Are Irish banks finally 'getting it'? Seven months on from that fateful night in government buildings when the guarantee scheme was devised, the Irish banking sector has effectively been decapitated. The only man left intact is Fergus Murphy, chief executive of EBS. All the other mainstream guaranteed institutions have lost their chief executive, either to a scandal or just plain poor performance.
Murphy, an affable and capable man, is also a lucky man. He only began his job in January 2008 and as a result was not in charge when the building society ran up considerable property loan exposures of its own.
Not so lucky are Eugene Sheehy and Dermot Gleeson. Unlike Bank of Ireland's newly installed chief executive, Richie Boucher, there are no second acts for them. Sheehy, a man who used to walk to work but earned a salary, bonus and pension contribution of €2.1m., almost made it to the bank's agm/egm.
When shareolders do meet on 13 May, Sheehy and Gleeson are likely to be punch drunk from the criticism they receive. Of course shareholders back in 2006 were not complaining when the bank was able to boast of a return on equity of almost 30%, neither were shareholders in 2007 complaining about a return on equity of 22%.
But the recent announcement that the bank needed another €1.5bn in fresh capital, after a government-initiated stress test, infuriated institutional shareholders. The institutions, many of whom spoke with this newspaper, were angered at the fact that it took a government stress test, rather than the bank's own tests, to get AIB to face up to the true scale of its asset quality problems.
The scale of the damage to AIB is hard to translate into every day numbers.
Sheehy and Gleeson for example managed to wipe out the €1bn of profits the Irish bank managed to produce in 2007 and replace it with a loss of €52m a year later. In Ireland, in just one year alone Sheehy and Gleeson had to acknowledge bad loans worth €1.3bn.
The excuse for this disastrous performance, the global credit crunch, is not easily waved away. But emphasising the crisis in global financial markets in 2007/08 only makes the decision by both men to approve a dividend increase in 2008 seem even more perplexing.
The decision to increase the dividend by 10% at a time when analysts were screaming at banks to preserve capital was one of the great blunders in Irish banking history. The money forgone, over €270m, represents almost 20% of the sum the bank is currently trying to raise from forced asset sales.
But the most powerful and destructive force Sheehy and Gleeson unleashed on the bank was the spree of property lending engaged in by AIB, noticeably ramping up the exposure in 2006 by almost €10bn in a calendar year. In that year alone lending to Irish property developers grew by a staggering 53%.
The obsession with lending to the property development sector at AIB is the key factor in why the bank is now on the brink of nationalisation. The figures show that AIB had a particular obsession with that sector, not just property as an asset class.
For example mortgage finance to householders, as a percentage of AIB's loan book, is the same today as it was in 2004. For reasons we may never know, Sheehy and Gleeson, the bank's leaders, never seemed able to turn off the Irish property development lending tap.
Even last year when land prices had moved way below their peak, the bank actually increased its exposure under this heading, from €29.9bn to €33.2bn, even though it was already reducing credit to the same sector in the UK. It seems at this remove an extraordinary decision.
The decision to keep expanding this exposure heading, when per acre land prices had fallen by 41% year-on-year, leaves one with the impression that senior management seriously neglected to adequately protect the bank from potentially fatal exposures grouped under one asset class.
How the Financial Regulator allowed such concentration in one lending category is difficult to fathom. The regulator, under the leadership of Patrick Neary, allowed the country's biggest bank to expose more than a quarter of its entire loan book to Irish development lending, even after the asset class involved had plunged in value.
More absurd, property as an asset class in total represented almost 60% of AIB's entire loan book by the end of last year. The capital put aside, or reserved, to reflect this high exposure level has proven to be totally inadequate.
The board, led by Gleeson, is charged with reviewing and approving the level of capital needed each year. The chief executive is meant to make sure stress testing of the bank's capital plans are adequate and include realistic appreciations of the potential "shocks" possible in the wider economy.
Clearly Sheehy and Gleeson performed poorly in this area, even though this judgement is mitigated by the sheer scale of the financial crisis which started to emerge in the latter half of 2007.
But the ultimate blame for the scale of the exposure built up at AIB rests with the regulatory authorities. The Irish regulator supervises bank capital levels using what is known as the capital requirements directive, signed into Irish law in 2006.
Remarkably it allows banks to use their own internal rating systems to calculate capital requirements, in a process known as the internal ratings based approach. Crucially it allows banks to use their own estimates of defaulting loans and their own estimates of how much capital they need.
This system clearly left the banks with excessive autonomy in calculating the risks buried in their loan books. Yes the estimates, conclusions and processes had to be approved by the regulator, but what was really needed was a set of dedicated professionals to do their own estimates of the risks and exposures and not just nod through the bank's assumptions.
As Sheehy and Gleeson bow out, one would like to think a corner has been turned, but until the huge gaping holes in the regulatory structures for banks are filled, the banking system remains highly vulnerable, even after long awaited personnel changes.