Tag Archives: David Drumm


Former Anglo CEO David Drumm in 2008

This just in.

David Drumm’s statement to the Banking Inquiry (or at least seven pages of it, more may follow although this batch apparently contains the ‘important bits’) sent anonymously to Karl’s den the Broadsheet office this afternoon.

Observant readers will notice direct contradictions with former Taoiseach Brian Cowen’s evidence to the Banking Inquiry regarding that Druids Glen engagement [Mr Cowen’s version below statement].

Fintan Drury, meanwhile,  a non executive director in the bank at the time and Brian Cowen’s adviser mentioned by Mr Drumm  (below), is expected to give testimony at the Banking Inquiry tomorrow.

Grab a large tay. Two sugars.

Witness Statement of David Drumm

Former Group Chief Executive Officer of Anglo Irish Bank Corporation plc (‘AIBC’)

At the outset I want to say that I am sorry to each and every person in Ireland upon whom personal and financial hardship was inflicted by the banking crisis and the subsequent collapse in the Irish economy. Knowing what we know now, the board and management of the Bank would have taken a very different approach to lending into the upward spiraling real estate market.

The Bank was for the longest time a respected and admired institution and so it is a source of deep personal regret and anguish for me that the Bank let so many people down. Whilst I do firmly believe the Bank has shouldered a disproportionate amount of blame for what happened, I do not seek to divert blame for my mistakes and failings as CEO.

I apologise to the 1,800 staff members who always showed such tireless commitment and dedication to the Bank over so many years, and who were once so proud to be part of it. The Bank’s failure caused the loss of their jobs, in many cases, personal and financial hardship. They deserved more for their unswerving loyalty in the institution.


· AIBC was overexposed to the Irish property market and ill-prepared for a financial crisis of the magnitude experienced in 2008.

· The Bank completely overestimated the fundamental strength of the Irish economy and failed to indentify the fatal flaw of the sheer quantum of private sector that had built up.

· The Contracts for Difference position held by Quinn significantly weakened the Bank as hedge funds took advantage of the short-selling opportunity.

· AIBC had a very capable Board of Directors comprising a majority of highly experienced non-executive directors.

· The Bank operated a highly centralized model in which every credit application was approved at Group level and every loan was reviewed at least once a year. Accordingly, the Board of the Bank had a high level of visibility into the Bank’s risks exposures at all times.

· A detailed independent review of the Bank’s loan book was carried out by two non-executive directors in 2008 and their report to the Board confirmed the asset quality of the loan book and the that the level of provisioning was adequate.

· AIBC was solvent at the time of the blanket guarantee and this was re-confirmed by the government-appointed directors post-nationalization in the Bank’s annual report issued by them for the year ended September 30th 2008.

· AIBC was not told about, let alone invited to the meeting with the government on September 29th 2008 at which AIB and Bank of Ireland were present when the Government decided to issue a blanket guarantee.

· AIBC requested a secured loan facility form the Central Bank of Ireland in the weeks leading up to the guarantee. The Central Bank Governor informed AIBC that it had only €4 billion available to support the entire banking system and it was ‘in a number of pots and difficult to access.’ This amount represented only 1% of the combined liabilities of the Irish banks at the time. The secured loan facility proposal was then put directly to An Taoiseach through Mr. Alan Gray, who was then a director of the Central Bank of Ireland and IFSRA. Mr. Gray met with the Bank and was presented with a written proposal to bring to the attention An Taoiseach.

The concept of issuing a blanket state guarantee of all banks’ liabilities, only to then artificially mark down the values of all the assets underpinning that guarantee by the internal transfer of those assets to NAMA at deeply discounted values, was fundamentally flawed. Not surprisingly, the capital markets did not support the government’s strategy and the Irish Banks continued to be starved of liquidity and capital notwithstanding the blanket guarantee.

The extent of losses in the AIBC loan book has been exaggerated and misrepresented thorough this artificial ‘dumping’ of both preforming and impaired loans into NAMA at non arms length deeply discounted values. The losses across the Irish banking system could have substantially curtailed if capital and liquidity support had been made available and the banks, under strict state supervision, were mandated to work out the loans in a more timely and commercial manner.

The only winners were foreign investment funds who snapped up these assets at bargain basement distressed values. In contrast to the Irish response to the crisis, the US Treasury ultimately profited by providing liquidity and capital support to the US Banks, under very strict conditions, through the TARP program.

AIBC has to date shouldered most of the blame for a global financial crisis that was not of its making. Notwithstanding the different treatment each bank received from the State, all of the Irish Banks failed along with hundreds of banks worldwide as a result of the crisis and had to be propped up with government support.

The key point here is that AIBC was the incumbent in the property lending market for many years before the larger universal Irish Banks and a number of foreign banks substantially increased their lending the sector in the early to mid-2000s. Furthermore, AIBC did not provide residential mortgages, and the sharp increase in 100% mortgages during this time from the other banks drove the demand side of the housing bubble.

Notwithstanding AIBC’s prominent position in the commercial property lending market, and the exceptionally high growth in its own lending, in the peak property bubble years of 2005-2007, it was the ‘new’ entrants to the market who dominated in the speculative / development loan segment.

This is a significant point in the face of much commentary about so called ‘reckless lending’. The word reckless suggests that the boards and management of the banks were making loans without any concern for whether or not it was a good loan and would be repaid with interest. It is certainly understandable, if unforgiveable, that a lender could be reckless in an ‘originate to distribute’ operation where he planned to sell off the loan and therefore get rid of the risk of its default as soon as possible after making the loan; as we now know this was the root cause of the entire crisis.

But in more traditional ‘portfolio lending’ as practiced b y the Irish Banks, the loan stays on the books of the bank making the loan, and nay risk of loss, entirely the original lender’s. For these reasons, it is untrue to suggest that Irish Banks were lending recklessly. Although we placed far too much faith in the strength of the economy and the fundamental indicators of stability, we believed in each loan and held the risk rather than sell it off to others.

It is now clear that AIBC was overexposed to the Irish market. This was so in its overall risk asset exposure to Ireland, which at the end of 2008 stood at €42.8 billion or 58%, and more significantly in its exposure to development lending, which comprised 23% of its loan book at that time. In relation to geographical exposure, the Bank was quite successful in its strategy of building franchises in Great Britain and in the US to diversify form its reliance on the Irish market. The growth in Irish lending was such, however, that the Irish market remained as well over 50% notwithstanding the Bank’s success in overseas markets.

Business Model

By definition all AIBC customers were also customers of at least one other bank – AIBC did not offer current accounts in the usual ‘transaction services’ offered by universal banks like Allied Irish Bank or Bank of Ireland or Ulster Bank. AIBC attracted its customers through specialization rather than price, and not by trying to compete in the universal banking space.

The investment market recognised and valued this differentiation for many years, and this was reflected in the growth of the Bank’s market capitalization over more than two decades. No market participant could possibly have been under any illusion that AIBC was anything other than a highly specialized secured commercial lender. It was exactly how the Bank very clearly articulated its strategy.

There has been much ‘after the fact’ criticism of the ‘Anglo Model.’ Suffice to say that AIBC was always a niche lender, specializing in secured property lending. In the twenty-two financial reporting years from 1986 to 2007, the Bank increased its profits every year without interruption.

During this period the Bank faced a number of turbulent economic times and weathered these storms without material impact on its profitability or its balance sheet – such as the collapse in the UK property market in 1989/90, the currency crisis in 1992, the Dot-Com burst in 1999 and the 9/11 terrorist attacks in 2001.

Appropriateness of Regulatory Regime/Relationship with Regulators

My experience is that AIBC had a very open policy toward its Regulator. The Bank preferred to inform the Financial Regulator about important developments ahead of time. Obviously there was an increased level of interaction between the Bank and the Financial Regulator and Central Bank throughout 2008 than had existed before that. There were countless meeting and phone conversations with both the Financial Regulator and Central Bank personnel involving me, other executive directors and senior management, the Bank’s chairman, and on some occasions a number of the non executive directors as well.

Before the crisis, the main involvement of the Bank and Financial Regulator, aside from the routine daily, weekly, monthly and quarterly reporting, related to implementing the various legal and regulatory changes that were taking place in the industry, including Basel II, the Consumer Credit Act, changes to accounting standards and so on.

During the four years that I was CEO, the Bank significantly increased its investment in regulatory compliance, hiring very senior and seasoned staff in this important area.

Given the universal acceptance in Ireland during the boom years that the country was experiencing some kind of economic miracle, it is unlikely that any bank board would have taken, without robust external intervention, a contrarian position by modifying its growth strategy. It is the role of the regulator to monitor the overall level of risk in the system and regulate accordingly. There was no such intervention by the Financial Regulator, who is seems, did not appreciate the risks building up in the banking system any more than the banks’ management did.

In April 2008 the Board of AIBC held a private dinner with Mr. Brian Cowen, TD, then the Minister for Finance and Taoiseach elect. I sat next to the Minister and it was the first opportunity I’d had to speak with him privately. We discussed the difficulties in the financial markets at that time (Bear Stearns failure in mid-March and the ‘St Patrick’s Day massacre’ when the UK based hedge funds launched a short selling attack on the Irish Banks).

He fully understood the problems this was causing for Irish banks in the wholesale funding markets. I asked him to intervene with the National Treasury Management Agency, to request that the agency consider increasing the level of deposits they were holding with the Irish Banks rather than with foreign banks. I specifically mentioned to Minister Cowen, as an example, that the German Finance Ministry had €200m on deposit with AIBC whereas the NTMA had just €40m with the Bank. Mr. Cowen made it very clear to me that he had already intervened and he was surprised that nothing had been done. This made sense to me as I was present when the matter had been discussed at an earlier AIBC board meeting at which non-executive director Mr. Fintan Drury undertook to discuss the matter with Minster Cowen. Mr. Drury was an advisor to Mr. Cowen at that time.

Appropriateness of the Bank Guarantee

AIBC was not told about let alone invited to the meeting with government on September 29th 2008 at which Allied Irish Bank and Bank of Ireland were present when the government decided to issue a blanket guarantee.

AIBC requested a secured loan facility from the Central Bank of Ireland in the weeks leading up to the guarantee. The Central Bank Governor informed AIBC that it had only €4 billion available to support the entire banking system and it was ‘in a number of pots and difficult to access.’ This amount represented only around 1% of the combined liabilities of the Irish Banks and was clearly inadequate in the extreme circumstances that existed at that time.

Upon the recommendation of former AIBC Director Mr. Fintan Drury, who at the time was an advisor to An Taoiseach Brian Cowen TD, the secured loan facility proposals was then presented directly to An Taoiseach through Mr. Alan Gray, who was then a director of the Central Bank of Ireland and IFSRA. AIBC Chairman Mr. FitzPatrick and I met with Mr. Gray and presented him with a written proposal that he agreed to bring to the attention of An Taoiseach.

In the absence of knowing what kind of assistance if any, the Central Bank and/or the Government was going to be able to provide, on September 29th 2008 the AIBC board held an emergency conference call and agreed that we would approach the two larger banks for assistance. Immediately following the conference call, Sean Fitzpatrick and I met with Bank of Ireland Governor Mr. Richard Burrows and CEO Mr. Brian Goggin at the Bank of Ireland headquarters.

At the meeting with the Bank of Ireland, we discussed the difficulties being experienced in the financial markets and explored whether there was any merit in considering a merger between our institutions. The Bank of Ireland Governor and CEO listened intently and empathized with our predicament but insisted they could not help, as they were dealing with their own issues. Prior to the meeting with Bank of Ireland, Mr. FitzPatrick had put a call through to Mr. Dermot Gleeson, then Chairman of Allied Irish Banks. Mr. Gleeson returned the call after we returned from the Bank of Ireland meeting. He abruptly informed the AIBC chairman that he could not help and was not interested in meeting.

That afternoon the Bank engaged again with the Central Bank to request assistance on the assumption that without some form of intervention the Bank may not have been able to meet its commitments. From that point until the following morning when I learned about the government guarantee on the Morning Ireland radio programme, I had no idea what the government’s response to the crisis was going to be.

It may be that the blanket guarantee was the only option available to the government in the absence of the funding that would have been required to support any alternative strategies. The Central Bank, as lender of last resort, may not have had access to the quantum of funding required to support the liquidity needs of the Irish banking system in crisis. But we do not know what role, if any, the ECB played during this time. If funding from the ECB or otherwise was available, the public should know why the ‘nuclear option’ of a blanket guarantee was chosen instead. In particular, the public should be informed as to what advices the government relied upon that night…’

There you go now.

(Sasko Lazarov/Photocall Ireland)

Thanks anon



Brian Cowen’s recollections of that dinner during questioning at the banking Inquiry earlier this month.

Transcript via Oireachtas