Anglo Irish Bank Hidden Loans Controversy - Background

Background

Starting in 1986, Seán "Seanie" FitzPatrick spent eighteen years as chief executive of Anglo Irish Bank, during which time the bank grew from a small operator into the third-largest bank in Ireland. When he became the bank's chairman in 2005, handing over the position of chief executive to David Drumm, the bank was recording annual profits of over €500 million. The Anglo share price peaked at €17.60 in May 2007, an increase from under €1 ten years previously. Anglo was valued at nearly €13 billion and FitzPatrick's 4.5 million Anglo shares were worth nearly €80 million at this time. Prior to FitzPatrick's resignation, the Anglo share price had already dropped to €0.32, a drop of 98% with the entire bank valued at a low €242 million and FitzPatrick's stake reduced to €1.5 million.

The Financial Regulator first uncovered the €87 million loans in January 2008 when inspectors from the regulator's offices carried out an inspection into the loan book of rival lender, Irish Nationwide Building Society. The inspectors noticed that a large loan was provided to FitzPatrick at Anglo Irish Bank and later repaid. The Regulator discovered at a later date that similar loans were provided to FitzPatrick in September 2008 and repaid by him in October 2008. When the issue was raised with Anglo Irish Bank it was discovered that there were further loans between the two banks over an extended period of eight years.

It is uncertain which officials, if any, within the bank knew about the loans.

Every Anglo annual report contains a note displaying the total loans given to directors of the bank. This total is measured at a single point in time. In the case of Anglo this occurs on 30 September. FitzPatrick, instead of revealing the true figures of his loans, transferred some of them to Irish Nationwide Building Society, returning them to Anglo at a later date. He acted in a manner that thwarted transparency of Anglo's loan book. Financial authorities are investigating if there have been breaches of corporate governance. The Chief Executive of the Financial Regulator said that "a lay person would expect that issues of this nature and this magnitude would have been picked up" by the external auditors, Ernst & Young. After receiving legal advice Ernst & Young declined to appear before a parliamentary committee.

This in turn led to inaccurate figures for the total directors' loans given for eight consecutive years in the end of year Anglo accounts. 2008 was the first occasion on which FitzPatrick revealed his true figure, that of €87 million or twice the total of the other twelve directors' loan figures.

The situation has been described as Ireland's version of Enron, the American energy company which went bankrupt in 2001, and it has been said that the principals would be immediately arrested if this had occurred in the United States.