With the US government opening its banking inquiry last week and our own cabinet finally acknowledging the "obvious need" for a comprehensive investigation here a full year after nationalising Anglo Irish Bank, it is worth reviewing what we need to know about the institution at the centre of Ireland's financial crisis.
When Brian Lenihan guaranteed the liabilities of the domestic banks on 29 September 2008, he saved not only the major clearing banks, AIB and Bank of Ireland, which dominate the retail market, but high-risk specialist lenders such as Anglo and Irish Nationwide. The reason advanced at the time was that all these institutions were "systemically important" and had to hang together or hang separately. The bill for Anglo so far amounts to €4bn for recapitalisation – a figure that will double at least post-Nama – and unspecified hundreds of millions in extra debt costs to the state due to the risks of the guarantee. But the official line is that the banking system would have fallen with Anglo, and winding up the bank now would cost tens of billions in immediate payments.
Not in the same way as AIB and Bank of Ireland, which run the Irish payments system along with Ulster Bank and NIB (neither of which was deemed systemically important enough to be initially brought inside the guarantee). At the time of the guarantee, Anglo did not have a dominant position in any part of the banking market apart from development finance and commercial property lending. The argument for Anglo's systemic importance rests entirely on a belief, frequently voiced by the government, that depositors and other creditors would have abandoned all Irish banks if even the worst of them went under.
New chief executive Mike Aynsley is waiting on the EU verdict for his business plan to determine the answer to this question. Once Nama relieves Anglo of €28bn of its worst loans, the proposal is to split it into bad and good banks, helped with another generous dollop of state money. The bad bank will be run down over time, while the good bank will probably sell certain portfolios – the US and UK loan books for a start – and try to reinvent itself as a business bank, possibly after a merger with one or more remaining domestic players.
Anglo is already benefiting from a capital derogation from the Financial Regulator which allows it to operate with less than the minimum required capital. To get up to the new market standard of an 8% capital ratio – double the minimum – the bank will need anything from €4bn to €6bn, depending on the discount Nama applies to its loans.
Unlikely. Shares hit a low of €0.17 when the government nationalised the bank and were on their way to zero. Nobody seriously argues there was any residual value in the bank when the state took over, although many small shareholders certainly felt misled about the true state of the institution when things turned bad. Northern Rock investors have already been told they will not receive any compensation.
Quinn's investments in contracts-for-difference (CFD) on Anglo shares ultimately made him both one of the bank's biggest borrowers and its biggest de facto shareholder. CFDs allow an investor to bet on the direction of a stock without having to take direct ownership or reveal themselves. In the end Quinn's CFD positions had taken 25% of Anglo off the table. As the stock fell, Quinn had to cover huge margin calls, which Anglo funded. Ultimately the bank lent €450m to a group of 10 clients – the so-called "golden circle" – to help liquidate the positions in an orderly fashion, but the stock kept going down and the majority of the value of those loans to 10 clients have been written off.
This is the subject of much barstool speculation. Anglo certainly had many connected clients, but that in itself is not surprising given that it was the property speculators' bank. The real issue is whether the "great and good" got unusually large loans or especially favourable terms on their borrowings. The data on more ordinary types of borrowers – those without famous names – is as yet unavailable, so a comparison is not possible.
Two scandals rocked Anglo in late 2008/early 2009. First it emerged that the bank kept loans to directors from appearing in accounts by temporarily transferring them to Irish Nationwide during the year-end reporting period. Then it came out that Anglo had recycled €7.5bn of interbank deposits as customer deposits – known as "window dressing" – by passing them through Irish Life & Permanent. Regulators knew about these transactions months before they became public, but did nothing until December 2008, when Anglo's market position had become untenable. IL&P maintained it was following an unofficial "green jersey" agenda to support the sector.
Unlike in the US, class action suits are not possible in the Irish legal system, which precludes meaningful action by small shareholders. Large shareholders either got out of the stock before the dubious transactions mentioned above became relevant or have determined there is no case to be made against the bank. Will US shareholders think again if something arises from the investigations?
Several investigations are examining whether senior figures at Anglo violated company and/or criminal law. The big question is whether the Office of the Director of Corporate enforcement will charge that staff at Anglo operated a scheme which was in breach of market regulations when it rallied the golden circle to the aid of Sean Quinn in summer 2008. The gardaí, who raided Anglo's offices last year, are also trying to determine whether anyone in the bank committed fraud.