by Shane Ross
Reuters retracted the story at 10.45 p.m. and explained that the journalist ‘had misinterpreted the source’, who was never named.
The Reuters story may have been wrong, but Nationwide was in trouble. Five days later the Fitch credit ratings agency downgraded Nationwide because of its exposure to commercial and residential property in Ireland.
A few days later Sean FitzPatrick sought a meeting with Minister for Finance Brian Lenihan. A meeting was arranged between the two men, with David Doyle, secretary of the Department of Finance, also in attendance. The minister was known to be conjuring up all manner of mergers in his head at the time.
Seanie sauntered into the minister’s office with a proposal. He believed that Lenihan should support a merger between his bank and Fingleton’s building society. He trotted out the line that it was a perfect match. Anglo had the corporate skills, Irish Nationwide had the branches. The two combined could become a strong force in banking. All they needed was an injection of capital from the state!
Lenihan and Doyle were unimpressed. They knew that Seanie was in trouble. They knew too about Sean Quinn.
‘And what about the Sandman, Seanie?’ interrupted the blunt Doyle, referring to the billionaire Quinn’s recent acrobatics in Anglo shares. The beleaguered chairman of Anglo shrugged his shoulders.
Lenihan and Doyle gave FitzPatrick the cold shoulder and showed him the door, but following that meeting stories kept surfacing in the media about Anglo taking over the Nationwide. The Irish Times gave it favourable mention. Someone was spinning a yarn. Fingleton was bewildered, insisting that he knew nothing of the moves and was not involved in any talks. This incident is believed to have soured the relationship between Fingleton and FitzPatrick.
Around the same time FitzPatrick asked for a meeting with the top brass of Irish Life & Permanent. The chairwoman, Gillian Bowler, and the chief executive, Denis Casey, met him and David Drumm in Dublin’s Westin Hotel. Seanie told them that a match of their two outfits was made in heaven. The meeting was short – it lasted half an hour – and far from sweet. At one point Seanie reassured the IL&P team that he would be willing to concede power and status in the management of the merged entity. IL&P could keep the prestige posts. He was desperate.
The following Sunday, 21 September, the Sunday Tribune carried a story which began:
Irish Life and Permanent (IL&P) is expected to be the next Irish financial institution to become part of a wave of consolidation set to sweep Irish banking once the deal between Anglo Irish Bank and Irish Nationwide is officially consummated.
Another story in the same day’s Tribune stated:
The pursuit of Irish Nationwide by David Drumm’s Anglo Irish is to be welcomed, although one wonders if a deal with Irish Life & Permanent (IL&P) would make more sense.
The IL&P side was furious. Bowler telephoned FitzPatrick. Their relationship was fractured.
At almost exactly the same time, FitzPatrick made frantic telephone calls to Allied Irish Banks and Bank of Ireland. AIB dismissed the approach outright. Their opinion of Anglo could be summed up by their cancellation of lines of credit to Anglo two years earlier, while Bank of Ireland remained aloof.
Sean FitzPatrick knew he was a drowning man. Unless the government bailed him out.
9. Meltdown
On 15 September 2008 – the very day, as it happened, on which Lehman Brothers went bust – John McManus, business editor of the Irish Times, published a column that must have touched the rawest of nerves.
He pointed out that ‘the willingness of the US authorities to think the unthinkable [in nationalizing Fannie Mae and Freddie Mac] stands in stark contrast to the attitude that seems to prevail in Dublin’ and observed that none of the Irish banks ‘has reported a significant rise in bad debts since the start of the global credit squeeze’.
This latter fact, McManus wrote, was cited by those who claimed that the Irish banks were in decent shape and that the dim view the markets took of them was unjustified. McManus’s own view was very different. The figures for bad debts did not reflect reality. Irish banks were refusing to recognize the problem. As a result, the balance sheets and profit figures of all the banks were in question.
It was powerful stuff from the Irish Times, a responsible paper sometimes prone to pull its punches on delicate matters of national importance. And it was on the money. Anglo Irish Bank’s interim report the previous month was close to fantasy, boasting that, ‘The Bank’s performance in 2008 demonstrates the resilience and strength of our business model.’ The statement forecast a 15 per cent growth in earnings per share and a laughably low bad-debt provision of between 0.13 per cent and 0.18 per cent. It contained the ritual pat on the back for itself: ‘The Bank has no exposure to US or other sub-prime sectors and does not sponsor any off-balance-sheet vehicles.’ There was no recognition of the threat to Anglo posed by its exposure to a few carefully selected property developers.
On 19 September – four days after McManus’s column, and four days after the collapse of Lehman Brothers – the Financial Regulator responded to the carnage on the Irish stock market by banning short selling of financial shares. This move was accompanied with attempts at reassuring noises – reassuring noises that reassured no one.
Meanwhile all the background noises were negative. The previous day’s Liveline programme on RTÉ Radio One had revealed the nation’s state of nerves at the unfolding collapse of banks around the world. Presenter Joe Duffy’s anxious listeners rang the show to demand answers. They were wondering if they should move their savings. They asked for guidance about whether to minimize their risk by spreading their nest eggs across a number of different banks or simply to sink the lot into the state-guaranteed Post Office. Many Irish savers wondered whether Northern Rock, now guaranteed by the British government, was suddenly a safer haven than AIB or Bank of Ireland.
Lenihan got in a hot snot about the Duffy programme. He rang the director general of RTÉ, Cathal Goan, and bawled him out about the national broadcaster prompting a run on the banks. It was a knee-jerk response from the minister and other members of the Cabinet, who constantly overreacted to loose media talk about the state of the banks by denouncing it as irresponsible.
Two days later, in a more constructive move, Lenihan responded to the threat of a flight of funds from worried depositors by raising the state guarantee on savings from a threshold of 90 per cent of €20,000 to a clean €100,000. But the measure was far too little, far too late. Smaller savers were already transporting their cash into the Post Office in lorry-loads because it carried an uncapped government guarantee. Depositors had lost faith in the Irish banks, and so had the markets.
I first met Brian Goggin shortly after he became boss of the Bank of Ireland in the summer of 2004.
His predecessor, Mike Soden, had just resigned after the revelation that he had surfed adult internet sites on his Bank of Ireland computer. Soden had been given a mauling by the media because of his attempts to force a merger between Bank of Ireland and AIB. He had also been involved in an unsuccessful attempt at a takeover of the UK’s Abbey National. Goggin naturally wanted to avoid a similar going-over. Obviously on a public relations offensive, he asked to meet me in my capacity as business editor of the Sunday Independent.
I was intrigued. We met for coffee in Dublin’s plushest hotel, the five-star Merrion, where you sink into comfortable sofas and drink coffee from china cups under paintings by Louis Le Brocquy and Jack B. Yeats. The hotel is partly owned by Lochlann Quinn, himself a former chairman of AIB.
Goggin was charming. He was also strangely shy, with none of the arrogance normally associated with multimillionaire bankers. He was a dapper dresser. Not a hair was out of place, nor was there a speck of dust on his perfectly polished shoes. His trousers were creased to perfection. Altogether, he was a trifle precious. He began by politely putting me right about the Bank of Ireland, gently upbraiding me for some of the harsher charges made against his colleagues and himself in my column
s, while giving me a pat on the back for taking a swipe at the Bank of Scotland, the most recent invader of his patch.
Around the same time – as a shareholder – I had visited Bank of Ireland’s headquarters in Baggot Street to have a good snoop at Goggin’s contract of employment. What I discovered was staggering. Goggin had negotiated a deal for himself without parallel in the history of Irish banking. The package surpassed even Sean FitzPatrick’s pay at Anglo the year before. The new Bank of Ireland boss was set to earn a basic salary of €1 million a year, and he was eligible for a top-up cash bonus of €720,000 provided he reached some pretty modest targets. In addition to his salary, Goggin could draw up to 40 per cent of the value of his annual salary in Bank of Ireland shares as part of a long-term performance incentive scheme. Even more generously, he was entitled to stock options by the barrow-full. Such options gave Goggin a right to buy Bank of Ireland shares at the price on the day they were granted; but he could delay exercising that right to a future date of his choosing, hopefully when they were much higher. Such juicy options are normal ways of enriching bankers. If the shares rise in the intervening months or years, the executive can exercise his right at the lower price and sell them immediately at the market price for a profit, having put down no money of his own. If the shares fall in the meantime, he simply lets the options lapse. It is a one-way bet.
If Goggin’s pay was exorbitant, his perks were mouth-watering. He was given the right to borrow the sum of his annual salary at an interest rate of just 3 per cent – not bad when the overdraft interest rate on the day was 11.65 per cent – and he could borrow €4 million at 4 per cent for a new home loan. His family would receive €4 million if he died in office. His golf club subscriptions would be paid by the bank. He was given an annual car cash allowance of €32,000 and free tax advice from BDO Simpson Xavier.
It did not end there. Incredibly, he was entitled to receive a bonanza of payments from his previous post as head of Bank of Ireland Asset Management ‘as if you remained CEO of Asset Management Services’. Which he didn’t.
I looked at Brian Goggin and wondered what qualities this man possessed to make him worth all that money every year. Was I sitting in the presence of greatness?
Goggin had received a Christian Brothers education at Oatlands in Stillorgan, Co. Dublin. Other prominent past pupils include cabinet minister Éamon Ó Cuív and Justin Kilcullen of Trocaire. Irish Times political editor Stephen Collins, a contemporary at Oatlands, remembers Goggin as ‘a bit of a swot; he did well but was rather anonymous’.
After school the young Brian did not head for university but went straight into the Bank of Ireland at the age of seventeen. He rose through the ranks swiftly, taking positions as chief executive of Corporate Treasury and in Wholesale Financial Services. In 1993, at the age of forty-one, he had taken an MSc in management at Trinity College. Such a career move was fashionable at the time among businessmen who had missed out on university education after school. The roll of honour at TCD’s course includes Willie Walsh, later of Aer Lingus and British Airways, Cathal Magee, director of Eircom, Conor Faughnan of the AA, Garry Cullen of Aer Lingus and Aer Arann, as well as Brendan Comiskey, later to become Bishop of Ferns.
Goggin’s subsequent success at Bank of Ireland Asset Management propelled him into the top job. Although he spent six years in the US and five in the UK, he never left the Bank of Ireland stable. His overall experience of banking was severely limited.
It may have been for this reason that Goggin had been passed over for the top job in 2001, when Mike Soden – a Blackrock College boy who had worked for four different banks in six countries – was headhunted for the job. Now Goggin was seizing a surprise second chance, an opportunity brought about by Soden’s shock resignation.
Goggin was appointed within a week of Soden’s departure. He was the natural successor. The bank’s board was in no mood for taking risks after the series of calamities under Soden’s leadership. They wanted a safe insider. Goggin was their man. They gave him a golden deal.
Four years later, on the evening of Monday 29 September 2008, Goggin found himself entering Government Buildings in the company of governor (i.e. chairman) of the Bank of Ireland Richard Burrows, chairman of AIB Dermot Gleeson, and AIB chief executive Eugene Sheehy. The two chairmen sought a meeting with Minister for Finance Brian Lenihan, after the worst ever day for Irish banking shares. The four bankers entered Government Buildings at 9.30 p.m. (the following Saturday, Sean FitzPatrick would tell the nation on Marian Finucane’s radio programme that at that very hour he arrived home, having had dinner out with a friend, and watched some TV before turning in at eleven).
The meeting had been initiated by a phone call from Sheehy to Lenihan’s office. Although Sheehy’s call was unexpected, Lenihan had been on alert since the previous Saturday, when the beleaguered minister was enjoying a rare moment of leisure at a Fianna Fáil fund-raiser at Gowran Park in Kilkenny for local TDs John McGuinness and Bobby Aylward. Lenihan was working the thirty tables of Fianna Fáil supporters, each of whom had paid €200 for the privilege, when he received an urgent telephone call. It was not a tip for the 4.30 race. It was the personal assistant to Jean-Claude Trichet, president of the European Central Bank. The minister was advised to expect an urgent message from the governor of the Irish Central Bank, John Hurley, later that afternoon.
The minister headed for the Gowran Park manager’s office and rang Hurley. Trichet had been in touch, warning of banks in trouble all over Europe.
The next morning, Sunday 28 September, Lenihan slipped quietly into the Central Bank’s Dublin Dame Street headquarters to meet Hurley in his top-floor office. Hurley relayed a grim message from Trichet. European banks were in crisis. Fortis of Holland, which has a joint venture with An Post, and Depfa bank, which had headquarters in the IFSC, were in peril.
A day later, with Ireland’s top four bankers in his presence, it was clear to Lenihan that he had an even bigger problem. The atmosphere in Merrion Street was far from relaxed. Top bankers are not used to seeking favours, let alone salvation. On 29 September, for once, the bankers were not in command. Their tails were deeply buried between their legs. They were desperate.
The big bank bosses were kept waiting for two hours in the celebrated Sycamore Room, so called because of its table of bleached sycamore with Fota Island yew. Playing second fiddle to the politicians was a new experience for the bankers. Spar sandwiches – the menu for the late-night crisis meeting – were not their usual fare.
The financial War Cabinet was already in situ. Side meetings were taking place everywhere. The principal mandarins in the Department of Finance – secretary general David Doyle and second secretary Kevin Cardiff – had been holed up all day. Central Bank governor John Hurley was in constant touch with the Financial Regulator’s Patrick Neary. Lenihan and Cowen had a separate meeting.
Despite the frenzied atmosphere – the most stressful day in the history of the Department of Finance – the minister managed to abandon the ship of state for a more important matter. September 29 was a big day in the Lenihan family calendar. In mid-afternoon Lenihan announced to his bemused staff that he was heading off for his Castleknock home to help blow out the candles on his daughter Clare’s thirteenth birthday cake. The break fortified him for the long night ahead.
When all the key parties finally met in one room that evening, with the Attorney General Paul Gallagher present, Dermot Gleeson let rip. According to the AIB boss, liquidity was flowing out of the system. He embarked on a tirade against Anglo and Irish Nationwide. He made it clear that the traditional game plan – that the Big Two would take over an institution in trouble – was not a runner this time. Anglo Irish – whose shares had lost 46 per cent of their value that day – might not survive the week: deposits were pouring out of Seanie’s bank. If the government did not act immediately, the whole financial system could be brought down. AIB and Bank of Ireland could tumble.
Gleeson had good reason to fear a do
mino effect. No bank could remain above the fray during a wholesale loss of confidence in Irish banks, as the carnage on the stock markets over recent months had illustrated. He, above all others, knew that many of the builders in debt to Anglo had huge liabilities to AIB and, to a lesser extent, Bank of Ireland. The Irish banks had common bondholders. If foreign depositors lost faith in one Irish bank, the others might see consequent withdrawals of money.
Gleeson must also have feared that if queues formed outside Anglo the next day, it would be a matter of hours before savers were assembling outside AIB branches all over Ireland. No bank would be immune from an outbreak of depositor panic. Gleeson wanted the government to nationalize Anglo or let it collapse to detach it from the others. Dramatic action was needed before seven the next morning, when the stock markets opened.
While Monday’s cataclysm in Dublin markets was itself potentially lethal for all Irish banks, a second blow had been struck across the Atlantic later in the day. The shock defeat in the US House of Representatives of a $700 billion bank rescue package had caused carnage on Wall Street – the Dow was down by 777 points at the close, its worst day for 20 years – and Asian markets bombed in early trading. The four bankers feared that European bank shares would be hammered at the opening on Tuesday.
The bankers were thanked by Cowen and then ushered from the room. Little camaraderie was evident between the two sides, although one participant says that it ‘probably helped that AIB’s Dermot Gleeson and Attorney General Paul Gallagher were bosom buddies from the Bar library’. A surprisingly short discussion followed. Lenihan was reported to have pondered the nationalization of Anglo alone but Cowen, characteristically cautious and fearing a legal challenge, was unwilling to discriminate between Irish banks.
