the gov must have known
 
The silence is deafening from the Minister and the Financial Regulator which is completely unacceptable. In the first place we need the Regulator to tell us the following -

what he knew?
when he knew it?
what action he took?
why did he take the actions he took?

Without jumping the gun it is hard to see how he can hold on to his job but in fairness I think he should be given the chance to answer these questions. We also need to put the same questions to Minister and all the key people in the insititutions involved. No soundbyte lynchmobs. Answers to questions first and the appropriate and accountable actions (sackings)

Is anyone confident that that we will get to the bottom of this? It is vital for the public interest that we do. The ordinary Irish citizens are paying a huge price.
 
One further thing occurs to me - The FR has really snatched defeat from the jaws of victory.

A lot of people conspired to hide these loans from the shareholders.

They did it very cleverly because the external auditors did not manage to pick it up.

The Financial Regulator's inspection team discovered it. That should have been a feather in their cap - discovering something which the auditors had missed. They could have dramatically increased their reputation and authority if they had followed through on the discovery and taken strong action quickly. Instead they have damaged their own reputation by doing nothing about it.

Brendan
 
Now wait until the FR goes through Anglos books to ascertain the crazy lending practices. Then the dirt will hit the fan properly.
 
[broken link removed] Now Mary Hanafin has stepped in, just stopping short of calling for his head. I fear PN is toast.:(
 
I think you're right DoM. When the trumpets blow, you can be sure Joshua is around somewhere with knocking down walls in mind.

I have a horrible feeling that this is the tip of the iceberg. I would discredit that feeling, as I have done in the past, if I hadn't been proved right so often in the last year and a half. The reasonable, sensible answer has been proved to be bluff and bluster so often; the cynical, cruel assessment has been right. What is your gut feeling, Brendan?
 
I think we have to wait until we see what Pat Neary says. However, to quote Mary Hanafin

“It’s very difficult to see the circumstances as to why the Minister for Finance, at a time of actively negotiating with the financial sector, did not receive that information.”

I am not sure what you mean by "the tip of the iceberg". My gut feeling is that what happened in Anglo is unique. Anglo was under the direct control of Seán Fitzpatrick. The Irish Nationwide is run by Michael Fingleton, so if he had wanted to do something like this, he could have got away with it, but I would be surprised if he did.

I doubt if the Managing Directors of any of the other banks would have got away with it. At most, they may have borrowed money during the year and paid it off. Or they may have done this some years ago and stopped.

I would be very surprised if it was widespread. But I am very surprised that Seán Fitzpatrick did it and so I could be very surprised again.
 
Brendan,

Agree insofar as I think it very unlikely that this would have happened in any of the four main clearing bank's - in our own case there's a whole section in our code of conduct as to how our own finances are to be managed and I'd be shocked that any of our own directors would have done such a thing.

Hope I'm right....

Regards,

BM
 
I am sure that you will find that Anglo had a similar code. Sometimes the top executives consider themselves to be exempt from such codes.

Brendan
 
The board of the Financial Regulator has issued a statement today:

The Board of the Irish Financial Services Regulatory Authority met on 19 and 20 December to discuss matters surrounding directors’ loans in Anglo Irish Bank. The Board takes a very serious view of these issues, which were first brought to its attention on 17 December 2008.


The Authority has taken the following actions:
· As an immediate step, a committee of the Authority has been established to undertake an urgent review of these events and the regulatory response, and will report to the Authority in three weeks.

· The Authority has instigated a review to determine the treatment of directors’ loans in the institutions covered by the Government guarantee so as to ensure that proper standards are being observed.


The Authority has already intensified its prudential supervision of covered institutions and other regulated entities. Regulator staff have been placed in all covered institutions on a full time basis.
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So the board of the Regulator did not know. I would say that they are annoyed at this.

They are reviewing the response of the Regulator. I am not sure why this should take three weeks. This is very typical of the pace at which the Regulator works. This should all be sorted in a few days.

Brendan
 
Brendan said:
So the board of the Regulator did not know. I would say that they are annoyed at this.
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I'm a bit confused by this. The org chart of the FR is here:
[broken link removed]
Patrick Neary is on the board, he is also a member of the executive, as is Con Horan who is Prudential Director. Mary Burke, head of Banking Supervision is not, not is Michael Deasy, head of Financial Institutions and Funds Authorisation - I presume it is one of these two that would have had the information?

So are they now trying to spin it that the word didn't get out of the relevant department and push the blame down? In any company that is cheap. In a watchdog, saying that the buck stops below me is a thundering disgrace.

Or, are they saying that the executive didn't bring it to the attention of the board? Given that two members of the executive are board members, this is splitting hairs as at least some members of the board knew and chose not to pass the information on to the rest of them.

Any ideas Brendan? Like Mr. Neary's appearance on Primetime, statements from the FR only seem to serve to confuse matters, whether intentional or not, I don't know.
 
I don't see where the confusion lies.

Presumably Pat Neary and Con Horan knew about this as executives. I would guess that the other executive director, Mary O'Dea knew about it as well.

For some reason, they did not brief the rest of the board i.e. the non-executives. It is the non-executives who would be annoyed by this.

It's unclear if the Chairman was briefed.

Obviously, they decided that this was a matter for the executive and not for the board.

And this will be one of the items to be reviewed by the committee.

Brendan

Brendan
 
One further question for the regulator is;

Are you satisfied that Irish Nationwide had satisfactory security for a loan of that magnitude, given the short-term nature of the borrowing?

I'm struggling to work out how INBS could get satisfactory security on a short term basis.
 
Brendan said:
For some reason, they did not brief the rest of the board i.e. the non-executives. It is the non-executives who would be annoyed by this.

It's unclear if the Chairman was briefed.

Obviously, they decided that this was a matter for the executive and not for the board.
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Sorry, that was what I wasn't clear on - whether the senior executive knew or whether they were going to stuff responsibility down. Thanks for the clarification.
 
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