Fianna Fáil : The End of the Party

How Fianna Fáil Finally Lost its Grip on Power

Bruce Arnold, Jason O'Toole

• Publisher: Gill Books
• Year: 2011
• ISBN:
  9780717151929
• Topic: Politics & International Relations
• Subtopic: Political Parties
• Index: Politics & International Relations

The Election of February 2011 will be remembered for the defeat and virtual annihilation of Fianna Fáil.

Stripped of power in humiliating circumstances, the party was disgraced, possibly to the point of no return. The story of how this happened is a mixture of farce and tragedy. The collective leadership of the party lost touch with reality and watched, as though mesmerised, while Brian Cowen led them from one catastrophic mistake to another.

He was aided in this by Brian Lenihan, Minister for Finance, whose mistakes were among the worst ever made by the holder of this crucial office.

Fianna Fáil demolished itself in the eyes of the electorate due to its entanglement with property and banking scandals, inept decisions and gross mismanagement of the most profitable time ever enjoyed by the Irish people.

Two journalists with inside knowledge of the events and extensive experience of politics over many years have joined their talents to write this gripping story.

Chapter 1

BEGINNING AT THE END

On Saturday, 6 November 2010 the Irish Daily Mail and the Irish Independent both carried stories about Brian Cowen’s knowledge of the crisis faced by Anglo Irish Bank well before the Bank Guarantee of 28 September 2008. Up to the time of the publication of these stories, Cowen had consistently claimed that he had first heard of the problems in Anglo Irish Bank at the end of September 2008. Though this seemed highly doubtful, it had not previously been the subject of investigation or challenge. The stories alleged that Cowen first knew that the fiscal roof was falling in on the bank when he was Minister for Finance, and that he became actively involved at least as early as April 2008. He was Minister for Finance from July 2004 until 7 May 2008, when he replaced Bertie Ahern as Taoiseach. This was nearly five months before the Bank Guarantee.

The probability that he knew of the bank’s problems as Minister for Finance was argued in both stories, which alleged that Brian Cowen knew the end was nigh for Anglo Irish Bank in late 2007, and that he involved himself then in the bank’s growing crisis. In April 2008 he attended a dinner with the Anglo Irish Board in Heritage House on St Stephen’s Green, the bank’s headquarters, but his involvement and knowledge, according to both articles, pre-dated this event. The source for the stories claimed that ‘it was a dinner for Brian Cowen. Brian sat there, one of the gang.’ At this stage, while he was still Minister for Finance, he knew in some detail the state of the crisis the bank was facing. The actions he took were defensive and uncertain. He did not know what to do but sustained his knowledge through direct meetings, either in the bank or elsewhere, at which he was told about the impending disaster. It would be later claimed by Anglo director David Drumm that Cowen, when Finance Minister, had set up a ‘kitchen cabinet’ that contained several people connected with Anglo Irish Bank, such as Seán FitzPatrick. Surely they would have advised him on the detail and provided him with at least some inside information about the bank’s circumstances which, during 2008, were becoming perilous? However, it’s also easy to imagine that such information was probably being fed to Cowen on a need-to-know basis. Despite these close connections, it’s hard to imagine FitzPatrick having revealed to Cowen a full account of the bank’s precarious state and what would later emerge as illegal practices.

Cowen claimed that he first heard of the problems in Anglo Irish in late September 2008. In the debate on the introduction of the blanket Bank Guarantee by Minister for Finance Brian Lenihan, Labour Party leader Eamon Gilmore asked Brian Cowen whether he knew that Anglo Irish Bank was facing insolvency. Cowen replied: ‘No, I did not.’

The stories alleged that he was at an Anglo Irish board dinner in April of that year where the discussion was exclusively about the problems faced by the bank. Cowen, who had acknowledged earlier that he was at the April meeting, had insisted that the bank’s internal problems had not been discussed. The unnamed source for these 6 November stories claimed that the discussion was ‘openly and deliberately’ focused on the bank’s difficulties.

Seán Quinn, of Quinn Insurance, had seriously aggravated the problems faced by the bank through heavy gambling at the time with ‘Contracts for Difference’ (CFD)—a means of entering the market without buying the bank’s shares and without being subject to stamp duty—the net effect of his investment was to threaten the survival of Anglo Irish Bank. These ultimately came to represent a quarter of Anglo Irish Bank shares, but Anglo continued to haemorrhage, leaving Quinn with a €2.5 billion shortfall. On St Patrick’s Day, 17 March 2008, a month before the dinner referred to above, Anglo Irish Bank shares had been ‘attacked’ by speculators while the Dublin Stock Exchange was closed. Hedge funds had been selling the stock down. Anglo Irish Bank had responded by claiming it as cynical speculation against ‘an Irish success story’. In fact, the Seán Quinn involvement had leaked out and the bank was characterised as ludicrously over-exposed and wide open to share speculation.

Anglo director David Drumm said:

These guys [stockbrokers] don’t care about Seán Quinn, they care about hedge funds. They would have been fed the information and then taken the short position and kill [sic] the bank.

We had a mini-run on the bank. Quinn shot himself in the foot and shot the bank while he was doing it. With Quinn, our worst fear we had seen the monster [sic]. We had seen a run on the bank, most people don’t. The run didn’t take off completely. In March ’08, we just about survived. But we literally had to go into the vault and get ready to lock the doors, you know? We talked about Armageddon. The world was at the end of the line.

Quinn owned a quarter of the company. Twenty-five per cent was not on our mindset at all. Twenty-five per cent was just nuclear. We could be dead already. A drop in the share price, the way that was read on the street was the market is telling us there is a problem with that bank, i.e., a credit problem. ‘Get us out.’ When the share price drops, money goes out the door.

The bank desperately put together a group of business people known as the ‘Maple Ten’ to take on 40 per cent of Quinn’s shares, so that the former billionaire would not have to sell a significant chunk of his enormous savings. But the efforts were in vain and Anglo’s share price continued to drop from a peak of 30 to a staggering low of 21 cent.

‘Nobody in the bank—but maybe we were [distracted by] everything else going on—ever foresaw the immense damage that would do. The shock heard around the world actually killed us. The loan is probably immaterial. What was wrong with the bank is that the bank ran out of money,’ said Drumm.

This knowledge of an impending disaster was recognised and discussed by the board as early as 11 September 2007. Sensitive information was leaking from Anglo Irish Bank on a number of issues, including Seán Quinn’s speculations. One of the sources for these leaks was identified as Seán FitzPatrick, by now quite close to Brian Cowen. At one meeting Patrick Neary, the Financial Regulator, told a member of the bank’s board that Seán FitzPatrick was talking too much and too openly about the Quinn stake, which shows how up to their neck in it Neary’s office was before the placing. According to David Drumm, ‘a member of the Central Bank board had overheard Seanie at some party spouting on about Quinn and brought it back into the Central Bank board room’. Drumm was told to tell him to ‘shut his mouth’. It was alleged that if it got out, ‘there could be [a] run on the system’. Unfortunately, and despite the extraordinary fact of it being discussed at the Central Bank, leading to the instruction to shut him up, Seán FitzPatrick continued to enjoy political protection, as did Seán Quinn.

A further example of Brian Cowen’s direct involvement in the bank’s affairs was contained in the claim by the unnamed source for the 6 November stories that Cowen promised intervention with the National Treasury Management Agency (NTMA). The bank asked him to get the NTMA to put deposits with Anglo Irish Bank. Cowen knew this was necessary but, despite his claim that he had told them to step in, the NTMA failed to follow this course. Thus, though Cowen consented to the request to seek NTMA support for Anglo Irish Bank, it was not forthcoming.

The truth was that a negative decision had already been made. According to Brendan McDonagh, the former Director of Finance and Risk at the NTMA, the decision had been taken to stop placing deposits with the bank ‘because they [the Agency] didn’t understand the business model at Anglo’. McDonagh was asked whether this decision and the reasons for it were communicated to the Government. McDonagh could not answer the question. He said that such reporting was a matter for Dr Michael Somers, head of the NTMA. When questioned, Dr Somers said: ‘I didn’t know enough to say anything to anybody, and if I had, they would have said, “Would you ever go and mind your own business? This [the Bank] is a very successful institution—what are you on about?” It would not have mattered if I had said something to Cowen. What could he have done?’ This was true. Nevertheless, following a Department meeting with Dr Somers on 21 May 2008, two weeks after Cowen had become Taoiseach and had appointed Brian Lenihan as his successor at the Department of Finance, a memorandum marked ‘strictly confidential’ was prepared and circulated with the following purpose:

The key message we would wish to see communicated is that the NTMA and NPRF [National Pensions Reserve Fund] should continue its [sic] welcome engagement with the Department of Finance, Central Bank and Irish banks to help sustain financial stability.

In a context note opening the memorandum, Brian Cowen was identified, as of course he must have been, writing to Dr Somers the previous December (2007) to the effect that the two institutions ‘in view of their financial resources and commercial mandate’ needed to indicate the role they might play. The Department stressed that ‘the NTMA/NPRF can play a very important role in helping to meeting [sic] the funding needs of the Irish banks in stressed financial market conditions’. There was no exclusion of Anglo Irish Bank from these views at this stage. The memorandum emphasised the openness of the State agencies to ‘discuss commercial proposals for support from the Irish banks and [the Department] has had a number of meetings with various financial institutions on this basis’. NTMA funds had already been deposited with the main banks and, though ‘relatively small’, these were ‘an important signal to the banks of support from public authorities’, the role of the NTMA being seen as ready to ‘intervene to seek to pre-empt what might otherwise lead to a major funding crisis in an Irish bank’.

The two stories also presented a different view of the Financial Regulator, Patrick Neary. Widely characterised in the media as having been asleep at the wheel, Neary was in fact in close contact with the bank and knew what had to be done. This is also confirmed by the memorandum, which underlines the fact that the Financial Services Authority of Ireland, which includes the Financial Regulator’s office with its extensive personnel, had participated in the discussions about financial stability and the planning required to sustain it.

The Financial Regulator, the Department of Finance, Anglo Irish Bank and Morgan Stanley (through which Quinn invested in CFDs and which later advised Anglo on the Quinn situation) all knew that the CFDs spelt death for the bank and the Regulator should have picked up on them, an essential part of regulation. This was not done. Instead, the Financial Regulator, the Central Bank and the Department of Finance, with Cowen’s knowledge, were allowing Seán Quinn to take money from his insurance company and gamble it through the bank.

The treatments given in the two newspapers of this story were quite different but the message was the same. The Irish Daily Mail splashed it on page one with the headline ‘Cowen “did know about Anglo debts”’ and went on to claim that he had been ‘less than truthful’. The Irish Independent published a report and analysis inside the paper but made the same points.

Bruce Arnold’s political judgment in the Irish Independent was scathing in the following terms:

These reported events, encounters and arguments represented the most blatant and most damaging example in recent Irish economic history of the State’s interests being placed second to a corrupt, internal, private involvement of politicians and of servants of the State. In the light of it, the idea of them remaining in office any longer is repulsive and objectionable to all right-thinking Irish men and women. They must go. When they do the State must be reinvested with men and women who speak the truth and act exclusively in the interests of the people.

The stories were immediately recognised as of crucial importance to Cowen’s position and his integrity, threatening his continued leadership of the Government. Questioned by journalists on the day the stories appeared, his spokesperson said: ‘We don’t respond to comment from “anonymous sources”.’ Cowen maintained his silence despite serious, if restrained, media analysis. This spelt out the implications of what Cowen’s refusal indicated. True, the original stories were based on an unnamed director of Anglo Irish Bank. But he was identified in the stories that were published on the following day, Sunday, 7 November, as David Drumm, the former CEO of the bank, who was now living in Boston. He had filed for bankruptcy there and was the subject of ongoing legal investigation. What was more compelling was the detail, the coherence and the fitting together of circumstantial evidence.

The original stories reported a number of allegations clearly showing a serious and documented conflict between what Cowen had done at the time and his later claim that he did not know until the end of September 2008 the state of affairs in Anglo Irish Bank. The version published in the two 6 November articles said that Brian Cowen, in late 2007, had involved himself directly in the crisis at Anglo Irish Bank and had done so in response to board members, including the chairman of the bank, Seán FitzPatrick.

If true in general terms, then Cowen had taken office as Taoiseach, on 7 May 2008, already seriously compromised. This was in respect of the country’s economy and its finances through his ministerial responsibility for the Department of Finance and for other institutions involved in what happened at Anglo Irish Bank. He must have known that the banking system was in danger of loss of liquidity and credibility. Cowen himself was in the shadow of a flawed and largely disgraced predecessor, Bertie Ahern, whom he had served in the increasingly sensitive position of Minister for Finance. He was also compromised, much more seriously, by his commitment to protecting the Fianna Fáil party at the country’s expense.

Both as Minister for Finance and then as Taoiseach, Cowen gave a consistently upbeat account of the economy, including the country’s banking system. He claimed more than once that the influence of the EU project had been pervasive across every aspect of Irish life. There was a growing irony in almost everything he said.

Cowen’s refusal to respond to questions because they emanated from ‘anonymous’ sources was simply putting off his ultimate confrontation with the truth. But in the short term it worked. The stories had considerable media impact and went one step further with calls from the Opposition Leader, Enda Kenny, for an exact explanation of when Cowen had first learned of the enormous financial problems faced by Anglo Irish Bank. Specifically it was pointed out to him that the ‘Government told the Dáil this was a problem of liquidity as opposed to insolvency, so, arising from that report, if it’s to be confirmed, the Taoiseach should clarify the matter again’.

John McGuinness, a Fianna Fáil Carlow-Kilkenny deputy and long-time critic of Cowen’s leadership, said the Government ‘must have known more than they admitted. I think that an awful lot of people involved, including the Department of Finance—so you can extend that to include Brian Cowen—must have known … what was going on in relation to the banking system.’

Brian Cowen managed to deal with these challenges and to ignore the central questions raised by the David Drumm allegations in the two articles of 6 November. But he was running out of time and room to manoeuvre.

Then came a curious intervention from two quite different journalists, Tom Lyons and Brian Carey, who had been covering the Anglo Irish Bank story (for the Sunday Times) since the crisis began in 2007. Tom Lyons, a business reporter, met Seán FitzPatrick in May 2009 and began taping interviews with him, which were published in The FitzPatrick Tapes. According to Penguin, which published the book, FitzPatrick ‘talked at length and in detail about his banking experiences and philosophy, his colleagues and clients, his investments, his public disgrace, his arrest and his bankruptcy’. Adding to these details ‘their many sources within Anglo, the state and the business community’, the two reporters wrote the story, ‘a tale of toothless regulators, hopeless accountants, politicians and civil servants out of their depth, and businessmen in denial about the crash’. To the surprise of the authors of this book, very little was confirmed of their discoveries in respect of Brian Cowen’s involvement with Anglo Irish Bank. However, there was a great deal of other confirmation, expanded from the tapes and other researches to considerable length, and giving a vivid portrait of such characters as Seán Quinn.

The hands of all the principal participants holding power and having a role in Ireland’s economic collapse seem ...