Here are the excerpts from the very important
speech delivered today in the Dail by Deputy Peter Mathews. And I urge you –
the public and professional readers of this blog – to read through the length
of this.
My focus here is one core aspect of the IBRC
scandal that remains largely ignored by the Government and the media and that
Deputy Mathews raises. For those inclined, full official transcript is
available here. In the quotes below, bold and italics are emphasising points of major
importance and are added by me.
“… I want to talk about how the
so-called profits of IBRC were inflated for a period starting in
1993 and travelling forward to the present date. There were two ways this was
done.”
Note,
the word ‘inflated’ in relation to reported profits. If such inflation indeed
take place, it would imply that Anglo reported profits were fraudulent. And
this covers years from the early 1990s through 2003. That is a lot of years of
potential major corporate fraud – fraud that (if proven such) would involve
deliberate overcharging of clients, concealment of such overcharging and
reporting this overcharging on the revenue and profits side of the company
accounts.
The Act
“First
was the direct manipulation of interest charges and the concealment
of loaded interest, which happened in the majority of cases. An
extensive exercise carried out by Bank Check revealed this. … Some 494 separate
DIBOR-EURIBOR rates were reconciled and found to be loaded to a degree ranging
from 0.5% in the early 1990s to between 0.03% and 0.05% in 2002 and 2003. Some 80%
of all the loans examined, relating to many clients, were
found to have this loading.” So the [alleged] fraud was systemic, not sporadic.
The Concealment
And
it was actively concealed from the clients: “The statements which clients
received never showed the breakdown of the base rate and the DIBOR 3-month rate
plus a margin, which had been agreed by loan agreements, plus the reserve asset
cost, RAC, if and when it applied.” Does this show an intent? For one has to ask
if not intent, then how could this ‘error’ or ‘omission’ be perpetuated across
80% of examined cases?
The Size
The
[alleged] fraud was also on a large enough scale to makes it material. “The
quantum of the loaded overcharging was in the order of 0.3%. A margin of 1.5%
would comprise two elements, namely, the amount that goes to cover overheads,
which is usually about 0.9% of the 1.5%, and the remainder, 0.6%, which is the
profit of the bank. A loaded secret dark pool profit of 0.3% would represent one
third of the overall profits, including that dark pool profit.”
The
letter from Mr. Morrissey’s solicitors that Deputy Mathews cites states the
following: “Bankcheck has advised Mr. Morrissey that, in total, approximately
EUR1 billion has been overcharged by you, the Special Liquidators, Nama,
private equity and institutional buyers of former IBRC loans, IBRC and its
predecessors. This is very material sum and represents a most material
proportion of the bank’s declared profits over the past 25 years. You have been
made aware of this on several occasions.” Note: “you” references in the above
quote joint special liquidators of IBRC. And further note Nama mentioning in
the above.
Boom!
Remember the case against the Anglo directors that alleges wrongdoing relating
to manipulations of the company accounts by means of loans and interbank
deposits? Well, that is chips compared to the juicy chunk of meat contained in
the above statements: thanks to over-billing of the customers, Anglo might have
been over-inflating its margin by a third! Year, after year, after year.
And,
even more importantly, this information was known and is known to the current
authorities and liquidators. Who did nothing with it.
Should
former shareholders, current investors in ex-IBRC debt, former borrowers from
Anglo, and possibly even auditors who were not given pertinent information by
the Anglo and IBRC call in the legals now, the hit will be on the state.
Deputy
Mathews went on: “That means the market valuation of Anglo Irish Bank in the
14 years up to 2002 when this was going on was overstated by one third.
If it had been discovered by proper auditing the market would react with a
collapse, …of at least one third of the value of the bank and this
would affect the shareholders, creditors and depositors. That would happen
irrespective of whether there was an international credit bust and a freeze of
credit.”
Systemic Failure that Continues Today
“This
has been brought to the attention of the NTMA, NAMA and others but it has been
ignored to date. I have the evidence here and it is shocking.” Let us
stress the fact that Irish authorities were and are aware of this.
- An Irish court ruled on the matter in favour of Mr.
Morrissey.
- Mr Morrissey notified this to the bank.
- Mr. Morrissey also notified this to Nama and the
Department of Finance in early January 2015. It was notified to the Central
Bank in late January 2015, and to the Minister for Finance in early March 2015,
and subsequently again to the Central Bank in early March 2015. And the case is
being ignored. Per Mr. Morrissey, he received no reply to his notifications
from any official body.
- Per Mr. Morrissey letter cited by deputy Mathews
today, Mr. Morrissey notified the then Chairman of IBRC, Mr. Alan Dukes of
overcharging as far back as in mid-January 2013. Simultaneously, he notified of
the same matter the Department of Finance, the Central Bank and the Financial
Regulator.
Mr
Morrissey has been ignored since then, according to the record set forth by his
solicitors.
It
gets worse. Recall that the liquidation of IBRC was undertaken under the
procedure that all claims against IBRC were to be notified before the end of 1Q
2015. And again, the notifications in the case of Mr. Morrissey were filed on
time. We are at the end of 2Q 2015 and he received no response on these
notifications. So the deadline established by the IBRC liquidation procedures
has now expired. And the IBRC and by extension the State have not replied to
Mr. Morrissey before the expiration of that deadline, effectively undermining
the very process of liquidation they themselves set out.
Is
this a collusive behaviour? In economics, such actions would be viewed as potentially
collusive: all parties responsible and empowered knew, none responded, the
wrong remains unaddressed.
The Legal Bits
Mr
Morrissey solicitors letter cited by Deputy Mathews has this to say on the
matter: “It appears numerous illegalities have been carried out by Anglo Irish
Bank and its successors over these 25 years [from 1990 through today]. You,
Mr. Wallace, have acknowledged under oath in the US Court proceedings the
overcharging of interest by the bank. As the overcharging has continued under
your watch, you are jointly and severally liable for same, together with the
Minister and Department of Finance, the Central Bank of Ireland and the
Financial Regulator.”
And
per official behaviour in response to the evidence presented: “we
most strongly object to this glib attempt to absolve yourselves from
responsibility and liability both for historic and current interest
overcharging, or the consequences thereof, including the sustained misstatement
of the bank’s publicly released annual accounts since 1990.”
The IBRC Inquiry
Deputy
Mathews spoke in the context of the upcoming IBRC inquiry. But what he said is more
important than an inquiry itself. Here is why. The inquiry is supposed to
provide and independent and objective view of alleged, potential, possible
wrongdoing at the IBRC. Deputy Mathews statement shows that in an actual,
tangible, established and courts-confirmed case of misdeeds by the Anglo and
IBRC, the State is unwilling to do anything to address these misdeeds. Thus,
one has to ask a simple question: what’s the point of an inquiry into alleged
wrongdoings, when actual wrongdoings are not being dealt with.
Now,
take a trip through theory. An inquiry can come back with two possible
outcomes: One: nothing found. Two: something worng is identified. In outcome
One, under the above revelations about the Anglo overcharging case, one can be
pretty certain that no one will believe the inquiry findings. There is no trust
in our systems, there is no trust in our processes. No matter how well the inquiry
works, its findings, were they to deliver inconclusive verdict, will always be
subject to mistrust. In outcome Two, nothing will happen. Just as nothing is
happening in the overcharging case. The outcome will be ignored. And so the
inquiry, given the context of the cases such as cited by Deputy Mathews is
hardly an exercise in building trust. For all its possible merits in design and
execution, it is more likely going to be an exercise in further chipping at the
little trust still left in this system.
Other Players in the Penalty Box
Deputy
Mathews quotes from the letter from the Black solicitors, “following the John Morrissey case: “It appears numerous illegalities have been
carried out by Anglo Irish Bank and its successors over these 25 years. You,
Mr. [Kieran] Wallace, have acknowledged under oath in US Court proceedings the
overcharging of interest by the bank. As the overcharging has continued under
your watch, you are jointly and severally liable for same, together with the
Minister and Department of Finance, the Central Bank of Ireland and the
Financial Regulator.””
But
remember, there are other players beyond Mr. Morrissey who might want to ask
few questions from the Government now that the word is getting out. As Deputy
Mathews notes: “This
is serious stuff. There are loans that are being operationally processed by the
originators of those loans. Now those loans are owned by third parties,
including hedge funds, and they are calculating interest on an unlawful basis,
even though it has been brought to their attention. This is shocking.”
Yes, we have on the line
now:
- Borrowers
who were [potentially] defrauded of billions in false charges;
- Investors
in Anglo shares who were potentially defrauded by over-valuations of the bank;
- Investors
in distressed loans purchased off Anglo-IBRC who are holding hot paper with
[potential] fraud written all over it – the loans of the borrowers potentially
defrauded;
- Potentially,
the auditors of Anglo/IBRC who were possibly misled by non-disclosure of
overcharging;
- And on
top of all of them are the underwriters of the IBRC liquidation: taxpayers, who
are facing huge bills for this.
And Another Bombshell
Deputy Mathews
did not end just there.
Here is another bombshell that exploded loud and clear
in the Dail today, even through the repeated interruptions: “There is other evidence that NAMA
knowingly----- allowed the information memorandum ----- -----for the Chicago Spire ----- to be negligently misleading, which has
resulted in unnecessary huge losses for both the Irish people and the
developer. I have the evidence for that.” That’s right – you’ve
read it here. There are now allegations that Nama – not subject to the inquiry
– has ‘mislead’ the markets participants to the tune of [potentially] hundreds
of millions on just one, repeat, just one, asset sale.
Conclusion
These are mind-blowing revelations that expose more than just a systemic
fraud [potentially] being perpetrated by a rogue bank. These are the
revelations that show the current system wanting in respect of acting on the
established legal case judgement in addressing the systemic [potential] fraud.
And the worst bit is that even that is a tip of an iceberg, for Deputy Mathews
statement about potential misrepresentation of the Chicago Spire case by Nama
opens up the EUR77 billion can of worms over the Grand Canal. In this context,
the current planned inquiry into 2009-2013 IBRC dealings is nothing more than a
fig leaf of fake decorum on a rotten corpse of the Irish Solution to an Irish
Crisis.
Still feel like the IBRC inquiry over
2009-2013 deals is going to be enough? Or should we not start systemically
reviewing all post-crisis dealings
and pre-crisis wrong still unaddressed by all
agencies involved?
