The tycoon and the bank job

03 April 2011

By Kathleen Barrington

Let’s say you are a teller in the bank.
Your books don’t balance at the end of the day, giving rise to a suspicion that you haven’t followed correct procedures. What protocol would normally be followed?
According to the Irish Bank Officials Association, the teller would be sent home until the matter was resolved, or suspended on full pay while the matter was investigated.
It is not unusual for bank employees to step aside to protect the bank, even though the presumption of the individual’s innocence continues to apply while the matter is being investigated and adjudicated upon.
It is disappointing, to say the least, that the board of Bank of Ireland did not follow that protocol when considering the appointment of Denis O’Brien to the court -as Bank of Ireland’s board is known - back in 2000.
If it had, it would have been spared the embarrassment of the Moriarty Tribunal’s findings, that its former director had given IR»900,000 in clandestine payments and loan support to onetime Fine Gael minister Michael Lowry, and that Lowry had delivered the state’s second mobile phone licence for O’Brien.
Bank of Ireland appointed O’Brien to the court following the successful sale of his Esat Telecom business to British Telecom for €2.4 billion, even though there were already serious questions being asked about the manner in which the mobile phone licence had been awarded to the Esat consortium.
There had been complaints from rival bidder Persona as far back as 1996 about the selection process for the competition to obtain the mobile phone licence, which Lowry had awarded to O’Brien’s Esat consortium in 1995.
The Moriarty Tribunal had been set up in September 1997 to inquire into payments to politicians, one of whom was Lowry.
Admittedly, it wasn’t until 2001 that the tribunal began following a specific line of inquiry in relation to a £420,000 Investec/ Woodchester loan involving both O’Brien and Lowry.
But, by 2002, it was abundantly clear from newspaper headlines that O’Brien was a key witness at the Moriarty Tribunal - so much so that some shareholders raised their concerns at the Bank of Ireland agm in 2002.
The then Bank of Ireland governor, Laurence Crowley, asserted that the bank was far ahead of modern standards on corporate governance and that, if any directors were found to have been involved in wrongdoing, they would be removed from the court.
We know, of course, from subsequent media leaks that, behind the scenes, there was some disquiet in relation to O’Brien’s continuing membership of the court.
Specifically, it emerged that TK Whitaker, the eminent public servant and former governor of the Central Bank, had raised concerns with Crowley, but no action was taken.
Instead, on September 15, 2005, O’Brien was promoted to the position of deputy to the new governor Richard Burrows - one of the most responsible and prestigious positions in Irish business.
Two weeks later, Justice Michael Moriarty issued a preliminary ruling which left no doubt that O’Brien was under intense scrutiny in relation to certain payments to Lowry.
But it would be another year before O’Brien finally resigned from the Bank of Ireland in September 2006, citing time constraints due to his other business commitments.
The precise circumstances in which he came to get the post of deputy governor have been the subject of much speculation in business circles.
But in the absence of any on the record comments from the parties involved, the process by which he came to be elevated has remained a closely guarded secret.
Another thing that remains unclear is what role O’Brien played on the court of Bank of Ireland - specifically, whether he took any part in driving lending policy at the bank during the boom years.
Earlier this year, O’Brien gave an interview to Michael Lewis, the US financial journalist and author of the bestselling The Big Short. Lewis used the resulting quotes in a lengthy article about the Irish banking crisis for Vanity Fair magazine.
In the interview, O’Brien gave the impression that he had sought to rein in the former Bank of Ireland chief executive officer Brian Goggin.
‘‘I remember the chief executive coming in and saying: ‘We’re going to grow at 30 per cent a year’,’ ’O’Brien told Lewis.
‘‘I said: ‘How the fuck are you going to do that? Banking is a 5to-7-per-cent-a-year growth business at best.’ “
Unfortunately, it would appear that, despite his extremely forceful personality, O’Brien was, at the very least, unable to rein in the bank’s aggressive lending.
Indeed, Bank of Ireland lent so recklessly to the Irish property sector during the boom years that it would now be bust were it not for the generous support of Irish taxpayers - with the notable exception of O’Brien himself, who is, of course, a tax exile.
In the same week that Moriarty published his report, the Financial Regulator published new fit and proper rules for bank directors.
The rules state, among other things, that a director must be able to demonstrate that his or her ability to perform the relevant function is not adversely affected to a material degree where the person has been under investigation by a tribunal.
Some observers believe that this measure would have been sufficient to prevent the appointment of O’Brien as a director had the rules been in force at the time.
Others believe the wording is open to interpretation.
So I asked the Financial Regulator the following question: if O’Brien’s name had been put forward for a directorship of Bank of Ireland while he was under investigation by the Moriarty Tribunal (but before the tribunal had reported), would his candidacy have been successful if the proposed new fit and proper rules had been in force?
The Financial Regulator responded that it could not comment on individual cases.
When I rephrased the question in general terms without naming O’Brien, the Financial Regulator said that, ‘‘while we do not comment on hypothetical cases, in implementing our fitness and probity regime, normal principles of fairness and natural justice will apply’’.
That leaves a lot of wriggle room for a powerful individual under a cloud of suspicion to fight his case for membership of a prestigious bank board.
The Financial Regulator needs to tighten up this wording or run the risk that our learned friends will have another field day arguing over how exactly being under investigation by a tribunal would affect performance to ‘‘a material degree’’.