Nationalisation the Irish solution to the Anglo Irish problem

Tonight’s nationalisation effectively ends the investment of many ordinary shareholders. Their money is gone and they will have to accept whatever the government proposes as compensation and to add insult to injury they’ll now see his taxes go to fund the bank into the future. According to RTE’s George Lee the government u-turn occurred as significant investors had withdrawn money during the week and there was a fear of a run on the bank. The move occurred just hours ahead of an EGM at Dublin’s Mansion House where shareholders were set to ask hard questions of the directors and executives not just in relation to the loans to the former CEO and Chairman Sean Fitzpatrick and as to who in the bank knew what and at what stage but also in relation to the role of the auditors and the Irish Financial Services Regulatory Authority. Shareholders want to know where the money was invested by Mr Fitzpatrick and as to how he proposed to repay. The defence by IFSRA at the Dail committee this week that officials knew in Autumn 2007 about the activities of Sean Fitzpatrick yet did nothing as they were “too busy” raised many eyebrows among investors.

While Mr Fitzpatrick stated at the time of his resignation that there was nothing illegal in what was done there exists the possibility of prosecutions under Irish law for fraudulent accounting against the auditors and executives. Based on the share price about 35% of the banks capitalisation is presently tied up in a loan to Mr Fitzpatrick. The reason for the EGM has now disappeared but it goes ahead without a motion on recapitalisation. Other questions needing to be answered relate to the purchase of shares in Anglo by Ireland’s richest man Sean Quinn and as to how this purchase was financed. As with the Fitzpatrick loan the purchase was less than transparent. Mr Quinn was fined €3M by IFSRA for using one of his companies as a vehicle during that transaction. It is certainly very unusual for a banking nationalisation to happen over a working night and not a week-end.

The NY Times described Ireland as the wild west of European finance in 2006. The state will find it cheaper to buy the bank using the NTMA rather than re-capitalise. There is a certain irony of Fianna Fail and the Green Party complete with Trevor Sargent who famously produced cheques sent to members of Dublin County Council from developers now stepping in to save developers from collapse by shoring up the bank that lent them money in the first place.