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Archive for November 27th, 2011

It is surprising that although David Drumm has been a household name since late 2008 when he resigned as CEO of Anglo Irish Bank (now part of the Irish Bank Resolution Corporation) and since then, there has been an avalanche of press coverage and at least two books (The Fitzpatrick Tapes and Anglo Republic), but to date there has been very little comment from the man himself. When RTE correspondent, Charlie Bird called on David’s family home in Massachusetts last year, all he got was a “have some respect Charlie”. There have been volumes of court documents of course since David filed for bankruptcy in the US in October 2010 and there have been some brief phone exchanges but today in Irishcentral.com, journalist and activist, Niall O’Dowd has what appears to be the most extensive interview yet with the former Anglo CEO who left Ireland in 2009 and has more recently been involved in a bitter battle with Anglo about the repayment of loans. The Gardai in Ireland want to speak with him, but apparently don’t have a good-enough case to seek his extradition. The Chartered Accountants Regulatory Body has temporarily postponed disciplinary proceedings against David who is a chartered accountant, until the current brouhaha with Anglo has abated. The Office of the Director of Corporate Enforcement is believed to have been building a case against senior former Anglo executives including David. And Anglo recently accused David of changing the terms of loan agreements in the case of the Maple Ten. Even the US bankruptucy official handling David’s bankruptcy has taken an aggressive view on David’s dealings. It is fair to say the 45-year old Dubliner is feeling embattled, and in this extensive interview today, we do get some revelations

(a) NAMA. David says that NAMA was a mistake “recognizing losses that no other country did, here in the U.S they have just more experience and they had seen this before, no bank was forced to mark all its assets down at a time when you couldn’t sell anything. The UK didn’t do it, nobody in Europe did it, so Ireland stood alone and by marking this thing down Ireland separated itself down.” Elsewhere he says that Pricewaterhouse Coopers (PWC) reviewed the Anglo loan book at the end of 2008, and that Donal O’Connor who replaced Sean Fitzpatrick, and Anglo director Lars Bradshaw both reviewed PWC’s work, and Anglo concluded that it was correctly showing loan and loss provision values.

(b) Banking supervision in Ireland. Is portrayed as a bit of a joke and when Anglo got into difficulty in 2008, the Central Bank of Ireland was unable to provide a lender of last resort function. Anglo’s balance sheet had gotten too big at €73bn, not unlike its Irish competitors, and even though the loan book was seen as good collateral, the central bank was unable to provide short term funding on what were seen to be good assets when the inter-bank funding market froze after the collapse of Lehmans in the middle of September 2008. “they were clueless” says David now. The Regulator and central bank were allegedly telling David that the Department of Finance  (where Kevin Cardiff was then responsible for banking in his role as assistant Secretary General) was being relied on for guidance. Anglo did not ask for the guarantee on 30th September 2008 according to David, Anglo just wanted a secured loan from the central bank for €2bn. The first David heard of the guarantee was when he woke up on 30th September. David is seemingly bitter that it was Bank of Ireland and AIB that demanded the blanket guarantee but it was “put at Anglo’s door”

(c) Maple Ten. David says that “The financial regulator and the Central Bank were in every meeting with me and other directors of the bank throughout 2008 and I have to tell you, that was team work, because it [Sean Quinn’s 25% shareholding which Sean needed to sell] was a common problem” and “the government, and through it’s offices through the Central Bank and through the regulator were pushing the bank like hell to fix the problem [Sean Quinn’s 25% shareholding which Sean needed to sell]” David says that based on his conversations with John Hurley, the then-governor of the Central Bank of Ireland, the Minister for Finance (Brian Cowen until May 2008 and the late Brian Lenihan thereafter) and “most likely” the Taoiseach (Bertie Ahern until May 2008 and Brian Cowen thereafter) knew about the problem, and by implication the solution of using the Maple Ten, 10 large customers of Anglo, to buy Sean Quinn’s shareholding with non-recourse loans. The interview makes a reference to “John Carney” as the governor of the Central Bank of Ireland, that looks like a mistake and should refer to “John Hurley”. There is also a reference to a “Conn Horgan” but it is not clear who this is. David says the transaction “made sense to Morgan Stanley who were advising us” and that it “made sense to our [Anglo’s] legal advisers” What is new is the claim by David that 25% of the loans advanced to the Maple Ten was recourse.

(d) Sean Quinn. David says that, in relation to building up a 25-28% stake in Anglo through the use of Contracts for Difference (CFDS) “he [Sean Quinn] didn’t get advice and he will tell you that himself”  Now although David is talking about the use of CFDs, Sean Quinn has a different take on his disastrous stakeholding in Anglo – in his recent statement announcing his bankruptcy in Belfast, Sean Quinn said “recent history has shown that I, like thousands of others in Ireland, incorrectly relied upon the persons who guided Anglo and who wrongfully sought to portray a ‘blue chip’ Irish Banking stock” But as far as David is concerned “we got this additional spot light on us because of the Quinn perceived vulnerability and the hedge funds in London rightly took a view that if you push, push, push this guy maybe his stock will be sold, the bank will collapse and they get like a payday. He fashioned a rod for his own back and ergo our back, the bank’s back”

(e) Sean Fitzpatrick’s loans. This looks like dynamite and I reproduce the relevant passage from the interview “Sean Fitzpatrick’s loans were not hidden in any way within the bank and they were on the central bank returns. When the financial regulator went into Irish Nationwide, it would have been late 2007. They found Sean’s loans sitting there. When they came back to the bank in December of 07, spoke to Willy McAteer about the loans, he was the finance director and said to Willy what is the story with these loans. Willy went and spoke to the chairman and said yeah he had discreet finance with him temporarily with Irish Nationwide. The first question they asked Willy was ‘is that reciprocal?, is Sean Fitzpatrick doing it for Michael Fingleton?’ The answer was no. The second question was are there any Companies Act implications, legal issues? So Willy went to out external council and got a legal opinion that it was not… And then their third and last question was, ‘what are you going to do about it?’ and Willy went to Sean and Sean said well I am actually refinancing with the Bank of Ireland, which he was, that’s actually very true. He was in the process of taking all the loans and getting them away to BOI and they said fine and dropped it.”

(f) David Drumm’s loans from Anglo. David says he borrowed the money from Anglo to buy shares in Anglo at the request of Anglo, so as to demonstrate confidence in the bank. He blames the current Anglo or IBRC CEO Mike Aynsley for pursuing him relentlessly for the repayment of the loans and David is bitter about this saying in the interview “it was outrageous to call it in because first of all a bank operating properly would never do that and B they had a contract with me, not to do that in the long term plan.” David claims that the assets he was prepared to hand over to Anglo in settlement of the €8-9m of loans were worth USD 10m (€7.6m) but David claims “they couldn’t possible settle, it took me a while to accept that” implying there was a get-David-at-all-costs, politically supported approach by Anglo. In respect of the enormous costs being racked up by Anglo in pursuit of David which David claims are in the millions, David says “if my case is indicative of how they [Anglo’s management] are being measured, taxpayers’ money is being absolutely destroyed there, day by day by day”

(g) David Drumm’s future. According to David he has an employment visa which entitles him to US residency, not an investment visa “contrary to what they report in the media, so the visa is not the issue”. He wants to stay in the US where he sees opportunities. He complains about media intrusion and literally parking outside his home for days on end. He claims he has moved his two girls to different schools to escape media attention. There is no mention of the serious allegations of fraud made by Anglo or the CARB disciplinary proceedings or the ODCE investigation, but he does make what seems like a sensible point that you wouldn’t want to expose yourself and your family to what would almost definitely await David if he returned to Ireland, unless you had no other choice.

There is a feature entry on David Drumm’s bankruptcy here.

UPDATE: 28th November, 2011. Laura Noonan at the Irish Independent reports that there has been a response from unidentified “sources close to the bank [Anglo]” to the 10,000-word David Drumm interview. These unidentified sources dismiss David’s claims that reckless lending was not the cause of Anglo’s collapse as “ridiculous”. Presumably these unidentified sources are not working for PwC which certified the loan valuations at the end of 2008, or Donal O’Connor and Lars Bradshaw which checked PwC’s work. Or auditors Ernst and Young who signed off the 2008 accounts after presumably sample checking loans and loan documentation. There has been no response from Government which according to the Drumm interview seems to have been at the heart of the Maple 10 transaction. Maybe we might get an attributed comment later in the day. The Independent does say that it “understands that Anglo would have recouped more from that settlement than the net proceeds the bank expects to get from drawn out bankruptcy proceedings in the United States.” Why would a company which we as a nation own 100% take such an uneconomic decision?

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