Inquiry means Siteserv backlash will be waiting in the long grass

World of Politics with Harry McGee

It’s not Watergate; it’s not Charlie Haughey saying “thanks a million big fella” to Ben Dunne; it’s not the State losing its sovereignty.

But the Commission of Inquiry into the artist formerly known as Anglo Irish Bank (the Irish Bank Resolution Corporation) has the potential to give the Government a bit of a jolt ahead of the election.

So what’s the backstory?

Anglo crashed in 2008. The Government’s eventual response was textbook. Of course that gave it no credibility. It had caused the crash. It was like being knocked over by a driver and being put on life support.

When you wake up from the operation you discover that the surgeon is the guy who crashed into you in the first place.

Some of that response relied on the advice of NUI Galway economist Professor Alan Ahearne who was an expert in this type of crash.

He saw the responses of Governments elsewhere where it was inadequate (Japan) and successful (Sweden).

Where it didn’t work, governments let the banks marriage the distressed assets. In essence, they did nothing and baulked from taking the hard decisions. The result was stagnation and inertia that went on for years.

The ‘tough medicine’ approach was to create a good bank and a bad bank. The good bank would manage the performing loans and assets – the bad bank would work on the stuff that was not going to perform.

The Irish government created the same kind of vehicle in 2009 with the establishment of NAMA. It bought a lot of Anglo’s distressed loans at a very significant haircut (discount).

What was left of the bank was spun into the Irish Bank Resolution Corporation, which essentially was a ‘pop-up bank’ with a specific remit that would eventually also be wound up.

The former Fine Gael leader Alan Dukes was appointed (by a Fianna Fail administration) as its chair and it was given a high degree of independence.

So what’s at issue here? Well, a new Coalition came into power in 2011 and almost immediately the relationship between the Department of Finance and the IBRC changed dynamic.

Michael Noonan brought in John Moran from the Central Bank to look after banking (he later became secretary general). It is clear that he and Dukes did not see eye-to-eye and the Department began questioning some of the decisions and strategies that were being pursued by the IBRC.

Dukes is no pushover and he had very strong views on the remit and independence of the IBRC. The deteriorating relationship between Moran and Dukes is clearly set out in correspondence between the two, obtained by my colleague Cliff Taylor under the Freedom of Information Act.

One of the deals that caused difficulty was the decision to sell Siteserv to a company controlled by Denis O’Brien.

Siteserv was not in great condition. The IBRC sold it for €46m which meant a substantial write-off of €119m of debts. It also allowed the company (rather than the bank) to control the sale process.

For more, read this week’s Connacht Tribune.