Pic taken from WikiCommons courtesy of ITU Pictures
By Patrick Brogan
Anglo Irish Bank received much negative criticism for its role in the financial crash in this country. While it was in serious breach of many ethical and even legal issues, it was far from alone in this. This was a global crisis that had many factors. Deregulation and non-enforcement of the laws that were there played a huge factor. If we consider the way loans are created, for example. Banks went from an originate-to-hold to an originate-to-distribute system, meaning they could sell loans on as assists. This played a major role in the financial crash because nobody knew who was holding the loans when the credit crunch happened.
Another factor was the use of technology. People believed the software was bulletproof and eliminated human error without ever considering the programming was shortsighted. Maybe most worrying of all was the role of Europe’s central bank, the ECB. Not only did it know banks were hiding their losses, but they actively encouraged them. A report commissioned by Irish MEP Luke ‘Ming’ Flanagan states;
“It is difficult to see why the ECB, as regulator, promoting the safety of the European banking system, encourages banks to hide losses; worse, it is even more difficult to understand why the ECB would then use its financial muscle to subsidise those same banks, subsidies given in the form of cheap loans where the interest charged did not reflect the high risk that the loans would never be repaid. By encouraging banks to overvalue collateral and hide losses, the ECB can transfer subsidies to the banks without the banks having to declare to the public that they receive such subsidies.”
Anglo Irish Fall
While it is important to point out that these causes were international and European in nature, individuals involved in these banks are also culpable. The culture at the heart of Anglo Irish is a fantastic example of this. Especially when we look at how it dealt with Sean Quinn.
Sean Quinn made his money through quarrying before diversifying and eventually becoming a major player in the motor insurance industry. Quinn Direct was like the Ryanair of car insurance; no-nonsense and cheap. This led him to become heavily involved in Anglo Irish. He held 28% of the shares in the bank. The interesting thing here is the bank was unaware of this because of the nature of these shares.
Quinn held what were know as CFDs or Contracts For Difference. When the bank eventually became aware of this their reaction was unexpected. Their solution was to give loans to Quinn’s family and friends, known as the Golden Circe or Maple 10, to buy shares in their bank. This is of course illegal. CFDs are a gamble, a gain on these is more rewarding than a gain on a normal share, but the flip side is that a loss is much worse and this is what happened with Quinn’s CFDs when the financial crash occurred. It took a good chunk of Quinn’s near €5 billion fortune with it.
Quinn’s actions were not the only factor that led to the destruction of Anglo and the Irish economy with it, but they are important and they highlight how corrupt and badly run it was. More remarkably, Anglo actually won awards in the build-up to its meltdown. There was a perception of success because it made a lot of people rich. This was all built on falsehoods and when there was a shift and Lehman Brothers buckled, the weak foundations of Irish banking were exposed.
What Happened Quinn?
He has claimed the IBRC, the reincarnation of Anglo, are pursuing a “vendetta” against him. He moved assets to Northern Ireland, out of reach of the bank. He and some of his family members spent time incarcerated for their role in Anglo’s demise. He was replaced as Ireland’s richest man by another overly sensitive, paranoid billionaire and it is with IBRC he steps into this story.
The Sunday Business Post tried to release details from within the IBRC and were stopped when a judge issued an injunction against them. The Commission of Investigation into the IBRC sought this injunction. This was established “to investigate into matters which are considered by the Government to be significant public concern in respect of the Irish Bank Resolution Corporation Limited (“IBRC”)”.
The commission felt that the article would interfere with their report. The editor of the SBP disagreed and said his source of information was different from anybody involved in the investigation, in other words, it was information the commission did not have.
Interestingly, this is not the first time that legal action has been taking in relation to IBRC and information becoming public. Catherine Murphy brought up Denis O’Brien’s deal with IBRC to take over Siteserv. As a TD, Catherine Muphy used parliamentary privilege to highlight IBRC‘s very favourable treatment of DO’B. O’Brien later took legal action against the Dáil. He lost this case and many felt it was a victory for free speech.
It’s important to look at the details of the Siteserv deal and why a TD felt the importance of highlighting this in parliament. Firstly, there is the cosy relationship between IBRC management and Denis O’Brien. A whistleblower within the bank revealed that he was almost in constant contact and regularly visited top brass. From what the whistleblower said, it seems like it is much more than regular client relationship and questions have to be asked about what their relationship actually is and is there a conflict of interest.
Then there is Sitserv. IBRC was trying to sell off this company and was taking bids. IBRC asked O’Brien to put in one, too. His bid was the lowest and least favourable to the bank. Yet, he ended up taking over the company through Millington, which he owns. At the time, O’Brien owed hundreds of millions to IBRC and the bank gave a loan of €144 million to Siteserv. O’Brien bought it over for €45 million. All debts were then cancelled. This extended to INM‘s debts, too, which O’Brien also controls. There is also the favourable rate which O’Brien paid on debts. His interest rate was 1.25% when it should have been 7.5%, according to Murphy.
Other Dodgy Dealings
O’Brien is well known for his use of private firms with regards to information. He used a company called Another 9 or A9 Business Recovery Service. This was apparently to prevent hacking, but he has a history of using “industrial espionage” on opponents. Allegedly this was this a tactic used during his take over of INM, which we will get into a little later.
Mark Hollingsworth is a British investigative journalist. Suspicion surrounds him and his relationship to Denis O’Brien. Catherine Murphy said she and members of her staff gave interviews to him and he asked about the confidential information she received and who had supplied it. Indeed, this wasn’t just unique to the Social Democrat TD. Many people who openly criticised Denis O’Brien using the information of whistleblowers have said that they were asked about their sources of information by Hollingsworth. Hollingsworth is also said to be the source of a controversial USB that contained a dossier on Denis O’Brien and just happened to land in O’Brien’s lap.
Red Flag is a PR firm and O’Brien believes they are behind a vindictive effort to denigrate him using “conspiracy, falsehood and unlawful conduct”. Important to note is Gavin O’Reilly, son of (Sir) Tony, is a director and O’Brien and the O’Reillys have been enemies since O’Brien’s failed bid to take over Eircom. O’Brien later took over the majority shares of INM, which the O’Reillys had held for years.
Media reports said that O’Brien believes another former business rival, Declan Ganley is behind the dossier, something which he denies. Ganley and O’Brien both applied for Ireland’s second mobile phone license with O’Brien’s Esat winning under controversial circumstances. Ganley is still pursuing this two decades later. A court ruled that the dossier is not an example of conspiracy on behalf of Red Flag to bring down the billionaire living in Malta, as claimed by O’Brien.
Reaching a conclusion on such a complex web like this can be difficult. Firstly, Quinn nor O’Brien are solely responsible for Ireland’s financial crash. They are, however, part of a wider culture of greed that did cause it and as individuals, they must face the consequences. Quinn already had his day in court. Will O’Brien?
While not always obvious, these people are responsible, along with the likes of David Drumm and Séan FitzPatrick, for the problems in our society today as money that could have been used in housing and healthcare is now tied up in paying back the egregious bailouts.
The lessons that led up to this have clearly not been learnt as banks sell off loans as assets to vulture funds. The old originate-to-hold model must be reintroduced as the banks themselves suffered if these were not paid off and this kept them in check. In the meantime, those that caused the disaster cry conspiracy when people try to look into what happened and the worrying thing is I think men like Quinn and O’Brien believe this is true as they have an overwhelming sense of entitlement coupled with a lack of emotional development to deal criticism. A bad combination.
The really depressing thing is that this article is only touching on some of these issues and not at all on some. When it is spelt out plainly and in all its context it is obvious what a crook O’Brien is and yet, he continues to get away with it. For more on that, Broadsheet.ie is the best place to start. All of these issues are important because if we do not correct them, which we haven’t, we are doomed to fail again and each failure is more severe than the last. Ultimately, it is those that can afford it the least that end up paying the bill.
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