‘There Should Have Been A Raid By The Central Bank The Next Day’


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You may recall a post last week about the launch of a book by Jonathan Sugarman, a former executive at Unicredit Bank Ireland in Dublin’s ISFC.

His book, The Whistleblower, explains how his warnings of liquidity breaches at Unicredit – made in 2007 – were ignored by the Central Bank, a year before the financial crash.

Further to this…

Last night, Tonight with Vincent Browne broadcast an interview Vincent Browne recorded with Mr Sugarman on the day of the book launch.

At the start of the interview, Mr Sugarman explained that he’s an Israeli citizen, whose mother was born in South Africa, and how he started to study economics after finishing his three years of military service with the Israeli army.

He said he worked briefly for banks in Israel before going on to work for the Dutch Ministry for Economic Affairs in The Hague. Later, he went back to Israel but left for good in 1999 – which was when he came to Ireland.

Mr Sugarman’s first job in Ireland was with Microsoft Finance and later he started working for banks before he was eventually headhunted by Unicredit.

Readers may wish to bear in mind that Mr Sugarman was never invited to attend the Banking Inquiry.

From the interview…

Vincent Browne: “When did problems start to arise in Unicredit?”

Jonathan Sugarman: “Probably within the first two or three weeks of the beginning of my job there. There would be a daily set of reports that had to be signed off by the CEO and senior management of the bank, this is daily practice with all banks. As the risk management department, we produce these reports. For example, who are our biggest counterparts in our daily dealings, so that we know that if, for example, we’re dealing with a bank called Lehman Brothers, when we read it in the newspaper that Lehman’s is collapsed, we know that that’s one of our biggest counterparts and we would list these risks daily. Likewise, we would list our exposure to foreign currencies, we would list our exposure to certain industries. Are we lending a lot of money to aviation? Are we lending a lot of money to governments? All of these have particular limits. We don’t just go and trade whatever we want. And so, as a risk manager, I sign off a set of reports every day – to say these are the limits, this is where we are. It’s a bit like getting the results of a blood test where you say – this is where you’re at and these are reasonable parameters. Are you ok? Or are you not ok? And, as the risk manager, it is my job to make sure that we are ok and that every senior manager in the bank is aware of the fact that this is where we’re at.”

Browne: “What were the problems you uncovered?”

Sugarman: “There was a recurring problem with the liquidity figures. These reports are produced twice a day, after the close of business, at 5pm and then once again in the morning, as a repeat performance once all of the processing has done, has been done overnight by the computers, by the head office, etc, etc, to make sure that what we saw last night, yesterday evening at 5pm, was accurate.”

“One of the key factors that we look at in these reports is: what is our liquidity. Liquidity is very simple – it’s a case of we all know how much money we have coming in as wages every month or as income from our businesses. We know that if our income exceeds a million euro a month, then we can go and buy a beamer once a month if we felt like it. But we know what our situation is. So, do we have the liquidity to go and buy something we want. In banking, it would be a case of do we have enough liquidity. Say if a deposited turned up tomorrow morning and wants his money, we have the money to give.”

“Now, obviously, because it is the basis for banking, you deposit €100 with us, of which we keep €10, and lend out €90 – to make it simple. But then if you come back and make a claim on your €100, we have to give you back your €100. We can’t say ‘we’ve only got €10’. So, at every point in time, we have to make sure that, if a reasonable number of people come looking for their money, we’ve got money to give them and that’s liquidity. And this concerns billions of euro every day. I mean we could easily have done deals for €300m, €400m, €500m per deal so we have to make sure that if our counterpart arrives tomorrow morning, to collect their money, that it’s there. You can’t just turn around and say ‘oh I don’t have it’. And the need for the overnight guarantee was because all of the Irish banks ran dry. They didn’t have it.”

Browne: “Ok. But, going back to the problems that you uncovered, what were they with regard to liquidity?

Sugarman: “So, at the frequency of probably once or twice a week, the figures didn’t reconcile so, as a risk management department, we had our own set of reports. Obviously, every bank has its own accounting department, they have their own set of reports. There is something called prudential reporting which is required by the Central Bank of Ireland. At the end of the day, we all have to sing off the same hymn sheet, so there would be a bit of a parallel calculation being done between us, the risk department, and accounting.”

Big discrepancies started to show and I said – ok, so which one is the correct one? Because one day this one says there’s a problem; and another day the other one says there’s a problem…”

Browne:Discrepancies between what and what?

Sugarman:Between our liquidity figures and their liquidity figures. And when I said ‘ok, so which are the real liquidity figures, there can only be one set of correct figures?’ And I said ‘if the real figures are the figures that are showing breach, we have to report that breach and, invariably, I got told, ‘no, no, no, the real figures are the ones that show that we are within the limit. And I said, ‘well, how do you know that? I mean this is a €30 billion balance sheet. Do you have a little beer coaster that you keep your own…?’ [He was told] ‘No, no, no, you’re new in this job, give it a bit of a, you know, give it a couple of weeks, you’ll understand our systems better and you’ll see why it’s actually all right’. And this went on throughout the entire summer of 2007. Until one day, the breach was 20 per cent – which is 20 times the permissible deviation of 1 per cent. And, having spent three years in the Israeli army, I wasn’t going to spend five years in Mountjoy [Prison]. 

“The legislation that I took out earlier [at his book launch] clearly stipulates five years in Mountjoy well, perhaps not Mountjoy but five years in jail.”

“I put my foot down and said we are reporting this breach because I’m the risk manager. If, tomorrow morning, this bank collapses, I, it was on my watch that the bank collapsed. I’m the one responsible. The CEO will turn around and say ‘yes, this is why I pay Jonathan the way I do, he’s the one who’s responsible’. ‘I, the CEO, signed off because my risk manager told me it was all right’.”

“And so, we’re coming towards the middle end of, the summer of 2007. Northern Rock is collapsing; Europe, for the first time since the second World War is seeing people stand outside the banks, frightened that all of their deposits have been wiped out and I’m signing off reports, saying that everything is fine, when I know that it isn’t fine. And what shocked me even further was that, having breached, having reported a breach of 20 per cent – we’re talking about billions here – the Central Bank did absolutely nothing.”

Browne: “When did you report the breach first?”

Sugarman: “I reported this breach during August 2007”

Browne: “What was the form of your communication with the Central Bank in telling them of the breach?”

Sugarman: “I drew up a letter which notified the Central Bank. Each bank operating in Ireland has a team responsible for it in the Central Bank of Ireland. So the letter we sent was to the attention of the head of the team responsible for Unicredit Ireland, the operations of Unicredit in Ireland. So the letter was addressed to him, to notify him that, according to section so-and-so of the law, we are now informing you that we are in breach.”

Browne: “Did you send the letter? Or was it sent by the CEO?”

Sugarman: “The CEO signed the letter. At that stage, I was so adamant about the fact that I wanted to make sure that the Central Bank was going to receive the letter there and then, I hand delivered the letter to the Central Bank on Dame Street.”

Browne: “On that same evening?”

Sugarman: “Same lunch time. This is crucial. I am billions out of pocket. Now this can be…”

Browne: “How many billions was it?”

Sugarman: “I would say roughly €4bn to €5bn.”


Sugarman: “The letter was addressed to the person dealing with Unicredit. I handed it in at the reception of the Central Bank of Ireland.”

Browne: “Ok, did you hear back? Or did your CEO hear back from…?”

Sugarman: “We received the letter of acknowledgement the next day from the Central Bank.”

Browne: “And, other than that, did you have contact with the Central Bank?”

Sugarman: “No.”

Browne: “Nothing?”

Sugarman: “Which is shocking but no.”

Browne: “They did nothing at all?”

Sugarman: “Nothing.”

Browne: “Then what happened?”

Sugarman: “In the meantime I had contacted an IT  company in London that was recommended to me that was operating in Dublin, doing precisely what that type of liquidity calculation for other banks. Their leading client at the time was a leading Irish bank called Anglo Irish Bank. And so I thought ‘well, if you’re good enough for… and, obviously, the Central Bank were aware of that, that this consulting firm was doing the calculations for Anglo, so I said ‘well, if the Central Bank is happy for them to calculate if for Anglo, you know, I’d be more than happy for them to calculate it for us. And so, I initiated contact with this company. We arranged for them to have access to all of our records and to start producing their own sets of figures, so that we could see where the problem was – if there was a problem.”

One night, I received a call from the person in charge in London, who said to me, and he knew that I was shocked over this breach of 20 per cent. He said, ‘Jonathan, from the figures that we’ve looked at, your breach is actually 40 per cent’. Now that is when I said ‘enough’.

Browne: “How is it that you didn’t perceive that the breach was 40 per cent?”

Sugarman: “Because of the mayhem in our computer systems and, again, this legislation I showed [at book launch] earlier stipulates very clearly that in order to run a bank you have to have adequate  IT systems. You cannot have IT systems producing different figures for the same transaction. And so, this is why I contacted this company. Because I said ‘look, there are discrepancies here, almost every day’.

Browne: “OK, did you inform the regulator that the breach was not 20 per cent, it was 40 per cent.”


Browne: “Why?”

Sugarman:Because my CEO didn’t want us to and that is when I resigned.”

Browne: “What did the CEO say?”

Sugarman: “He had his own reasons, he claimed that what the London company had come up with was just a trial run. I said, ‘yes but that’s a trial run without figures. And we know that there’s a problem. ‘Yes, but it’s, their still separate to the bank’. And so what made it even more worrying is that, even after my resignation – and I maintained contact with the company in London after my resignation – they kept on working on trying to come up with a definitive set of figures for the bank. Only within a few weeks, the Central Bank of Ireland arrived for a scheduled audit of the risk management department and, within the first day of that audit, the link to London was cut off. And I know this from the company in London which, to me, would imply, that the Central Bank, their team that arrived at Unicredit was so horrified a) at the extent of the problem and b) that a third party had full visibility of the problem.”

Browne: “So, you’re saying that some weeks after you brought the letter down the Central Bank yourself in mid-August of 2007, the Central Bank did an audit of Unicredit..”

Sugarman: “Yes.”

Browne: “And found that the situation was as you described it, or even worse..”

Sugarman: “Probably worse..”

Browne: “So, it’s not true to say, that the regulator did nothing?”

Sugarman: “Well they covered up. Because, if I walked in there  and said ‘heavens have fallen’, there should have been literally a raid by the Central Bank the next day – to say, how are you conducting your affairs? If we told you that a breach of 1 per cent is problematic, how can you turn up and tell us that you’ve breach by 20? I expected the Central Bank to have sent down a team the next day, if not that same afternoon, to say, ‘we gave you a licence to operate a bank in Ireland, assuming that you knew how to run a bank?’ They arrived for a scheduled audit two months later.”

Watch back in full here

Previously: Who Is Jonathan Sugarman?

26 thoughts on “‘There Should Have Been A Raid By The Central Bank The Next Day’

  1. b

    i dunno, the details are a bit complicated but there are elements of walter mitty about this guy

    there is no hard evidence the bank was frequently or hugely in breach, more likely its systems were crap and warranted an investigation by the central bank. Notional figures on derivatives and leverage can be huge so much that jumps from 1% to 20% can be explained by other reasons that mismanagement

    also it is very unusual for a third party company to have continued access to a bank’s balance sheet details while also maintaining contact with someone who had resigned from the bank.

      1. b

        well Sugarman is this case couldn’t explain the discrepancy or why the figures looked so off

        so are you saying he shouldn’t have commented either?

    1. bisted

      ‘…Mr Sugarman explained that he’s an Israeli citizen…mother was born in South Africa…three years of military service with the Israeli army..’…but then this is about important stuff like money…not people

    2. SOMK

      An element of Walter Mitty? Yeah like this didn’t happen in a country which not very long after this was reported this country wasn’t subjected to one of the biggest bank bailouts in history. If he’s a Walter Mitty then why has it taken nine years for this to come to any significant public attention with politicians and the media running a mile from this story, if it’s no big deal like.

      As for hard evidence, what do you want, he’s the guy who was presented with the best evidence the bank could muster and attempted to get more thorough outside analysis the situation it was twice as bad as the banks internal figures.

      Anyway the broader point is that Ireland has not only run a light touch banking regulation system, but whatever laws we have we don’t enforce, €95 billion pissed into the banks, more when interest is taken into account, 8 years of austerity and a foreign occupation to pay for it, and what consequence? What’s changed? We lock up teenagers for being politically engaged, pensioners for not paying TV licences, bankers and regulators who cost the country billion, which inevitably leads to the loss of life and suffering, retire rich and safe. Who’s country is this?

      It’s not good enough.

      1. b

        “If he’s a Walter Mitty then why has it taken nine years for this to come to any significant public attention with politicians and the media running a mile from this story, if it’s no big deal like.”

        answered your own question there buddy

        1. Pornograffiti

          How has he answered it? If the chap highlights the breach then how come he didn’t receive an official explanation for it? Yours is speculative bullcrap.

      2. rotide

        What’s changed?

        We’re not minutes away from going broke as a country and having no functioning banking system. That changed.

        The other stuff you mention isn’t new.

    3. John Salmon

      I respectfully suggest you know nothing whatsoever about the subject matter. Your comments are foolish in the extreme

  2. Harry Molloy

    Whatever about the accuracy of all he says, and I don’t have any reason to doubt than but would like to hear some corroboration, I think we’re all agreed when we say the central bank was asleep at the wheel to say the least, it was a nominal function only.
    Think they had 30 people in all of banking supervision back then, that’s more like 150 now not to mention the oversight of the top 5s from the ECB

  3. Murtles

    When one of the most important meetings in the history of the finances of the State (the decision to guarantee the banks) took place on the night of September 29th 2008 but no minutes or notes from that meeting were recorded, the scale of this corruption doesn’t faze me at all unfortunately. Financial corruption and duplicity continue to this day, nothing was learned, and as Sugarman said in a previous interview, it’ll be the ordinary taxpayers covering the note for the next 40 years.

      1. Increasing Displacement

        I also know a of a person at JPM who said after the collapse they were back at the same things that cause the collapse within a couple of days.

        Good times.

        Isn’t it funny that people in that industry get paid so much.
        They produce nothing but inefficiency and wasted resources.

  4. JFM

    It is shocking stuff, and well done to Sugarman for letting the cat out of the bag. The CBI should have had responded immediately when they received the heart attack letter from him, but they sat on their laurels and did nothing for two months. I wonder if they thought or knew the same was happening in the other banks?? Maybe they had letters from the other banks too?? That might explain why they were slow to act – they would have to investigate them all and found it difficult to choose who to start with first…….. Oh, what a bother!
    And where was Neary during all of this??? He’s out to grass now with a smoochy €500k handshake and a big fat pension….
    Who’s paying for all of this?? YOU are!

  5. Michael

    Joan Burton asked a PQ back in 2010 on the issues raised by Jonathan Sugarman –
    ” However, in response to the Deputy’s question my Department has been informed by the Central Bank of Ireland that an overnight liquidity breach was reported by an institution at the time referred to in the reports enclosed with the Deputy’s question. The Central Bank followed up on this liquidity breach with the institution, which rectified the position to the satisfaction of the Central Bank at the time. The Central Bank also required an external review of liquidity reports submitted to it [321]and the related control environment. This review did not identify material issues relating to breaches of the required liquidity ratios, other than on the date highlighted by the institution.”
    By this stage there was a new regime at the CB .
    Also since then the Protected Disclosures Act has passed into law


    1. Verbatim

      Remark the question was asked in 2010, the irregularities took place in 2007 – it’s a pity Mr. Sugarman didn’t leak it at the time. Looks like they shook it all up in the air, changed CB management, smoke and shadows and the whole recession mess was not of their making.

  6. Johnny

    sad in many ways,stuck in a moment he can’t get out off
    who gives a fupp,it’s a crap Italian bank/financial services co

  7. Junkface

    How is Ireland not much higher up in the International Corruption table? The Central Bank regulators, ignored expert advice, caused massive destruction in the markets costing billions, thousands lost their pensions, lost their homes, marriages broke up, people commit suicide, lives were ruined. This must be one of the biggest crimes EVER commited on the Irish public and nobody has been jailed or accepted the blame. Oh yeah and we foot the bill. Justice in Ireland is laughable.

      1. Johnny

        Israel Defence Forces are far from incompetent,pretty effective killing machine.
        Sugarman for x IDF has strange constellation off suppprt in Ireland,surprisingly the only Jew in the Dail hasn’t been more supportive.

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