The Bankers

by Shane Ross

  In the Dáil on Wednesday 11 February Lenihan was forced to admit that he had found out about the dodge a month earlier, in January. He conceded that he had not read the entire contents of a PricewaterhouseCoopers report, commissioned by himself and delivered in October, which had unearthed the bombshell. Somehow, no member of the Department of Finance had highlighted this explosive piece of information for the minister. He was in the soup. Opposition calls for Lenihan’s resignation, for once, carried conviction. His pleas that he could not possibly have read all 720 pages of the PWC report were ridiculed. Lenihan’s position looked shaky.

  On Thursday morning Bowler went to see Brian Lenihan at the minister’s request. She had wanted to meet him in the Merrion Hotel for a less formal cup of coffee, but he was in no mood for cosy chats and so they met in his office. He did not explicitly demand heads but was assured that they would roll. Bowler offered Lenihan her own head, but it was refused.

  That evening an emergency board meeting took place at the Lower Abbey Street head office of Irish Life & Permanent. Both finance director Peter Fitzpatrick and treasury head David Gantly accepted that they had been involved in the transactions, though they protested that they were in line with the wishes of the Financial Regulator. Casey protested strongly that he was neither aware of nor involved in the mechanism used to transfer the money. The directors were prepared to give Casey the benefit of the doubt, although there were some tough questions about how a €7.5 billion deal of this sort could be executed on his watch without board approval. Some directors were pushing for Casey to step down.

  Bowler emerged at 3 a.m. with two heads on a plate for Lenihan: Peter Fitzpatrick and David Gantly. The board had refused Casey’s offer of resignation.

  Suddenly Lenihan faced a challenge to his authority, along with continuing calls for his resignation. He was incensed. He recalled an exhausted Bowler and other directors to his office later the same morning. He is believed to have briefed his own appointees to the board of IL&P, former finance minister Ray MacSharry and civil servant Margaret Hayes. This time there would be no mistake.

  When Casey learned of the meeting of Friday 13, he knew that his fate was finally sealed. His resignation was with Bowler before she reached Lenihan.

  Poor Denis Casey did not have his feet under the Irish Life desk for long enough to sample the riches taken by other Irish bankers. His salary of €942,000 in 2008 was not in the bankers’ superleague, due to the downturn. He owned 68,000 shares, worth €104,000 at his departure, and had time to accumulate only 233,000 options, none of which were of any value because the market price had sunk so low. In any case he was forced to give them up when he resigned.

  Bowler herself had survived in her €288,000-a-year job, but now the three top IL&P executives had gone. Lenihan’s authority had been restored.

  Lenihan’s cull was beginning to take shape. There had been a clearout at Anglo; Goggin was going early from the Bank of Ireland; Irish Life had shed three of its top executives. (On the same day that Casey resigned, Mark Duffy had stepped down from Bank of Scotland (Ireland). Duffy’s departure coincided with massive losses in his bank’s loans to commercial property.)

  Three of the covered banks were still untouched. Michael Walsh and Michael Fingleton remained at the helm at Irish Nationwide; Eugene Sheehy and Dermot Gleeson were hanging on at AIB; while down at the EBS no one had yet accepted responsibility for the calamitous plunge into commercial development loans.

  Four days later Michael Walsh resigned from the chair of the Irish Nationwide, citing ‘unfolding events’ as the reason. Most observers felt he was wisely avoiding the inevitable flak coming down the track.

  The big question remained unanswered. Were these guys token ministerial scapegoats? Or were the banks changing their culture?

  The minister got his answer on 25 February. The Bank of Ireland pulled a mighty stroke. Perhaps distracted by a Gardaí dawn raid on Anglo’s premises a day earlier, Lenihan let the Bank of Ireland ram a whale through his net.

  In the old days – back six months – there had been two candidates jostling to succeed Goggin upon his retirement: Richie Boucher and Des Crowley. The favourite was always Boucher, the Zambian-born fifty-year-old who had joined Bank of Ireland in 2003 from Royal Bank of Scotland. He was already a board member, in pole position. Crowley, the head of Bank of Ireland’s UK operations, was the dark horse.

  But events were rapidly conspiring against both Boucher and Crowley. The clamour for an outsider had been growing in political and media circles. Pressure was building up for key banking positions to be filled by those who were not infected by the property bubble.

  The announcement that Goggin would be departing had only just been made, but Boucher was slotted into the job with unseemly haste. Later Bank of Ireland was to maintain with little conviction that, ‘Richie Boucher was the unanimous choice of the board as having the required banking and leadership experience, after an exhaustive process in Ireland and internationally, involving internal and external candidates.’

  The rigour of the selection process was questionable. No outside candidate could possibly have accepted the post, as the pay package was unknown. A government committee setting top bankers’ pay levels was still agonizing over how much the boss of Bank of Ireland should be paid. The appointment looked like a stitch-up.

  The resistance to Boucher’s appointment was initially political. Labour Party finance spokesperson Joan Burton described it as a ‘missed opportunity to signal a new development in the banking sector’.

  Within a few hours I raised the appointment in the Senate. The Irish Independent said that, ‘Senator Shane Ross described Boucher’s appointment, with perhaps a touch of hyperbole, as “possibly the most disgraceful appointment in the business world in living memory”.’

  Hyperbole or not, it was a staggering piece of retrenchment from the Bank of Ireland board. Burrows and his boys were not beaten yet.

  Lenihan was left looking lame. The next day he expressed his approval of Boucher’s appointment at an Oireachtas committee. But the overriding impression was that Boucher was not his choice, that his eye had been wiped.

  Powerful opposition was soon to rear its head. Billionaire Dermot Desmond, a Bank of Ireland shareholder, plunged into the fray. Desmond discussed the appointment with chairman Richard Burrows and other members of the board. He had two worries.

  Firstly, he felt Boucher was totally compromised by his position as chief executive of retail, as a member of the risk committee and of the group investment committee. In a letter to Burrows he said he believed that Boucher ‘must have been responsible for fatal errors of judgment, including advancing loans to developers on the strength of overstated land values and insufficient security’. Secondly, Desmond opposed an insider. ‘Credibility and confidence need to be restored. This will not be achieved by promoting existing management further up the chain.’ Burrows offered to meet Desmond to allay his fears, but it was a case of closing the stable door…

  Boucher had been helped over the hurdles. The Bank of Ireland and Lenihan were saddled with him.

  Richie Boucher carried some interesting baggage. The property developer Sean Dunne, in an interview with RTÉ’s Marian Finucane on 15 March 2008, revealed that Richie Boucher was a ‘very good friend of mine’ who advised him on the financing of the enormous acquisitions he had recently made in Ballsbridge. Boucher did not fund the Ballsbridge purchases, but he had funded Dunne in other deals. In October 2007, in an unusual move for a banker, Boucher personally supported Dunne’s planning application for the development he hoped to build on the Jurys/Berkeley Court sites. In a letter to Dublin City Council, Boucher stated that he believed that Dunne’s plan ‘will significantly benefit the city of Dublin and its citizens through helping enhance the concept of a living city and providing buildings of significant architectural merit befitting Ireland of the 21st century’.

  Dunne’s development was not a runner. After Dublin City Council had gran
ted part permission in March 2008, the residents of Ballsbridge took Dunne to An Bord Pleanála. Supported by Dermot Desmond, who lodged his own objection, the residents persuaded the planning appeals board to throw out the entire project, lock, stock and barrel, in January 2009.

  By the time An Bord Pleanála had turned down Dunne’s application, the development was a dead duck and the banks were beached whales. Back in 2005 and 2006 all the banks would have killed for a bit of the Ballsbridge action. Today they are lucky if they are even receiving the interest payments, and the undeveloped sites in a prosperous inner suburb of Dublin are a monument to the folly of Ireland’s bankers and developers.

  While the Bank of Ireland was busy playing musical chairs with the pretenders, its share price was still tanking. On 5 March the shares hit an all-time low of 12.5 cents, valuing the entire bank at just €126 million: the price of two and a half houses in Shrewsbury Road a couple of years earlier. AIB bottomed out valued at €238 million on the same day. Both seemed to be heading for oblivion or nationalization. On 2 March AIB had reported the first loss in its Irish operations since it was founded. Both banks had suddenly discovered that their dodgy loans were soaring out of control.

  Despite the release of AIB’s awful 2008 figures Eugene Sheehy insisted that he was ‘not stepping down’, that he was only fifty-five and would retire at sixty. He even pointed out that his modest salary of €700,000 represented a 60 per cent cut. He was hell-bent on survival.

  So was Gillian Bowler of Irish Life, still reeling from the loss of her three top executives. ‘I am a fighter, not a quitter,’ she declared when presenting the bank’s 2008 results. At the same time she said that merger talks with the EBS were ‘ongoing’. In truth they had run into the ground. Nobody wanted to be troubled with EBS chairman Mark Moran’s ailing baby.

  Not even Moran himself. On 10 March Moran announced his resignation along with EBS finance director Alan Merriman. Moran had been in command when the EBS had lost its nerve and plunged deeper into the property development world, chasing bigger profits. The result was disastrous. Rather than face possible humiliation in the contest for re-election as chairman at the AGM on 29 May, Mark Moran fell on his sword.

  Fingleton was next, and his resignation was perhaps the most overdue. Back in 2006 he could have retired with honour ahead of the game, before the crash, once the Building Societies Bill – which allowed for the demutualization and sale of the Irish Nationwide – finally went through.

  But he didn’t. Instead he agreed to a board request to stay beyond his seventieth birthday. It was madness. It only served to tee up his own crucifixion.

  His extended term was notable for a series of mistakes. His profits were still healthy in 2007, coming in at €391 million, but this was a fantasy figure; many of the property development loans on Irish Nationwide’s books were about to go bad. Apparently he could not see it. He had been unchallenged for too long. His board had rarely shown much sign of independence. His years of publicity and his reluctance to employ anyone who could conceivably look like a successor made him seem indispensable. The Irish Nationwide and Fingleton were inseparable in the public mind.

  The government guarantee changed all that. In the grim new world of 2009 the Irish Nationwide depended on Lenihan, and not Fingers, for its survival.

  Fingleton, already greatly weakened by the revelation of Irish Nationwide’s role in the ‘warehousing’ of Sean FitzPatrick’s personal loans from Anglo, had offered to leave in February. Not surprisingly, his board asked him to stay on. Not surprisingly, he accepted. It was a mistake.

  After that, bad news kept spilling out of the building society’s cupboard. First it emerged that Fingleton had received a €1 million bonus in 2008. The award, apparently for staying on an extra year, was particularly sensitive as it was paid after the society was rescued by the bank guarantee. His total package of €2.34 million made him the highest-paid boss of any of the guaranteed banks in 2008. Add this to his huge €27.6 million pension pot and the patriarch at the Nationwide was seen to have transgressed the spirit, if not the letter, of the guarantee.

  Fingers protested that the €1 million was not a bonus, that it had been agreed prior to the 30 September guarantee, that he was entitled to it and that he was keeping it.

  Lenihan was furious. At a time when taxes were being ratcheted up and spending cuts were the daily diet, the public was outraged. But Fingleton was obdurate. A battle of wills followed, one that Fingleton could not possibly win. Yet Fingers was so out of touch with public opinion that he could not see the inevitable looming. This was not February 2008, it was February 2009. His board was no longer as tame as in earlier years. Sitting beside him this year were two ministerial nominees – Rory O’Ferrall, formerly of the big accountancy firm Deloitte, and Adrian Kearns, the outgoing boss of the National Development Finance Agency. Both nominees were cursed with forensic minds, integrity and independence. They did not dance to the Nationwide agenda.

  Unimpressed with Fingleton’s defiant stance over the bonus, Lenihan piled on the pressure. On 27 March Fingleton finally agreed to hand back the €1 million. But his statement was grudging. It had been wrung out of him. He again insisted that he was entitled to it and was only returning it ‘because of a 24-hour media siege on my home and also because of the effect it may have on the society’. He was ‘pleased’ to note the acknowledgement of the minister that ‘he could not be compelled to return the payment’. Fingers had received legal opinion backing his view from none other than former Attorney General Michael McDowell.

  Fingleton could not see that the legal opinion was a puff of smoke at this stage. The court of public opinion would not tolerate the boss of a mutual building society taking such huge sums when taxpayers were being forced to support it. All his years of cultivating the political establishment could not save him. Despite his friendship with Brian Lenihan’s father, the young Lenihan would do nothing to help. On 2 April Fingleton’s retirement was announced for the end of the month.

  He was lucky. If he had stayed on he would have been lynched at the annual general meeting due on 12 May. Just a fortnight after he announced his retirement date, the annual report was released. It showed losses of €280 million after setting aside €464 million for bad loans, nearly all of them in property development. The top 30 customers owed 48 per cent of the loans, and 80 per cent of the loan book was to commercial property customers.

  Fingleton’s departure was a sad end to a sometimes stellar career. He departed quietly, refusing to allow the staff to hold so much as a farewell drink for him. Unlike some of the bankers who have been so happily relieved of their positions over the years, he received no pay-off.

  The minister’s headcount of bankers was now well into double figures. Still, the big one had eluded him. Eugene Sheehy remained in charge at AIB. His survival defied explanation.

  It was not as if Sheehy could claim that he had personally outperformed his departed rivals. Far from it. Sheehy had managed to cling on to his lucrative job even though he had presided over one of the worst destructions of shareholder value in the history of Ireland. Shares in AIB had tumbled from a high of €23.95 in February 2007 to a low of 27 cents in March 2009. In two years, under Sheehy, they had tanked by 99 per cent. The market value of the bank had crashed from €22 billion to less than €250 million.

  While his shareholders were suffering, Sheehy had done very well out of AIB. His first full year as chief executive (2006) saw him rewarded with a €2.4 million package. This included a bonus of €1.3 million.

  It is a measure of the sharp climb in bonuses at AIB during the property boom that the previous boss, Michael Buckley, made only a fraction as much – €250,000 – just four years earlier in 2002. No doubt Sheehy was playing catch-up with the bulging sacks of loot being grabbed by the glory boys in Anglo.

  Sheehy had adopted a cuter game plan than Goggin. He was intent on surviving. Instead of giving a suicidal interview on his pay – as the Bank of Irelan
d chief had done – he did a quick swerve. On 1 October 2008, seeing the danger, he waived 10 per cent of his salary. In March 2009 he announced that his pay would remain at €690,000 for his remaining four years in office.

  The assumption that he would be in the job for four more years was an optimistic one at a time when most observers believed that Sheehy’s days were numbered. The government was on the verge of capping his pay at €500,000 anyway.

  At the same time Sheehy kept close to his board. Like him, all twelve of AIB’s well-cushioned non-executive directors remained stuck to their seats, determined not to sacrifice their fees. Chairman Dermot Gleeson received a massive €475,000, while ordinary board members earned up to €153,000. At one point they felt the need to express confidence in Sheehy.

  So who was this man who managed to hold on to his huge salary and position longer than all other bankers?

  Eugene Sheehy was born in 1954. His father Maurice Sheehy had been head of the Irish Sugar Company. Writing in the Sunday Independent in 2009, editor Aengus Fanning remembered Maurice as ‘diffident, steely and clinical’. He saw the son of Maurice as having ‘inherited many of his father’s qualities, including that of iron determination’.

  Sheehy was not quite AIB’s clone for Brian Goggin; as Fanning noted, he is made of sterner stuff. But the two big chiefs of Irish banking at the time of the property madness bore striking similarities. Both of them were career bankers, ‘lifers’ rooted for thirty-five years in the institutions where they had landed their first jobs. Sheehy was fifty when he took the top job, while Goggin was fifty-two.

  Sheehy came straight to AIB at seventeen from Salesian College in Limerick, run by both the Christian Brothers and the priesthood. Like Goggin he did not initially enjoy a third-level education but – again, like Goggin – he later felt the need to take an MSc in management from Trinity College.