Controversy of business practices & loans
On 4 April 2010, The Times described the lending practices at Anglo Irish Bank and how these led to the nationalisation of the bank. The article quotes the new CEO, Mike Aynsley: "hubris played a very, very big part." In many deals, Anglo Irish Bank would lend to wealthy individuals to further their equity participation. According to the CEO of Ireland's the National Asset Management Agency (NAMA), loan-to-value on deals was as high as 100%. As a result, the bank was totally exposed to any decline in value. In many cases, Anglo took personal guarantees as security. However, NAMA attaches no value to these personal guarantees.
Of the €36.5 billion of loans not being transferred to NAMA, Anglo Irish Bank has taken a provision of €4.9 billion. The article in The Times notes that Anglo Irish Bank has large exposures to entrepreneurs such as Seán Quinn of Quinn Group and Barry O’Callaghan, of EMPG. In both cases, the bank's security was limited and largely on the men's shares in businesses. The provision of €4.9 billion compares with impaired loans of €9.5 billion at the end of December 2009.
Loans to directors scandal
Chairman Seán FitzPatrick, CEO David Drumm, and board member Lars Bradshaw resigned in December 2008, following the revelation of a loan scandal. FitzPatrick and Bradshaw had taken out loans in order to purchase Anglo Irish shares. From 2000 to 2008, FitzPatrick transferred the loans to another bank prior to year-end audits, thereby causing "Loans to Directors" to be understated. In 2008, the loan to FitzPatrick and Bradshaw amounted to €87 million; the transfer resulted in the accounts showing only about €40 million outstanding to directors, instead of €150 million. The Central Bank of Ireland revealed that they became aware of problems surrounding loans from Anglo Irish Bank to FitzPatrick, following an inspection earlier in 2008. The regulator said, "While it does not appear that anything illegal took place in relation to these loans, the Central Bank of Ireland was of the view that the practices surrounding these loans were not appropriate. As a result, we continued to monitor and investigate this and as part of this process we advised Anglo-Irish Bank to ensure that these loans are reported in the annual accounts for 2008." The Financial Regulator resigned in January 2009 under pressure to do so.
In February 2009, Gardaí from the Bureau of Fraud Investigation raided the offices of Anglo Irish Bank.
In Anglo Irish Bank's 2009 Annual Report it lists loans to former directors totalling €155.8 million at the end of December 2009 versus €178.7 million at the end of September 2008. Whereas no provisions for impairment had been taken in September 2008, in the 2009 annual report, an impairment charge of €108.9 million was reported, implying a potential loss of 70% of the value of the loans to former directors.
However, the total loans to directors, former directors and "connected persons" was reported to be significantly higher at €255 million in the notes of the annual report.
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Mainland Ventures
As of November 2009, twenty-one major, Irish investors are suing Anglo and its Delaware subsidiary, Mainland Ventures Corporation, for US$23 million due to "fraudulent and/or reckless concealment" perpetrated in regards to a hotel investment fund. The outcome is pending.
EMPG loans
On 13 January 2009, opposition party TD George Lee highlighted the potential exposure of the Irish taxpayer to the failure of Education Media and Publishing Group, the holding company of Houghton Mifflin Harcourt, given loans by Anglo Irish Bank to investors in EMPG. George Lee, TD for Dublin South, told journalists that EMPG, the parent company for US publisher Houghton Mifflin Harcourt, has failed with equity investors likely to be wiped out. The Irish taxpayer was exposed since Anglo Irish Bank had loans outstanding to the shareholders of EMPG.
George Lee commented:
It has been reported to me that the education materials company Houghton Mifflin Harcourt has failed, and that a number of Irish equity investors have lost significant sums of money as a result. Many of these investors were funded through large loans from Anglo Irish Bank, which is now wholly owned by Irish taxpayers.
As a company, Houghton Mifflin Harcourt was a highly leveraged operation and had very significant banking commitments. I understand that the remaining US business is to be transferred to its bond holders. However, it appears that its Irish equity investors will lose all of their investment as a result of this failure. This will have repercussions for Anglo Irish Bank, and possibly other Irish banks, and therefore the Irish taxpayer.
This incident adds further weight to Fine Gael's calls for an urgent investigation into the Irish banking crisis. Fuller details of the goings-on within Anglo Irish Bank's risky lending practices are still emerging, and this development with Houghton Mifflin Harcourt sheds further light. However, only a full, forensic investigation into the crisis will ensure that it never happens again.
Interviewed on Irish State broadcaster, RTÉ, Barry O'Callaghan, Chairman of EMPG and CEO of Houghton Mifflin Harcourt, confirmed that Irish investors as well as he himself were facing huge losses. He stated that "no-one has lost more than me".
According to the Irish Times, investors of Davy Stockbrokers had US$475 million of equity in EMPG. The article did not identify how much or any of this investment was backed by Anglo Irish Bank loans. According to the Irish Independent, Barry O'Callaghan is a large personal customer of Anglo Irish Bank. The Irish Independent article noted that former Anglo Irish Bank Chairman, Seán FitzPatrick is one of the Davy clients that had invested in EMPG.
Based on an analysis of the Irish Independent's "2008 Rich List" and The Sunday Times' "2009 Rich List", Barry O'Callaghan's personal debts in March 2008 were circa US$400 million.
On 15 January 2010, O'Callaghan admitted to having multimillion loans from Anglo Irish Bank and other international banks. Refusing to confirm the level of his indebtedness, O'Callaghan claimed to still be solvent and stated that he expects to honour all his obligations.
In contrast to the statement of George Lee that Irish taxpayers were exposed, an Anglo Irish Bank spokesperson was reported by the Irish Times to have stated that it did not have a "big exposure" to EMPG. However, the spokesperson did not comment on whether it had exposure to individuals who had exposure to EMPG.
Loans to Seán Quinn & the Quinn Group
On 30 March 2010, following an application by Ireland's Financial Regulator, the High Court appointed joint provisional administrators to Quinn Insurance Limited. According to the Irish Independent, eight subsidiaries of Quinn Insurance provided guarantees of €1.2bn to cover Quinn Group's debts, prompting the regulator to seek the appointment of provisional administrators in the High Court. In total the Quinn family is estimated to have €2.8 billion of loans from Anglo Irish Bank and the Quinn group has an additional €1.2 billion of loans. Of these circa €780 million need to be re-financed this year.
Given the magnitude of the loans to Anglo Irish Bank the company was reported to be considering a €700 million financial rescue of the Quinn group. The plan, would see €150 million injected into Quinn Insurance and €550 million would be used to pay off bondholders. Anglo Irish Bank would become the majority shareholder in the Quinn Group. This would be, in effect, a hostile takeover and as it will be done by a government agency – the nationalization of a private company by fiat.
The Quinn group has taken action to counter the moves by the Financial Regulator including the mobilisation of its employees into street protests. The Group furthermore has rejected press speculation that the Group needs €700m of financing. Instead the Group estimates that a cash injection of between €100m and €150m is required. refusing to speculate on the need for a €550 million payment to bondholders, it noted that a re-financing, if it occurred, would not necessarily increase the overall debt of the Group.
On 12 April 2010, the Financial Regulator and Quinn group were due in the High Court. The decision on a permanent appointment of administrators was postponed by one week, following a last minute submission of documents by the Quinn Group. The company pledged to work hard to seek a resolution to the uncertainty created by the appointment of provisional administrators to Quinn Insurance. On 15 April 2010, the Irish Times reported that Quinn Insurance decided not to fight the appointment of a permanent administrator.
