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Ireland's political and cultural magazine
24 March/April 2022
O
N April , the Minister for Finance,
the late Fianna Fáil TD Brian Lenihan,
introduced the National Assets
Manaement Aency, a “bad bank”.
In response to the Ministerial announce-
ment, Bank of Ireland assembled an internal
‘Specialist Property Group’ with the task of identify-
in what they could sell to Nama.By that September,
this Group collated loans styled as ‘Financial Assets
Held for sale’ (AFS). In their announcement, Bank of
Ireland stated this AFS was worth € billion. This
was a valuation already based on better days. This
€ billion toxic loan bundle was responsible for %
of their total loan book.
Brian Lenihan always made it very clear that Nama
would not be stumpin up on the valuations the par
-
ticipatin banks were citin.
In total, these banks quoted rouhly €. billion
for these toxic AFS lots.
When all the dust settled; Nama would pay €.
billion. So the banks took a % price reduction on
their ‘hih hopes’ valuations to sell to NAMA.
The Financial Statements for the year endin
.. contained within the Annual Report pre-
sented at the Bank of Ireland AGM earlier that year
(July) reported that they had doubled the rate of
impairment chares aainst their loan book; % of
total loan book value (LBV) at year-end as
aainst % LBV by . So an avid reader of the
Bank of Ireland Annual Report and accompanyin
(Almost) nobody could read
the accounts properly
By Vanessa Foran
How Bank of
Ireland opened
the gateway to
private equity
and morphed
Ireland into a
fertile habitat
for cuckoos
and vultures
Nothing
points you to
receipts, only
to impairments
and losses
Financial Statements would already have know their
loan assets were heavily impaired by the time NAMA
was instiated.
So the % of customer lendin assets now bein
treated as a toxic AFS on the same balance sheet, had
already thrashed the bank and its shareholders with
impairments.
Providin for estimated bad debts is a standard
practice usually based on specific events assessed
on industry standards: on payment history and on
external factors, like market and reulatory condi-
tions such as taxation and leislation.
What the oriinatin drawdown value of these
loans, plus the loss of their expected interest income
was before their send-o to Nama, is anyone’s uess,
but we do at least know, because PWC confirmed it in
their Audit Report, that within domestic lendin oper-
ations alone, standard debt provisions went from €
million in or % of total LBV, to o % LBV (or
€ million) by year end . You miht now also
reconise that Bank of Ireland was still aressively
rowin its loan book throuhout .
Then there are additional Impairment Chares. In
the Annual Report for the nine months of the year to
.., “impairment chares” are mentioned
times. Of the total Impairment Chares subtracted
from the Loan Books, % of them or € . billion
had to be taken from that AFS, leavin it worth
€. billion within months of its € billion prom-
ise, before ettin further treatment in the small print
of notes.
What the drawdown worth of the individual loans
NEWS
Bnk of Irelnd ws vulturised by funds tht
understood its confusing ccounts
March/April 2022 25
within that AFS miht have been when con-
tracts were sined between the creditor bank
and the borrowin debtor could ive rise to
some dirty thouhts, because that is the stae
and value when aents’ commissions and
bankers’ bonuses ets earned.
In fact, I would contend that there is a public
riht to know about these sums, even as a ‘How
it started; how it’s oin’ exercise. We did after
all uarantee and pay for many of the loans,
after bonus’ and commissions were paid out.
Those loans miht have had vastly dierent
oriinatin values to where they now ended up,
in an impaired toxic bundle quotin € billion
in September , that dwindled to €.
billion by December, that when matched with
its year-end Impairment Adjustment, if you
manaed to follow it throuh the notes.(p
- Note ) was really €. billion.
The purpose of financial information is to
help users make decisions and form opinions.
My own confident opinion is that if all theirori-
inal contract drawdown values were
combined,then a value of upwards of € bil-
lion for that € billion AFS bundle is not
impossible.
By the end of , when all the dierent
transfer staes were completed, Nama areed
€. billion for this AFS. Paid by usin Nama
bonds of dierent shapes.
None of us would have known this, as none
of the consideration is lined out as income
earned; or as a benefit receipted from the sale
of a material asset, even a toxic held-for-sale
asset, on the bank’s Income Statement.
That is the tradin period durin which the vast
bulk of this loan book moved out from Bank of
Ireland.
No matter who was readin those accounts,
this AFS asset was most definitely material
(capable of influencin a decision) to the finan-
cial position of Bank of Ireland as % of Total
Lendin Assets makes it material, even if based
on a March Balance Sheet position; %
of total lendin assets is self-evidently
material.
If you were readin those accounts, you
miht have ot the ist of the sales to Nama
from the nettin and roundin o you can make
out within the notes (specifically , & , p
YE). These all declared the impair-
ments and movements in losses, but not the
consideration or benefit received.
Likewise in the Cashflow Statement
nothin points you to receipts, only to impair-
ments and losses.
The post-transfer losses of this Bank of Ire
-
land AFS Loan Bundle were now around €
billion.
There is commentary in notes, small print of
course, and there is mention of the loss bein
limited to €. billion (p Critical Esti-
mates and Judements: also, p Note ).
When values are reported in millions and bil-
lions, roundin can be sinificant. However,
even from the September market
announcement informin the world of Bank of
Ireland’s newly prepared € billion toxic loan
bundle, trackin its eventual outcome for Bank
of Ireland requires travellin throuh several
years annual reports, and their attached Audi-
tors Report and Financial Statements, plus the
hundreds of paes of small print that come with
them each year.
Between and , to a reader or user
of those accounts - say a distressed share-
holder bein forced to make a critical decision
about their pension pot in Bank of Ireland
shares - specific bi-ticket disposals, particu-
larly of income-earnin assets that had already
cost them sinificant impairment chares
aainst income, and left them with massive
write-downs on the balance sheets, should
have been much more clearly flaed.
If mentionin it within the audit report and
the published Financial Statements was not
technically a statutory and reulatory require-
ment, then you miht still have expected the
CEO’s report and the Chair’s report to have
been blunter and more upfront.
Material information was spread around dif
-
ferent chapters - the Chair’s Report, the CEO’s
Report, the Operational Review, the Govern-
ance Section and then the Auditors Report
leadin you into the Financial Statements and
the miasma of notes.
Village considers this transfer of a loan port
-
folio from Bank of Ireland to Nama required far
more prominence within the annual reports,
and with dedicated notices from their Investor
Relations division. Its sinificance should have
been explicated from the top table at AGMs and
debated on the floor.
Remember not only did Bank of Ireland
Beween 2007 nd 2010, if mentioning
massive write-downs within the audit report
and the published Financial Statements was
not technically a statutory and regulatory
requirement, then you might still have
expected the CEO’s report and the Chair’s
report to have been blunter and more upfront
dispose of material loan assets at sinificant
discounts, it also lost the opportunity to earn
further interest income; and that is what really
keeps the lihts on, and provides assurances
for onoin viability. And viability is what really
permits the Goin Concern basis for conduct-
in Audits, particularly at a time when there
was no secret that the sector was collapsin.
The Bank of Ireland Annual Report was
presented at their AGM on June . Bank
of Ireland shares closed at . (euro cents.)
Earlier in , a General Election resulted in
a new Government, and new Minister for
Finance.
On July , in his first o as a senior
Minister, Leo Varadkar, (Tourism, Transport and
Sports) let it be known that “not non-serious”
talks between the Department of Finance and
a roup of international investors were under
-
way. Shares closed on Friday July at ..
His cabinet colleaue, and Ministerial elder,
Michael Noonan was by then already shakin
hands with five as yet unnamed investors. He
said he had eected “another very positive
development for the Irish economy”.
Bank of Ireland would describe the five as
“lon-term value investors”. That roup of five
would spend €. billion over that July
weekend.
Shares closed on Monday July at
..
The happy investors were eventually named
by the Guardian on July as WL Ross &
Co, Fairfax Financial Holdins, Fidelity Invest
-
ments, Capital Group and Kennedy Wilson.
Michael Noonan had just sold them .%
(out of the % he held in our name as Minister
for Finance) of Bank of Ireland.
This cinque of billionaires had completed its
areate .% acquisition of Bank of Ireland
for what would turn out be around cents a
share.
Within months, the Central Bank provided
Bank of Ireland with more reserve-steadyin
bailouts, and operatin uarantees.
The total sum lent to Bank of Ireland between
and (€. billion) has been paid
back to the State with interest (€ . billion
bein the number quoted by Bank of Ireland’s
Investor Relations). However, these bailouts
must be costed coniscent of the financial
backdrop of the time.
It was the era of climbin mortae arrears,
of iniquitous emiration desecratin Irish
towns, and of escalatin unemployment that
was met with cruel cuts to social welfare.
In February , the influential Nama Wine
Lake (NWL) website posted that €. billion
was what that € billion AFS turned out to be
worth to Bank of Ireland - the same AFS that
became €. billion, that then eventually
shrank to €. billion.The €m ap between
the two lowest fiures quoted above was
described as a “premium” to reconise that
26 March/April 2022
property values miht recover and the underly-
in security amounted to somethin. Nama
were very kindly ivin Bank of Ireland the ben-
efit of maybe-improved sales prices. NWL
correctly called this premium State aid.
Of course, Bank of Ireland were not the only
Irish bank to be pampered like this, but it is
important for this story to identify it as State
aid, as Bank of Ireland was now over one-third
held by forein-owned private-equity funds.
In Nama Wine Lake’s own words “No Wonder
Wilbur is Happy”.
To recap, the sum written-o this transfer to
Nama now looks like a sale reduction of €
billion (%) from its introduction at € bil-
lion. A sum in itself to induce collywobbles.
It is obvious that a reader of the accounts
may not have been aware of how that AFS
ended up for Bank of Ireland. Everythin to do
with the financial manaement and reportin
for this once material asset (% of total loan
book remember) was disuised as impair-
ments and losses that ot danced up and down
the reports; even with the State aid ratuity of
€k.
By , Wilbur Ross and Prem Watsa (Fair-
fax) were now sittin on the board. Or, as it likes
to be called, the Court of Directors.
In March , perhaps to prepare for his
move into the public sector to help Make Amer-
ica Great Aain (-), Wilbur Ross bean
to liquidate. His first sell-o was at cents,
more than triple what Michael Noonan had sold
the bulk of them for. Shortly after, he closed out
his BIRG position on cents a share.
Wilbur Ross trousered rouhly € million
profit, plus director’s fees, (June -June
: €K) and possibly expenses fit for a
billionaire.The Irish Independent reported that
the future US Secretary of Commerce had
“pulled o the deal of the century”.
Because of his place on the board, the issue
of conflict of interest and havin information to
which only a director would be privy will always
shadow these share disposals, allowin the
alleation of insider tradin to flicker. How
-
ever, not only was Wilbur Ross’s appointment
to Bank of Ireland’s Court of Directors sined
o by the Central Bank of Ireland, it was also
confirmed by more than one AGM.
Votin shareholders and their appointed
Auditors always knew he was classified as ‘not
independent’, because the Annual Report said
so. The votin shareholders and the reulators
and the external auditors all had that informa-
tion, yet they voted and approved him anyway.
This was ereious reticence, by any yardstick.
Governance standards and Probity were
sidelined.
By all accaounts, Wilbur Ross was very proud
to share his Bank of Ireland experience, and
there is chatter suestin loatin anecdotes
about his adventures in Dublin at an unlikely
modest Florida atherin of fellow hede oli-
archs in the Trump run-up.
Prem Watsa would see more profit than
Wilbur, tippin over the half a billion, € ive
or take a few million. When he stepped down
from the court, in July , he was replaced by
Fairfax’ Vice President Brad Martin.
So now we come to the part of our story
where private equity investment funds of all
shapes and sizes, from pension funds to hede
funds, wanted what the first five ot when they
bailed-out-the-bailout for Michael Noonan and
Fine Gael.
By now Michael Noonan, alon with every-
one else in Fine Gael, was crowin and spinnin
that they had fixed the banks and brouht in
forein investment and bi-tech jobs.
It is enerally accepted that the private
equity layer of reulated financial services is
occupied by bosses and fiureheads who et
bonus payments measured in millions, and
occasionally billions. Many of these funds are
eo-driven, and even named after the eo
itself.
Therefore, you can safely assume that they
would never let themselves be fooled by small
print, or easily teased by ‘continency collat-
eral’. Nor would they put out by disapprovin
looks from any Bankin Culture Board. There
was never oin to be a risk of failure for the
investors here.
The early warnin sinal came in The Finan
-
cial Times on June ; “UK Pensioners
Irish Bank ” .
The bank was Bank of Ireland, which, as it
happens, held an AGM the followin day on
of June .
The story said that pensioner-holders of per
-
petual subordinated bonds in Bank of Ireland
were not prepared to accept a chane to its
equity structures. So, they had one to Court
in a class action opposin “coercive terms”.
All that was presented to shareholders the
followin day on the matter of leal provisions
was a mention of an increase due to a Property
Investment one bad. Other than that, the
annual report contains nothin more than your
standard flatpack for Leal Continencies.
Just days later, June , FT readers read
“Hede Funds v Bank of Ireland”.
Plaintis – all exactly who you think they
are - launched proceedins as a class action
aainst Bank of Ireland.
David Tepper, who would become notorious
on his own for bein the world’s
Mke spce for vultures
Not in it for the public interest
The €995m gap between the two lowest
figures quoted was described as a “premium”
to recognise that property values might
recover. Nama were giving Bank of Ireland
the benefit of maybe-improved sales prices.
NWL called this premium “State aid”
March/April 2022 27
hihest-earnin hede-fund manaer in
and aain in , is quoted in a Bloomb-
er interview on how he dealt with his Bank of
Ireland investment.
“We invested in the Bank of Ireland, and we
bouht their bonds, subordinated bonds, they
wanted to cram us down. So we took them to
court. We were onna o into the Enlish and
Irish courts to fiht the Bank of Ireland and fiht
the Irish Government for that matter”.
Underpinnin this audy solo was the indi
-
nation buildin within the sector that the
decisions within Bank of Ireland were politically
motivated, driven by the Irish Government, and
throuh them, the EU.
So, hede funds with manaers who
measure up to each other by the size of their
respective super yachts, come toether under
one leal team.
By December the decision to burn these
‘Junior Bondholders’ - these Hede Funds
and the , or so UK pensioners - was
reversed. In other words, the Minister for
Finance, Michael Noonan TD and Bank of Ire-
land settled.
On December the FT quotes Noonan: “We
will by the end of introduce leislation to
remove unintended constraints on banks to
realise the value of loan collateral under cer-
tain circumstances”.
It was not just repossessions Michael
Noonan was promotin, he also was layin the
first slab in the pathway to today’s housin
crisis thouh he was barely six months into the
job of Minister for Finance.
It was then a free for all since nobody was
able to say stop without ettin sued for past
deeds of incompetence, cronyism and
corruption.
Because our decision-makers never did the
due dilience, the private equity funds did.
They did the tedious tricky deep backround
research that earned them the leverae to buy
almost % of Bank of Ireland from Michael
Noonan for c a share, to sue Bank of Ireland,
and to et a Ministerial U-Turn removin unin-
tended constraints on their profits.
This U-Turn facilitated a speedway.
By mid- Ireland was welcomin more
private equity investors intent on securin bar-
ains from our retail banks’ uncertain, badly
written, and mostly delinquent, loan books.
Some may have been primed by a Private
Equity Seminar hosted by Grant Thornton in
Dublin in November . The FT reported that
+ “industry operators” reistered to attend
the event.
These private-equity vehicles saw a briht
future in the Irish Government’s submissive-
ness to bi money, and in its establishment’s
reulatory blind eye and indulence of flimsy
enforcement.
But most important: private-equity money
does not rely on traditional bank debt to
finance itself.
Blackstone, Cerberus, Promontoria, Lone
Star, Carlyle, Beltany, Oaktree and the like
were teased and titillated by the reat fortunes
accumulated by the First Five.
Unlike the earlier Bank of Ireland investors
Wilbur Ross brouht in to meet Michael
Noonan who took their profits early, the
remainin Hede Funds used patience to
sweat us out.
Steve Schwarzman, Blackstone’s Founder,
Chair and CEO, openly demonstratin domi-
nant influence within Blackstone’s board and
manaement, said its Irish/ EU operational
model was: “Waitin to see how beaten-up
After our decision-makers failed to do due diligence,
the private equity funds did the tedious research that
earned them the leverage to buy almost 21% of Bank
of Ireland from Noonan for 10c a share, to sue Bank
of Ireland, and to get a Ministerial U-Turn removing
unintended constraints on their profits
people’s psyches et, and where they are will-
in to sell assets”.
So private equity ot to screw the Irish retail
bankin sector and by proxy the Irish taxpayer.
There were no more toxic assets for it to main-
line, so it went straiht to Irish builders and
developers to finance their workin capital
needs.
This is a lot more than private money acquir-
in whole blocks of residential developments
straiht o the plans to add to their rental
assets. .
This should be profitable lendin activity for
retail banks, but private equity is cuttin them
out and takin the bread from their tables. The
retreat of Ulster Bank and KBC out of one of the
most expensive, therefore lucrative, mortae
markets in Europe symptomises this latest
wave of bankin calamities.
Private Equity won’t suer losses here, not
a sinle cent, because they ot to write their
own rules. Nor will they run the risk of leacy
burdens, like sta-pension schemes, or future
PAC appearances.
What Ireland promises today: a i economy
and a workforce of hand-to-mouth workers, an
emirant youth takin their dynamism and
talent abroad, a country of dead cities as their
character ets rebuilt as hotels and unaord
-
able buy-to-rents, low quality of life, incendiary
cynicism and throbbin aner, is the cost of
mishandlin lobal capitalism. Above all, en-
eration that can’t aord housin is the price of
deference to the wisdom of bankers..
The hede funds knew what they were look
-
in for, they did their due dilience: the
representatives of the State did not.
As lon as Financial Statements continue to
be the small print at the back of +-pae
lossy annuals, supported by the same sina-
tures from the same four firms, we are still not
takin care of ourselves by exertin any
control.
Pension-benchmarked Government politi-
cians and their senior department ocials
don’t have to pay the real costs of their deci-
sions. We do.
