Tuesday, 20 January 2009
Anglo Irish Bank Corporation Bill 2009: Second Stage
I move: "That the Bill be now read a Second Time."
I thank Deputies for their time, given the short notice available, but clearly this is an issue of serious national importance requiring swift action by the Government. I bring this Bill to the House today with a view to securing the financial position of Anglo Irish Bank and by extension the stability of the Irish financial system. The Government took the decision to bring Anglo Irish Bank into public ownership following consultations with the Central Bank, the National Treasury Management Agency, the Financial Regulator and our legal and financial advisers. I have also consulted with the board of Anglo Irish Bank subsequent to the decision of the Government.
I want to assure the House that the Government's move to nationalise Anglo Irish Bank is in the national interest and has been taken to safeguard the economic future of the country and the continued viability of our financial institutions. The Government is determined to protect the taxpayers' interests by putting clear blue water between the new Anglo Irish Bank and the unacceptable behaviour that has gone before.
It has been said so often outside this House that perhaps this bank is not of systemic importance to the Irish economy but I would like to outline on the record of the House certain fundamental facts about this institution.
The total number of customers with loans in this institution is approximately 7,000, of whom the Irish customers who owe money to the bank are approximately 5,000. The total number of retail depositors in this institution is approximately 300,000, of whom 72,000 are Irish customers. The total number of corporate deposits held in this institution is approximately 12,000, of whom approximately 3,500 are Irish customers. It is important the House understands that this bank is of systemic importance to Ireland and our reputation throughout the world. This was not an optional decision for the Government; it was a carefully considered decision, arrived at by the Government after consideration of all the factors at a full meeting of the Cabinet. When the House endorsed the decision of the Government on 29 September 2008 to guarantee the six Irish financial institutions, it was clear the Government took that decision to prevent a failure or collapse on the part of any of these institutions.
The next step taken by the Government, as part of a consistent and coherent banking policy, was to analyse the loan books of all the financial institutions. We are fortunate that ours is one of the few states that have had an opportunity to take such action. Deputy Kenny requested that the details of the PricewaterhouseCoopers report be made public. The difficulty I have is, of course, that the report contains the details of customers and customer information in several Irish financial institutions. That cannot be disclosed in this House or in the public domain, given the fundamentally confidential character of the relationship that always exists between a bank and its customer. However, the State did have the benefit of a very detailed analysis of the loan books of the Irish banks before any decisions were made about recapitalisation of these institutions. When recapitalisation decisions were made, it was in the context of a carefully researched information document being available to the Government and its advisers.
Particular decisions were made about the three largest institutions, the Bank of Ireland, Allied Irish Banks and Anglo Irish Bank. Those decisions were announced before Christmas. A particular arrangement was made with regard to Anglo Irish Bank, to which I will refer later. At the expiration of the period envisaged in that arrangement, the Government reviewed the position of Anglo Irish Bank and came to the conclusion that the final option of nationalisation was the only one available to secure the position of the bank and the wider financial system in Ireland.
The Government's approach, therefore, has been a considered response to the financial crisis, which has resulted in state interventions across Europe and the world. Through the bank guarantee scheme we have created a space to assess the further measures needed to best protect our financial system in a strategic manner. We have always sought to minimise the risk to the taxpayer. The bank guarantee scheme has succeeded in securing the funding position of the Irish financial system as a whole. Our recapitalisation proposal will strengthen Allied Irish Banks and Bank of Ireland as financial institutions central to the economic future of the country. Discussions are continuing about the capital requirements of other financial institutions.
While recapitalisation is the appropriate solution for AIB and Bank of Ireland, we have concluded that a different response is required for Anglo Irish Bank. Intensified oversight of this bank in recent months has brought to light unacceptable practices by the former chairman and some of his former staff. The concealment of loans to directors and the scale of those loans have done serious damage to the reputation of Anglo Irish Bank and to Irish banking at a difficult time in the markets. These matters are now the subject of a number of investigations being undertaken by the Financial Regulator and the Director of Corporate Enforcement. These investigations must be followed up both by the regulatory authorities, which have extensive powers, and by the bank itself. I will insist on this as shareholder and as the responsible Minister.
Accordingly, the Government believes recapitalisation is not now the appropriate and effective method to secure its continued viability. Therefore, the Government must move to the final and decisive step of public ownership. Later, I will highlight in more detail the salient provisions of the Bill.
The House will be aware of the international context in which this action has been taken. I do not wish to dwell on old ground but it is important to note that the past 18 months have been unprecedented in terms of the pressure financial institutions, and banks in particular, have been under throughout the world. Traditional sources of funding have dried up and although there has been some improvement in recent times, the international financial system remains in a very fragile position.
Like every country in Europe, Ireland has moved to ensure the security and stability of its banking system. Market expectations with regard to the capital that banks hold have altered significantly. As a result, banks have had to vigorously compete for deposits and other forms of funding in a weakening economic environment. Banks have also been forced to seek capital in a market unwilling to finance banks, resulting in an array of state recapitalisation programmes across the developed world. In this challenging period, a bank's reputation, board and senior management and its good standing become ever more important.
The extended financial crisis we have experienced has brought home to all of us the pivotal role the financial system plays in supporting the economy. In turn, it has become clear to all that it is essential for Government to take appropriate action to maintain the stability of the financial system. Throughout this process our approach has been based on two basic principles. First, the State will not let any systemically relevant financial institution fail and, second, any State involvement in financial institutions will protect the interests of the taxpayer and have regard to legal and European law implications.
In this context and taking the best advice available, the Government acted in September last year with purpose and determination to guarantee the deposits and other liabilities of credit institutions. The principal Opposition party supported us in that enterprise, for which I thank it. This move was essential to allow banks to continue their normal business of providing credit in this country. The Government guarantee scheme succeeded in ensuring Irish banks have continued to do business and improved the amount of liquidity available to the various financial institutions. For banks everywhere liquidity, that is, the cash that comes in the form of deposits and interbank moneys, provides the basis for lending and the guarantee has ensured the banks can continue to access that liquidity.
The guarantee scheme gave rise to detailed engagement by Government with the banks. This process has involved my Department, the Central Bank, the Financial Regulator and the National Treasury Management Agency working with the relevant institutions and examining all options to maintain stability and the proper functioning of the banking system. It has been a comprehensive and structured process, addressing such issues as the business plans of the banks, potential private investment, market expectations and, above all, the role of the banks in supporting the real economy.
Notwithstanding that I have been clear about my intentions, there has been speculation that the action we are taking on Anglo Irish Bank somehow changes the position of the two other institutions on which the Government has announced plans. Both Bank of Ireland and Allied Irish Bank are fundamentally sound and solvent institutions. The Government reiterates that it regards these banks as central to the Irish financial system and essential to the proper functioning of the economy. The Government wishes to ensure that both banks remain as independent commercial entities.
The Government reaffirms that it is proceeding with the planned recapitalisation of Bank of Ireland and Allied Irish Bank on this basis and its firm intention is that both banks remain in private ownership. In particular, the Government reiterates its intent to provide €2 billion to each institution from funds already earmarked in the NTMA for this purpose. As previously outlined, this capital will be deemed to be core Tier 1 by the regulator and the terms and conditions when finalised will be framed to underpin market confidence. The Government reiterates its commitment to underwrite or otherwise support a further €1 billion in core capital to each of the banks. As Deputies will be aware, we are also in discussion with certain other institutions about their future capital needs, if any, and we will work through this issue with a view to early discussions.
It was recognised from an early stage that the challenges faced by individual institutions were not the same in each case and the necessary strategies to stabilise and strengthen them would be different. From the outset of the financial crisis, market sentiment towards Anglo Irish Bank was especially negative, as evidenced by the dramatic collapse in the bank's share price and continued pressure on its funding. While the bank's business model, which was heavily focused on commercial and real estate lending, had been profitable during times of strong economic growth and the steady expansion of the property sector, with the sharp contraction in both the Irish and United Kingdom property markets over the past 12 months, Anglo Irish Bank was perceived by investors as being more exposed than other institutions due to its less diverse business model.
Taking advantage of the space provided by the Government guarantee and with a view to stabilising Irish financial institutions and ensuring the flow of credit to the economy, discussions were held with Anglo Irish Bank with a view to ensuring it had adequate capital levels. The outcome of this engagement with the bank was a proposal by the Government for an initial and immediate capital investment of €1.5 billion in preference shares, with a commitment to provide further capital to support the bank's position, as required. The terms of the proposed €1.5 billion investment took into account the greater degree of risk inherent in Anglo Irish Bank's business. A higher rate of return was required from the bank than from the other two banks and the State was to hold 75% of the voting rights.
Since that course of action was outlined in the week before Christmas, it has become necessary to take the ultimate step of nationalisation. I will explain the reason. At the time of the recapitalisation announcement, I made clear that the Government's offer to Anglo Irish Bank represented the last step short of nationalisation for the bank. The commitment of Government support to Anglo Irish Bank was designed to boost market sentiment by bolstering its capital to a level which would ensure the bank's ability to withstand losses on its loan book that may arise over time. Such losses are dependent on the effects of the worldwide economic outlook. The objective was to enable Anglo Irish Bank to trade out of its current difficulties under its existing ownership structure.
However, the disclosure of the unacceptable practices which took place at Anglo Irish Bank in relation to loans to its former chairman and the consequent resignation of the chairman and a number of the bank's senior management team, including the CEO, compounded the weak position of Anglo Irish Bank in the eyes of investors and debt providers. Market confidence in the bank was eroded and this was reflected in a limited weakening of its funding base in recent weeks and the increased risk of knock-on effects on its credit ratings.
Anglo Irish Bank is a major financial institution. While I outlined some of the elements of its accounts earlier, its balance sheet is in excess of €100 billion. There is no doubt that the viability of an institution of this scale is of systemic importance to Ireland. Contrary to the impression being put about, the bank lends to a wide range of customers, providing funds for investment and employment in such areas as retail, office, leisure, health care, tourism and other services. It is also a significant lender to construction and development which is a very important part of its balance sheet.
Thousands of customers rely on Anglo Irish Bank for credit, while hundreds of thousands of depositors are involved. All my advice is that letting the bank fail would lead to very serious disruption of our financial system. It is not a question a saving a few developers from going to the wall, it is a matter of underpinning deposit and wholesale funding throughout the financial system. The developers will have to pay their loans.
The nationalisation of a financial institution is not a step which can be taken lightly or as a first solution because it results in a significant degree of State intervention in normal market processes. In recent months, the Government has provided the support required to stabilise Anglo Irish Bank in the shape of the Government guarantee. While the recapitalisation proposal in respect of the bank would have helped underpin it, even greater certainty can and will be provided through taking the bank into public ownership.
There has been some recent media debate regarding the effect of this measure on Government accounts. Taking Anglo Irish Bank into State ownership should have no immediate impact on either the general Government debt or current deficit as the bank is a going concern and will continue to operate as a commercial bank. As with other commercial State companies, its debts and assets will remain on its own books.
Deputy Kenny stated on the Order of Business that it was somehow improper to suggest that Anglo Irish Bank should continue as a going concern. In commercial practice the alternative to a going concern is a liquidation business. Naturally, the Taoiseach and I have been anxious to stress that Anglo Irish Bank will continue on a going concern basis. When the board assumes its duties as a board of directors appointed by me tomorrow, it will have to return to me with a strategic plan for the future of the bank and the part it can play in the wider Irish banking scene in the public interest.
The Government's actions have been made on the basis that the health of the economy is inextricably linked to the banking sector. The Government is committed to protecting our sovereign rating through restoring order to the public finances. Immediate action is required and the Government has agreed that expenditure savings of €2 billion will be made in 2009, in addition to the measures contained in the October budget. Other important work is continuing, including a root and branch review of public service numbers and expenditure levels and a report on the taxation system by the Commission on Taxation. The decisions we make in that regard will have the most vital and important bearing on our sovereign rating around the world.
I will say a few words on the impact of this decision on various stakeholders. The immediate impact of the Government's action is to provide certainty to all of Anglo Irish Bank's depositors and other customers, across all of the bank's operations in Ireland and internationally, that the bank is secure and stable and will continue to conduct its business on normal terms. Depositors and other creditors of Anglo Irish Bank continue to be protected by the Government's guarantee and creditors, including bond holders, can be assured that it is in a position to continue to fulfil its obligations and repay its debts at maturity. The suggestion canvassed in some quarters that the State should repudiate the €20 billion it owes the bond holders, an action taken in the case of Lehman's Bros. Bank in September, is an unacceptable course of action for the State. Added to this, all customers of Anglo Irish Bank have the assurance of stability that full State ownership of a financial institution brings.
It is important to be clear that the day-to-day running of Anglo Irish Bank will continue as normal and employees remain employed by the company. The bank will be managed on a commercial basis at arm's length from the Government, allowing the full potential of its business to be realised. The legislation I have put before the House provides for a relationship framework. The Government will appoint a new board to oversee the running of the bank and prepare a comprehensive business plan to enable Anglo Irish Bank to continue as a going concern. This business plan will be required to demonstrate how the board will oversee the continued commercial operation of the bank in the best interests of the bank, financial sector and taxpayer.
I welcome the decision of Mr. Donal O'Connor to accept my invitation to be the bank's Chairman. As I stated when Mr. O'Connor was appointed, he has a substantial and impressive commercial track record and is a natural choice to lead this financial institution in what is a challenging period for all financial institutions. Mr. O'Connor did sterling service in the past with financial institutions which were going through turbulence. The outgoing board, before it appointed him, consulted with me to consent to his appointment.
I am also pleased to acknowledge Mr. Maurice Keane's appointment to the board and to thank Mr. Alan Dukes and Mr. Frank Daly for their continued valuable contribution to the board. I will announce further appointments in the near future.
While the €1.5 billion preference share purchase is not now immediately required, the Government is committed to providing the support to ensure Anglo Irish Bank's continued commercial viability. There is no question of moving the bank into a wind-up scenario which would create the potential for an under-priced realisation of the loans and other assets held by it. All borrowers from the bank remain subject to the same terms and its new board will place a particular focus on ensuring that all debts are fully pursued by the bank in a commercial way, as any other bank would.
While the Act provides for the transfer of Anglo Irish Bank into State ownership, shareholder rights are protected under Irish law, and accordingly I have provided for the role of an independent assessor under the Act to assess what would be fair and reasonable compensation for shareholders. The assessor will take into account a wide range of factors before making a recommendation on the level of compensation.
There has been a great deal of commentary about the bad debt position in Anglo Irish Bank. Deputies will be aware I received from the Central Bank and Financial Regulator a report undertaken by PricewaterhouseCoopers on the financial position of the institutions participating in the Government's guarantee scheme. We had the time and opportunity to supplement that work with an examination by independent valuers Jones Lang LaSalle, which generally confirmed the conclusions reached by PwC with regard to Anglo Irish Bank.
The bank is large in Irish terms and its assets include approximately €70 billion in loans and advances to customers. These are not bad debts, as many try to suggest. As with any bank, there is a mixture of good loans and some that are distressed. Many people have asked what the implications will be for the State if there are very significant losses on loans in Anglo Irish Bank, and it is clear that there will be losses on some of the loans.
It is important to clarify to the House that in the first instance there are significant moneys within Anglo Irish Bank to take the strain of loan losses arising over the next three or four years before State support is engaged. There are approximately €7 billion of shareholder funds and other capital available to offset any losses on the loan book, in addition to ongoing pre-loan loss profits which have been very significant in the case of Anglo Irish Bank. Its position is secured by nationalisation, and the Government can work with the new chairman and board to extract the optimal value from its loan book and minimise the taxpayer's exposure.
The Government has estimated that for the Irish banking system as a whole and allowing for a large degree of stress, it would be appropriate to allow for capital injections into the main banks in the order of €10 billion in total. Within this €10 billion, I would have allowed for a capital injection into Anglo Irish Bank to offset potential loan losses, maintain its capital base on a sound footing and leave a prudent margin for error in current circumstances. As it is now a nationalised entity with the State behind it, rather than make an immediate upfront capital injection we can provide appropriate funds as necessary over time to complement its own resources if required.
Looking beyond Anglo Irish Bank, I would like to address what the Government sees as the future of the banking system in Ireland. The Government is committed to providing a platform for a well regulated, profitable banking industry of high repute in Ireland that operates in a national and international financial services environment.
The nature and thrust of Ireland's regulatory regime needs to adjust to the new realities. Lessons must be learned from mistakes made and from the international experience of the recent period of worldwide financial disruption. We need a regulatory regime which fosters probity. I welcome the review now being undertaken by the authority to that end and we are not alone in this process. Work has begun on forging a new model to govern the conduct and behaviour of the financial sector both here and internationally.
I can assure the House that Ireland will play its part internationally and especially at EU level in seeking to ensure that the redesign of the financial system, and in particular of financial regulation, is consistent with the objectives that underlie a strong, stable and functioning national banking system. Our vision for the banking sector is that banks will serve borrowers, small and medium-sized enterprises and all stakeholders in an honest way, and ensure customers and consumers are treated in a reputable and respectable manner.
I will now deal with the main provisions of the Bill. Section 2 sets out my functions in the public interest as Minister for Finance under the Bill. These functions are granted on the basis that following consultations with the directors of the bank, the Governor and the authority, I have formed the opinion that there are concerns about the viability of Anglo Irish Bank and that the exercise of these functions is necessary to preserve its capacity to continue as a going concern.
Section 3 provides that the Minister may specify a relationship framework to govern the relationship with the bank recognising the separation of it from the Minister and limiting the Minister's intervention in the conduct of the bank's business to actions necessary to protect the public interest. Section 3 gives the Minister a power to issue general directions to Anglo Irish Bank where it is necessary or expedient in the public interest, subject to regulatory requirements.
Section 4 provides that the provisions of the Act will have effect regardless of any provision in the Companies Acts, any other enactment or any provision in Anglo Irish Bank's memorandum and articles of association. Section 5 is a crucial provision, the effect of which is to transfer all of the shares in Anglo Irish Bank to the Minister on the commencement of this Act.
Section 6 provides that on enactment, the bank will convert from being a public limited company to being a private company limited by shares. Section 8 provides that the Minister may transfer some or all of his shares in the bank to a nominee at any time on such terms as the Minister specifies.
Section 9 deals with instruments to which the bank is a party. Commercial instruments may provide for their termination or other consequences, for example accelerate payment not otherwise due to be paid until some future time, where the ownership or control of one of the contracting parties changes. This section provides that specified consequences shall not arise solely as a result of the enactment of this Bill unless I provide by order that they shall.
It is important to stress that Anglo Irish Bank will remain fully liable to all of its creditors. However, it is important that creditors do not suddenly become entitled to the early repayment of moneys or the termination of contracts because of the State's necessary intervention. Steps have already been taken to guard against such an action, but this section provides an appropriate backstop. There is a hardship provision where I may reduce the effect of the restriction by order where otherwise the section might be unduly onerous.
Section 10 extinguishes certain legal rights, largely enjoyed by directors, senior managers and employees in Anglo Irish Bank to subscribe for shares in it. Section 11 deals with situations where someone has an equitable interest or security interest and any sum paid as compensation will be held in trust. Section 12 provides for the discontinuation of any listing of shares.
Sections 13, 14 and 15 provide that specified provisions of the Central Bank Acts, Companies Acts and competition legislation shall not apply. Section 16 disapplies a number of legislative provisions which would impose procedural, notification and approval requirements. Section 17 facilitates timely and expeditious decision making by me or my nominee when acting as shareholder.
Sections 18 to 20, inclusive, provide powers that facilitate swift action to make necessary changes in the administration of Anglo Irish Bank. They provide for changing of the financial year, removal and appointment of directors, officers and employees from their positions within it and its subsidiaries and appointment of their replacements. These powers are exercisable only in the public interest.
Section 21 provides that specified persons shall not be regarded as de facto or shadow directors of the bank or its subsidiaries. Sections 22 to 32, inclusive, address the issue of the amount of compensation that should be payable. Section 22 provides for the assessor. Section 23 provides for the payment or reimbursement of remuneration or expenses. Section 24 sets out who may make submissions.
Section 25 lays out the criteria to be applied by the assessor. Section 26 provides that before making a report the assessor will circulate a draft of it. Section 27 provides for a report by the assessor to the Minister on the determination of fair and reasonable compensation.
Sections 28, 29 and 30 address the practicalities if the assessor determines that compensation is in fact payable. Section 31 provides for appeals to the Irish Financial Services Appeals Tribunal. Section 32 provides that leave will not be granted for judicial review of a determination under section 26 unless the application for review raises a substantial issue and the time limits for such application.
Section 33 provides that expenses and expenditure incurred by the Minister in the administration of this Bill will be paid out of moneys provided by the Oireachtas. Section 34 provides for the creation and issue of securities for the purposes of the Bill. Section 36 provides that the Minister may make regulations for the purpose of facilitating the exercise by the assessor of their functions. Section 37 allows the Minister to make regulations.
Section 38 amends the Finance Act 1970, the National Treasury Management Agency Act 1990 and the Central Bank Act 1942 to facilitate the achievement of the purposes of the Bill by enabling the Minister to delegate the borrowing powers in section 34 to the National Treasury Management Agency.
The purpose of this Bill is to address a major systemic threat within the banking sector. Anglo Irish Bank presents a particular problem. Increasing uncertainty and concerns about corporate governance have threatened its ability to access necessary funding and the concentration of its lending to the building sector exposed considerable risk to its loan book.
The regrettable and unacceptable corporate governance issues surrounding the bank further damaged its reputation and had the effect of neutralising any positive boost which the proposed recapitalisation would have generated.
The Central Bank, the Financial Regulator, the NTMA and our legal and financial advisers were unanimous in their advice to the Government that strong and decisive action in the form of the nationalisation of Anglo Irish Bank was needed to maintain its commercial viability and that a failure to support the bank in this way would damage our financial system generally.
I was disturbed that an article appeared on page 14 of The Irish Times today suggesting that when the Government made a previous decision on a matter of this character on 29 September last it did not act on the advice of the Central Bank, or the officials at the Department of Finance, or the Financial Regulator. The suggestion made in the article is not in accordance with the facts, and that matter has been attended to.
The decision to nationalise is a clear indication that the Government is fully prepared to stand behind the Irish banking system and to demand and ensure proper governance. Our actions send one clear message to customers, investors, credit rating agencies and the markets generally that Ireland is a safe, secure place to do banking business.
I wish to share time with Deputies Kieran O'Donnell and Olivia Mitchell. Perhaps the Chair would let me know when 20 minutes have elapsed.
Most people in this country share a sense of outrage at how we have come to this pass. That sense of outrage is apparent right across the country. There is outrage at the political ineptitude which has been a feature of why we are in this sorry situation. There was reckless flirtation with the property bubble over a long period. There was a refusal to heed warnings from responsible bodies outside the State — the IMF, the EU and many others. There were baseless assurances offered by those leading the Government that our property bubble was based on solid economic foundations, and all the while our public finances were heading on a course that was totally unsustainable and our competitiveness was being destroyed. There is a sense in which people believe the Government is in the dock, that the sorry pass we have now come to is in a sense a trial of the way in which this economy has been managed in recent years. That has been put under scrutiny and we are seeing its product now.
There is outrage not only with those who have led us, but at the behaviour of those who have led the banking system. There is a sense that there are many at the top of the banking system who have behaved in a wholly reckless way, who have betrayed their shareholders, the employees who work in the banks and, worse still, who have done great damage to our credibility as a country within which to manage financial institutions. There is also outrage at incompetent oversight. The role of auditors and regulators is in sharp focus. There is a sense that we do not yet have all of the answers regarding what failed us, why all the honeyed assurances we got from Ministers, regulators and central bankers were so wide of the mark. It is not enough to point to international difficulties because many of the problems we see in our banking system are the product of decisions made at home and of the way banks were managed here. That is the background we are up against.
There are many people in the country who would like to vent their fury on Anglo Irish Bank, who believe we should not be nationalising it today and that in doing so we are bailing out those who have behaved wrongly. We must make it crystal clear that we are not, if this nationalisation goes through, bailing out developers and bankers who behaved wrongly. We are not bailing out any of the auditors who let us down because they were not watching. We are not bailing out the regulators. There is a time for accountability for all of those. We want to see that accountability in this House. There can be no hiding behind the cloud of confidence, as we have seen before, when the Government stated it could not possibly reveal what was going on because there was too much at stake. We want accountability. We want people punished if punishment is due.
That is something that must come out of this.
People are terrified that their job may be the next to go, that they can no longer rely on their pensions, that they can no longer rely on the banks. There is a yearning now for leadership, and that leadership has not been given. Let us be blunt. We have budgets that displayed no understanding of the challenge we face and now we are apparently trying to make running repairs on a budget that was hopelessly inept.
There is a sense too that banking strategy is being made up on the hoof. First, there is no question of recapitalisation. We are told that would be completely the wrong direction to go, that the banks are adequately capitalised. Day after day we were assured that was the case, that restructuring was what was needed. There was a "high noon" when the banks were brought together to have this restructuring. That idea was dropped. There was no more talk of restructuring and recapitalisation was back on the agenda. We were told that was the way forward. Now we are told nationalisation of Anglo Irish Bank is the way forward.
We need to get a sense from the Minister, which he has not displayed today, that there is a grand strategy, that he has a sense of how he can achieve his objective of nationalising Anglo Irish Bank and managing it in a way that protects the taxpayer, that he has a strategy that will successfully recapitalise AIB and Bank of Ireland and keep them in private ownership. That is not what the markets believe. I do not believe what the Minister has said today has pointed the way to how he is going to make that strategy work in the face of what is happening.
One thing we could do to restore confidence is to properly debate this Bill and not rush it through on the basis of trust in assurances about the loan book, assurances about bonds that did not have a guarantee up to now and now perhaps have a guarantee, assurances about the way the bank will be run that do not have tied down accountability to the Oireachtas. We are not having the sort of debate we ought to have in this House in order that nationalisation will be a credible, well thought out, well stress-tested part of the Government strategy. This must be stress-tested and this is the House that does that, but it cannot do it if it is confined to a few hours of discussion. Many of the amendments will not be reached. Many of the sections will not be reached. The Government has put us into such a tight framework that we cannot do the job we were elected to do, which is to hold the Government to account and, through it, those institutions that are behind it. That is what we are supposed to be doing, but we are now being rushed into doing everything in a couple of hours. That is totally in contrast to the relaxed attitude since 30 September when the taxpayer was exposed. We have not had a sense of the Government designing a credible way through this. We still do not have credit flowing. Credit availability is worse now than it was on 30 September. We are making survival tougher for the businesses we need, the export businesses that are to be the future of this country.
Any seasoned legislator will confirm that rushed legislation is often flawed legislation. I have been around long enough to have seen many examples of it. I fear this legislation will be the same. The stakes, as the Minister has rightly said, are high. We could be revisiting this issue in a couple of weeks time, If we do not get this legislation right, we will not have a proper vehicle for dealing with the challenges ahead. We need to provide the time to get this right.
Fine Gael's view on Anglo Irish Bank is clear. We have articulated it from the start. We do not believe we should be recapitalising with €1.5 billion of State money in the idle hope that trust in that bank could be restored, that it is a credible banking model for the long-term future, or that it had a loan book it could manage in such a way that it would become a powerhouse for lending in the future to export businesses. We did not see that strategy as viable. That is why we took a view from the outset that we should not put €1.5 billion into Anglo Irish Bank and that we should take it into State ownership so that we could, on behalf of the taxpayer, control the risk to which we taxpayers were exposed by the guarantee given on 30 September. That has been our view.
I support nationalisation because it is an element of meeting our requirement. However, there are other elements I do not see here on which I want assurances. One is whether we are unwittingly extending the guarantee we gave to depositors to a new tranche of people who were not covered by the guarantee heretofore. It seems there are categories, amounting to at least €10 billion, who were not guaranteed before, and there is another €12 billion in respect of which the guarantee only goes to 2010. There is a worry that the taxpayer is now in a position that he or she effectively will be offering a guarantee to these that was never there before.
The Minister said that creditors, including bondholders of Anglo Irish, can be assured that it will continue to service its obligations and will repay its debts at maturity. Nowhere in this Bill or in the Minister's statement, however, is it made clear that they will only be repaid if the management of the loan book is delivering 100% of the value so we can be in a position to meet their risk capital — that we are not offering some new taxpayers' guarantee by the back door to people who entered into risky investments with their eyes open.
It should be dealt with. This is the last time Deputies will get a chance to assess this legislation. The Minister knows as well as I do that there is a great deal of public concern. He may say it is frivolous and wrong-headed but there is a concern that Fianna Fáil politicians could use the nationalisation of the bank to advance the interests of debtors to the bank — big property developers with close relationships to politicians.
It must be absolutely copper-fastened that this cannot happen. The Taoiseach may feel that this questioning is unwarranted but it is everywhere in the media and it must be nailed. In other words, we must pin down that there can be no unwarranted interference, that the bank will be managed entirely without fear or favouritism, that taxpayers will see the policies applied in writing down loans and that if loans come to be written down, we will see what was done. That information is the protection, as I am sure the Minister would say, both against false accusations against Ministers, who have to protect themselves, and the protection of the taxpayer so our money will not be abused. I do not see that sort of protection in the Bill.
We are told that there will be a relationship agreement, which we have not yet seen. We do not see anywhere in the Bill the proper relationship to the Oireachtas. We do not see it vetting the directors who will be appointed. We do not see it when the Minister is taking the most extraordinary power of being able to sack loan officers in the banks. He is taking that power in the public interest but we do not see his obligation to demonstrate that, when and if he acts under that provision, it is in the public interest and that it will come back to the Oireachtas so that we can scrutinise it as being so.
The Taoiseach made an unfortunate comment when he talked about business as usual in the bank, because what people want is anything but business as it was usually conducted in Anglo-Irish.
We need radical and total change. I accept the Government now has the opportunity to bring in a fresh board. Members of the Oireachtas deserve an opportunity to vet the suitability, appropriateness and policies that are going to be pursued. We need to see the strategy that is to be pursued if this bank, as the Minister says, is to be made a going concern. He knows we are sceptical that the bank can be made a going concern. I fear that if we talk about it being made so, and continuing ad infinitum, it may be only on the basis of a drip feed from the taxpayer that does not protect the taxpayers' interest to the maximum possible extent.
The Minister has not articulated his strategy for Anglo Irish. He has kicked it off into the middle distance so that someone will come back and tell him what the strategy will be. That does not give us assurance, which is a concern. We need to see that nailed down in the course of this debate.
As many people have said, we believe that transparency and accountability must be in this vehicle. We do not see transparency, for example, concerning the loan book. The Minister told Deputy Kenny, in an aside, that he could not possibly give the PwC report because it contains confidential commercial information. The Minister should purge the confidential information in it and put the report in the public domain. We, the taxpayers, now own this bank and we must have transparency concerning the state of the loan book. We will have to manage that over the coming years and must be assured that it is managed in an aggressive way to protect the taxpayer. We need to have that information flow coming to us regularly, about the current status of the loan book, how much of it is distressed, non-performing or in a category where there is a belief that the value can be recovered. We need to have that sort of information and there should be a transparency section in this Bill to deal with that and many other issues.
What is the future of the going concern? If the Minister believes that a bank that has been predominantly funding on a model that most people say is broken — namely, access to the short-term money markets — and if he believes that it can now transform itself from being predominantly a property development bank into a new bank for the future, we deserve to see what his credible strategy for that is, if that is the direction in which he is going. Otherwise, we are into managing a wind-down and working out of the strategy, not liquidation. The contrast in my view is not between liquidation and nationalisation, as the Minister has suggested.
There is a middle way, which is the one we have advocated. The time is so curtailed that I do not even have time to mention all the amendments we will seek to make. However, we will want to see proper operational independence in the bank and a presentation to the Oireachtas of the relationship framework so that we can vet it. We will want to see transparency on loan exposures and decisions on debt restructuring. All these transparencies are essential to public confidence. As elected representatives who are here to protect the taxpayer, we must do our job thoroughly and well.
The Government's strategy is to get lending going again, but that is not happening. The Minister knows it is not happening and so do I. Now it seems the Minister's next key strategy, the recapitalisation of AIB and Bank of Ireland, has been punctured because the market is no longer confident in it. Is the Minister considering a model that would refloat the capitalisation? In other countries, we have seen that recapitalisation has been accompanied by models of one sort or another to deal with bad debts — to ring-fence them either with an insurance policy À la the United Kingdom or a bad bank policy as has happened in other institutions. However, it gives certainty to the financial institutions as to their exposure on some of these bad debts and it allows the recapitalisation to succeed.
There is a growing sense that people are in a sweat about what is happening in the financial markets and whether the Government strategy is up to it. We need to hear from the Government very soon what the next step is and if we need to develop a model. Let us for once lead the markets instead of reacting to what is happening. Let us have a sense of the way in which we will go. Most vitally, Ireland Inc. is now in the dock. Our economic strategy is on trial and, by God, we need a proper strategy for management of the public finances and restoring competitiveness, but we have not seen it. The effort before Christmas was a disaster, as was the budget. We must get a grip because if we can steady that ship, we can steady many of the other elements that are going wrong in the financial institutions. In a way, it is showing the ill ease that exists about the way in which Ireland Inc. is being managed.
I echo the sentiments of my colleague, Deputy Bruton, that this legislation is being rushed. We are getting five hours to debate something that will have a monumental impact on the way the economy is run. I cannot understand why this legislation is being rushed, but it is. We should be allowed more time to debate it. The public is looking for certainty, confidence, the restoration of trust in both the banking and political systems and leadership from the Government. A number of critical issues must be addressed to restore public confidence in Anglo Irish Bank. I do not cast aspersions on the individuals involved but a completely new board of directors must be appointed to the bank to establish full transparency. We shortly will own the bank and the PwC report should be made public whether that is in purged or abridged form, as Deputy Bruton said.
It should be published, similar to the FÁS report. I cannot understand why it has not been published. We are being asked to approve something blind. We do not know what we are putting money into but the PwC report was supposed to outline that. The current auditors to the bank must be removed. This is again not personal but new auditors must be appointed. It is absolutely critical that the existing auditors be replaced to restore trust.
The Government must provide a proper roadmap regarding regulation of the banking system. The Anglo Irish Bank annual report in 2007 stated 56% of the salaries of executive directors was paid in bonuses while 61% of the former chief executive officer's salary, amounting to €2 million, was paid in bonuses. The banks were run on the basis of greed as they chased unsustainable profits and nothing like this can happen again. Ordinary shareholders, including pensioners, who attended the bank's emergency general meeting last Friday feel they are not getting leadership from the Government and are not being told what is the position. The Government and the Oireachtas must restore people's trust, which, in turn restores trust among international markets that do not believe what is going on. The share price of every Irish bank is still falling because the markets do not believe the reports that are coming out of Ireland. Certainty is needed. That is why we put forward that the bank should be nationalised in a form that provides certainty. The loan book must be managed. The Government has not stated how much money it will have to invest in the bank and we are being asked to agree something in five hours when the Government will not answer important questions.
The Bill provides for the appointment of an assessor. The appointment should be scrutinised by an Oireachtas committee. That is what we are here to do. The Minister and the Government are missing the point. The public is looking for transparency, accountability and the restoration of trust in the banking system and if the Government does not deal with the issues we have raised in a constructive manner, it may not provide certainty going forward for the markets.
The Government guarantee scheme was introduced for the principal purpose of providing for the flow of funds throughout the economy and, in particular, to the small business sector, which provides jobs. Like all Members, I have been contacted by small business owners over the past few days who say they will be out of business in a week if funds do not flow. The nationalisation of Anglo Irish Bank does nothing to provide for this. The Government must provide an insurance scheme for the other banks regarding their losses. Funds must flow to the small business sector again.
It is absolutely impossible to overstate the rage and anger among the people about the failure of those in whom they place their trust to protect their interests. This includes the Government, bankers, enforcers and regulators. This issue is too important for political point scoring but somebody must speak on behalf of those who have lost their pensions, savings and jobs and who are fearful for their future.
The issue we are discussing relates to confidence in our political leadership and its ability to manage and restore confidence in our banking sector. Confidence is key. It does not matter a jot how viable is a bank or how accurately its balance sheet reflects its asset price if the market does not believe it to be true. I am sorry that the markets do not believe what the Minister for Finance is telling them. He says the banks are sound but the markets do not believe him no matter how many times he says it. However, the markets perceive Ireland to have a basket case economy and an inept Government, incapable of making decisions to deal with the banking crisis. I am not the only person saying this. The same story is published in every international newspaper. No matter how true it is what they say about our Government, banks and regulators, it is heartbreaking. The markets are reflecting this and investors are shying away from Irish banks again today.
We have had four months of this and it cannot go on. The handling of the Anglo Irish Bank issue is an example of how not to inspire confidence. From day one, it was clear the bank was not a viable business, yet when decisive action should have been taken, the Minister's solution was too timid and tentative. The suggestion that it would merge with other banks was never realistic, particularly when it was not made a condition of the guarantee scheme. The next suggestion was to partially recapitalise it, which was followed by a proposal for part ownership but now, four months on, the taxpayer has had to buy a bank whose primary asset nobody wants.
The issue is whether the Government can learn lessons from the Anglo Irish Bank scenario when dealing with the other banks. Surely, it must be obvious that by merely throwing money at a bank, the problem will not be solved, confidence will not be restored in the system and the agony will be prolonged. The problem is it is perceived that the bad debts in our formerly blue chip banks are enormous. I do not know whether this is the case and I do not know whether the Minister does but as long as the markets believe that, they might as well be.
As long as that position pertains, the share prices of our banks will continue to fall, investors will go elsewhere, the cost of government debt will continue to soar, there will be precious little lending in the economy and jobs will continue to disappear.
Uncertainty is the enemy and, therefore, we need to know how badly exposed are the other banks and address that. It is the only way to stabilise the market and restore confidence, no matter who owns the banks. As Deputy Bruton said, the restoration of competitiveness in the economy will have to be done the hard way. Unlike Britain, we cannot allow our currency to float. We are facing ten years of austerity in current spending while significant capital spending is still required. However, to do so, we must know the amount of capital available.
The Government strategy of drip feeding money to banks in the hope each time that somehow the latest injection will work is debilitating for them, the economy and the public and it cannot be allowed to go on. All the bad news must be put in the public domain and dealt with once and for all. The only certainty is postponing action will make solutions more difficult, not easier, and the problems bigger, not smaller. The elephant in the corner, which no one wants to discuss, is Ireland's ability to stay within the euro. To do so, the Government will have to approach other European governments, including the French and German Governments, while other countries are also lined up seeking help, but if an enthusiastic reception is expected, we will have to show we can behave decisively, responsibly and, above all, deal transparently with our banks. Restoring confidence in the banking system is not the total solution to our economic problems but there will be no solution until that happens.
When we came into the House today after the Christmas recess and all the dramatic events that have happened in banking not just in Ireland but also elsewhere, I had expected the Government to show a clear sense of action and purpose to address the key issues facing the banking sector. We are debating a Bill on the nationalisation of Anglo Irish Bank, but the Minister is missing the main point. The most important issue at stake and the goal, towards which Government policy should be directed, if I may advise the Minister, is the protection, sustainability and regulation of our two large banks. They are historic banks that have existed for longer than the Dáil — certainly the Bank of Ireland has. We need those two banks for every town and village and pretty much most of the businesses in the country. We want to sustain the bulk of the jobs in the country.
It gives me no pleasure — I am sure it gives no Member of this House pleasure — to see how the markets have reacted. Fianna Fáil is the party that believes in the markets and does not much like to regulate them. One can live by the market and die by the market. I believe the markets are wrong about both of those banks. They are sustainable banks with a strong future and are critical to employment in the economy. I believe the other two banks covered by the Credit Institutions (Financial Support) Act, over and above Anglo Irish Bank and the Irish Nationwide Building Society, also have a future.
Why did the Minister not come here today with a clear statement of his overall strategy on the critical parts of the economy and the tens of thousands of jobs that depend on those banks? Although we are here today to discuss Anglo Irish Bank, it is extraordinary that the Minister has not taken the opportunity to set out a strategy about sustaining our whole banking system, sustaining credit and sustaining employment. While the contents of the Bill are important, they are nowhere near as important as the sustainable future of our two big banks. The Minister needs to express confidence. He also needs to take aside the other Ministers who appear on radio and give them a little lesson in what is important in this economy in terms of people's jobs. Yesterday morning I listened to one Minister, whom I personally respect. I felt like weeping for the country and the people who would lose their jobs by letting out people who are ill-informed, ill-advised and carry no brief for explaining what is happening in our banking system.
I heard the Taoiseach express his concern that we might have loose talk costing jobs today just as in a war loose talk might cost lives. Let me talk to the Taoiseach about loose talk. The Labour Party has acted with absolute concern for sustaining credit and jobs. It gives us no pleasure that so much of our analysis was correct. We were doing it simply on the basis of reports and information in the newspapers. At times it feels as if we need to read tea leaves to make out what is going on.
The Dáil is being asked to make major and far-reaching fundamental financial economic decisions, not about our biggest banks, although we hope the Minister has proposals for them somewhere in his back pocket because he will need them, but about a significant bank that grew as an aberration alongside a property bubble. There is no doubt that it produced extraordinary results. However, it was part of a property bubble and dealings on the Stock Exchange which are not to be recommended — a point to which I will return shortly.
The Taoiseach sent a letter to Deputy Gilmore last night. In April 2006 I made a statement addressed at the then Minister for Finance, Deputy Cowen. I said that the contract for difference was a form of gambling on the stock market where the purchaser does not even buy a share, but simply an entitlement to the gains or losses on a share over a particular period. It was a particularly lucrative activity for those involved in that form of Stock Exchange gambling. While the Minister can confirm it to us on the record of the House, I understand that central to the events in Anglo Irish Bank is that one particular group — the Quinn Group, including Seán Quinn, members of his family and members of the group of companies — attempted to buy approximately a quarter of the bank through contracts for difference. That attempt to buy a quarter of the bank was an extraordinary event about which our regulatory system made no comment. In the annals of capitalism and speculation that was an extraordinary event. That then morphed into an acquisition of 15% of the shares in the company, sustained in part by transfers from an insurance company owned by that group of companies, which employs many thousands of people and has had a highly successful diversified business history here. Nobody in the regulatory system made any reference to any of these issues. The Minister today made no reference to them except in the vaguest way to the actions of the former chief executive and former chairman of the bank.
I felt sorry for the shareholders gathered in the Mansion House last week, many of whom had invested their pensions in the bank. Self-employed people, including car mechanics, doctors and solicitors, got a considerable amount of advice, particularly from former Deputy McCreevy in telling people to look after their pension funds, that one of the safer places to invest a pension was in a bank. I felt very sorry for those people. I accept they took the risk and we know about risk. Let us get real. These are Irish people. We know many of the investors are foreign and many are institutions. Let us not forget that there are many smaller investors who are much poorer as a consequence of what has happened in the banks. It would be wrong to have this debate — even in the short time available — without some reference to them.
When the Taoiseach seeks to remind the Labour Party to be careful and watch its mouth regarding loose talk, I was probably the first person in the House to talk about toxic debt, toxic loans, contracts for difference and turning the Irish Stock Exchange into a gambling casino. That policy was facilitated in respect of Anglo Irish Bank because it was the darling child of the Celtic tiger. Once upon a time — not very long ago — in this country we had a man called "Ansbacher man". "Ansbacher man" seems to have had a son called "Anglo man", and the principal and first son of "Anglo man" is Mr. "Seánie" FitzPatrick. It is interesting that the former Taoiseach never talked about Mr. FitzPatrick, but he used that personal name that we read in the writings of people like Padraig Pearse — not just "Seán" but "Seánie". It is cultural. It indicates the closeness and togetherness of the family — the family of party, of business, of country. Those who are not in the family may be critical, but we need to keep our mouths shut tight because we might damage this national family of Seanie and his friends, as described by Deputy Ahern. Will we ever get an explanation of what happened in this bank with regard to the extraordinary attempt to acquire a quarter of the bank through contracts for difference, which morphed into a 15% shareholding? Will we get an explanation for the fact that Mr. FitzPatrick, over a period of eight years, was able to warehouse his loans as a director of the bank — running from €87 million to more than €120 million — with Irish Nationwide Building Society, which was also one of the covered institutions? Reputation is everything in banking.
I am sorry that the actions of this Government — the four or five attempts to come to grips with these incredibly challenging events — have failed. I do not deny these are challenging events. I do not think the Taoiseach is responsible for them all and I do not think he created the international situation. Nobody is blaming him for that. However, the Taoiseach and Fianna Fáil carry a unique responsibility for the property bubble that they blew out of all proportion long after some of the more intelligent, sensible and honest people in the party were privately telling us it was too far, too fast, too much. In September, when I pointed out difficulties with the bank guarantee scheme, various people in the Fianna Fáil Party accused me of not wearing the green jersey. For God's sake, can we get real? We must have a proper debate about protecting the key elements of our economy——
——our flow of credit and the jobs in this country. That is what this is about.
Is the Minister satisfied that those in his Department are able to advise him properly on this? They managed to get almost all the forecasts wrong when the economy was doing well, and got them even more disastrously wrong when it was not doing well. The people in the Department of Finance have many fine qualities and they are probably reasonably good administrators. However, are they good at the business of managing a banking crisis and being the Minister's main advisers? With regard to the Minister's strategy, why is he relying almost exclusively on those in the Department of Finance, many of whom are essentially administrators? I do not know how many bankers or accountants work in the Department of Finance, although I know some economists work there. However, we do not hear from that side of the Department. If we are to restore Ireland's credibility and reputation, we need to put a line under what has happened. We need to be able to say we are moving into a new era and from now on we are going to manage our banks well. We have a very strong record in the National Treasury Management Agency of good management of the national debt. We took that function from the Department of Finance a long time ago in order to better manage the debt. Does the Minister have any ideas about how to improve his command and control and the advice he is receiving in these incredibly difficult times? This is not just for the Government but for the businesses that are at risk and the people who fear losing their jobs, or have lost them already, and who want some hope.
Almost everybody in this Chamber has been impressed by the bipartisan approach operating in the United States Congress, although it can be shambolic at times. However, the critical thing about such an approach is that one can actually get information. The Minister stood up to make a statement about nationalising a bank. On 30 September, his officials sent me the accounts of Anglo Irish Bank. I thank them for this. They also sent me a note on the breakdown in depositor numbers, for which I am eternally grateful. Those are the first figures I got. My background is as an accountant, and I find it astonishing that as a national Parliament we make a decision with no financial information. The Minister reads out a list in a rapid speech. I want to know how good the loans are, how many of them are at risk, and what is the Minister's evaluation of risk.
Let us suppose, for example, that a developer was buying ten acres in Longford to build 100 houses. The developer has bought the land for €10 million with no planning permission — it is a speculative development — putting in €2 million himself and borrowing €8 million from the bank. Who will now build the houses in that field? Similar fields exist on the edge of every town in Ireland. Who will build houses in them for the next ten to 20 years? International investors want to know that the Minister has a handle on this situation. Is that field in Longford, or in west Dublin, still worth €10 million? If it is now worth €8 million, which is the total loaned by the bank, that is fine, as the only thing that happens is that the developer is down €2 million. However, what if it is not even worth €8 million? Maybe it is not even worth €2 million, because nobody is going to develop that field for many years. That is the fundamental question that international investors — who are often themselves small, medium or large business people — would ask. With a bipartisan approach, I would have the opportunity to ask such questions, and my colleagues in the Opposition parties — and, I dare say, some of the Minister's Fianna Fáil colleagues, who are solid business people — would also wish to ask them.
If it is necessary to provide some of this information to us in private, well and good. We can set out rules for that. However, it is crazy that we are being asked to spend only five hours debating a Bill. We know about the fundamental problems in this bank and we need answers about the contracts for difference and the build-up of the stake. We need to know what exactly the loan book is like. We know much of it is dependent on or related to construction and we are told some of it is supported by rent rolls. However, we need answers to those questions. If the Taoiseach feels disappointed that the Opposition Members are rather cynical and doubtful, the solution lies in the Minister's hands.
The Taoiseach has just come back from Japan. He spent a week there and it must have been the worst foreign trip experienced by anybody. From Japan the Taoiseach suggested that it should be business as usual for the banks. Did he not know that business as usual for the Japanese banks condemned the zombie banks of Japan, and Japan itself, to ten years as a zombie economy? What we want from the Minister today is a strategy, not just for Anglo Irish Bank but for all the big banks, which will allow us to save our economy, sustain employment and keep business going.
I wish to move an amendment regarding the Second Reading. This debate is occurring in the middle of what is surely the most serious economic and financial crisis in the decades of modern Ireland. There is no need to have a tutorial on it here but it is very difficult to envisage a situation that could be more serious and for that reason we have to try to rebuild our economy. We all know that we are not going to rebuild the economy unless we can stabilise the banks and get credit flowing again. This is the reason our banking system is so critical.
People outside this House who are outraged at what they have seen happening at the top of the banks and at the misbehaviour, if not worse, that we have all read about are fearful of losing their jobs, fearful for their pensions being damaged and, in some cases, fearful of losing their homes and they want to know what in the name of God is causing the Government to put taxpayers' money into the banks. We have to answer that question because it is precisely to maintain jobs and equilibrium in the economy that normal credit lines must be restored in the banks. For that reason, this debate deserves the full attention of this House for as long as it takes to answer the questions that require to be answered. The intolerance that has been evident on the part of the Government, and on the part of the Ministers who have fronted for the Government, is entirely inappropriate.
I wish to deal with the critical issue from which all of this arises, the situation on 29 September 2008 and the blanket guarantee. Ministers and their spinners are whispering about the position taken up by the Labour Party. The Labour Party took up the position we did for the reasons that are dealt with at some length in the debates since this crisis arose. There are two reasons. First, we again had a rushed piece of legislation and the law of unintended consequences followed; we were not given the necessary information and there was not the transparency that was required in such a debate. Second, we did not necessarily take the view that every bank was of equal importance to the Irish economy. We may well be persuaded of that, but so far I have not been persuaded that every bank is of systemic importance in the economy.
I did not have a copy of his script at the time but I noted the Minister reached for a page to deal with this question. The information is not in his script. He quoted some figures but these figures do not change my view. Anglo Irish Bank is one branch with three or four offices. It is not engaged in retail banking. It does not have offices on the high street. It is not part of the essential money transmission system and is not part of credit lines to small and medium enterprises. It is a specialist bank funded by its corporate depositors and funded from the inter-bank market. This is a distinctly different cup of tea than the clearing house banks which are essential to this economy, to maintaining jobs and prosperity in it. However, on 29 September 2008, the Minister went ahead and we had no real opportunity to consider whether Anglo Irish Bank ought to have been included in that blanket guarantee that bet the future prosperity of this country on the banking system. We did not have that opportunity, but the Minister went ahead and included the bank.
I heard the remarks made by the Minister and I wish to read them into the record. The Minister has a gifted bedside manner and unlike some of his crabbier colleagues, he has a very pleasant manner. However, when he denounces Morgan Kelly's latest contribution in today's The Irish Times, I would like to hear more detail. I would be very surprised if the Department of Finance did not have more than one strategy on 29 September and if it did not, then it should have. It should have anticipated what was coming down the track and I am sure it did.
I know that but the reason we are dealing with the Bill before the House is because of the measure the Minister took on 29 September. The alternative facing the taxpayers now is that the bank faced insolvency, the guarantee would be invoked and that, as a result, Irish taxpayers would have to come up with somewhere between €30 billion to €40 billion. In that circumstance, this is the reason the Bill to nationalise the bank is before the House. The Minister has asked the House to trust him and to trust him also when he changes his mind. During the recapitalisation debate in December, I asked the Minister whether he intended to nationalise Anglo Irish Bank that weekend and what were the implications of such a decision for the two big banks. The Minister did not answer that question but when the question was put to him outside the House, he stated: "Were we to go from the last step before nationalisation to nationalisation itself, the taxpayer will be taking an awful risk with no return." The Minister has now taken that step and in his honeyed way he has conveyed that the €1.5 billion which was intended to be used to recapitalise Anglo Irish Bank is now being saved and that we are very fortunate. The Minister did not tell the House yet what is the cost. He has the PwC report. What is the likely cost of the step he is now taking? What is the likely cost to taxpayers of the nationalisation situation? These are reasonable and fair questions for us to ask and we have not been given answers yet. Why are we not being given even an expurgated version of the PwC report?
With regard to auditors, there has not been a scandal in this country since Goodman in which auditors have not been pivotally involved. I sat across the table for seven weeks in the DIRT inquiry from the big five auditing companies and each one of them allowed what happened in the DIRT scandal to happen. They have signed off on the Goodman affair and others and, unfortunately, the House did not take action it ought to have taken in terms of the conduct of accountants and auditors.
The Minister seems to be saying that the Labour Party was somehow less than measured in raising these critical questions. We have been very careful and the only remark I recall that did damage — I greatly regret it — to our reputation and our international standing, was the unfortunate remark made last week, not by the Labour Party and for which the Taoiseach carries no blame. The Taoiseach had nothing to do with it. The remark was regrettably made in another context and it has been damaging but other than that, the questions that we are raising need to be raised. If there is to be any real accountability, we need to know the answers to these questions. The Minister is now asking us again because he has changed his mind. He has gone now from recapitalisation to nationalisation and some of what we need to know about the operation of this bank we do not know. This is not a typical bank. The Minister had the option on 29 September not to include this bank and this is the significance and relevance of me raising that issue in this debate this evening. I greatly regret that we do not have adequate time to discuss this Bill in the way that it deserves.
I wish to advise the House that Deputy Rabbitte sought to move an amendment to the motion for the Second Reading at the start of his contribution. I understand the amendment had not been circulated to Members at that point and so could not be moved. The amendment has now been circulated and I ask Deputy Rabbitte to formally move amendment No. 1.
I move amendment No. 1:
"Dáil Éireann declines to give the Bill a Second Reading on account of its failure to provide that the Act should not come into operation until the Minister has notified both Houses of the Oireachtas that he or she or the Director of Corporate Enforcement has applied to the High Court for an order under the Companies Acts for the appointment of one or more inspectors to investigate the affairs of Anglo Irish Bank, having regard in particular to the questions as to whether:
(a) its affairs have been conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in an unlawful manner or in a manner which is unfairly prejudicial to some part of its members, or that any actual or proposed act or omission of the company (including an act or omission on its behalf) was so prejudicial;
(b) persons connected with the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards it or towards its members;
(c) that its members have not been given all the information relating to its affairs which they might reasonably expect; and
(d) such additional grounds as the Minister specifies in his or her application to the High Court.".
I share Deputy Rabbitte's concern that there is not enough time to debate this Bill, a scandal in itself.
I reaffirm Sinn Féin's commitment to a State-owned bank, long a demand of the party's. We support public ownership of a major banking institution. This Bill is not, however, nationalisation in the public interest. It is simply a bail out for the former patrons of the now defunct Fianna Fáil tent at the Galway Races.
The bank guarantee scheme was described by the Minister for Finance, Deputy Brian Lenihan, at the time as "the cheapest bail out in the world". With this Bill the taxpayer is now set to take on a €73 billion loan book, on top of the €10 billion botched recapitalisation plan and the €440 billion guarantee scheme, without being given any information as to what it is all about. What is the real size of the risk to the taxpayer?
This crisis was made in Ireland. It was created by the corrupt culture endemic in our financial system and encouraged by successive Fianna Fáil Governments out of their love affair with greedy property developers. That is what everyone believes to be the case. The revelations about the hidden loans made by Seán FitzPatrick and others have exposed the systemic fraud in Irish banking. It has shown that senior bank managers and their auditors cannot be trusted, that our officials in the Financial Regulator are incompetent and that the Government's banking policy is an abysmal failure.
Anglo Irish Bank is Ireland's Enron, but unlike the United States there will be no criminal investigation and no one will be brought to justice. It beggars belief that Seán FitzPatrick, who has embezzled or otherwise done away with in excess of €80 million, will walk away scot free while a working class man in the Louth constituency spent time in Mountjoy Prison for having no dog licence. It was not the Hound of Ulster he had but a small household pet. He was, of course, a working class man living in a working class area. Seán FitzPatrick, on the other hand, is still free to jet around the world and do as he wishes. If there is no law in place to deal with Seán FitzPatrick and his activities, that itself is a significant failure of this House. It is a failure that needs to be quickly amended.
In handling this crisis, the Government is simply making it up as it goes along. Four weeks ago, the Government stated any nationalisation would be affirming that we have no confidence in the bank as a bank to survive. Now, it says it will be "business as usual" when it nationalises Anglo Irish Bank. The last thing anyone on this island wants is Anglo Irish Bank's business as usual. We want a proper State bank that will ensure finance streams to small and medium-sized enterprises, secure people's homes and help to build our way out of this economic crisis, largely created by failed Government policies.
Acting Chairman, how long have I left?
On a point of order. Deputy Burton had submitted an amendment for Committee Stage, the purpose of which was to require the appointment of an inspector to examine the affairs of Anglo Irish Bank. While Deputy Burton was making her contribution, I was informed by the Bills Office that the amendment was out of order for Committee Stage as it was considered to be outside the scope of the Bill. The only way, therefore, in which we could have this amendment considered is by way of reasoned amendment on Second Stage. That is the amendment moved by Deputy Rabbitte.
Unfortunately, this procedure was forced on us because of the truncated nature of the debate today. It had been our intention to proceed from Second Stage to Committee Stage without division. Unfortunately, the way in which business is being conducted leaves us with no option but to table our Committee Stage amendment as an amendment to Second Stage. By way of courtesy to Members, I wanted to explain why this amendment was circulated in the past few minutes. It is not the Labour Party's fault but simply due to the ruling out of order of a Committee Stage amendment.
I want to set out the deep roots of this real crisis. It is a crisis in our banking system which started several decades ago when it moved from being a system that tended to lend short against short-term deposits. It moved into the mortgage business which was using short-term deposits paying for long-term loans. It became even worse when banks, collectively, moved towards a system where managers and staff were given quarterly and monthly targets to reach in selling products and issuing loans. One cannot assess risk and allocate capital on such a targeted base.
It became particularly flawed in the likes of the model adopted by Anglo Irish Bank. As Deputy Bruton said, short-term funding from outside of the State was paying for very long-term property developments. We have had a systematic failure in the systems of corporate governance, regulation, auditing and, yes, in public policy which for many years saw bricks and mortar in the property bubble as real progress in our State when it was not. While it may have been an important supply of shelter to people, it was not wealth generation as so many public policy decisions seemed to believe.
There was a fundamental reality behind the Government's approach. Such is the interconnection between our banks with shared customers, there were only three options open to the Government. One was to provide a guarantee, as was done in September. The other was to proceed with nationalisation, which is being done today as it is seen as necessary. The third option — that of letting a bank collapse — would have forced the other stable banks to call in their loans, like a fire sale in a burst property market bubble, which would have systematically threatened them. It is that simple reality that was behind the decision on the guarantee in September and today's decision.
The capitalisation issue was complex but it was better to have considered it over recent months. The UK Government made the mistake of rushing in with a capitalisation programme which yesterday had to be completely reconfigured. It was better to take our time and consider the PricewaterhouseCoopers, Jones Lang LaSalle and other reports.
It was important and appropriate for us on an ongoing basis to take into account the evolving corporate governance issues in this institution, Anglo Irish Bank, the evolving market assessment and the advice of the National Treasury Management Agency and other regulatory bodies in taking the nationalisation step.
We need, more than anything else, to bring confidence to our banking system. To do that, we will need not just this legislation but additional legislation from the Minister for Enterprise, Trade and Employment to strengthen corporate governance rules that our regulators can apply. That failure cannot be allowed to continue. We need hard-nosed regulation for Anglo Irish Bank and any other bank where there has been improper corporate governance. This will require strengthened legislation which will accompany this Bill.
We have the likes of Alan Dukes and other directors on the banks' boards to represent this House's and the nation's interests.
Deputy Bruton is correct that the international markets have got our banks and our country wrong. As deep and as fearful as the crisis is, we will have the opportunity and ability to get out of it because we are an enterprising and capable people. We will gain from this. We will move away from the obsession with property prices in which young people were condemned to spend their lives working to pay off a mortgage for a stupid bank. Thank God we are going away from that model and moving to a different model, starting from today.
I am grateful to Deputy Rabbitte for giving me the opportunity to deal with the material that appeared on page 14 of The Irish Times today. I referred to it cursorily in opening the debate on Second Stage. The article suggested that on 29 September, when the Government decided to extend the bank guarantee to six financial institutions, a Bill was in existence to rescue only four institutions and that the sudden liquidation of Anglo Irish Bank was contemplated by the Government. That is simply untrue. The only legislation before the Taoiseach and I on that evening — the members of the Government were consulted incorporeally — was a Bill which, in all material terms, is the same as the Bill before the House today. The only decision the Government had to take was whether we would proceed to guarantee all six institutions or whether we could contemplate the nationalisation of this institution, as we are doing, and guarantee the rest of them. We took advice on this matter and had a discussion with the Governor of the Central Bank, the regulatory authority and the officials of my Department. There was a balance in the argument, as there is in all arguments, and the balance of the argument and the unanimous view of all those who advised us was to extend the guarantee at that stage. The reason we decided to do so was the grave shortage of liquidity in the Irish banking system at the time. A decision to nationalise one institution could have caused a systemic run on all other institutions. That was the decision taken, which I subsequently explained in the House and in public comments.
One of the issues that arose in the context of this legislation was whether there should be a ceiling on the withdrawal of deposits above and beyond what a bank had obtained by way of security. That provision was in the original legislation, the Bill from last September, because of the chaotic conditions that obtained last September and the need to take such precautionary measures. The provision was kept in the Bill as it was submitted and circulated to members last Friday but the precaution was unnecessary. The best commercial and legal advice we got was that it should not be included in the legislation.
Deputies will understand, given the conditions that obtained in late September, the necessity to include such a provision. Deputies will say that legislation in haste is always dangerous. While I accept that the House must deal with this speedily, the legislation has been under preparation for a considerable period and has been gone through on many occasions by officials at my Department. While I accept that we are legislating in haste, I assure the House that the legislation has not been prepared in haste. Members will appreciate that the existence of legislation of this character cannot be disclosed to the public without raising concerns about financial institutions. Since September, there has never been an opportune time for me to arrive in the House and propose a nationalisation Bill that we should enact as a precautionary measure. In current banking conditions it would not be wise for me to invite the House in the abstract to provide for a Bill that granted me power to nationalise a bank at any time I saw fit.
The Danish authorities studied our guarantee scheme and were impressed by it. The Danish finance Minister introduced legislation a few weeks afterwards providing for a guarantee but also providing for the option of nationalisation. It is not correct to say that Government policy is incoherent but I am glad Deputy Rabbitte asked the question. It has given me the opportunity to deal with this particular item, which caused me considerable distress. The suggestion that I did not take the advice of my officials is untrue. This is linked to a later suggestion that the bank existed purely as a vehicle for property speculators who are of systemic importance to my party. I was never in the tent at the Galway races and never visited the Galway races, nor did I receive representations from developers or bankers about this particular financial institution. I can assure the House that I have worked extremely hard on this matter since late August to ensure the stability of our financial system.
I am turning to that point now, which was implicitly raised by Deputy Bruton. Bondholders are not exclusive to Anglo Irish Bank. Allied Irish Bank and Bank of Ireland have substantial numbers of bondholders as well. The position of bondholders is that there is no extension of the guarantee to them under this legislation. This legislation nationalises the shareholding in Anglo Irish Bank. This includes ordinary and preference shares. Bondholders are debt.
At the time of the guarantee it was agreed that not all debt should be guaranteed so there is a share of unguaranteed debt that is not share capital. Such unguaranteed debt in respect of Anglo Irish Bank debt remains where it has been in the bank to date. In other words, the bank has the normal obligations that any bank has with regard to such bondholders. To send any other signal in this legislation would undermine our reputation and our creditworthiness as a country because similar bonds and securities are held by other financial institutions. The legislation provides that the bank, like any other bank, should perform its obligations in respect of those bonds. That does not mean the bonds have a guarantee.
Deputy Bruton is envisaging a winding up of the bank. That is the motivation presupposed by his question. In other words, what will be the position of bondholders in the event there is an insufficiency of assets in the bank to meet them at the conclusion of the bank's operations? I am not contemplating that possibility in this legislation. What is envisaged in this legislation is that the bank is a going concern. In opening this debate, I stated that commercial entities can either function as going concerns or as liquidated entities. I am not announcing a liquidation in this House, I am providing for the continuance of this operation as a going concern.
In opening this debate, I outlined in great detail the position with regard to the PricewaterhouseCoopers report. My difficulty is that much of the information in the report is commercially sensitive. Deputy Burton made a good point on whether we can share some information on a confidential basis regarding the exposure of the Irish banking situation. It was suggested that the figure of €10 billion required for capitalisation, which is not a figure at risk, would guarantee the fundamentals of the banks in regard to their capital position. That figure was not arrived at lightly. While there are difficulties in disclosing confidential personal information to Members, I am interested in sharing the broad outlines of the report with the financial spokespersons of the other parties. The question of the security of our system and the reputational value of the system has been damaged by revelations in recent weeks. There is no doubt, as pointed out by Deputy Burton and I made no secret of it in opening the debate, that the position of Allied Irish Banks and Bank of Ireland is fundamentally good. We are not supposed to disagree with market assessments but I do not agree with the market assessment that has been taken of these institutions in light of the information placed at my disposal in the PricewaterhouseCoopers report.
The Dail Divided:
For the motion: 79 (Bertie Ahern, Dermot Ahern, Michael Ahern, Noel Ahern, Barry Andrews, Chris Andrews, Seán Ardagh, Bobby Aylward, Niall Blaney, Áine Brady, Johnny Brady, Thomas Byrne, Dara Calleary, Pat Carey, Niall Collins, Margaret Conlon, Seán Connick, Mary Coughlan, Brian Cowen, John Cregan, Ciarán Cuffe, Martin Cullen, John Curran, Noel Dempsey, Jimmy Devins, Timmy Dooley, Michael Finneran, Michael Fitzpatrick, Seán Fleming, Beverley Flynn, Pat Gallagher, John Gormley, Noel Grealish, Mary Hanafin, Mary Harney, Seán Haughey, Jackie Healy-Rae, Máire Hoctor, Billy Kelleher, Brendan Kenneally, Michael Kennedy, Tony Killeen, Séamus Kirk, Michael Kitt, Tom Kitt, Brian Lenihan Jnr, Michael Lowry, Tom McEllistrim, Mattie McGrath, Michael McGrath, John McGuinness, Martin Mansergh, Micheál Martin, John Moloney, Michael Moynihan, Michael Mulcahy, M J Nolan, Éamon Ó Cuív, Seán Ó Fearghaíl, Darragh O'Brien, Charlie O'Connor, Willie O'Dea, Noel O'Flynn, Rory O'Hanlon, Batt O'Keeffe, Ned O'Keeffe, Mary O'Rourke, Christy O'Sullivan, Peter Power, Seán Power, Dick Roche, Eamon Ryan, Trevor Sargent, Eamon Scanlon, Brendan Smith, Noel Treacy, Mary Wallace, Mary White, Michael Woods)
Against the motion: 23 (Joe Behan, Tommy Broughan, Ulick Burke, Joan Burton, Joe Costello, Martin Ferris, Eamon Gilmore, Michael D Higgins, Ciarán Lynch, Kathleen Lynch, Finian McGrath, Arthur Morgan, Caoimhghín Ó Caoláin, Brian O'Shea, Jan O'Sullivan, Willie Penrose, Ruairi Quinn, Pat Rabbitte, Seán Sherlock, Emmet Stagg, Joanna Tuffy, Mary Upton, Jack Wall)
Tellers: Tá, Deputies Pat Carey and John Cregan; Níl, Deputies Emmet Stagg and Arthur Morgan.
Question declared carried.
I declare the Anglo Irish Bank Corporation Bill 2009 to be read a Second Time in accordance with Standing Order 121(2). I must now proceed to Committee Stage in accordance with the order of the Dáil today.