Anglo Irish Bank chiefs quit amid loans scandal

Chairman fails to disclose transfers of €87m loans
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The Independent Online

Anglo Irish Bank lost its chief executive and chairman yesterday in a loans scandal that has rocked Ireland's financial establishment.

David Drumm, the chief executive, resigned just hours after his chairman, Sean Fitzpatrick, stepped down for failing to disclose €87m (£81m) of loans from the bank.

Mr FitzPatrick, who built Anglo Irish from a 20-client operation in the 1980s into one of Europe's most respected banks, admitted he had temporarily transferred loans from Anglo Irish to another lender over a period of eight years. Shifting the loans at the bank's year-end in September meant the loans were never revealed to shareholders in the annual accounts. The concealment of the loans is said to have been discovered by Ireland's financial regulator when it was inspecting the books of Irish Nationwide, the building society to which Mr Fitzpatrick's debts were transferred.

The Financial Services Regulatory Authority said: "While it does not appear that anything illegal took place in relation to these loans, the financial regulator was of the view that the practices surrounding these loans were not appropriate.

"As a result, we advised Anglo Irish to ensure that these loans are reported in the annual accounts for 2008."

The hiding of the loans and the shambolic, staggered resignations of the bank's leadership rocked confidence in Anglo Irish's systems and probity. Analysts were also stunned that the practice was not illegal in Ireland.

Anglo Irish shares, already battered by the bank's exposure to Ireland's collapsing property market, fell 15 per cent to a new low of 27 cents. The plunge left the bank valued at €207m. At its 2007 peak, Anglo Irish was trading at more than €17 a share and was valued at about €13bn.

Alex Potter, a banking analyst at Collins Stewart, said: "This is a remarkable failure of financial controls within a company that has repeatedly claimed that it has better risk management than most."

Anglo Irish was for a long time one of the darlings of the banking sector but its stock has fallen as the financial sector raised fears about its heavy exposure to commercial property and wholesale market funding.

The scandal at Anglo Irish is a further blow to Ireland's financial industry, which boomed during the "Celtic tiger" nation's long period of growth.

Questions were raised about whether Mr Fitzpatrick had secured his loans against his 0.65 per cent stake in Anglo Irish, in a move similar to David Ross's borrowing against his Carphone Warehouse stock, which forced the departure of Carphone's deputy chairman.

Mr Fitzpatrick's stake would once have been worth about €90m but has plunged to a fraction of that. Anglo Irish declined to comment on whether the loans were secured against Mr Fitzpatrick's shares. Mr Fitzpatrick said in a statement that the loans were fully secured on commercial terms.

Donal O'Connor, a non-executive director at Anglo Irish, is the new chairman. He was a partner at PricewaterhouseCoopers until June 2007.

Mr Drumm replaced Mr Fitzpatrick as chief executive in 2005, when Mr Fitzpatrick stepped up to be chairman. He will stay on as chief executive until a replacement is found, but the lender is effectively left drifting at a time of crisis for Ireland's banking industry. The Irish government has promised to invest €10bn to bail out the banking sector, which faces mounting bad debts from property loans.

Investors are still waiting for the details of the capitalisation package but, even with such an injection, some analysts are sceptical that Anglo Irish can avoid full nationalisation.