by Shane Ross
Increasingly, Anglo’s big customers were builders and developers. Ireland’s construction boom was lifting the bank into a world of fantasy rewards. Anglo had stuck to its tried-and-tested methods: give quick answers and personalize the service. The difference now was that the economy was booming and property was booming most dramatically of all. The rough diamonds of Ireland’s building world loved the Anglo style.
The bank’s top brass started taking home monopoly money. In the year 2000, for example, total rewards for the six key players – Sean FitzPatrick, Bill Barrett, Peter Killen, Willie McAteer, Tiarnan O’Mahoney and John Rowan – climbed from €3.1 million to €3.9 million, a 26 per cent rise. (It was not yet mandatory to publish individual pay figures in annual reports, so Anglo published block figures.) In 2000 the same sextet were sitting on six million share options between them. The awards of these juicy options had been passed on by a highly co-operative remuneration committee of gentle non-executive directors.
Executive packages continued to skyrocket. In 2003 FitzPatrick took home €2.3 million while Tiarnan O’Mahoney earned €1.5 million. None of their fellow executive directors pocketed less than €1 million. The non-executive directors benefited to the tune of at least a grand a week. By that year Sean held nearly four million shares, worth about €36 million, and he had options pouring out of his ears. Short-term targets for everyone had yielded staggering rewards. The Anglo lads were the best-paid boys in town.
The independent directors of Anglo, many of them friends or business associates of FitzPatrick, were not much of a brake on his ambitions. Sometime around 2000, when Seanie had started to become a joiner, he had begun to play the Dublin directors’ game. He was good at it; he knew that he was never going to break into the stuffy boardrooms of the older inner circle, so he started to create his own. His board was full of cronies.
In 1998 Anglo had enlisted Billy McCann as a director. McCann was an old Pres pal of Seanie’s, but also a man with a proven record both as managing partner of Price Waterhouse and chairman of the ESB. McCann would have been an asset on any board. Sean got networking; after 2000 hardly a director was appointed to Anglo’s board without close business connections to FitzPatrick.
The most controversial of Sean’s boardroom capers was undoubtedly his board membership of the Dublin Docklands Development Authority (DDDA), a massive property play. Appointed in 1998, he served for nine years along with the chairman, his pal Lar Bradshaw. Both men were directors of the Authority at a time when massive DDDA developments were being funded by Anglo. Bradshaw joined FitzPatrick on the Anglo board in 2004.
In 2001 Ned Sullivan, chairman of Greencore, was brought on to the Anglo board. Lo and behold, in 2003, Sean was invited to become a director of Greencore. Not surprisingly, he accepted.
It was not a completely clear road to glory. While FitzPatrick was a political appointee to the board of Aer Lingus in 2004, in preparation for the privatization of the airline, the government baulked at appointing him chairman. At the time the Minister for Transport, the late Seamus Brennan, told me privately in Leinster House that ‘we cannot risk appointing Sean to the chair. We think he may be too accident-prone. You never know what could jump out of the Anglo cupboard and bite us.’
The minister was on the button – the government could not afford a scandal to wreck the Aer Lingus flotation. Sean had to settle for the post of senior independent director (SID), a vital cog in the Aer Lingus corporate governance wheel. (The SID of a public company is normally a senior director with unimpeachable integrity.)
In 2004 Anglo recruited Gary McGann to its board. McGann was a close pal of Anglo director Paddy Wright, long-time top dog at Smurfit Group. Three years later, when Smurfit Kappa was seeking a chairman, they opted for Sean. Suddenly he chaired two boards of which Gary was a member.
Other cross-directorships included more evidence of mutual admiration. Director of bookmaker Paddy Power and RTÉ Authority boss Fintan Drury made it to the board of Anglo in 2003. Sean sat on the board of Drury Sports Management in 2001.
Gerry Murphy, now a young seventy-six, is one of the few close colleagues of Sean FitzPatrick who are willing to talk about him openly. Murphy was FitzPatrick’s chairman at Anglo for over a decade until 1999, and later served with FitzPatrick on the supervisory board of Anglo’s Austrian subsidiary.
‘I think he got in with people of a different league, like Dermot Desmond and Denis O’Brien,’ Murphy told me. ‘He tried to keep up with them and it didn’t work.’ Both O’Brien and Desmond were clients of Anglo in their early days, before breaking into the big time. ‘Denis O’Brien and he [FitzPatrick] were close. I was at the Anglo credit meeting which passed Denis’s loan for a radio station in Prague.’
Murphy is right that FitzPatrick was close to O’Brien, who often expressed his admiration for the wizard from Anglo. FitzPatrick was close to Desmond as well, and in 2008 he would propose him as the new chairman of Aer Lingus, but Desmond – the one-time boss at Aer Rianta – turned the job down at the eleventh hour.
According to one notional candidate for the succession, FitzPatrick had muttered about retiring for years. Tiarnan O’Mahoney, Tom Browne and John Rowan, all in their forties by 2003, were no longer in the first flush of youth. They had itchy feet. No one could push FitzPatrick – he was still only fifty-six – but he had held the post for nearly twenty years.
FitzPatrick worked out a compromise. It was a typical Seanie solution. He would depart from the position of chief executive, but he would succeed Peter Murray as chairman. Such a move was contrary to the Combined Code of Corporate Governance, which FitzPatrick had formerly held so dear. It did not, apparently, apply to him.
The reason for the Combined Code’s rule against chief executives becoming chairmen was simple: it might leave a single personality too dominant on the board, and the new chief executive could find his style cramped. In extreme cases he could be a puppet. This principle of corporate governance was tailor-made to prevent people like Sean FitzPatrick from holding too much power.
But, at the end of the day, the code was voluntary. FitzPatrick persuaded the board to disregard it. He took the €350,000-a-year part-time job.
The next hurdle was the Irish Association of Investment Managers, the self-appointed group of tame fund managers who ostensibly policed the rules of corporate governance. Having received assurance that Anglo would appoint an independent deputy chairman (an assurance that was never fulfilled), this subsection of the bankers’ inner circle gave FitzPatrick the nod, just as they later did to Jim Flavin of DCC when he made the same move (although they were eventually forced to do a U-turn). This was corporate governance Irish-style.
FitzPatrick’s apologists insist that it was not the prospect of a loss of money that kept him on the board. He simply could not bear to miss the buzz. The property market was in full frenzy when he pulled out of the front line at the January 2005 AGM. A year earlier he had raised €27.6 million in cash by selling half his Anglo shares, and it is widely speculated that he used the proceeds as a basis for personal property plays. More importantly, he was massively indebted to the bank. Later events gave rise to suspicions that he needed to stay on the board in order to keep the lid on his huge loans from Anglo.
If his decision to grab the chair of Anglo was not his finest hour, then his handling of the succession was truly shabby. He had managed to keep the three pretenders to the throne (Tiarnan O’Mahoney, John Rowan and Tom Browne) on board for a decade by frequently hinting at his retirement.
Tiarnan O’Mahoney was the natural successor. He had been in charge of Treasury operations for two decades and was generally regarded as a genius around the money markets. He had his differences with FitzPatrick from time to time, but on the whole he had gone with the flow. He was a numbers man and would have been a safe choice.
Tom Browne and John Rowan were high fliers, more in the FitzPatrick mould than O’Mahoney. Browne had been on the board since 2004 and was described as ‘
Head of Lending Ireland’ in annual reports. Press speculation that Browne was the heir apparent kept surfacing as the race hotted up. Rowan, talented and ambitious, suffered from having been slightly out of the loop as chief executive in the UK when the jockeying for pole position went on.
The eventual choice staggered the banking fraternity. A complete outsider in the succession stakes was selected. But if the general public had never heard of him, he had been a quiet force in the bank ever since his return from the United States in 2003.
David Drumm was parachuted into the top post.
He was only thirty-eight. Having joined Anglo in 1993, he had left Ireland to set up its operation in Boston in 1998 and returned to take over the Irish lending division in 2003. He was not a director. He had been on the bank’s strategic management board, but that tier was solidly second division.
Even to this day, the contenders are reluctant to speak of the reason for Drumm’s selection. One says that he was ‘on the lending side that produced most of the profit. He was a property man. He was very much in the Seanie mould.’
Another insists that Tiarnan O’Mahoney was never a live prospect. ‘Tiarnan was incapable of ingratiating himself with anyone. He never went to charm school or read How to Win Friends and Influence People. He was on the Treasury side, which produced less than 25 per cent of the profits. The lending boys didn’t like him.’
All three of the disappointed front runners left the bank within months of Drumm’s elevation. Although FitzPatrick was not on the committee that selected his successor, it was unthinkable that he did not exert influence on the directors making the recommendation. Seanie may have got the general he wanted, but he lost all his lieutenants. Anglo was never to be the same again.
(A feature of the selection process that is sensational in retrospect was the identity of one of the external advisers on the succession: Donal O’Connor. In June 2008, four years after Drumm’s selection in 2004, FitzPatrick asked O’Connor to join Anglo’s board. In December 2008 he became chairman of Anglo upon FitzPatrick’s resignation. In June 2009 he told me that Drumm had been selected as chief executive on the basis of his interview.)
David Drumm was a bad choice. He was not quite a clone of Seanie but he was close enough. Like FitzPatrick, he had started his career as an accountant. Like FitzPatrick, he had got itchy feet and headed for more profitable pastures. Like FitzPatrick, he took the top Anglo job at the age of thirty-eight. Like FitzPatrick, he was a lender. When he was receiving Sean’s benediction for the job, the chairman described Drumm as ‘soaked in the ethos of the bank’.
The new man’s competence was not in question – he had done a reasonable job setting up the Boston division. A former employee of Anglo told me that the main amber light against Drumm, in the eyes of those who chose him, was his inability to stand up to his mentor. ‘Sean was very pro-David Drumm,’ Gerry Murphy recalls. ‘Tiarnan O’Mahoney was the cleverest of the prospective successors but he was not good with staff.’
Supporters of Drumm point to the profits record in his early days: Drumm kept reporting figures that stunned the market. But critics saw the profits as a bubble, based on careless lending in an overheated property market. For three years under Drumm, Anglo denied that it was taking undue risk. The bank stood behind its highly optimistic provisions regarding bad debts for losses on property. So did its auditors, Ernst & Young.
While the bad debt numbers (or ‘impaired loans’ as they loved to call them – because nobody really understood what this meant) remained minuscule, the figures for lending were becoming sensational. In 1998 the bank had lent €3.5 billion in advances to customers. By 2008 it had reached €73 billion. In the first year of Drumm’s stewardship lending increased by 41 per cent. In his second year it soared by another 45 per cent.
Anglo was brazen about its worship of the new deity of property. The annual reports, while coy about using the ‘property’ word, were shameless. Flashy pictures of some of the projects the bank had supported took garish pride of place in the reports, which began to look more like auctioneers’ brochures than bankers’ tomes. By 2006 Anglo’s display of the properties it had funded verged on the vulgar. Harvey Nichols in the fashionable Dundrum shopping centre sat alongside a massive project in London’s Earls Court and Olympia. The front of the 2007 annual report was a full-page, in-your-face picture of the five-star Ritz Carlton Hotel in Enniskerry, Co. Wicklow. Inside were more full-page pictures, accompanied by boasts about how the bank had provided finance for the Thistle Hotels in the UK. Hotels all over the US were featured with similar pride. The subliminal message was clear: ‘Come over to Anglo. We are the property developers’ bank.’ Anglo was going for broke on property.
During these frenzied days a strange anomaly was emerging. Out in the marketplace during 2007, as the property bubble started to deflate and the global credit crunch kicked in, Anglo’s shares fell by nearly 50 per cent. Yet in the same year, under Drumm’s leadership, profits were reported as rising. All the time, Anglo was increasing its lending to property developers. The stock market began to think the bank was barmy, and some observers believed that Anglo was releasing fantasy figures. The shares peaked at €17.53 in June 2007. By December they had plunged to €10.94. In May of that year Anglo reported first-half profits of €462 million, up from €289 million a year earlier. Many of those buying the shares had been punting in the deadly ‘contracts for difference’. One of the investors was the first major global bank to collapse, Bear Stearns.
But wiser counsels, like investment house Merrill Lynch, put Anglo on their ‘least preferred’ list because of its exposure to property. The shares fell as investors regarded the figures as failing to reflect the dangers inherent in a bank so dominated by property lending. By December Anglo reported that its profits were just short of a billion euros (€998 million, up from €657 million the previous year). Anglo was defying gravity.
An insider suggests that the departure of all the disappointed pretenders to the throne, the front-line talent, was fatal. ‘Tiarnan had certainly curtailed Sean’s excesses,’ he says. ‘When Tiarnan went so suddenly, there was no fireguard around the fire.’
The fire was blazing out of control in every corner of Anglo. Pay for the bosses kept going up; by 2008 FitzPatrick’s own pay as chairman had shot up to €539,000, a 48 per cent increase in two years. David Drumm had his snout buried deep in the trough. Revised figures show that in 2007 Drumm received a ‘performance bonus’ of €2 million and a total package of €4.656 million – not a bad reward for a boss whose bank would face nationalization or liquidation barely a year later. The three disappointed contenders for FitzPatrick’s job took obscene amounts of money with them as they left: O’Mahoney bagged €3.65 million, Tom Browne trousered €3.75 million and John Rowan had to be satisfied with a mere €1.1 million, all ‘in recognition of their substantial contribution to the Group’ – not to mention any pension arrangements they had quietly organized.
The parting pay-offs were stunning. The three had already been lavishly rewarded over the years; no one had forced them to leave; Anglo had gone completely over the top. It is hard to find a more extreme example of corporate gluttony.
Drumm was not judged strong enough to stand firm against the FitzPatrick doctrine that had controlled Anglo for so long. No one expected him to challenge the supremo. Some suspected that FitzPatrick had been unwilling to support any of the three leading contenders for his post precisely because of their abilities, their record and their capacity to stand up to him. Worse still, they might steal his limelight. Sean was being fêted as a banking hero in the media, in political circles and even among some of the old establishment. He was winning gongs, such as the ‘Business & Finance Business Person of the Year’ award in 2002. He was sitting on judging panels. He was ‘Mr Anglo’. David Drumm was never going to seize that title from him; other contenders might have done.
Anglo was in big trouble long before anyone had heard of Sean Quinn and the ‘G
olden Circle’, or of Seanie’s hidden loans or even of the sham deal with Irish Life & Permanent to boost Anglo’s balance sheet artificially. It was a powerful bank in the grip of one man. It was making property loans that were ‘secured’ by other property plays. Its loan book was dominated by a handful of favoured clients. It ignored many of the principles of corporate governance. It was paying obscene money to its current employees, its former employees, and to its directors. It was a property junkie – or, in the words of a London investment house in early 2008, ‘A Building Society on Crack’.
The story of the boy from Bray ended in his resignation in disgrace on 18 December 2008. Just a year and a day earlier, RTÉ’s Aine Lawlor had asked him a telling question.
Lawlor: This is what the other guys were running around saying about you guys: ‘They’re nothing but buccaneers, nothing but pirates. You know they take far too many risks and it’s all going to come and topple one day.’
FitzPatrick: ‘Will they last? Will they, they’re a fine bank but will they last?’ That has been said about us in the seventies, the eighties, the nineties, and indeed even in recent years, but we have arrived, and we ain’t going anywhere. We are now the fourth largest company in the Irish Stock Exchange, we’ve got a market capital of over ten billion, we’ve got lending now, loan books that would be bigger than either AIB or Bank of Ireland of five years ago. So we’ve arrived and we’re going to stay and we’re going to continue to progress… because of the culture within the bank and within the people.
A year later – almost to the day – Seanie was gone.
3. The Regulators
Eugene McErlean walked through the door of my Senate office on 18 June 2008. Not often does a former internal auditor of AIB arrange to meet a critic of the banks – something I had been for years. I confidently expected that this was to be my Tony Spollen moment.
