by Shane Ross
Cathal Magee, now chief executive at Eircom, was a fellow student of Sheehy’s. He described him to me as a guy with ‘no ego, a mixture of modesty and capability’. Other classmates say that he was not the sort of guy to put his hand up but he was a man of integrity. One told me that while he was ‘almost shy, you could sense a streak of ruthlessness in him. He never drew attention to himself.’
Such shyness is consistent with a man who shunned the limelight throughout his career at AIB. Like Goggin, he limited himself to media set pieces, doing interviews only where he felt it was essential. When I rang his office seeking an exchange of views for this book he did not bother to return the calls, nor even to send a message of acknowledgement.
He has always been an AIB staff man. He has never forgotten that he came to the top via the retail end, not floating in sideways like many others. He was the manager of three Dublin branches before jumping over the wall to headquarters.
He was lifted out of the branches by former AIB managing director Kevin Kelly, who spotted his talent when inquiring who was running a giant AIB technology project back in 1995. He was told it was Eugene Sheehy. After Eugene had delivered the project ‘on time and on the money’, Sheehy was fast-tracked. Kelly told me that he is a ‘highly effective guy with no ego’. It was the first of four promotions for Kelly’s protégé.
Early in 2002 Sheehy was flushed out as the bank’s rising star. He was sent to the United States to sort out the mess in AIB’s US subsidiary, Allfirst. In the process he extracted AIB from the scandal that had rocked the very foundations of the bank. His reward was the chief executive’s job, which he gained in 2005.
The survival of Sheehy, and of his chairman Dermot Gleeson, was puzzling to observers in the spring of 2009. The AIB public relations machine had enjoyed a measure of success in portraying Sheehy as some sort of master of the universe. He was constantly being pitted against Brian Goggin, whose media appearances made him seem a plodder. When pushed, Goggin went quietly. Sheehy, who was more self-confident and articulate, could tiptoe through the minefields and dodge the missiles.
But he could not dodge the AIB numbers. They were woeful.
Long before the AIB shareholders’ meeting, more bad news broke. After independent government auditors had again rummaged through AIB’s books, they challenged the bank’s figures. They found that AIB required another €1.5 billion, bringing its total capital needs up to €5 billion.
AIB was now in a worse position than Bank of Ireland. Its greater exposure to the property developers was recognized in the sums being put up by the government.
Reports leaked out of a fierce row in the Department of Finance about AIB’s need for capital on the weekend of 18 and 19 April. Sheehy and other AIB directors were adamant that no more capital was needed, but the department would not countenance a situation where the bank was back seeking more funds within months. Sheehy’s credibility on the recapitalization issue was zero.
He must have seen the men in grey coats at the door. Even his persuasive skills could not survive the acceptance of another €1.5 billion in funding. AIB protested that it might raise the money by selling its interests in Poland or the United States, but buyers of banks were scarce in both countries. The suggestion was a face-saver.
In the following week some of AIB’s biggest shareholders approached the bank. They would not be voting for Sheehy’s re-election at the annual general meeting to be held two weeks later on 13 May. Lenihan himself gave no indication of support for the incumbent chief executive. Sheehy was being hung out to dry.
On Thursday 30 April AIB chairman Dermot Gleeson carried the news to Lenihan that neither he nor Sheehy nor finance director John O’Donnell would be seeking re-election.
Lenihan had now toppled the biggest names in Irish banking. Yet, once again, he bottled the succession.
A new AIB chairman had already been agreed. With a speed reminiscent of Burrows’s placing of Boucher in the top job at Bank of Ireland, the AIB board had arranged for Dan O’Connor, who shared board responsibility for AIB’s disastrous lending policies, to take over as chairman. He may have been a good banker in his days at GE Consumer Finance, but he was hardly a new broom. Nor was new deputy chairman David Pritchard. Both had been directors of AIB since 2007.
Lenihan could have insisted on a temporary AIB chair followed by a period of reflection, but he did not. He did, however, take a stand in the contest for Sheehy’s successor.
Colm Doherty, the head of AIB Capital Markets, was hoping for a pre-emptive strike in line with Boucher’s coup at the Bank of Ireland. Doherty had been a candidate in 2005 when Sheehy won the job. He and Sheehy had never been soulmates. Indeed Doherty seems to have been at pains to run his own independent republic of capital markets during the Sheehy years. He was based across town at the International Financial Services Centre, miles away from the Ballsbridge headquarters.
At odds of 7/4 against with Paddy Power bookmakers, Doherty was the leading named candidate. But Paddy Power was offering 1/2 odds on an external candidate. The money came flooding in for Doherty. Doherty moved to 8/15 when the bookies closed the book, fearing that the insider might walk away with the job.
The idea of hiring an external candidate flew in the face of the AIB tradition. The AIB board wanted to install Doherty. Lenihan was forced to instruct his nominees – Dick Spring and Declan Collier – to warn the directors against this. The move was stalled. If AIB’s board had arrived at the AGM on 13 May with Doherty already slotted into Sheehy’s shoes, there would have been mayhem.
The idea was dropped, at least temporarily. There was enough trouble due at the AGM without the board being deliberately provocative.
At the AGM the by now standard apology was read out by chairman Gleeson. He probably did not cut and paste Donal O’Connor’s words of regret from Anglo, Burrows’s from Bank of Ireland, Gillian Bowler’s from Irish Life or Mark Moran’s from EBS, but the speech had a familiar ring.
A few rows back from the platform lurked Gary Keogh, a shareholder from Blackrock, Co. Dublin. Keogh waited until Gleeson was in full flow, stood up and hurled an egg at the chair and at Sheehy. He missed by inches as Gleeson showed that his verbal dexterity was matched by remarkable speed when it came to ducking physical missiles. Keogh gained some satisfaction from the egg crashing into the wall behind the platform and splattering on Gleeson’s sleeve.
Keogh was quietly escorted from the AGM. Unapologetic, he gave interviews to the media, explaining that his €18,000 investment in AIB shares had been wiped out. His story resonated around Ireland.
The meeting went on endlessly. Gleeson, just like Donal O’Connor at Anglo’s EGM four months earlier, refused to allow the directors to answer any questions from shareholders – a less than democratic decision, as they were due for reelection that day. Even new chairman Dan O’Connor was shielded from the shareholders. The only directors on the platform were the three in the departure lounge. The others were squatting in the front row, unaccountable for their stewardship. Eventually, under pressure from shareholders, Gleeson asked the directors to stand up. They were then re-elected on a massive vote from the big institutional shareholders, without uttering a syllable at the meeting.
Lenihan, on behalf of the taxpayer, had cast his 25 per cent vote in favour of the outgoing directors.
Three AIB heads in one day were enough for him.
A week later, on 20 May, Richard Burrows confirmed that he would be leaving his post as governor of the Bank of Ireland after the AGM in July. Burrows had held on for months as all around him were being culled; but hints were being dropped in high places that he too might not survive the July AGM. Ominously the minister had given him no assurance that he would be casting the state’s 25 per cent of votes in his favour. Elsewhere institutional shareholders were again contemplating their position on the governor’s future. Suddenly the re-election of bank directors was no longer automatic.
The governor of the Bank of Ireland had commanded a co
nsistently higher fee than any other Irish bank director. Burrows’s pay of €512,000 for 2008 – not bad for a year when the bank reduced the number of scheduled board meetings to seven – may explain his eagerness to stay in the job through awful times. (The bank also held two unscheduled meetings that year, to make a total of nine.)
On 17 June Irish Life slipped another ‘lifer’ – Kevin Murphy, head of its life and pensions division – into Denis Casey’s vacated position. Murphy emerged from an ‘exhaustive process of interviews of external and internal candidates’. He had been in Irish Life for thirty-seven years.
Retrenchment was on a roll.
When he was not sorting out the bankers, Lenihan had an economy to rescue. A succession of fearful figures on unemployment, recession, property prices, the budget deficit and other indicators showed the sins of the bankers pushing the economy over the precipice. An emergency Budget was called for April.
Lenihan flagged the draconian measures well in advance. Everyone expected the doubling of the income levy, the attack on social welfare payments and on the child care supplement, plus increases in capital taxes, DIRT tax and others. The entire country knew that this Budget was merely a start. There would be more of the same in December.
The minister used the emergency Budget as an opportunity to unveil his vehicle for rescuing the banks. It caused as much controversy as the entire gamut of penal measures inflicted on the taxpayer.
Lenihan had commissioned an old Bertie Ahern buddy, Peter Bacon, to recommend a solution for the banks. Bacon had a long record of writing reports for governments. Many of them were about property. He had worked in the Economic and Social Research Institute, Goodbody Stockbrokers and as economic adviser to the Department of Finance under Bertie. Bacon had bags of ability, but his sometimes haughty manner made him few friends. Humility was not his strongest suit.
Bacon proposed a variant of the ‘bad bank’ solution to the toxic assets on the banks’ balance sheets. Lenihan accepted his report and told the Dáil that he was setting up a National Asset Management Agency (NAMA) to acquire development loans from the covered banks.
Next day the minister, Bacon and Michael Somers, head of the National Treasury Management Agency (NTMA), held a press conference to explain how NAMA would work. The details were sketchy but the die was cast. The government had set its face against further nationalization of banks. It was heading down the Bacon road.
The basic idea behind NAMA was simple. The new agency would purchase development loans from the banks at a discount from their book value. The banks would receive government bonds in exchange. Unencumbered by bad loans, and recapitalized via the government bonds, the banks would, in theory, be freed up to lend again. Other banks too would be more willing to lend to them as they carried no toxic debt.
The NAMA plan caused consternation. Twenty academic economists wrote an article for the Irish Times condemning it. Hostility began to snowball as opposition politicians and even Dermot Desmond opposed the initiative. The principal objection was that, by releasing the banks, NAMA imprisoned the taxpayer. Roughly €90 billion worth of loans was on the table. NAMA would have to negotiate a discount with the banks. On past form, in a falling property market the state would pay too much. The banks might not only be relieved of their bad loans burden, but they might even wipe the government’s eye in the process.
Developers too were up in arms about NAMA. They were comfortable owing their bank millions (in some cases even billions), but they saw a transfer of these loans to an arm’s-length state agency as the road to ruin. NAMA would look at the loans transferred out of the banks’ hands and decide on the right path on a case-by-case basis. The builders’ cosy relationship with the banker who had given them the loan was being removed. NAMA would dictate which builders would live and which would die.
Opposition from the developers was not a big deal. They were in no position to argue. Politicians posturing, even academics hurling from the ditches, were easy enough for Lenihan to brush off. But the unexpected appearance of Michael Somers, head of the National Treasury Management Agency, before the Oireachtas Public Accounts Committee (PAC) on 14 May caused an uproar.
Somers is one of the few non-elected public servants with a media profile. Successive ministers for finance have eaten out of his hands. Somers shocked the assembled TDs and media with his remarks about NAMA. He said he anticipated legal challenges and a ‘bonanza’ for lawyers. He related having been ‘aghast’ when he reviewed the banks’ loan books: the scale of the development loans had shocked him. He had no idea how NAMA would be set up. His agency was not adequately staffed to deal with the challenge of running NAMA or even working on the resolution of the banking crisis. And in a sour aside he told the committee that Ireland would be lucky to hold on to its last remaining AAA credit rating, as its debt levels could surge once the state had taken on the bad loans from the banks. Standard & Poor’s and Fitch had already downgraded Ireland’s sovereign debt. Moody’s was expected to follow (and did, on 2 July).
Lenihan was in Brussels on the day that Somers let rip, about to launch a roadshow in European capitals explaining Ireland’s strategy to would-be investors in government bonds. Michael Somers’s decision to let off steam about the centrepiece of that strategy could have torpedoed the minister’s mission.
Few understood Somers’s outburst. A quintessential career civil servant was behaving in an uncharacteristically unhelpful way. Some suggested that he was furious that the state had pillaged his €20 billion National Pension Reserve Fund to save the banks, others that he was only six months away from retirement and was now happy to speak his mind. Certainly the highest-paid civil servant in Ireland – reputed to be on €1 million a year – had put the cat among the pigeons.
Lenihan continued on his European roadshow. He met investors in London. According to the Irish Times he received ‘generous praise’ all round for mastery of his brief and for some of the measures he was taking. On his return he took to the airwaves to defuse Somers’s solo run, downplaying the NTMA boss’s appearance before the committee and explaining what Somers really meant. But the relentless attacks on NAMA were undermining its credibility at home. A week later Lenihan, Bacon and the interim director of the new agency, Brendan McDonagh, put in a four-hour stint in front of another Oireachtas committee. All three of them took questions on NAMA in an attempt to persuade TDs that the government was not for turning. McDonagh put up a fine performance, releasing more details and spelling out how the agency might operate. Legislation would be ready in July. If necessary the Dáil would be recalled. Lenihan insisted that there would be no easy options for developers and that some bankruptcies would be necessary under NAMA.
For the banks the advent of NAMA could not come a day too early. On Friday 29 May Anglo Irish Bank released its interim results. They were shattering. The rogue bank revealed a pre-tax loss of €4.1 billion in the six-month period. The government promised to beef it up with €4 billion in capital. Anglo had written off €308 million for the famous Golden Circle, described in the interim report as ‘ten longstanding clients’, who had bought Anglo shares – now worthless – with money lent to them by Anglo after Sean Quinn unwound his CFD position in the bank. The taxpayer would pay for most of the Golden Circle’s losses. (At the press briefing at which the interim results were announced, I asked O’Connor what he had known about the placing of Quinn’s huge stake in the hands of these ‘longstanding clients’. He said he had been quietly told about it by Sean FitzPatrick but could not remember the placing coming up at a board meeting: evidently he did not feel it was a matter worth pursuing.) The bank’s losses could soar to €7.5 billion. Deposits had continued to flow out, despite the guarantee.
Some people were still doing well out of Anglo. Miraculously the auditors Ernst & Young were still in favour with the bank. They had received €2.2 million from Anglo in the previous year, even though they had failed to spot FitzPatrick’s loan wheeze.
Chairman (and tem
porary chief executive) Donal O’Connor was drawing a healthy salary of €500,000 a year from the faltering state-owned bank. His defence of Anglo at the press conference was feeble. Far from opening up an era of transparency, the briefing was held with cameras forbidden. O’Connor’s economy with information was consistent with his EGM performance. He refused to give the names of the former directors whose €31 million in personal loans had been written off by the bank. Nor could he reveal how much was known about the Golden Circle at board level. Little had changed.
Anglo was a total basket case. Capital requirements had to be waived to allow it to continue as a going concern pending EU approval for a further state injection. On that black Friday NAMA may not have been a panacea, but it was the only game in town.
11. The Abyss
Joe Higgins stood triumphant in the Royal Dublin Society at 5 a.m. on the morning of 8 June. Beside him stood his 91-year-old mother Ellen, beaming from ear to ear.
Higgins had just captured the third and final Dublin seat in the European parliamentary elections. Fianna Fáil had lost its standard-bearer in the constituency, Eoin Ryan. Ryan’s father, also Eoin, had been one of the longest-serving senators in the state’s history. His grandfather Dr Jim Ryan had been a minister under Éamon de Valera and Sean Lemass. His daughter Sarah had been defeated a day earlier for a Dublin City Council seat. Higgins – a hard-line socialist with virtually no resources – had toppled a dynasty spanning four generations. His posters had been printed in dull black and white, pitted against the other parties’ rich technicolour. He had a small team of supporters. In the final days of the campaign the full force of the Fianna Fáil guns had been trained on him. Brian Cowen, rattled by poll figures suggesting a surge for Higgins, attacked him, suggesting that not a single job would be created by voting for a veteran of the left.
