The end of the road?

Prepare for carnage once the markets open tomorrow. Per latest RTE report (here), Irish Life & Permanent admitted that it provided 'exceptional support' to Anglo Irish Bank following the taxpayers-paid-for Government [banks] Guarantee Scheme.

According to IL&P at the times of 'unprecedented turmoil' there was 'an acceptance that financial institutions would seek to provide each other with appropriate support where possible'. It is claimed that the transactions were fully and appropriately accounted for in the books and in regular reports to the Financial Regulator.

Anyone still surprised that the global markets are treating Irish equities as some sort of the corporate governance lepers? Any surprise that some institutional investors are no longer willing to hold any shares in the cozy cartel of 'supporters' that is Ireland Inc?

Here are some questions that must be asked immediately and with a view of taking up resolute corrective measures should any wrongdoing be uncovered:

1. Can these actions by IL&P be interpreted as a deliberate manipulation of the market? Corporate deposits are the components of bank's balance sheet that support share price valuations. Interbank loans - a normal procedure - are not. If deposits were made to provide 'support' to the Anglo, without an immediate publication of these deposits and their underlying causes to the markets, did IL&P and Anglo collude to alter the bank's balance sheet without revelation of this price-sensitive information?
2. Did IL&P deposits undermine own balance sheet and were they properly cleared through the risk-assessment process? Was IL&P shareholder value safeguarded in the process of making this gesture of camaraderie?
3. If IL&P did disclose such deposits to the Financial Regulator, why these deposits were allowed to proceed and why this information was not made public immediately? If the FR knew about the covert nature of deposits, were they de facto a party to concealment of a price-sensitive information?
4. We are all aware of the rumors that both the Guarantee Scheme and the Anglo's nationalization were carried out due to some critical events involving the Anglo and (in the case of the Guarantee) some other banks. Withdrawals of corporate deposits on a massive scale were rumored in late September and December 2008. Why is the Government unwilling to disclose the nature, the extent and the timing of these problems? After all, the Government is (largely rightly, I believe) using taxpayers money to shore up our financial system, committing tens of billions of our own and our children's funds to underpin the Guarantee, the nationalization and the bailouts.
   
5. At an even deeper level: has there been an implicit (hear-no-evil, see-no-evil) or explicit (via refusal by the Government to admit the nature and extent of the triggers for emergency measures) collusion between the Government and the banking sector to sweep under the rug the problems of governance and management at some of our financial institutions?

Not a single revelation about the mis-conduct events associated with the Anglo has been made public by the Government in a voluntary fashion. Not a single piece of information concerning the due diligence process in re-capitalisation decisions by the State has been made public by the Government. In light of this it is legitimate to ask questions of the Government as to the nature of the silence that shrowds the taxpayers' bailout of the banaking sector.

Over recent days there has been a lot of talk in the international finance circles about the skeletons hidden in the closets of Irish banks. Reputational capital of Ireland Inc is no longer running thin - it is, by now, about as hole-ridden as a slice of Swiss cheese!

Functioning markets require compliance with the letter and the spirit of law. The law requires that all price-sensitive information relating to the publicly listed companies should be disclosed in a timely and appropriate manner. The IL&P-Anglo case suggests that, potentially:

1. The law that supports functioning markets might have been severely breached; and
2. Public safeguards that were entrusted to enforce this market-supporting law might have comprehensively failed.

If this is the case, it is time for heads to roll. Now! Starting at the top of the Financial Regulator's office and right through to the companies involved.

And as per re-capitalization scheme, any injection of public money must be preceded by a comprehensive independent (internationally-administered) review of the banks' balance sheets and books, prior to any State-financed repairs can be made.