Tuesday, 20 January 2009
Anglo Irish Bank Corporation Bill 2009: Second Stage
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I wish Seanad Ãireann a successful and productive new year. The Minister will soon join the debate. On his behalf, I thank Senators for their time, given the short notice and this late hour. I am eager to hear their views on what is an issue of immense public importance.
The Minister has brought the Bill to both Houses of the Oireachtas today with a view to securing the financial position of Anglo Irish Bank and, by extension, the stability of the Irish banking system. In taking this approach the Government has consulted, as appropriate, the Central Bank, the NTMA, the Financial Regulator and its legal and financial advisers. The Minister also consulted the board of Anglo Irish Bank following the Government decision on the matter. I assure the Seanad that the Government's decision to nationalise Anglo Irish Bank is in the national interest. It 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 taxpayer's interests by putting clear blue water between the new Anglo Irish Bank and the unacceptable behaviour that has taken place previously.
The Government's approach to the financial crisis, which has resulted in state interventions across Europe and the world, has been to give a considered response to it. The bank guarantee scheme gave it space to assess the further measures needed to best protect the country's financial system in a strategic and thoughtful manner. At all times we have sought to minimise the risk to the State. The bank guarantee scheme has succeeded in securing the funding position of the Irish financial system as a whole. The Government's recapitalisation proposals will strengthen AIB and Bank of Ireland as financial institutions which are central to the economic future of the country. Discussions are continuing on the capital requirements of other financial institutions. While recapitalisation is the appropriate solution for AIB and Bank of Ireland, the Government has concluded that a different response is required in the case of Anglo Irish Bank.
In recent months intensified oversight of Anglo Irish Bank has brought to light unacceptable practices by the former chairman of the bank and some of his former staff. The concealment of loans to directors and the scale of these loans have done serious damage to the reputation of the bank at a difficult time in the markets. Such matters are the subject of a number of investigations being undertaken by the Financial Regulator and the Director of Corporate Enforcement. The investigations must be followed up by the regulatory authorities which have extensive powers and by the bank. As shareholder and the Minister responsible, the Minister for Finance will insist on this. Accordingly, the Government believes recapitalisation is not the most appropriate and effective means of securing the continued viability of Anglo Irish Bank. Therefore, the Government must move to the final and decisive step â public ownership of the bank. I will highlight the salient provisions of the Bill in more detail later.
Senators will be aware of the international context in which this action is being taken. While I do not wish to dwell on old ground, it is important to note that financial institutions throughout the world, particularly banks, have been under unprecedented pressure in the past 18 months. Traditional sources of funding have dried up. While there have been some improvements in recent times, the international financial system remains in a fragile position. Like every other country in Europe, Ireland has moved to ensure the security and stability of its banking system. There has been a significant change in market expectations in respect of the capital banks hold. As a result, banks have had to vigorously compete for deposits and other forms of funding in a weakening economic environment. They have also been forced to seek capital in a market that is unwilling to finance banks. This has resulted in an array of state recapitalisation programmes across the developed world. In this challenging period for the banking sector investors dealing with banks are more risk conscious. In such circumstances the reputation and good standing of a bank, including its board and senior management, become even more important.
The extended financial crisis we are experiencing has reminded everyone of the pivotal role the financial system plays in supporting the economy and influencing the day-to-day lives of ordinary people. It has become clear to everyone that the Government needs to take appropriate action to maintain the stability of the financial system. Throughout this process the Government's approach has been based on two basic principles. First, the State will not let any systemically relevant financial institution fail. Second, any State involvement in the financial institutions will protect taxpayer's interests and have regard to legal and EU implications. Against this background and taking account of the best advice available, the Government acted with purpose and determination in September last year to guarantee the deposits and other liabilities of credit institutions in order that they could maintain the confidence of savers and access funding. This move was essential to allow banks to continue their normal business of providing credit which is the lifeblood of the economy.
To date, the Government guarantee scheme has succeeded in ensuring Irish banks can continue to do business. Liquidity â the cash that comes in the form of deposits and interbank moneys â provides the basis for lending for banks in all parts of the world. The guarantee scheme has ensured Irish banks can continue to access liquidity. The conditions attached to the scheme have given rise to detailed engagement by the Government with this country's banks. With the Department of Finance, the Central Bank, the Financial Regulator and the National Treasury Management Agency, the Minister for Finance, Deputy Brian Lenihan, has worked with the covered financial institutions since September to examine all options for maintaining the stability and proper functioning of our banking system. This comprehensive and structured process has addressed such issues as the business plans of the banks, any potential private investment, the expectations of the financial market and the role of the banks in supporting the real economy.
Although the Minister has made his intentions clear, it has been speculated that the action the Government is taking in the case of Anglo Irish Bank will change the position of the two other institutions in respect of which recapitalisation plans have been announced. Bank of Ireland and AIB are fundamentally sound and solvent. The Government reiterates that it sees Bank of Ireland and AIB as central to the Irish financial system and the proper functioning of the economy. It wants to ensure both Bank of Ireland and AIB remain as independent banks. It has reaffirmed that it is proceeding with the planned recapitalisation of Bank of Ireland and AIB on this basis. Its firm intention is that both banks will remain in private ownership. In particular, it has reiterated its intention to provide â¬2 billion for each institution from funds that have already been earmarked by the NTMA for that purpose. As the Minister has previously outlined, this capital will be deemed by the Financial Regulator to be "core tier 1" funding. The finalised terms and conditions that will apply to it will be framed in a manner that will underpin market confidence. The Government has reiterated its commitment to underwrite, or otherwise support, a further â¬1 billion in core capital to each of the banks. Senators will be aware that the Government is in discussions with other institutions about their future capital needs, if any. We will work on this issue with a view to early decisions.
It was recognised from an early stage that the challenges faced by individual institutions were not the same in each case and that the strategies necessary to stabilise and strengthen them would be different. From the outset of the financial crisis, market sentiment towards Anglo Irish Bank was particularly negative, as evidenced by the dramatic collapse in the bank's share price and the continued pressure on its funding. The bank's business model which was heavily focused on commercial and real estate lending was profitable during the recent period of strong economic growth and steady expansion of the property sector. Due to its less diverse business model, it was perceived by investors as being more exposed than other Irish financial institutions to the sharp contraction in the Irish and UK property markets in the last 12 months.
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 the engagement with the bank was a proposal by the Government for an initial and immediate capital investment of â¬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 â¬1.5 billion investment took into account the greater degree of risk inherent in the bank's business. A higher rate of return was required from it than from the other two banks. It was planned that the State would hold 75% of the voting rights. Since that course of action was outlined in the week before Christmas, however, it has become necessary to take the ultimate step of nationalisation. I would like to explain why.
At the time of the recapitalisation announcement, the Minister made it clear that the Government's offer to Anglo Irish Bank represented the last step short of nationalisation of the bank. The commitment of Government support to the bank was designed to boost market sentiment by bolstering its capital to a level that would ensure its ability to withstand losses on its loan book that may arise over time. The extent of such losses would depend on 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 Anglo Irish Bank's senior management team, including the CEO, compounded the weak position of the bank in the eyes of investors and debt providers. Market confidence in the bank was further eroded and this was reflected in a limited weakening of Anglo Irish Bank's 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 with a balance sheet in excess of â¬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 areas such as retail, office, leisure, health care, tourism and other services. It is also a very 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.
To give precise figures, the total number of customers with loans in Anglo Irish Bank is approximately 7,000. The Irish customers who owe money to the bank number approximately 5,000. The total number of retail depositors is approximately 300,000, of whom 72,000 are Irish customers. The total number of corporate deposits held is approximately 12,000, of whom approximately 3,500 are Irish customers.
All the advice to the Minister is that letting Anglo Irish Bank fail would lead to very serious disruption of our financial system. It is not a question of saving a few developers from going to the wall, it is a matter of underpinning deposit and wholesale funding throughout the financial system.
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 Anglo Irish Bank would have helped underpin the bank, even greater certainty could 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 the current deficit as Anglo Irish 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.
The Government's actions have been made on the basis that the health of the economy is inextricably linked to the banking sector and vice versa. 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 â¬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.
I would like to 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 Anglo Irish Bank's depositors and other customers across all 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 on all bank liabilities until September 2010 and creditors of Anglo Irish Bank, including bond holders, can be assured that it is in a position to continue to fulfil its obligations and repay its debts at maturity. Added to this, all customers of Anglo Irish Bank now 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 the bank will continue as normal and all Anglo Irish Bank employees will remain employed by the company. Anglo Irish Bank will be managed on a commercial basis at arm's length from the Government allowing the full potential of the bank's business to be realised. The legislation we have put before the Seanad provides for a relationship framework. The Government will be appointing a new board to oversee the running of the bank and to prepare a comprehensive business plan to enable it 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, the financial sector and the taxpayer.
I welcome the decision of Mr. Donal O'Connor to stay on as chairman. As the Minister 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. Like the Minister, I am also pleased to acknowledge Mr. Maurice Keane's agreement to be appointed to the board and to thank Mr. Alan Dukes and Mr. Frank Daly for their continued valuable contribution to the board. The Minister will announce further appointments in the near future.
While a â¬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 the bank. All borrowers from the bank remain subject to the same terms and the new board will place a particular focus on ensuring that all debts are fully pursued by the bank in a commercial way, as would any other bank.
While the Act provides for the transfer of Anglo Irish Bank into State ownership, shareholder rights are protected under Irish law and, accordingly, the Minister has 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 consider a wide range of factors before making a recommendation on the level of compensation due, if any. The process of the independent assessment will serve to maintain the integrity and good reputation of the Irish market as a whole.
There has been a great deal of commentary about the bad debt position in Anglo Irish Bank. Senators will be aware that the Minister received from the Central Bank and Financial Regulator a report undertaken by PricewaterhouseCoopers, PwC, on the financial position of the institutions participating in the Government's guarantee scheme. This work has been supplemented 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 â¬70 billion in loans and advances to customers. These are not bad debts as some people try to suggest. As with any bank, there is a mixture of mostly 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 therefore that I clarify to the Seanad 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 is approximately â¬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 Anglo Irish Bank's case. Anglo Irish Bank's position is secured by the nationalisation and the Government can work with the new chairman and board to extract the optimal value from Anglo Irish Bank's loan book and to minimise the taxpayers' 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 â¬10 billion in total. Within this â¬10 billion, the Minister 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 Anglo Irish Bank is now a nationalised entity with the State behind it, rather than make an immediate up-front capital injection, we can provide appropriate funds, as necessary, over time to complement Anglo Irish Bank's own resources.
Looking beyond Anglo Irish Bank, the Minister 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. Our vision for the banking sector is that the banks will serve borrowers, small and medium-sized enterprises and all stakeholders in an honest way and ensure that customers and consumers in particular are treated in a reputable and respectable way. Our vision for the banking sector is that the banks will serve borrowers, small and medium sized enterprises and all stakeholders in an honest way, and ensure that customers and consumers in particular are treated in a reputable and respectable way. The bank guarantee scheme, recapitalisation and the credit package announced by the Minister in December, go some way towards addressing these objectives. The Minister can assure the Seanad that the intensified scrutiny and oversight of financial institutions which has been put in place since the onset of the current turmoil will be maintained.
The nature and thrust of Ireland's regulatory regime must 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. We welcome the review now being undertaken by the regulatory authority to that end. 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. The Minister can assure the Seanad that Ireland will play its part internationally, and especially at EU level, in seeking to ensure that the re-design 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.
I will now deal with the main provisions of the Bill.
Section 2 sets out the Minister's functions in the public interest under the Bill. These functions are granted on the basis that, following consultations with the directors of the bank, the governor and the authority, the Minister has formed the opinion there are concerns about the viability of Anglo Irish Bank and that the exercise of these functions is necessary to preserve the capacity of Anglo Irish Bank to continue as a going concern, and to prevent potential damage to the financial system.
Section 3 provides that the Minister may specify a relationship framework to govern the relationship with the bank, recognising the separation of Anglo Irish Bank from the Minister for Finance, and limiting the Minister's intervention in the conduct of the bank's business to that necessary to protect the public interest. Section 3 also 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 this Bill 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 one of the key provisions in the legislation, 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, Anglo Irish 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 Anglo Irish Bank to a nominee at any time on such terms as the Minister specifies, having regard to the public interest and regulatory requirements. Section 9 deals with instruments to which Anglo Irish Bank or its subsidiaries are a party. Commercial instruments may provide for their termination or other consequences â for example, to accelerate payment not otherwise due to be paid until some future time â where the ownership in, 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, or any matter arising by virtue of this Bill, unless the Minister provides 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 been taken already to guard against such an action but this section provides an appropriate backstop. There is a hardship provision whereby the Minister may reduce the effect of the restriction by order where otherwise the section might be unduly onerous.
Section 10 extinguishes certain rights, largely enjoyed by directors, senior managers and employees in Anglo Irish Bank to subscribe for shares in the bank. 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 for the party who holds an equitable interest in that share, where applicable. Section 12 provides for the discontinuation of any listing of shares in Anglo Irish Bank on the commencement of this Bill.
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 the Minister or his nominee when acting as shareholders in Anglo Irish Bank.
Sections 18 to 20 provide powers that facilitate swift action by the Minister to make necessary changes in the administration of Anglo Irish Bank. They provide for change of the financial year, removal and appointment of directors, officers and employees from their positions with Anglo Irish Bank and its subsidiaries, and appointment of their replacements. These powers, which are exercisable only in the public interest, are subject to regulatory requirements. Section 21 provides that specified persons, including the Minister and the governor, shall not be regarded as de facto or shadow directors of Anglo Irish Bank or any of its subsidiaries or subsidiary undertakings.
Sections 22 to 32 address the issue of the amount of compensation, if any, that may be payable to persons whose shares were transferred to the Minister for Finance or whose rights were extinguished, and the administrative issues surrounding how such compensation should be calculated, and how it should be paid. Section 22 provides for the appointment by the Minister of an independent assessor who will determine the fair and reasonable aggregate value of the transferred shares and extinguished rights and the consequent amount of compensation, if any, that may be payable.
Section 23 provides that the Minister shall pay or reimburse such remuneration or expenses of the assessor as the Minister determines. Section 24 sets out who may make submissions in respect of the aggregate amount of compensation to the assessor. Section 25 lays out the criteria which the assessor will use in determining the aggregate value of the transferred shares and the extinguished rights for the purpose of calculating fair and reasonable compensation. As a starting point the assessor will consider the true financial state of Anglo Irish Bank, taking into account the underlying market value of Anglo Irish Bank's assets and the extent of its actual, contingent and prospective liabilities assuming that no new financial assistance, investment or guarantee, other than the guarantee already provided under the Credit Institutions (Financial Support) Act 2008, would in future be provided by the State to Anglo Irish Bank.
Section 26 provides that before making a report to the Minister the assessor will circulate a draft of his or her report. Section 27 provides that the assessor will report to the Minister on his or her determination of fair and reasonable compensation, the value, if any, attributable to each class of share, and any appropriate interest payable. If compensation is to be paid, the Minister will then make such arrangements as are necessary for sufficient funds to be made available out of the central fund to enable payments of compensation to be made in accordance with the assessor's report.
Sections 28, 29 and 30 address the practicalities if the assessor determines that compensation is in fact payable. Section 31 provides that the assessor's determination can be appealed to the Irish Financial Services Appeals Tribunal. Section 32 provides that leave will not be granted for judicial review of the assessor's 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, and will be repaid to the Minister from the funds of Anglo Irish Bank. The expenses incurred in respect of the assessor by the Minister, and any other expenses incurred under this Act, shall be paid from the funds of Anglo Irish Bank.
Section 34 provides that the Minister may create and issue securities for the purposes of this Bill. Section 36 provides that the Minister may make regulations for the purpose of facilitating the exercise by the assessor, or the Minister or the Minister's nominee, of their functions. Any regulations under this section will be laid before both Houses of the Oireachtas.
Section 37 provides that the Minister may make regulations to do anything that appears necessary or expedient for bringing the Act into operation, but any regulation under this section will be laid in draft form before the Houses of the Oireachtas and will not be made until each House passes a resolution approving the draft.
Section 38 amends the Finance Act 1970, the National Treasury Management Act 1990, and the Central Bank Act 1942 in order to facilitate the achievement of the purposes of this Bill by enabling the Minister to delegate the borrowing powers in section 34 to the NTMA.
In conclusion, 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 the Government's legal and financial advisers were unanimous in their advice to Government that strong and clear 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.
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 and, importantly, it sends one clear message to customers, investors and the markets generally that Ireland is a safe, secure place to do banking business.
I commend the Bill for the approval of Seanad Ãireann.
It was Warren Buffet, the American investor, who said when talking about the stock markets that we know who is swimming naked only when the tide goes out. If members of this Government were showing a builder's bum last September, they most clearly need those discarded builder's helmets in this month of January 2009 after what has been announced in the past couple of weeks. There has been poor handling of the financial crisis. Today, we are discussing the nationalisation of the third largest bank in our democracy yet we still do not know whether it is the right thing to do because of the refusal of the Government to give us the sort of information we need to make that decision.
It is disgraceful that the Minister for Finance uses words like "confidentiality" about business decisions to deny telling Irish taxpayers why they may have to stump up billions in the next few years to pay for an institution that clearly has been very badly run. This is about more than just the ethics of lying to taxpayers and not telling them the full truth; the background is also dismal. There seems to be a once-off loss of somewhere between â¬50 billion and â¬100 billion in the asset value of our economy. This is a significant loss of vanished assets, comprising anything between 30% and 60% of the GDP from one year. We will have to try to spread the loans that were associated with those assets over a period of time to ascertain whether we can recover some of that sum or pay for it in some other way.
As the Minister knows, Government spending is in a similar mess and we will need a significant amount of money in the next five to ten years to sort out public spending. That sum will be â¬20 billion next year but on average it could be at least â¬10 billion a year. There will be a horrendous lack of money in the Irish economy in the next decade, which is even to assume we sort out the confidence and financial stability problems we are currently experiencing. Throwing around billions is not an option at this time.
As the Minister has just joined us, I want to repeat the point that we know very little about Anglo Irishââ
I thank the Minister. We know very little about why we are taking this action with regard to Anglo Irish Bank. The Minister told us why it is being nationalised. However, if we consider some of the facts the Minister has been given over the past 24 hours, and some of the facts in the accounts of Anglo Irish Bank, the bank has in excess of â¬100 billion on its balance sheet and â¬70 billion in loans, mostly good loans, although some are distressed â these are the Minister's own words. We all know there is such a thing as roll-over interest and that some advances have been made, although we cannot be sure of this.
The quality of those loans is not as rosy as the Minister suggests. If one examines Anglo Irish Bank's accounts, the bank is trying to suggest the level of distressed loans to those under pressure is only something like 1.5% and that there is a question mark over something like 6% or 7% of loans. Other international observers would put that figure much higher. If the Government is asking the taxpayer to pay for all of this, there is a need for more information on what PricewaterhouseCoopers has actually discovered.
There is approximately â¬7 billion in shareholders' funds and other capital is available. There are also Anglo Irish Bank's profits, which seem to have been quite significant in the past couple of years. All of this does not sound so bad. There might be a need for the Minister to expand further as to his reasons for doing this and to explain exactly where he sees the threats to Anglo Irish Bank. He should tell us more and stop hiding behind the confidentiality issue that has been thrown around to date.
In the past couple of months, the situation has changed dramatically. There is a sense that nobody believes what is happening. There is a sense there is a hapless trio of the Government, the regulator and the banks, with all giving conflicting stories. In the House on 1 October, when I raised the point that the Government should limit the exposure of taxpayers to â¬10 billion of taxpayers' money in rescuing the banks, the Minister said he did not envisage that sort of money being spent. Barely four months later, â¬10 billion is the minium that will be spent on the banks according to the Minister's public statements in recent weeks.
There is no need for the Minister to nod at us as if we are being stupid and annoying him. These are the sort of figures he should be giving to both Houses.
Sections 22 to 32 deal with compensation for shareholders. It was interesting to hear the Minister discuss this issue in the Lower House. He said the shareholders will be entitled to know what value the assessor, and by extension the Minister, puts on Anglo Irish Bank. The shareholders who will have shares taken off them at this time will get to know what is happening, yet the Minister is hiding the PricewaterhouseCoopers report from us. The taxpayer is expected to pay for everything. What is happening with regard to the shareholders? What is the Minister's gut feeling on this question? Are the shares in Anglo Irish Bank worth nothing? It would be an interesting debate given that we have nationalised the bank.
There are probably ten or 20 people within Anglo Irish Bank who seem to have been responsible for causing the crisis within that bank. Many of those were the very same people who were trying to buy that bank over a period of months. While it is not fair to mention names, one person in particular attempted to buy 25% of the bank and he has ended up with 15% of the bank. The Minister might tell us where the other 10% of that share ownership went at that time, and what that person did with that 10% if he only took up 15%.
What I have noticed in the speeches from the Minister for Finance and other Ministers is that none of them suggests that Anglo Irish Bank would be insolvent or would have collapsed on 16 January if the Government had not stepped in. Given what the Minister is saying with regard to the assessor, this provides an opening to put a value on those shares and, therefore, the taxpayer could potentially pay out a substantial amount of money for those shares in the future. The Minister might comment on what the Government felt would happen if it had not stepped in on 16 January. Would this bank have folded and is there a value in regard to the shares? Perhaps there would be no need for sections 22 to 32 and all those rules regarding the assessor if there was no hope for this bank to survive.
This is the sort of question that leaves a certain stench of corruption around this matter. There is a sense of unease from our side of the House that this could turn out to be another Goodman-type scenario. What happened in the Goodman case was that while it saved the industry at the time, it had huge benefits for a few individuals. I do not believe the taxpayer wants to see the same happening in this case. When the dust settles on this matter and the Government owns the bank, one could see a number of shareholders recovering a huge amount of the money they otherwise would never have seen again. One could see huge write-offs for some individuals in regard to the loans they made to Anglo Irish Bank, which the Government would take up, and they would be able to continue trading.
There was unbelievable trading in Anglo Irish Bank. The fact the CEO and some directors could loan themselves hundreds of millions of euro is unbelievable. That people who were borrowing money from the bank were using that borrowed money to buy the bank, and that the same individuals were borrowing money from businesses they were running to buy the bank, sounds like something one would read in a comic book.
What would happen if a major health insurance company or motor insurance company went broke because of the activities of these individuals? It would not be those individuals who would suffer the most. Those who would pay the worst price would be the people who have their businesses, properties and cars insured with those individuals. Although there has been much criticism in both Houses that the Minister is rushing this through and not giving us adequate scope to discuss the issue, there is unease about what could have happened to Anglo Irish Bank.
Is there another way around this problem? Will the taxpayer be stung in regard to the shareholdings in time to come? The greatest fear held by some people is that the bank has become Banco Fianna FÃ¡il and perhaps the Minister can do something about that now. The Minister can influence the situation.
Senator White should not be so dismissive. It is very easy for Ministers and those appointed by the Government to write off debts of individuals who are well known in the tent at Ballybrit and who were welcome there. That possibility still exists with the present set-up. I realise there may have been some exaggeration and in some cases people might say we are hyping the matter, but great concerns remain about the way the legislation is being passed in the House, about the protection for the taxpayer and especially about how much this could cost. If the PricewaterhouseCoopers estimate of the bad loans is wrong there could be substantial exposure for taxpayers in years to come. The Minister should now give us that information as we have nationalised the bank and it is protected.
I join others in welcoming the Minster for Finance, Deputy Lenihan, to the House and I thank the Minister of State at the Department of Finance, Deputy Mansergh, for the comprehensive outline of the legislation. As always, I listened to Senator Twomey with interest. When considering these issues, I am amazed at the amount of hindsight claimed within the media, certain elements in the Opposition, although not all, and some of the public. Regrettably, governments do not have the benefit of operating with hindsight, they operate in a real-time environment. As the Minister of State, Deputy Mansergh, remarked, we have been living in a period of unprecedented turmoil in the international financial markets in the past 18 months. There is effectively a world war environment in international banking. Anyone who does not acknowledge the tsunami that is breaking over the entire global financial system is quite simply deluded in the extreme.
As the Minister of State outlined, circumstances have changed almost on an hourly basis in recent months. They have changed in banking circles, nationally and internationally. This has required a level of agility and an ability to improvise, which is unprecedented in modern history, to cope with the pace at which events have changed. The bank guarantee scheme was introduced and that was followed by the announcement of the results of Anglo Irish Bank. Those results were received poorly and that was reflected in the market reaction. Then there was an unprecedented situation in terms of breaches in the levels of probity. These would not be acceptable from any corporate entity and certainly not in an institution which we expected to be regulated to the highest level of probity. That has not been the case and it is a disgrace in terms of the actions of the former chairman of Anglo Irish Bank. Understandably, the international markets made a judgment on that and it has significantly affected the long-term liquidity of Anglo Irish Bank in the short term.
The only option was for the Government to step in and nationalise the bank. The Minister, Deputy Lenihan, stated some weeks ago his intention to make credit available in the amount of â¬1.5 billion of capitalisation. That was the last step before nationalisation. The news of loans to the directors superseded that and there was a need to nationalise the bank. I have heard suggestions from some quarters that the situation in Anglo Irish Bank was not systemic, as we might suggest on this side of the House, since it is not in the current account or car loan business. Anyone who believes that the position of that bank is not inextricably linked to the overall health of the banking system in Ireland is deluded. All the banks in this country have two-way relationships in short-term lending, foreign exchange and other areas. The future stability of Anglo Irish Bank is essential to the overall health of our banking system.
I welcome the Bill and I welcome the Minister's swift action in this regard. I question the benefit of 20:20 hindsight, claimed by some media interests. Throughout this crisis in the past 18 months I have consistently heard people say that we should have seen this and we should have seen that. No one saw this coming. No economist in the world saw it coming. There may have been certain parties who from time to time stated that they said this or that. All I have to say to those parties is that a stopped clock is correct twice a day. It is easy to say with the benefit of hindsight that one predicted this or that that would occur. However, I contend that no one predicted this situation. Last Friday the chairman of Anglo Irish Bank gave the up-to-date factual position regarding the solvency of the bank based on the PricewaterhouseCoopers report to which Senator Twomey referred. This was backed up and cross-checked by Jones Lang LaSalle valuers in terms of a net position of â¬4 billion. These are the facts. If Senator Twomey has information or a valuation that supersedes the expertise of these companies, we would like to hear it. Senator Twomey should bring us up to date.
It is not rubbish, it is a matter of public record. These are the facts. There is a need to remain as agile as we have been and to ensure that as the situation evolves we are prepared, able and willing to take the necessary action. These characteristics have been displayed by the Minister, Deputy Lenihan, and his colleagues in extremely difficult times and under very difficult economic circumstances nationally and internationally. One need only consider the position in the UK, where almost all the banks have been partly nationalised with the exception of Barclays. There has been partial nationalisation and recapitalisation throughout the United States of America and the situation continues to evolve. There is significant uncertainty in the market.
I welcome the nationalisation of Anglo Irish Bank and I commend the Bill to the House. I refer to the overall economic crisis and our public finances. We can deal with any issues ourselves. I welcome the Government's intention to make adjustments and to include a further â¬2 billion. More may be required and I hope that we can proceed as a matter of the utmost urgency. I believe these steps should be taken in the context of social partnership. Throughout the 1980s social partnership laid the groundwork for the successes in the 1990s and up to the recent crisis. We must proceed through that approach. I do not believe it is helpful for any of the social partners to lay preconditions, which undermine the essence of partnership. We should not say that we are not prepared to discuss X or Y.
The critical issue is that to the fullest extent possible we maintain as many jobs in the economy as possible. That may require adjustments in terms of pay and it is important that we do not rule out examining that possibility. That applies from those in the Houses of the Oireachtas to those on minimum wages and we should be prepared to discuss these matters in a mature way. The model to take that forward is partnership. I do not believe it is helpful for certain entities to say they are not prepared to engage in that process unless the agenda excludes or includes certain items. We are in a crisis the likes of which the world has not seen in many decades, if ever. Everything must be up for discussion and we must display a level of determination and enthusiasm to take the correct decisions. We must show a little confidence in how we do so.
As for the body language of the entire Legislature, Members must improve how they go about dealing with such issues. Whether it is through offering constructive criticism, as Opposition Members have often done, it must be done in a positive manner. One should not simply be seen to be critical with the benefit of 20:20 vision in hindsight but make constructive and positive interventions. All sides of the House should show some confidence that the Oireachtas is prepared to take the appropriate decisions at the appropriate time, however rapid and necessary that may be. Members should do so in a way that is confident and which shows leadership to the people to the effect that this is a Legislature that can and will act and take the appropriate decisions on their behalf.
In the past 18 months many challenges have presented. However, Members should start from one reality, namely, the world has not and will not end. The country has faced many difficult challenges and at all junctures displayed the requisite level of agility, determination and innovation to surmount such challenges and ensure we are still standing. In these difficult days I commend the Minister for Finance, Deputy Brian Lenihan, and the Government on their determination. I wish them well in the weeks ahead as they continue to act on our behalf.
I was unfortunate enough to attend the extraordinary general meeting of Anglo Irish Bank last Friday as a very small shareholder and wish to say something about it in the limited time available. It was Irish corporate life at its worst. I spent today in the City of London where some people were aware of what had happened. The message sent to the City of London from that meeting was extraordinarily bad. Many had noted what had happened at the EGM and perceived it to be Irish corporate and banking life at its worst. It was bad because a front was put up at the EGM. Small investors went knowing they had lost virtually everything but with a single object in mind, namely, to get some information and find out the reason they had lost it, possibly in the hope of salvaging something. However, what I saw was an utter disgrace. This was not because of what had happened in the past but because of what happened at the meeting in response to it. I witnessed a new chairman stating that although he did not know what had happened because he was not there, were the shareholders to ask him any questions, that would be the answer he would give to them. Moreover, he would not allow the people behind him, of whom there were ten or 11, to answer questions or provide information. These were the people who, if they did not know what was happening, ought to have known.
Question after question was responded to in this manner by the new chairman of Anglo Irish Bank who was to be the new front and image of the bank. He made a very bad impression from the outset. He ought to have done what the Minister described today, that is, state clear water was being put between what had happened and the present. However, he did not so do. He stated that while the shareholders could ask questions, they would receive no answers. In addition, not only were the old directors either not allowed or unwilling to say anything â consequently no information was available â various questions were also asked of the auditors, Ernst & Young, representatives of which were present. Although it is one of the big five auditors in the world and one of the established pillars in Ireland, the response was that its representatives would not be allowed to answer questions that day. The question to be asked of them was quite simple, namely, how did they miss the loan of â¬87 million and if they did not miss it, why did they not tell anyone about it? However, they were not allowed to respond either.
Consequently, a dark shadow of silence was established over Irish corporate life that sent a clear message to everyone who was present to the effect that no one would be told the truth about what had happened in Anglo Irish Bank. No one will ever know. One of the tragedies of the proposed nationalisation, regardless of whether it is right or wrong, is that it has the capacity to cover up what actually happened. I do not state that necessarily is the plan, as I do not know, but it has the capacity to so do. Lessons are to be learned in this regard but information is not forthcoming. We do not know what is the debt or the danger. We do not know what happened, whether the auditors missed it or what the directors knew. This is a complete fiasco and there has been no attempt to enlighten us as to the reason it happened.
Moreover, I am not encouraged by what I have heard since. As I am in injury time, I will conclude. While I am sure Mr. O'Connor is an able person, he also is part of the Irish Establishment and comes from PwC, one of the big five. At the EGM he did a masterful job at saying absolutely nothing and telling no one anything. When the directors resigned, as they did yesterday, a new appointment was made.
I am just finishing. The new appointee is a man who sat as part of the old guard of Irish banking for many years. It is an extraordinarily bad appointment because the message is coming through that a former chief executive of Bank of Ireland who also is a director of DCC and stood foursquare behind someone who was found to have engaged in insider dealing has been rewarded by being put in a key position in Anglo Irish Bank. This is not a good message to send to the world. We must make a difference in this regard and state this will never happen again. The signs I have seen in the House today, at the EGM and by this appointment indicate that no lessons have been learned and that it will be more of the same.
First, I wish to state that I have been a customer of Anglo Irish Bank and that I have two property investments that are managed by it.
This is not a welcome Bill, as no one wished to see a Bill that would make the citizens and taxpayers of Ireland the reluctant owners of a bank that was not worth what they were paying for it. However, we do not have a choice in this regard, as the failure of the American Government to rescue Lehman Brothers created bigger problems. Consequently, I support the Bill. However, I am disappointed that Members have not been allocated the requisite time to debate it in a correct manner.
The State will be in the banking business and some of the first words contained in the Bill, "in the public interest", worry me, as I have a concern in respect of that term. The Minister has stated the bank will be run in a hands-off commercial fashion but he would say this. I would prefer to see the bank being run for the shareholders and not necessarily in the public interest, that is, it should be turned into a proper commercial bank. If it is run in such a fashion, it can be sold again in a couple of years' time. I have a fear about any State company which is not necessarily being run with profitability as an objective. The Minister should put my mind at rest in that regard.
We must get credit flowing again. This issue goes beyond Anglo Irish Bank. It touches all the other banks in Ireland, AIB and Bank of Ireland in particular. There has been woolly thinking on bank recapitalisation thus far. The taxpayer consented to recapitalising the banks to get them to lend. However, many banks across the developed world have used this money to restore their capital ratios which also are dangerously low. This confusion must be ended and the proportions in which we expect new Government capital to be divided between new lending, on the one hand, and capital-based restoration, on the other, must be made explicit. A possible formula would be that for every â¬1 in new capital the bank would be permitted to lend 50 cent to businesses and use the other 50 cent to build up its capital ratios. That is not a necessary proposal on this occasion, but we must find a system to avoid the problems that have arisen elsewhere.
As a member of the board of the Irish Auditing and Accounting Supervisory Authority within whose remit this issue falls, I have many views on the issue of auditing standards, on which I will not speak at this time. However, company law is an issue at which we need to look carefully. I want the Minister to indicate clearly his views as to whether a person needs to be in breach of written legislation in order to be in breach of company law.
My view of the world is that common law is clear about the responsibilities of company directors, a matter about which we had long debates in 2003. It seems any director of a company who acts against the best interests of that company, and the common good in as much as it applies to that company, is in breach of common law. It is also clear, as I understand it, that the compliance obligations on directors stretch very far and that we can pursue them. I ask the Minister to indicate his view on the responsibilities of company directors.
On the issue raised by Senator Quinn, I note that today the British Government has indicated a change of attitude and policy on Northern Rock. It has decided to loosen that bank's purse strings and require it to become involved in lending. That is the point that was being made by Senator Quinn. The last time we discussed the issue we told the Minister repeatedly that we did not see the connection between capitalisation and lending at the bottom end, which has now been well proved.
We have to recognise that the people concerned have caused damage to the country; that, on the one had, there is anxiety and, on the other, a loss to others. Many pensioners, people with small amounts of money, have effectively gone to the wall. We have a responsibility to chase the people concerned. Whoever does it, whether it be the bank, the Government or the accountancy bodies, and whichever way it is done, this must be played to the end game. Those responsible should be brought to book and, if necessary, before the courts. That is the one action people want to see taken. There will never be closure on this issue as long as people can walk free having caused chaos and damage all around them. This is appalling, when one considers that a person can find himself or herself in jail for not paying a bill for a household domestic appliance. People have lost jobs, houses, relationships and pensions. When one thinks of the damage caused to them, the fact that those responsible might never be brought to justice should not be acceptable to any legislature.
We find ourselves here because of the activities of an enterprise which was largely owned and run by individuals who have shown by their behaviour incidents of individual greed that have undermined economic confidence, shown contempt for the law and made matters difficult in terms of the future financial stability of the country. This debate cannot proceed without noting the widespread contempt that many of us in public life feel for such activities. The Bill to nationalise the third largest bank in the country has come about, not because the bank is insolvent but because it has lost credibility due to the activities of such individuals. All other options have been examined in recent months, including whether this enterprise could trade out of its difficulties, whether it could find additional investors to allow it to do so, as well as State involvement through a number of support schemes, including not only the existing deposit guarantee but an enhanced bank guarantee scheme. All such efforts were undermined by the efforts of the individuals in question who saw this enterprise as nothing less than a personal play thing. Those involved in public life cannot stand by and allow such standards in corporate life.
I welcome the Minister's acceptance that regulation to meet the situation in which we find ourselves needs to be dramatically changed. We have presumed that such persons could not honourably exist in Irish commercial life. The fact that they do and have wreaked such havoc and damage is something with which we in the political system representing the people must deal. Nationalisation must happen because it is the only option available to the State because it involves the lowest cost at a time when we do not have the resources to deal exclusively with such an issue.
We must remember we exist in an international environment. In the United States there have been seven policy approaches to its banking system since last year. Senator O'Toole mentioned the change of policy on the part of the British Government which this week has made a second attempt to directly input funds into many of the country's major banks, none of which has done anything in releasing money for lending or in bolstering their share prices. We at least have had the opportunity to examine the situation as it has unfolded and to look at every policy approach. I am confident that in taking this decision we are giving ourselves an opportunity to rid ourselves of a cancer in corporate life, to put in place appropriate corporate standards and people to enforce them, and to give ourselves a vehicle with which to inject the necessary degree of urgency.
I agree with other speakers that this nationalised institution that we will bring into being in passing the Bill offers an opportunity, but it is not one that we can use to say it is business as usual. The business model that was lionised, that put so much faith in the property market, is not one that will ensure a viable financial services sector into the next decade and beyond. We need to lend money but need to do it differently. We need to lend to people to allow them to upgrade their homes in terms of energy efficiency measures. We need to lend to small and medium enterprises in the context of the new green deal. These are not arguments being articulated by the Government or my party in government only; this is the accepted approach to economic development that we hear articulated by the new President of the United States.
At the same time there is an international recession, the extent of which no one knows; we are collectively dealing with a problem in the banking and financial services sector that is affecting this country more than most because we have chosen an economic destiny that leaves us open to international pressures more than most. In having a nationalised financial institution we at least offer ourselves the prospect of trying to direct economic activity in a way that we are unable to do through other financial institutions whose priorities have not been in the interests of the overall economy and the citizens of this country. I ask people to be angry about the circumstances that have led us to be here, to be cautious about the risks that face us, but also to be confident that there are opportunities in supporting a measure such as this and making the changes we must make.
It is interesting that the previous speaker asked us to be angry. I am sure he knows we have such a history.
Before I address the substance of the Bill, I ask the Minister what is the rush in ramming it through the Oireachtas today. History teaches us that rushed legislation is bad legislation. What difference would it make if the Bill was passed tomorrow and if we had more time to debate it? I do not believe an extra 24 hours will change the status of Anglo Irish Bank. I understand the Minister will state it must be passed before 9 o'clock tomorrow and that, therefore, it must be signed into law tonight. I am not sure why or what difference it would make. Perhaps the Minister will elaborate on that point.
The stakes are the highest ever and we need a proper vehicle to provide for future developments, a matter on which this legislation will have an impact. We do not know whether it is the correct legislation or how much money will need to be invested. The Bill was only published last night, following on from the Government's prior announcement that it would nationalise Anglo Irish Bank. Despite receiving copies of the Bill only today, we are all expected to contribute in detail. It is impossible to go through the 39 sections in detail. No matter how hard we try as legislators, the Bill will not be stress-tested today. No one on either side of the House will be 100% sure about his or her analysis. I will ask specific questions in this regard later.
Recently, the Taoiseach sent what I would call a patronising letter to party leaders, but he should send to the Ministers and members of his parliamentary party the same letter on being careful about what is said concerning the banking situation. There was no need to send such letters. We in the Labour Party, the Fine Gael Party and others on this side of the House have behaved honourably during this crisis. The Labour Party has been consistent and for a long time has predicted the problems we are now facing, namely, lack of proper regulation, lack of knowledge about complex financial products, risky lending, the inflated property bubble and so on. It will continue to behave responsibly. If anything, the Taoiseach should have muzzled some of his backbenchers who do not seem to be consistent or knowledgeable enough in their statements, particularly in local media.
It is unfortunate that people, including some at the Cabinet table, have no confidence in how the Government is handling the banking crisis. Last year, the Government repeatedly stated that the banking system was sound and that there was no need for panic. We then found out about a lot of panic, as the banking system was far from sound. The Government announced the credit institutions bank bail-out Bill in September and denied that banks needed capitalisation, on which it was assured by the same banks and the financial regulatory system. It then decided that it had been wrong and that banks needed to be recapitalised but not nationalised. Effectively, all they needed was to be guaranteed. Under the radar, Ministers hoped that this would lead to some consolidation in the system and the development of stronger institutions, but they were wrong because they forgot about the egos and the large salaries involved, particularly within some banks.
It turns out that we were wrong again and we are now facing the nationalisation of Anglo Irish Bank. The developers' bank is in trouble largely because of its ridiculous lending to individuals of supposedly high net worth who were engaged in property speculation and the mantra of whom was "Give me more". Anglo Irish Bank was engaged in pure, unadulterated greed.
In recent months, the Minister has reminded me of someone who keeps throwing the dice looking for a six, but not getting it. In support of what the country needs, I hope he gets that six soon, but the Bill will not give it to him. We are debating it blindfolded and without critical data. What occurred on the weekend before the guarantee was given? Give us confidence in the banks' position. Information in the media is probably true, namely, that it was sink or swim time when the banks approached the Minister. We have not seen the PricewaterhouseCoopers report detailing the banks' standing, although the Minister's point on confidential information is a fair one. However, I do not understand why we cannot receive a precis of the report, in particular, the facts and figures on the loan books, with names scrubbed out if necessary.
The figures cited today do not seem to add up. How good are the loans and how many are at risk? How is the Government evaluating whether the loans are at risk and does its evaluation stand up to scrutiny? We need to see what we are getting into, how much toxic debt there is and whether the loans for housing estates scattered across the country stand up.
We are debating not only the nationalisation of Anglo Irish Bank, but the future of the banking system. People no longer have confidence in politicians or the banking industry. They believe that an old boys' club is in place. This perception cannot be changed. It is voiced every day on radio talk shows, on the streets and everywhere else. We should have heeded the EU's warnings. The inflated property bubble was the country eating its own flesh. We internalised our economy and lost competitiveness. We did not create primary jobs that led to exports. Instead, we created secondary jobs, particularly those in construction and its service industries, which were based on a time bomb. The argument that the situation owes to international factors alone does not stand up to scrutiny.
A plan to restore confidence in the banking institutions has been necessary for some time. We need a grand strategy as the day of trust is gone. People no longer trust the Government, politicians, the regulator or banks to know or admit what is on the loan books. The Taoiseach's statement in Japan that it is business as usual was unfortunate and out of touch as it is anything but business as usual. While the Minister hopes that his next trick will work, it is unfortunate that none of them has worked to date.
People need to hope that the Government can lead them out of this crisis and get credit moving for small businesses. We are in a worse position than we were last September. People hope and desire that those who behaved in a reckless manner in the recent past will be pursued and punished fully. If in hindsight we realise that legislation is necessary, it should be introduced.
People hope that the bank's former chairman will be seen to eat his words. It is important for the country's future and the way in which we are seen to do business that there is accountability concerning the way in which the money was concealed. What occurred was immoral. Whether it was illegal has been questioned. I hope that it will be found to be illegal. Under the Companies Act, it must be illegal. Was fault not evident? The Office of the Director of Corporate Enforcement has a significant role to play in this regard and I wish it the best.
The Government needs to lead the market because the latter does not believe the former. Every international newspaper and commentator is saying that an inept Government is leading an economy in trouble. That shares keep tumbling shows that the market is not enthusiastic about AIB and Bank of Ireland recapitalisation plans. The goal must be the protection of our banks, particularly the two main banks. Those are the banks with mortgages and they operate in every town.
It must be asked whether Anglo Irish Bank should have been included in the bank guarantee scheme. Will the Minister answer this question? It is a unique bank. We must also question the role and behaviour of auditors. If we need further legislation, as we probably do, it should be introduced. That is evident from the DIRT inquiry and the Goodman matter.
Can we guarantee that the bank will operate without unwanted interference? How will the directors be held to account and will the Oireachtas have a role therein? How will transparency around decisions be achieved, particularly those on its debt management? How will the assessor carry out his or her work? How well are the Department of Finance and the Minister working together? To date, every figure has been incorrect. I can accept this from lowly Senators such as myselfââ
The consistent underestimation of the situation in the past six months poses serious questions. If the Minister needs help, he should get it for the good of the country.
The Labour Party will oppose the Bill. We do not want to protect bad gamblers engaged in monopolistic gambling. We do not know how much the nationalisation will cost or how accountable the new regime will be to the Oireachtas.
There is a certain sense of dÃ©jÃ vu in that a number of weeks ago we sat into the early hours of the morning to deal with legislation regarding the bank guarantee scheme. We now find ourselves once again trying to work ourselves out of a difficult situation. I am, as I was then, confident that the Minister is acting solely and utterly in the interests of the Irish people. I do not accept for one moment that a well connected group of people has somehow swayed their way in this matter. The work being done here tonight is in the interests of the Irish people.
We have arrived at an unprecedented time in our country's history. There is potential for our banking system, the apparatus that brings lifeblood to thousands of small Irish businesses, to irreparably break down. We have arrived at this point because of highly irresponsible and incompetent management at the very highest echelons of that system. We must question the performance of the apparatus of State that is responsible for regulatory control of that system. We must seriously question the performance of auditors who let down shareholders by somehow missing the movement of very significant amounts of money through the books of one bank. The auditors who examined the books of Anglo Irish Bank over the past eight years earned in the region of â¬6 million for that work. They were required, as is the case with all auditors, including those who sign-off on my own company's accounts, to state that the accounts gave a true and fair view of the company's financial position. Yet, almost inexplicably, they managed to miss large sums of money, estimated to be in the region of â¬100 million, that silently moved in and out through balance sheets. Having far from an indepth knowledge of our banking system â I am sure we have all learned a great deal during the past couple of weeks â I often wondered about the relevancy of Anglo Irish Bank to the normal hard working people or thousands of small business owners throughout the country.
In 2007, David McWilliams in his book The Generation Game described Anglo Irish Bank as "simply a leveraged hedge fund betting its own and its clients' money on overvalued property". He went on to say that normally when the property market collapses these type of outfits go bust. Irrespective of Sean Fitzpatrick's troublesome loans, this was an entity that was always going to be in trouble even if our property market plateaued out. This was a bank created for a small elite section of Irish society who moved in the same lofty circles. It galls me that thousands of Irish taxpayers now have to bail it out. Also, it saddens me that investments by hundreds of ordinary people through the purchase of shares in Anglo Irish Bank, many of which were considered safe retirement funds, lie in tatters at their feet.
It now seems apparent that we are left with no choice but to nationalise Anglo Irish Bank. The very trustworthiness of our banking system is at risk and this nationalisation will serve to restore stability. However, there are serious lessons to be learned from this fiasco and one hopes the speed with which this legislation was produced will be matched by similar expediency in addressing these lessons. We need a financial regulator with real teeth, one who has no hesitancy in using them. That person needs to be drawn from ranks other than those of the banking sector in order that the safety of the cosy cabal is no longer a refuge for wrongdoers. We urgently need to change our legislation so that the kind of loan activity engaged in by directors at Anglo Irish Bank becomes illegal and is given the description it really deserves, namely, fraud. Without all of this legislation in place, Ireland could once again be labelled, as it was three years ago by The New York Times, the wild west of European finance.
Today in the Mansion House we celebrated 90 years of precious democracy. Despite huge difficulty, our forefathers risked much to set our country on a new road to freedom and independence. They faced up courageously to adversity and negativity. It is now incumbent upon all of us to face our current adversity with similar courage and positivity. As Senator MacSharry said earlier, the world has not come to an end and is not coming to an end. We can overcome our problems. Ireland incorporated can once again be the powerful economic force it was only a very short time ago and major reform of our banking structures can be the first step on that road to recovery.
I welcome the Minister to the House and thank the Minister of State, Deputy Mansergh, for his outline of the Bill.
I am sure the Minister will agree that rushed legislation is bad parliamentary practice. It simply does not allow time for the type of detailed consideration of which this measure is worthy. I must protest that many speakers from this side of the House will not have an opportunity to contribute to the debate on this Bill.
The Minister of State said earlier that bad debts in respect of Anglo Irish Bank amounted to â¬70 billion. I accept the comment in respect of it being systemic and the knock-on effects in terms of inter-bank lending and so on. I understand the Minister of State's reasoning in that regard. I am sure the Minister will agree that the PricewaterhouseCoopers and Jones, Lang, LaSalle reports, while recent enough, are now dated. The situation is changing daily and the problem is a rolling one, one that no one, not even Government with all the expert advice available to it, could be expected to get on top of. Nobody has a crystal ball and nobody knows what will change from day to day. The truth is we need time to address this issue. What one might judge to be bad today might not be bad six months down the line. We know that the major banks are rolling over and are restructuring, which is right. It is what is needed if we are to save our banking system and our economy. I look forward to hearing the Minister's response to those points.
The Minister spoke some time ago about rationalisation and stated that for the good of our economy the number of banks may be reduced from six to two. He is now saying that Anglo Irish Bank will continue as a going concern, although in public ownership, and will operate at arms length from the Minister for Finance, as major shareholder. Will the Minister be nudging a certain realignment given his previous position in respect of rationalisation? Given the time available, I can only be bitty in dealing with all the matters that need to be raised.
Neither the Minister in his Second Stage speech in the DÃ¡il nor the Minister of State in his Second Stage speech in this House this evening referred to Anglo Irish Bank being made a dustbin bank. I take it the Government will not be taking that approach. I am concerned â as I am sure is everybody else â about the following issue. Allied Irish Bank and Bank of Ireland have major branch networks throughout the land. It is important they continue to prosper and thrive. As I understand it, they are considered to be sound. Will the Minister improve their recapitalisation plan, if necessary? It is important the Minister responds on that matter.
It is important all major projects to which Anglo Irish Bank committed itself, in terms of financing, go ahead in an effort to save jobs. Senator O'Toole referred to the Irish Auditing and Accounting Supervisory Authority which is charged with supervision of auditing and accounting standards. The authority has not as yet commented on the role of the auditors and accountants of Anglo Irish Bank. Perhaps the Minister will comment on that matter. As stated earlier by other speakers, what happened, unknown or otherwise to the auditors, between Anglo Irish Bank and Irish Nationwide Building Society was a significant concealment. This has proved the Office of the Financial Regulator is not fit for its purpose and clearly too much was allowed to take place under the noses of its staff. Between IFSRA and the banks, they made a hames of the principled light touch approach. In performance or pursuance of their duties with the banks, they made as much impression as the bee on the back of the giolla deacair.
I wish to share my time with Senator Terry Leyden, with the permission of the House.
I welcome the Minister's speech. It is important that the Irish people get the message to the effect that nationalising Anglo Irish Bank is not just a question of saving the bank, but the country's banking system. In the past few weeks the Financial Times has made us look pathetic novices as regards the banking system and our governance of it.
I believe there has been a certain amount of jealousy in the Financial Times over the years at the success of the Celtic tiger and that it is delighting in the trouble we are in. However, we have a responsibility as regards transparency that is critical for the future.
I cannot understand that a director can avail of loans and not let his or her board know, and that the law is not being broken. This could not happen in the United States. We need to get Ernst & Young representatives to come before an Oireachtas committee and tell us what they are at. I believe this is no different from Arthur Andersen and Enron. How much do the auditors get in fees for Anglo Irish Bank? Will they show up what has been done wrong? We must question this role of the auditors and how they carry out their duties.
This is not a retail bank with hundreds of branches around the country like AIB and the Bank of Ireland. I am concerned by the 1,200 employees currently working for Anglo Irish Bank. They and their families must be in a traumatic state, wondering whether they will have jobs in the future. I may be speaking passionately and I am not against the Minister but rather I support what he has done. However, he needs to clarify for the employees of the bank whether they will have their jobs. I am glad that it will become a public sector organisation. The public sector has been harangued in recent times, but there is no example there of lack of integrity such as we have seen in Anglo Irish Bank.
I thank Senator Mary White for sharing her time. I welcome the Minister. He is the right man at the right time in the right place and I congratulate him on his effective work in the Department of Finance. He has a great onus of responsibility and he has made the right decision. I disagree with Professor Morgan Kelly, whose despicable article appears in The Irish Times today. It is a disgraceful article which tries to undermine the credibility of this State.
I should remind the House that the State owned ICC, ACC and FÃ³ir Teoranta, which were very effective organisations when needed in this State. Now we have to utilise this bank in the best interests of the economy. I have made a proposal to the effect that a â¬10 billion reconstruction bond fund should be set up now under this bank. It can manage the fund. The ICTU has agreed with this proposal and stated that the establishment of a national recovery bond to which the public can subscribe would mobilise the national mood by an effort to restore the economy to full capacity. Now we have the vehicle to provide funding for small industry, through Anglo Irish Bank in public ownership. This is a golden opportunity and we should grasp it. I believe that people would be prepared to invest for a ten-year period, provided there was either a bond scheme generating a return in the interim or a pension scheme, to be availed of by many who have no such scheme and who could pay into it on a weekly basis to reap a return in ten years' time, when they need a pension.
I believe there is room to utilise this national emergency in the best interests of the country. We have the vehicle and the top people inside the bank who were let down by senior management. Some of the people at lower levels have been doing an excellent job. There are 1,200 people there, as Senator Mary White said, and those jobs must be protected as well. The Minister must also make a clear statement in respect of AIB, Bank of Ireland and Permanent TSB, which I have shares in and lost some money on, to the effect that they are sound as a bell and will continue to work in the interests of the public.
I ask the House for permission to share half of my time with Senator Doherty.
I welcome the opportunity to put my thoughts on the record about this Bill. I echo the words of others on this side of the House to the effect that it is a real shame there is not more time to debate such detailed legislation, which we have only seen in a rushed manner.
We are debating in the absence of a great deal of important information that we need. I believe, just as I did when we were discussing the guarantee to the banks, that we are debating in vacuum, without access to the real facts and on the basis of assurances provided to us by the Government last September, which now ring hollow. In spite of the lack of information and the rush, I want to make three important points. As others said, it is vital that those at the top of Anglo Irish Bank are held accountable for the unacceptable practices, to use the Minister's words, which occurred in the bank. I do not see how certain activities could not have implications in criminal law. There are very clear offences in the companies code under the Criminal Justice (Theft and Fraud Offences) Act that might clearly have relevance to some of the practices we have seen at the head of Anglo Irish Bank.
If unacceptable practices have gone on, as we know they have, it should be noted that we legislated to include Anglo Irish Bank in the guarantee in September. I was among the few Senators who voted "No" to the bank guarantee scheme. However, when it was supported by a majority in this House, it was on the basis of a misunderstanding. We assumed that the bankers were acting in good faith and we now know they were not. I wonder if there is not some basis for re-examining the guarantee in the light of the malpractice. The big question the Government has not answered is what the doomsday scenario will be if we do not nationalise Anglo Irish Bank. I believe questions need to be answered on that.
Go raibh maith agat agus gabhaim buÃochas le Senator Bacik. We are being asked to support the nationalisation of what is, in effect, a failed business and a failed banking policy by a failed Government. The Taoiseach warned this afternoon against the making of rash comments, but if we were not to voice the concerns of the majority of the Irish people, the economic experts and the media, we would not be doing our job in opposition.
The escapades of SeÃ¡n FitzPatrick and others have, once and for all, exposed the systematic fraud in Irish banking. It shows that senior bank managers cannot be trusted and their auditors are blind, that officials in the Central Bank, the central regulator and the Department of Finance are completely incompetent and that the Government's banking regulation policy in the past ten years has been an abysmal failure.
How the likes of FitzPatrick can get away with fraudulently misappropriating more than â¬80 million beggars belief. Needless to say, there are countless FitzPatricks in other banking institutions. Anglo Irish Bank is Ireland's Enron, but as in the United States, there will be no criminal investigation and nobody will be brought to justice. If FitzPatrick did not break the law in secretly embezzling tens of millions of euro, why are there not laws to make such behaviour illegal?
Why were the banking institutions exempt from the Companies Act 1990 and why do world class bankers get away with almost destroying our world class economy without ever being noticed by our world class auditors, Ernst & Young, the Financial Regulator or the Central Bank? The hypocrisy of our justice system is demonstrated by the fact that people can be sent to prison for shoplifting but that SeÃ¡n FitzPatrick will get off scot free and simply retire to his home in Greystones to work on his golf handicap. With this Bill we are being asked to take ownership of Anglo Irish Bank without being told the actual volume of bad debts.
With regard to the misconduct about which Senator Doherty spoke, we have an office of corporate enforcement which is responsible for the enforcement of breaches of company law. A number of Senators have outlined their grave concerns over misconduct in Anglo Irish Bank. It is the function of the Office of the Director of Corporate Enforcement to investigate this matter. I do not transmit instructions to the Criminal Assets Bureau or the Office of the Director of Corporate Enforcement. It is the function of the director to investigate these matters. He has a very good record in the investigation of company law offences and has brought a number of cases to a successful prosecution. He has initiated inquiries in respect of the Anglo Irish Bank and is responsible for corporate enforcement and corporate morality. As Senator Ross pointed out, the key point is that by nationalising Anglo Irish Bank, we put clear blue water between what has happened in the past and what will happen in the future. I welcome the constructive tone taken by the vast majority of Senators in respect of this legislation. In a sense, the legislation is about drawing a line and ensuring that the bank can be reformed and purged.
A number of Senators asked why the Government was saying the bank was a "going concern". It is a "going concern". The current position thereon is that the loan book, which has been criticised by many Senators, is one that remunerates a sufficient income to pay for the costs of the bank and for the deposits. Future losses are a matter of assessment and speculation, as Senator Coghlan pointed out. They are not a matter in respect of which anyone can point to a definite figure. However, after the guarantee was instituted, the State engaged a firm of accountants to do a detailed trawl of all the loan books of the Irish banking system. There are very few other states in the troubled banking world in which we are operating that have had the time to do this exercise with their financial institutions. We did so because we gave the guarantee.
Senator Kelly asked some questions about the guarantee and specifically raised the question of rushed legislation. The Bill before the House was prepared long before the guarantee. It was available to us in its present form last September and has been worked upon ever since. Senators will appreciate that there never seemed to be an opportune time in which to introduce a Bill in the abstract for the nationalisation of financial institutions. The only alternative available to the Government on 29 September 2008 was to consider the nationalisation of an institution combined with a guarantee for the rest. Had no guarantee been given to the Anglo Irish Bank, the question of this legislation would have arisen in any event. I am quite satisfied the guarantee will not be called upon in the case of Anglo Irish Bank up to the time of the guarantee's expiration. Even if there were no question of a guarantee, if a bank posed a systemic threat to the Irish economy the Government would have no option but to nationalise it. Senators generally accepted this proposition and I thank them for it.
I will refer to some figures I mentioned in the other House that were not in my opening speech in this House. The loan book of Anglo Irish Bank lists 7,000 customers, of whom 5,000 are in this jurisdiction. The retail depositors number 300,000, of whom 72,000 are in this jurisdiction, and the corporate depositors number 12,000, of whom 3,500 are in this jurisdiction. The bank, therefore, has a substantial presence in this jurisdiction. If one attempted to carve up the balance sheet between the three main jurisdictions in which the bank is involved â the United Kingdom, Ireland and the United States â it would be fair to say that approximately 45% would be accounted for in this jurisdiction.
The bank, therefore, is important and any threat thereto would pose a systemic risk to the economy. The reason the governor of the Central Bank, the Financial Regulator, my officials and the NTMA recommended that the bank be taken into public ownership was that the bank posed a potential risk to the stability of the Irish financial sector. The advice the Government received from them last September was that the guarantee should be a sufficient method of securing the position of the banking sector. However, it was always envisaged that if the guarantee system failed, the ultimate option of nationalisation would have to be availed of.
I had an interesting discussion with the Danish Finance Minister a few days after our guarantee was initiated. He drew up legislation modelled exactly on our system but complemented it by providing an optional nationalisation provision that would come into effect if nationalisation were required. We went straight into the guarantee and did not include optional nationalisation provisions. I did not believe the introduction of an optional nationalisation measure since the giving of the guarantee would have caused anything other than grave suspicion in both Houses of the Oireachtas and among the public generally. The position at all stages has been that the Government has had a very consistent policy, that is, to maintain the stability of our financial system.
It is very troubling that, in this economic crisis, banks throughout the world and in Ireland are seen to be vulnerable. We have a policy decision to make. We can decide to liquidate a bank or decide not to permit bank failure to arise. Our policy is the latter and I have been clear and consistent about this. The guarantee was the initial method of securing that objective. Following on the guarantee, the measurement and assessment of the loan book was made. Following on that, even more detailed work was done on the evaluation of the loan book by auctioneers. When the initial offer was made to Anglo Irish Bank of a State investment in a 75% stake, due diligence was exercised.
One of the more positive facts I can report to Senators is that the due diligence has not established a great deal more in terms of loan exposure than was already established in the earlier exercises. We will take ownership of the Anglo Irish Bank when, with the permission of the Seanad, the President is asked to sign the Bill this evening. When we take ownership, we will, as Senator Ross pointed out, seek to establish clear blue water between the bank's future activities and what happened in the past.
What has happened is deeply disturbing, as many Senators said. It requires investigation by the Office of the Director of Corporate Enforcement. He has a good track record but will have to be backed up by the Financial Regulator because his powers of investigation in a bank are not as extensive as they are in the case of other companies. I have requested that the Financial Regulator assist the director in eliciting information in every possible way. It is important that we get to the root of any and all corporate malpractices that may have taken place. If it is proven that they have taken place, I have no doubt the law will take its course. This must happen because considerable damage has been done to the country's reputation by the carry-on in the institution in question.
I was criticised initially for restricting my condemnation of the bank's activities to the use of the expression "disappointing". This was a deliberate choice because of the financial instability the making of the disclosures had given rise to at the time in question. I have been more forthright in my use of language as the position gradually stabilised. Not only have the chairman and a director associated with the loan in question departed from the Anglo Irish Bank but a number of senior management figures have also done so.
There has been criticism of the use of the term "going concern" by the Government in connection with the bank but the position is that, in strict commercial practice, the alternative to having a going concern is to liquidate an entity. The strategic direction for Anglo Irish Bank cannot be decided this evening and the State must appoint its own directors, conduct a comprehensive and final review of the institution and decide what should be the best strategic option.
Reference has been made to various options this evening, from support for small and medium-sized businesses on the one hand to the establishment of a toxic dump on the other. All these options require money above and beyond the working capital the State may have to put into the institution in question. In particular, there seems to be a view that a toxic bank can be set up without any expenditure but the reality is that if one considers what Governments are doing worldwide to prop up financial institutions, one will note they are taking three different approaches. One is the guarantee approach, another is the approach of capitalisation, that is, increasing the buffer to reassure the markets that a bank is indestructible, and the third is the option of buying the so-called toxic assets. Many Governments are combining all three approaches. In regard to all of these approaches, it is worth nothing that the last time we had a systemic global financial crisis on this scale in 1929, governments took the orthodox view that banks should be allowed to fail, that there was too great a moral hazard in propping up banks when there were circumstances of potential default. When that approach was taken we saw the rise of a great depression and a huge rise in unemployment and deflation.
Governments in western Europe and North America have taken a different approach on this occasion and to prevent those consequences have sought to prop up these institutions. The danger, as I am sure Senator Ross will remind us, is moral hazard. That is why regulatory systems are seen to be discredited around the world nowadays for permitting this position to have arisen. We have very basic questions to ask about our own regulatory system. It is a fact that until I decided to ask the regulator to examine the rather large director's loan arrangements at Anglo Irish Bank, this matter had not come to the attention of the authority, even though a cursory examination of the documentation available to it should have revealed the difficulty. The position that ensued is a matter of history.
It is a serious matter. When it emerged that someone at some level within the regulatory authority had some knowledge of this matter, I asked and insisted that the board investigate it within a three-week time limit and again the chief executive tendered his resignation at the conclusion of that inquiry. Clearly there is great public anger at the loss of pensions and wealth, much of it by small investors who put their nest egg aside in particular institutions and now find it is worthless. There is understandable public outrage at this.
We have to protect the stability of the financial system. We cannot engage, much as many would wish to see it, in a simultaneous bloodletting of the entire administration of the Irish banking system. Those who are responsible for these actions must be brought to book and I have no doubt the procedures in train will ensure that happens.
The Dail Divided:
For the motion: 31 (Dan Boyle, Martin Brady, Larry Butler, Peter Callanan, Ivor Callely, Ciarán Cannon, John Carty, Donie Cassidy, Maria Corrigan, Mark Daly, Déirdre de Búrca, John Ellis, Geraldine Feeney, Camillus Glynn, John Gerard Hanafin, Eoghan Harris, Cecilia Keaveney, Terry Leyden, Marc MacSharry, Lisa McDonald, Brian Ó Domhnaill, Labhrás Ó Murchú, Francis O'Brien, Denis O'Donovan, Fiona O'Malley, Ned O'Sullivan, Joe O'Toole, Kieran Phelan, Jim Walsh, Mary White, Diarmuid Wilson)
Against the motion: 22 (Ivana Bacik, Paul Bradford, Paddy Burke, Jerry Buttimer, Paul Coghlan, Maurice Cummins, Pearse Doherty, Paschal Donohoe, Frances Fitzgerald, Dominic Hannigan, Fidelma Healy Eames, Alan Kelly, Nicky McFadden, David Norris, Joe O'Reilly, John Paul Phelan, Phil Prendergast, Feargal Quinn, Eugene Regan, Shane Ross, Brendan Ryan, Liam Twomey)
Tellers: Tá, Senators Camillus Glynn and Diarmuid Wilson; Níl, Senators Ivana Bacik and David Norris.
Question declared carried.