Tom Lyons: Anglo 'was solvent' days before State pulled plug
The bank's ex-CEO tells Tom Lyons what was going on behind the scenes as the decision was made to liquidate
Mike Aynsley – the Australian former chief executive of Anglo Irish Bank – has been quiet ever since February 7, when Ireland took the dramatic decision to liquidate the bank overnight.
Code-named Project Dawn, the liquidation was a complete shock to Mr Aynsley and his board. They were in the middle of preparing the financial results for Anglo (by then renamed IBRC) which had finally begun to turn around.
All of a sudden it was all over: Mr Aynsley, his senior management team and his board were all out of their jobs. After the dust settled, the banker went home to Australiato visit his children.
They hadn't seen him that much in the three years and six months he spent at the helm of the bank that was blamed for Ireland's economic collapse.
Last Thursday night, Mr Aynsley made a return to the spotlight.
On the Vincent Browne show on TV3 he sat down with his former chairman Alan Dukes, the ex-Fine Gael finance minister, to discuss what happened to Anglo.
Mr Aynsley knew Browne from his time living in Dun Laoghaire, south Dublin. The two men would bump into each other on the street occasionally and Browne regularly bugged him about going on his show.
Back in Ireland to help prepare a financial statement of affairs for the now defunct Anglo, Mr Aynsley finally agreed to Browne's request.
But an hour was not enough to discuss a bank whose collapse helped bankrupt Ireland and whose liquidation may cost the country billions more.
Later, as Mr Aynsley left the TV3 studios with his daughter, he received a text from the Sunday Independent asking for an interview.
Even though it was after midnight, Mr Aynsley phoned back. He was reticent.
Browne, he said, was a one-off and he would prefer to wait for Ireland's long overdue banking inquiry, or the Public Accounts Committee – if he's asked to appear – before speaking in public again.
"There's banking confidentiality too, Tom," Mr Aynsley added, "I don't think I'll be able to answer a lot of the questions you want to ask me."
"Come on Mike!" I said, "What happened with Anglo is really important. The public needs to know now."
Mr Aynsley eventually relented – but with the qualification that he was allowed conduct the interview by email. He was in and out of meetings on Friday so didn't have the time for a big sit-down, he said.
This wasn't ideal but with so many unknowns about Anglo, and with the State showing little appetite to explain what happened, it was worth doing.
The Sunday Independent started by asking Mr Aynsley about recent comments by Anglo's former chief financial officer Maarten van Eden.
The Dutch banker has publicly questioned the legality of the State's decision to plunge Anglo into liquidation, wiping out many creditors in the process. Creditors, including a German hedge fund and the family of former billionaireSean Quinn, plan to sue the State because they feel it was a "contrived" liquidation that was incorrectly designed to disadvantage them.
In response to Mr Van Eden's claims, Mr Aynsley said: "As you know, the Government initiated the process of insolvency and used legislation to do it. Maarten's point seems to relate as to whether the liquidation is one of a solvent or insolvent company. What I can say is that up until the appointment of the Joint Special Liquidators (SL) on the 7th of February, the bank was solvent and in full compliance with its capital requirements and, based on this as well as the ongoing undertakings made by the Government, was considered by the board as a going concern."
But if this was the case would you not agree with the bank's creditors that Anglo's insolvency was designed to rub them out in a contrived manner?
"I am not in a position to be able to confirm what actions the SL and the Government have taken since the SL's appointment. I'd suggest you ask them for that detail, but if the entity is now being managed as an insolvent liquidation then it must be as a result of actions taken by the SL following appointment."
How is it possible to go from being solvent to insolvent at the stroke of a legislative pen?
"You'd have to ask the SL what they actually did, but it follows that the answer relates to the value and/or treatment of the bank's balance sheet assets by the SL.
"These assets as you know predominantly consist of loan assets and the promissory note, the latter being the subject of enormous restructuring focus by the Government and one of the reasons given for the liquidation."
Will the State lose more money by liquidating Anglo now rather than running it down further before doing so?
"The minister has made it clear that there is not going to be any firesale of assets and the SL has been instructed to undertake a full valuation of the loans.
"This tells me the minister is acutely aware of the need to protect the value of the loans through a sensible process rather than destroy valuable capital through a fire-sale of assets."
So the taxpayer won't lose more money?
"In many ways it mirrors the staged approach to value recovery by the board and management team pre-initiation of the liquidation process.
"One conclusion you could draw because of this is that the ultimate recovery levels achieved could end up being similar to those estimated and planned under the pre-liquidation strategy. But of course there are many other factors that come into play such as Nama funding levels, holding time, impact of changed client behaviours and, of course, the all-important condition of the market place, which thank goodness seems to have bottomed and is showing signs of improvement."
Where does the promissory note (PN) fit in? The special liquidator accepted a value of the promissory note of €25bn. It was on the bank's books at €28bn – or €3bn more. By using this lower figure did the State not just use an accounting trick to make the bank insolvent?
"If this were to be the case Tom, then the result would erode the capital of the bank and put it into an insolvent position. Again, you would need to have all this confirmed by the SL or the Department of Finance (DoF)/Central Bank as to what they did. From the State's perspective though, this wouldn't make any difference to the PN restructuring as all the entities involved are related parties so it's a matter of 'left pocket, right pocket'."
Isn't that all a bit convenient? By moving money from one pocket to another the State wiped out a lot of the bank's creditors?
"I have no ideas or comments on this Tom – as I said, you would need to speak with the SL or DoF on such aspects as it's a matter for them."
On the Vincent Browne show both you and Dukes acknowledged tensions with the DoF. What were the main disputes about?
"As we both said, yes, there were tensions, and at times the relationship became strained. I think having Alan as chairman was of great assistance as he could clearly provide detailed guidance in assisting us understanding the operations and motivations of the politicians and civil servants. The important thing was, that irrespective of the tensions, and frankly, downright irritation at times, we always found a way to progress to a solution.
"The vast majority of the tensions related to the areas where different decision-making drivers existed. The board and management of the bank were charged with executing the wind-down of the bank – taking the entity to the point where it could be effectively obliterated from the Irish banking landscape. But in doing this we had to pay due and proper regard to the fact that the bank was regulated by the Central Bank, that we needed to maintain ongoing compliance with the Companies Act, that we need to maintain ongoing compliance with adopted accounting methodology, that we needed to consider matters of public interest and that decisions had to result in outcomes targeting the best possible commercial and economic ones. In the minds of the new board and management, this was absolutely critical in defining the character and culture of the new organisation as it was restructured.
"Clearly, these constraints would all be recognised as critical by the shareholder, but in addition to this, the shareholder needed to manage a set of complex issues that were not just driven by domestic political considerations, but were also driven by a fluid unfolding of events across the eurozone."
Van Eden claims that there was a big bust up with the DoF in 2010 over how Anglo valued a Nama bond. He claimed in his resignation letter from the bank that he was put under pressure by the State to bend accounting rules to make things look better. Anglo he claims refused to do what it was asked. Was this a source of conflict?
"Well . . . yes, it was. I really don't want to spend a lot of time on the detail of this as I don't think it would serve much purpose, but it is a good example of an issue that arose during a very difficult time where the State was considering broad systemic capital impacts and the bank was considering it obligations under the numerous regulations and constraints it had to contend with that I mentioned earlier.
"The bank at the end of the day took decisions based on compliance with those obligations and this was at odds with a solution being considered by the shareholder, and another solution had to be found – which was, eventually."
Were there ever tensions around bank strategy for dealing with individual borrowers? I am thinking here of the big borrowers.
"There has been controversy and ongoing comments around a number of the names in our client list. Before I answer this, I'm going to spend a moment on the nature of the clients the bank was dealing with in the wind down, as this is an understanding that is not generally shared – most assumptions start with 'this is Anglo Irish Bank and therefore everything they did is bad and corrupt including all its clients'.
"The reality is that the client list consists of, firstly, clients who are not in distress, are performing in every way, and who are able to transition their business to other banks over time as the industry recovers; secondly, clients at the other end of the spectrum who are extremely distressed and where there is no likelihood of performance or recovery in their position – these are a real problem and mostly require some type of enforcement action to recover value – many are unco-operative; thirdly, there are a bunch in the middle who are at varying stages of distress – at the positive end many need time to consolidate value in a strong underlying business that is cash-flowing well so it is easier or possible to refinance to a new lender – at the other end of this category are those more distressed, but still with a valuable underlying business that requires restructuring. In this third group there is a mix of clients who are both co-operative an uncooperative.
"Understanding this is important because most of the interaction with the DoF came from two areas.
"The first was in relation to clients where an action by the bank could have a significant impact that would require a 'public interest' consideration – Quinn was one of these. The second was around clients where a third party would often attempt to pressure an outcome from the bank by approaching either the department directly, or through their local politician.
"These were mostly the unco-operative distressed clients who did not want the outcome to be crystallised and were trying to maintain the status quo. Not surprisingly, the DoF would have an obligation to follow up with the bank but never directly attempted to influence the bank's strategy or decision making. Also in this second area are the complaints that were submitted from time to time to the bank by unsuccessful bidders in an attempt to reopen the bidding process.
"This was frustrating in view of the process that the bank put in place to maintain strong governance around such transactions as it was time consuming, but necessary, to walk through each with the DoF.
"With regard to 'tensions' – only so far as the frustration of needing to spend literally hours at times on the intricacies of the very large public interest cases so there was full clarity on the implications of planned actions – and the 'tensions' were generally related to the pressure of tight timelines necessary to preserve commercial outcomes.
"On this topic, I would have to stress overall that my view, from dealing with the DoF on these issues over a three-and-a-half year period, is that they were extremely aware and consistent with maintaining a proper separation from the bank with regard to client dealings and that involvement was proper – as irritating as it may have been at times!"
In part two of the Aynsley emails in next week's 'Sunday Independent': The former CEO of Anglo on Sean Quinn and could Ireland's banks run out of control again?
Sunday Independent
No comments:
Post a Comment