CORPORATE GOVERNANCE FAILURE: A CASE STUDY ON ANGLO IRISH BANK

BACKGROUNDoIreland was heavily impacted by the global financial crisis of 2007oImpossible for Irish banks to continue borrowing at the luxurious rates they had enjoyed beforeoWithout the ability to borrow money, Irish banks were unable to continue making property loans, causing a collapse of the property market. oFalling prices in the property market meant the assets of Irish banks were now considerably lower than their liabilities, creating a banking crisis

oWith the solvency of the Irish banking system threatened, the Irish government moved quickly to inject capital in the banks to keep them afloat. oIn September 2008, the Irish government made guarantees to several of the largest Irish banks, Anglo Irish included. oAt the Anglo Irish Bank, the revelation of a major loan scandal meant that would throw a wrench into the government’s recapitalization plano From 2000 to 2008, Sean FitzPatrick used Anglo Irish funds to make massive loans to himself..

oThe Irish banking crisis unexpectedly revealed FitzPatrick’s scheme. Faced with increased scrutiny, FitzPatrick was forced to admit he had personally hidden €87 million in loans. oAfter further investigation, it was revealed that although directors were recorded as having €41 million in personal loans from Anglo Irish, the true figure was €150 million

REASONoIts primary attractiveness as an investment, to those who bought its shares, was its business model. oAccording to its annual reports, that model relied on its low cost base, its superior service and its modern philosophy of ‘relationship based banking’. oIt responded much more quickly than its competitors to the needs of its customers. oAs a result, its borrowers paid a higher price than was being charged by other local or international competitors. oAll this parties are somehow involved behind the failure of this bank from its booming state.

INVOLVEMENT OF DIRECTORS Hidden a total of €87 million

loan

Borrowed money from the company

Warehousing the borrowings with INBS

Mislead investors

AUDITORS’ IRRESPONSIBILITY Failed to raise any public objection to the audited accounts being presented to shareholders, in a published package which contained -

(i) a misleading description of the bank’s business model

(ii)under-reporting of Directors’ loans and(iii)misleading figures for the bank’s deposit

base.

There is a fundamental need- For the determination of Accounting Standards (both in Ireland and internationally) For overseeing their implementation in practice

ETHICAL FAILINGS OF FITZPATRICK Virtue Ethics Integrity Trust Fairness Self Control Humility

FALLOUToAfter Sean FitzPatrick’s resignation, several more Anglo Irish directors would resign over controversial personal loans. These included: oChief Executive David Drumm to whom the Anglo Irish made an €8m loan oChief Risk Officer Willie McAteer to whom the the bank also made an €8m loan oManaging Director Pat Whelan who was discovered to owe the Anglo Irish €5.8m in personal loans.

oThe resignations and the revelation of additional hidden loans sparked outrage among the Irish public.oMeanwhile it was revealed Sean FitzPatrick and the other directors of the Anglo Irish had used these personal loans to fund ill-advised business ventures and property investments.oThe Anglo Irish bank’s troubles were further compounded when it learned FitzPatrick would be unable to pay off his massive personal loans after a failed oil venture in Africa and a stake in an Asian casino stalled. oFitzPatrick, along with a few other former Anglo Irish directors, would declare bankruptcy, dashing hopes the loans would be recovered in a timely manner.

oIt would not be until 2010 when the slow moving Garda Bureau of Fraud Investigation begins investigating former Anglo Irish executives.oIn March of 2010, The Garda police force arrested and charged Sean FitzPatrick with 16 counts of fraud. oIn 2012, Willie McAteer would join FitzPatrick as the second former Anglo Irish director to be arrested and charged with fraud. oFitzPatrick was found not guilty of charges he illegally loaned tens of millions of euros to prop up the share price of Anglo Irish Bank. oWilliam McAteer was sentenced to 240 hours of community service for giving illegal loans to developers

NATIONALIZATION OF THE ANGLO IRISH Serious consequences for the

Irish taxpayer

Insufficient recapitalizationSaving the bank by

nationalizing Take steps to nationalize the

bank Narrowly approved

FURTHER TROUBLES Revealing additional ethical failings Leading to serious problems for the Irish government Deliberately misled government officials No realistic way for the loans to be ever repaid

ANALYSIS OF ETHICAL FAILINGS

IntegrityCompassi

onCourage

THE ANGLO IRISH TODAY Restore investor confidence Taking effort to remove distance the Anglo Irish from its past ethical failings Signage and symbols were removed Merged with Irish Nationwide Building Society Changing its name to the Irish Bank Resolution Corporation

Thank You