by Shane Ross
In an interview with RTÉ’s Aine Lawlor in late 2007, FitzPatrick recalled feeling the disdain of his counterparts at the bigger, better-established banks:
I remember going to dinner parties in Dublin 4 and introducing myself as Sean FitzPatrick from Anglo Irish Bank and they’d look at me, and someone from AIB or Bank of Ireland would sort of snigger… and I would say to my own staff coming back, the day will come when you are at a dinner party and you say you work in Anglo Irish Bank. There will be silence around the table. Why?
But the financial establishment sometimes had good reason for denigrating the little upstart bank. In 1992 a skeleton from Anglo’s past rose out of the graveyard.
John Clegg had been made a director of Anglo in 1988 at the tender age of thirty. The appointment of this debonair young Englishman had FitzPatrick’s blessing. The Clegg family had owned a 17.5 per cent stake in the City of Dublin bank before it merged with Anglo. At one point their stake in the publicly quoted Anglo rose to 20 per cent. John Clegg became a director in order to nurture the large family shareholding.
In April 1992 a leaked document surfaced in the Sunday Telegraph. It told of how a probe had revealed that the Clegg family had been under investigation by the London Stock Exchange for insider dealing. Clegg was the boss of a quoted company, Wace Holdings, alleged to be a vehicle for his subterfuge. It was eventually determined that the Cleggs had personally bought shares in a rival company called Parkway, just before Wace made a bid for it. Later in the year, Wace took over Parkway and the Clegg family made a killing. Fires at a Clegg-owned property destroyed key records.
UK investigators questioned Anglo Irish Bank staff during the probe. They were particularly curious about activity in the Clegg family’s bank accounts at Anglo. FitzPatrick was quoted as saying that the investigators ‘just wanted to know what we knew about him’.
Not much, or so it seems. Clegg was described as a ‘lawyer’ in the 1990 Anglo accounts but had actually been removed from the roll of solicitors for non-payment of subscriptions. Around the same time two Clegg family members were made bankrupt in the UK. The Inland Revenue was the petitioning creditor. Somehow, no one in Ireland had known anything about this background. At the very least, Anglo’s board had not taken its duty to ascertain the bona fides of one of its directors seriously enough.
Gerry Murphy, who was Anglo chairman during the fiasco, recalls: ‘Sean handled the Clegg thing beautifully.’ FitzPatrick got on a plane to South Africa with Clegg’s Dublin stockbroker for a ‘showdown meeting’ at which he persuaded Clegg’s father to sell the Clegg holding in the bank.
The crisis was defused. The bank survived the scandal. But the whole affair left a sour taste in the mouths of investors.
When the news broke, the damage to the reputation of the bank proved nearly fatal. Any story about the ‘cowboys’ in Anglo travelled. The top brass at the Irish Banking Federation must have been grinning from ear to ear. Worse still, Anglo had been contemplating raising scarce cash through a rights issue. The Clegg incident put an end to that fund-raising road. No one would invest a further shilling in a bank surrounded by such destabilizing stories.
The damage to the Anglo brand was bad enough, but, worse still, the Clegg stake in Anglo was stuck at an awkwardly chunky 20 per cent. Now there was an ominous block of Anglo shares overhanging the market, depressing the price. As long as the block remained unsold it was a permanent reminder of Clegg’s insider dealing.
FitzPatrick was in the mother of all jams. First, he needed to persuade Clegg to resign in order to save the bank’s reputation. Second, he had to find a buyer for the wayward director’s shares.
The resignation was the easy bit. Clegg reluctantly fell on his sword. Placing the shares with a buyer was harder. It took twelve months in difficult market conditions, but finally the Clegg family’s holdings were bought by Investment Bank of Ireland and others for £4 million. The bank was out of the woods; Anglo had survived its first big scandal.
If FitzPatrick had stuck to the knitting of the early years he would have avoided mountains of trouble; but that was not his – or Anglo’s – way. During the period 1985 to 1990 he expanded the loan book and deposit base dramatically. In 1987 he dipped his foot in the waters of the Irish Sea by opening an office in the Isle of Man. The decision to head for an offshore tax haven raised eyebrows. The bank insisted that it was to support a growing sterling loan book. There was already a small operation in London. Anglo had operated as an instalment finance house in the eighties, but the opening of an Isle of Man branch had special attractions for depositors. Anglo’s profits were on a steady growth path by 1988, when they rose 54 per cent to £2.2 million. At that year’s annual meeting, chairman Gerry Murphy boasted that the oldest senior executive was just forty-two.
Still seeking other outlets for his ambitions, in 1988 FitzPatrick entered a partnership with a UK car trader. The business bombed, and FitzPatrick closed it down; he had no more fear of cutting losses than he had of cutting staff.
He also eyed the rarefied world of Dublin stockbroking. The 1986 deregulation of financial services in the UK – known as ‘Big Bang’ – had enabled banks or other outside firms to operate their own stockbroking arms. Ireland followed suit.
Early in 1985 an up-and-coming young businessman named Dermot Desmond had bought 29.9 per cent of a small stockbroking firm, Dillon & Waldron (in which I was a 40 per cent shareholder). When the rules allowed it – in 1987 – Desmond’s money brokerage, National City Brokers (NCB), took 100 per cent of Dillon & Waldron’s stockbroking business. The entry of this entrepreneur from the north side of Dublin into the tightest of closed shops caused the ageing buffers of Irish stockbroking to choke on their mid-morning gin and bitters in Dublin’s Moira Hotel.
All Desmond really wanted, in purchasing Dillon & Waldron, was a broker’s licence. He immediately set about challenging all the stick-in-the-mud older firms, revolutionizing the business through the use of white-hot technology.
(After less than a year as a stockbroker, Desmond began to make strong political links. I remember introducing him to Charles Haughey at a lunch set up by government press secretary P. J. Mara and myself in 1986. Desmond and Haughey were a natural match. As six of us sat around the lunch table in NCB the two north-siders hit it off. Both were self-made men, had little time for red tape, and shared a contempt for the feudal financial chiefs of Dublin in the eighties. Both were chronically impatient for power, pro gress and influence. Both were strangely patriotic. At that lunch the seed of the International Financial Services Centre was born. Both men’s eyes lit up as they visualized Ireland as a hub for new technology and a tax base for overseas operations. The Custom House dock was fingered as the location of a new centre for economic revival.)
Stockbroking had been dominated by a few very rich fam ilies and their firms for decades. Names like Davy, Dudgeon and Goodbody held sway. Davy was mostly top-notch Catholic while Dudgeon was mainly Protestant Ascendancy. Goodbody was originally controlled by the Quaker family of that name. The people who ran these firms had attended privileged private schools such as Belvedere, Blackrock, Gonzaga – or even English public schools such as Eton, Rugby, Ampleforth and Downside.
The established brokers may have resented Desmond’s invasion but they were quick to realize that the jig was up. They soon started scurrying around in search of a rich banker to buy their declining businesses.
Bankers bought up brokers. They saw savings for themselves and the opportunity to cross-sell multiple products. It was also imperative that they could compete with their rivals overseas, nearly all of which were buying up brokers. In 1988 Bank of Ireland bought 90 per cent of Davy, while AIB followed suit with its purchase of Goodbody.
FitzPatrick took a look around. Like Desmond, he did not want to buy a big broker. He sought a company with a minimum of deadwood to dismiss and compensate. After that, it was up to Anglo to provide the capital for expansion. He bought a tiny firm called Porter and Irvine. H
e would have been familiar with the personnel, as the recently deposed Anglo director John Clegg had used them for some of his dealings.
FitzPatrick soon bought another firm, Solomons Abrahamson, hoping that the combined entity would give him a platform to rival NCB. It didn’t. NCB went from strength to strength while Sean pulled out after less than two years. ‘We bought two firms with people of integrity,’ he later recalled. ‘However, my timing here was impeccably wrong. Within a year of acquisition the business had gone into a cyclical downturn and, while we weren’t losing money, we certainly were not making any and there was no light at the end of the tunnel. What was most difficult was the amount of management time that the stockbroking absorbed. It was diverting us from the profitable core business of lending. Once again I had to take the difficult step of closing down a business and letting the staff go.’
He should have waited a little longer. Within months the stock market was booming again. FitzPatrick never made the financial commitment to stockbroking that Desmond had. Desmond had gone for broke, while to Fitzpatrick stockbroking was just another experiment.
Although Anglo boasts that it grew from its own organic efforts, throughout the nineties it made acquisitions to beat the band. In 1995 FitzPatrick bought the Royal Trust Bank in Austria, a subsidiary of Bank of Canada. Tiarnan O’Mahoney described it as a ‘cheap source of funding for future lending’.
Gerry Murphy recalls that the Austrian venture ‘was a big, big success. The Austrian secrecy laws were hugely attractive, especially for people contemplating divorces or suchlike. People put their running-away money in the Viennese bank.’ He adds, ‘I remember the day Sean decided to buy the Austrian bank. He was late for our seven o’clock in the morning meeting. I then walked him around the Ringstrasse in Vienna and he was deeply impressed, constantly remarking what a wonderful city it was. He would never have bought the bank if it had been in Hamburg.’
In 1996, at a cost of £13 million, Anglo purchased Ansbacher bankers (the bank later exposed as the vehicle for Des Traynor’s tax evasion escapades in the eighties and early nineties). In 1999 FitzPatrick picked up Smurfit Paribas, a small bank jointly owned by the Smurfit Group and the French Paribas bank, for £30 million cash. It lent mainly to the corporate sector. In the same year he established a Boston office.
The market’s verdict was favourable. By 1999, FitzPatrick had established a good enough profit record to attract some seriously grown-up shareholders on to the register. Apart from the Bank of Ireland, which had bought 7.6 per cent of Anglo’s shares, the traditionally cautious Scottish Provident held 6.2 per cent, Morgan Stanley 5.8 per cent, Fidelity Investments 3.9 per cent and Prudential Assurance 3.8 per cent. Other public companies would have killed for such gold-plated supporters. These guys examined the books with a microscope before investing. Anglo was still subject to plenty of badmouthing at home, but overseas it seemed to have overcome the native jibe that it was not the full shilling.
One ominous paragraph in FitzPatrick’s 1999 message to shareholders should have raised the hair on a few critics’ heads, however.
In addition to our loan book from the traditional sources, we are very pleased that the new areas of lending initiated in the last two years – commercial mortgages and invoice discounting – have been favourably received by both existing and new clients.
Anglo had entered the property development market.
Sean should have stuck to the knitting. But he couldn’t. He was too often a quick-fix banker. Two further attempts at expansion left Sean with egg all over his face. One of his worst moments during this period was his failed effort to buy the state-owned ICC bank, put on the block in 1999 by finance minister Charlie McCreevy. At a late stage in the negotiations Sean had his eye wiped by former Anglo employee Mark Duffy, of the Bank of Scotland (Ireland).
Duffy was chief executive of the Scots bank, which was eyeing the state sale. Relations between FitzPatrick and Duffy had been bad ever since Duffy, predicting that FitzPatrick would ‘last in Anglo for ever and a day’, left its employment to run the show at Equity Bank, the vehicle captured by the Bank of Scotland for its entry into Ireland. The battle over ICC – and Duffy’s eventual success – is believed to have left relations between the two men frosty.
A second, even higher profile corporate attack also proved a flop. In 1998, First Active – originally the sleepy First National Building Society – was converted into a bank and floated on the stock market. First Active shares soon drifted from the flotation price of €2.80 to a low of €1.85. The bank lacked dynamism and retained the old mutual building society ethos.
First Active was ripe for the taking. Its shareholders were fed up. It had lost John Smyth, its chief executive, after a series of setbacks. It was an ideal target for an opportunist predator like FitzPatrick, who was always at his happiest exploiting the weakness of rivals. After he had run the slide rule over First Active, he decided that it was a good fit. The acquisition would increase Anglo’s size by around 50 per cent and give it a market capitalization of over €1 billion. Talks opened in the spring of 2000. An announcement was made to the Stock Exchange.
Eyebrows were raised at the proposed venture. Anglo’s banking model had been a front runner for so long. It lent to businesses; its treasury operations were winners; its wealth-management arm appeared to be adding to profit. But a big deal to take over First Active would propel it into the residential mortgage market. First Active had more than fifty retail outlets all over Ireland. The cultures of the two banks could not have been more different.
On the day that the announcement of talks was released, shares in Anglo dropped 3 per cent while First Active stock shed 8 per cent. Investors had given their verdict. The financial details had been agreed with surprising ease, but the deal broke down over the vanity of the individuals involved. FitzPatrick was the undisputed choice as boss of the new bank, and other posts were not hard to fill, but the non-executive directors on the two boards began to kick up. First Active, although half the size of Anglo, wanted too many former building society bums on boardroom seats. Both Tony O’Brien of Anglo and John Callaghan of First Active coveted the chair. The deal sank in a wave of recriminations.
The proposed merger would have been what analysts today pompously call a ‘transformational’ deal. Anglo would have operated a branch network, chequebooks, credit cards, mortgages – all the products it had hitherto disdained. The little bank would have begun to compete against the Bank of Ireland and AIB in their home territory. The attempt to invade this virgin soil marked a change of tack. The question began to be asked: Was Sean losing his marbles? Had the little entrepreneur finally grown too big for his boots?
It was becoming obvious to some colleagues that FitzPatrick was changing. He no longer relished the role of an outsider. The boy from Bray wanted to come in from the cold.
It was not a change for the better. One former colleague tells of a more self-centred, almost dictatorial tendency developing as Anglo got bigger. He cites the bank’s annual get-togethers for managers at posh venues like the Royal College of Surgeons or five-star hotels. According to his colleague, sceptics nicknamed them the ‘Nuremberg rallies’.
FitzPatrick seemed to crave recognition in the circles he had challenged for so long. In 2000 the rebel banker accepted the role of president of the ultra-establishment Irish Banking Federation. He started to make silly, set-piece speeches. In late November of that year he launched the bankers’ Code of Ethics. ‘The document,’ he said sanctimoniously, ‘relies on a relatively small number of values and principles. But they are key. The principles of integrity, confidentiality, professionalism and compliance are the most basic of modern banking and we have gone to some pains to ensure that they are at the heart of this Code of Ethics.’ He ended with a rousing message: ‘Trust is important to us and we are determined to rebuild it.’
FitzPatrick was beginning to sound like all those grandiose old bankers who were running the establishment he had shunned
for years. He was going native.
At the same time he became a joiner. He was appointed a council member of the Institute of Chartered Accountants of Ireland. These citizens of middle Ireland were honoured to welcome him into their inner sanctum, and he was equally content that he could place such dull respectability on his CV. He even joined up-market clubs like the Hibernian United Services and became a member of others with cultural pursuits. He remained an enthusiastic member of the Druids Glen golf club, Fitzwilliam Lawn Tennis Club and was often spotted at Michael Smurfit’s flashy K Club. He was being seen in all the right places, rubbing shoulders with ministers and captains of industry, including key insiders like Bank of Ireland governor Laurence Crowley, AIB chairman Lochlann Quinn and AIB chief executive Tom Mulcahy.
Golf seemed to feature more in his life. It was good for business. But it also appealed to those competitive instincts. He had a handicap ranging between ten and twelve. One regular opponent says that his golf betrayed his character. ‘He hated losing. He wanted to bet on every game. If he was losing he would introduce bets on every hole to compensate. At the end of a game of golf with Sean there could be twenty bets. He had a low boredom threshold, as much in golf as he had in business. He needed the adrenaline rush, the thrill of the holes.’
All the time the bank’s loan book was growing. The same colleague who had earlier noted the increasing dictatorial tendency observes: ‘But as the business grew, so did Sean’s ego. He began to think that he could walk on water. Greed was never far away either.’
The 2003 annual report reveals that in the seventeen years since Sean took over in 1986, there had been an increase in market capitalization from €8 million to €2 billion. Profits had risen from €1 million to €261 million and total assets from €138 million in 1986 to €19.4 billion. In the five years to 2003 pre-tax profits rose on average by 43 per cent annually.
