Hidden loans controversy


Anglo Irish Bank Corporation is a state-owned bank based in Ireland with its headquarters in Dublin. The company mainly deals in business and commercial banking, with the result that it has only a limited retail presence in the major Irish cities. It also has wealth management and treasury divisions. It was listed first in stock exchange in 1971. After that it started acquiring other banks also i.e Royal trust bank from Austria which is later rename as Anglo Irish Bank(Austria) in 1995.In 1999 they gone through a joint venture with Smurfit Paribas Bank, it also introduce loan portfolio with Bayerische Hypo-Bayerische bank portfolio. Anglo Irish Bank has its operations in Austria, Switzerland, the United Kingdom, the United States , and the Isle of Man.

The Hidden Loans

The Anglo Irish Bank controversy began in the Republic of Ireland in December 2008 when the chairman of Anglo Irish bank , Irelands third largest largest bank , admitted that he had hidden a total of 87 million in loans from the bank, triggering a series of incidents which eventually led to the nationalisation of the bank on 21 January 2009. The board of directors resigned after this issue .

The Scam

Starting in 1986, Sean FitzPatrick spent eighteen years as chief executive of Anglo Irish Bank, during which time the bank grew from a small operator into the third largest bank in Ireland. When he became the bank's chairman in 2005, handing over the position of chief executive to David Drumm, the bank was recording annual profits of over 500 million. The Anglo share price peaked at 17.60 in May 2007, an increase from under 1 ten years previously. Anglo was valued at nearly 13 billion and FitzPatrick's 4.5 million Anglo shares were worth nearly 80 million at this time. Prior to FitzPatrick's resignation, the Anglo share price had already dropped to 0.32, a drop of 98% with the entire bank valued at a low 242 million and FitzPatrick's stake reduced to 1.5 million

The Financial Regulator first uncovered the 87 million loans in January 2008 when inspectors from the regulator's offices carried out an inspection into the loan book of rival lender, Irish Nationwide Building Society. The inspectors noticed that a large loan was provided to FitzPatrick at Anglo Irish Bank and later repaid. The Regulator discovered at a later date that similar loans were provided to FitzPatrick in September 2008 and repaid by him in October 2008. When the issue was raised with Anglo Irish Bank it was discovered that there were further loans between the two banks over an extended period of eight years

Every Anglo annual report contains a note displaying the total loans given to directors of the bank. This total is measured at a single point in time. In the case of Anglo this occurs on 30 September. FitzPatrick, instead of revealing the true figures of his loans, transferred some of them to Irish Nationwide Building Society, returning them to Anglo at a later date.

This in turn led to inaccurate figures for the total directors' loans given for eight consecutive years in the end of year Anglo accounts. 2008 was the first occasion on which FitzPatrick revealed his true figure, that of 87 million or twice the total of the other twelve directors' loan figures.

The situation has been described as Ireland's version of Enron.

Further Hidden Loans

On 12 February 2009, details of a further controversial transaction which had the effect of misrepresenting the end-of-year accounts of Anglo-Irish Bank came into the public. Anglo-Irish Bank lent 4bn to Irish Life & Permanent (IL&P) for 1 day by way of inter-bank loan, and a subsidiary of Irish Life placed a deposit of a similar amount with Anglo, which was recorded as a customer deposit. Following a discussion with the Minister for Finance, a board meeting of IL&P accepted the resignation of two senior IL&P executives

The "Golden Circle

Prime Minister Brian Cowen on 17 February, informed the knowledge of a group of ten wealthy businessmen who had come together to buy shares in Anglo Irish Bank in 2008 in a transaction which is now at the centre of an investigation by the Office of Corporate Enforcement. Cowen has since denied suggestions put forth by the Opposition that he was attempting to protect anyone involved in this so-called "Golden Circle". Anglo Irish Bank's annual report alongside the PricewaterhouseCooper report on the bank were both published on 20 February but Tnaiste Mary Coughlan stated beforehand that the ten would not be named in either report. The Anglo report revealed that the bank lent 451 million to the ten "Golden Circle" clients, a 50% increase on previous estimates of 300 million.

The Major Factors

Up until last year, Ireland was one of Europe's biggest success stories. Economic reforms in the 1990s lowered corporate tax rates, and the government wooed big foreign firms with subsidies and touted the low-cost, well-educated, English-speaking work force. They came and invested in the manufacturing base.

Salaries jumped, and the Irish put their new money in houses, driving a decade-long real-estate bubble.

To fund all this, foreign banks pumped money into Ireland; as of Sept. 30, foreign banks had more than $1 trillion of outstanding lending to Ireland, according to data from the Bank for International Settlements. Anglo Irish relied heavily on this wholesale borrowing, which ground to a halt when the credit markets seized last fall. That was one of the reasons it got in trouble.

The other was that it played vigorously in real estate.

Anglo Irish, with little retail presence, concentrated its real-estate lending on the developers throwing up projects. That left it particularly exposed: Irish personal mortgages are typically recourse loans; unlike in the U.S., Irish homeowners with a mortgage that exceeds the depleted value of the home can't mail the keys to the bank and walk away. That has kept foreclosure rates relatively low. By contrast, bad loans to developers have mounted.


Anglo Irish Bank Corp. was once the pride of Ireland, the "builders' bank" funding much of the construction craze that symbolized the country's economic emergence.

Now, it is a national disgrace that has pushed the government's approval rating to lows, scarred the reputation of Ireland's banking system and prompted investigations by two Irish agencies and lawmakers.


  • http://www.bloomberg.com/apps/news?pid=20601110&sid=aF39qemj92Qo
  • http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4593647/Scandal-hit-Anglo-Irish-charged-with-cooking-the-books.html
  • http://www.aclsolicitors.ie/news/anglo_irish_bank_scandal_the_possibility_of_legal_actions_seeking_compensat/
  • http://en.wikipedia.org/wiki/Anglo_Irish_Bank_hidden_loans_controversy

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