The chairman of Ireland's embattled Anglo-Irish Bank Corp. has resigned after investigators discovered he hid from shareholders euro87 million ($125 million) in personal loans from the bank.
Sean FitzPatrick said in a statement Thursday night he had broken no laws. "However, it is clear to me, on reflection, that it was inappropriate and unacceptable from a transparency point of view," he said.
In a statement Friday to the Irish Stock Exchange, FitzPatrick's successor Donal O'Connor announced that the bank was launching its own review of how Anglo-Irish Bank is managed internally — specifically its policy of floating loans to its directors totaling euro150 million.
"The board is determined to do what is right," said O'Connor, a veteran accountant, who previously was a senior partner in PriceWaterhouseCoopers. He pledged to oversee "a thorough review of governance and this will commence, using independent expertise, immediately."
Within hours, FitzPatrick's hand-picked successor as chief executive officer, David Drumm, also resigned. FitzPatrick had been CEO until taking the chairman's post in 2004.
Drumm said a total change in leadership would give the Dublin-based bank "fresh impetus and an upward trajectory."
Ireland's Financial Services Regulatory Authority said its investigators discovered FitzPatrick's hidden loans during a wider trawl of Anglo-Irish records. It found he had repeatedly transferred the loans out of Anglo-Irish into a rival institution, Irish Nationwide, and back again over an eight-year period to ensure they were not disclosed to shareholders in annual accounts.
One of Ireland's most prominent business commentators, Sen. Shane Ross, dismissed FitzPatrick's defense that the loan concealment wasn't illegal as "stunningly beside the point."
"Deception is not always illegal, but this was a brazen attempt to ensure the public did not know what was going on inside Anglo-Irish Bank," Ross said.
He noted that a range of officials — including the bank's outside auditors, the board of directors, and an in-house loans approval committee — all should have known about FitzPatrick's ill-reported loans "and yet nobody blew the whistle on this."
FitzPatrick announced he was also resigning from his positions on the boards of several other Irish companies, including the Aer Lingus airline, packaging materials giant Smurfit Kappa and food business Greencore.
FitzPatrick and Drumm were Ireland's first corporate casualties from the increased scrutiny of the banking sector by regulators and investors due to the global financial crisis.
The government two months ago moved to insure all deposits and liabilities of Irish banks. No Irish bank has collapsed or asked to use the insurance — but analysts and investors consider Anglo-Irish the most likely candidate, given its exceptionally high exposure to loans to developers, commercial property portfolios and idle construction projects.
Shane Ross forecast that the government soon would need to prop up the bank with Ireland's first corporate bailout. "They will have to be capitalized within a matter of days. They can't continue the way they are," Ross said in an interview.
Construction and property speculation fueled more than a decade of Ireland's Celtic Tiger boom, but both are in crisis today as the country falls into a hard recession. Earlier this month Anglo-Irish announced it was setting aside euro500 million to cover future bad debts on its books, but insisted it would remain profitable.
Investors are deeply skeptical. While shares in all four of Ireland's publicly listed banks have plummeted over the past 18 months, Anglo-Irish has fallen the hardest in expectation that the government will intervene with a bailout — and, possibly, an enforced merger with a stronger rival.
On Friday, Anglo-Irish shares fell 40 percent to a record low of euro0.19 in the first few minutes of Dublin trading. They partly recovered in afternoon trade to euro0.28, still 12.5 percent down.
At its mid-2007 peak, Anglo-Irish shares valued the bank at euro13.3 billion. They were worth barely euro200 million Friday.
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On the Net:
Bank's statement to Irish Stock Exchange, http://www.ise.ie/app/announcementDetails.asp?ID2051752
