Belfast Telegraph

Governor slams Anglo rescue bid

The Government should have let the toxic lender Anglo Irish Bank go bust in September 2008, the country's top financial watchdog has said.

Patrick Honohan, Governor of the Central Bank of Ireland, estimated the cost of trying to rescue it, and the other banks, at 40 billion euro - 8,734 euro for every man, woman and child.

The professor told the parliamentary banking inquiry in Dublin that the late finance minister Brian Lenihan was overruled on plans to let Anglo go under during late night negotiations to guarantee all the deposits and borrowings of Irish banks.

Initially reluctant to name names, Mr Honohan said he believed someone pulled rank during talks with bankers and regulators which led to the crippling 440 billion euro pledge on September 30 2008.

"The point is obvious," the professor told the banking inquiry.

"I don't want to be on television naming people.

"The Taoiseach (Brian Cowen) and the AG (Attorney General Paul Gallagher) were present and they are the only other political people who were present."

Mr Honohan revealed hat Mr Lenihan told him personally that he had wanted to burn two billion euro worth of subordinated debt in Anglo by nationalising the rogue lender around the time of the guarantee.

Ultimately, the Irish state pumped 64 billion euro into a taxpayer-funded rescue of it and the three other main banks - 34 billion euro alone for Anglo and Irish Nationwide Building Society before they were nationalised and liquidised.

Mr Honohan said he rejected the idea Anglo was a systemic bank and told the parliamentary inquiry Anglo should have been nationalised over the course of a weekend.

At the end of the four hour hearing, the governor was repeatedly pressed on where the bailout cash ended up and who would have benefited from the rescue of Ireland's big banks.

He said that targeting bondholders on the international markets for profiteering from the crash and bailout was "very bizarre" and insisted that all creditors, bondholders and depositors in Irish banks, who took money out of the system in 2010, were using money borrowed by the state.

"It went on buildings that nobody wants to live in, that's part of it," he said.

"It went on paying wages of the builders.

"Where did the money go up in smoke?

"It went up in smoke on properties that weren't worth anything and weren't any use to anyone."

Mr Honohan insisted that the crippling effect of the bank bailout was not the main reason Ireland's public finances spiralled out of control in late 2010 resulting in the 67.5 billion euro in loans from the International Monetary Fund, the Europe Union and the UK.

He pointed to imbalances in the public finances, a collapse in tax and massive spending.

"People are mainly paying for rebalancing the fiscal accounts and not paying for this amount, 40 billion, it was formerly borrowed by the banks from bondholders, the bondholders have been repaid and now it is borrowed by the State from the Euro system," he told the inquiry.

He told the inquiry that the damage to society as a result of the penal tax increases and spending cuts introduced to cover the bank rescue was being felt much more greatly in poorer households and communities.

"Some crashes have affected the rich worse than the poor - this one in Ireland has affected the poor worse than the rich," Prof Honohan said.

"I don't dispute the fact that this has been very bad for the poor and also the poor haven't the ability to weather a loss of income ... (it has) definitely been very bad for the poor."

Mr Honohan described Anglo in September 2008 as having a "business model that was not credible" and that it had "run out of cash" and that government or regulators should have stepped in and removed the management.

This week Finance Minister Michael Noonan suggested the Government could end up making a profit on some of the bailout, particularly the 99% shareholding it now had in Allied Irish Banks.

Mr Honohan, who disagrees with the minister's optimism, was called into the banking inquiry to discuss a report he compiled for the Government on regulation from 2003 to 2008 before he was appointed Central Bank governor.

He said he stood by his 130-page report and that regulation in 2008 in Ireland was one of "a triumph of hope over reality".

But, challenged on the watchdog's standards in the years running up to the crash, Mr Honohan admitted he now believed it was not intrusive.

"The Government, and not just the Government, the whole regime did not want to interfere," he said.

European Central Bank chief Mario Draghi has so far rejected calls for him to come to the committee to answer for the authority's role in Ireland's bank guarantee scheme and the subsequent need for a bailout.

Mr Honohan was pressed on a reported voicemail left by an ECB chief on the late Mr Lenihan's mobile three days before the guarantee was signed which allegedly warned him to "save your banks at all cost".

The professor said he spoke to Jean Claude Trichet, ECB chief at time, about the allegation, who told him: "I spoke to the Irish the same as I spoke to everyone, there is no system, you must have responsibility for your own banks.

"I did not ask him about the voicemail specifically."

Mr Honohan suggested Mr Draghi was considering how he could assist Ireland's banking inquiry without appearing to be answerable to the Dublin parliament.

Aside from the alleged voicemail, there was also the issue of the tone and content of a letter to the Irish Government threatening to withdraw emergency funding from the Irish banking system in late 2010.

"I have no evidence whatsoever," he said.

"I don't believe it to be the case that the ECB asked the Irish Government to guarantee the banks."

Prof Honohan dismissed the idea that the collapse of Lehman Brothers bank in New York was to blame for Ireland's banking meltdown pointing to "one shock or another" being the catalyst.

He said regulators should have known Anglo was bust in September 2008 but it should have been allowed to fail as a "European Lehmans" even if the Government faced being treated like a pariah internationally.

Mr Honohan was blocked from answering questions on a seven billion euro short-term deposit loan between the then Irish Life & Permanent and Anglo Irish Bank as a trial is pending and he was also prevented from discussing his rationale for phoning RTE Radio one morning in 2010 to reveal the possible extent of an IMF bailout three days before a formal application was made.

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