THE FALL OF ANGLO IRISH BANK

A Case Study made by Alyza Mae C. Arellano

FACTS:

Anglo Irish Bank was an Irish bank headquartered in Dublin from 1964 to 2011.
The bank's heavy exposure to property lending, with most of its loan book being to
builders and property developers, meant that it was badly affected by the downturn in
the Irish property market in 2008. The freezing up of international money markets made
it impossible for Irish banks to continue borrowing at the luxurious rates they had
enjoyed before. Without the ability to borrow money, Irish banks were unable to
continue making property loans, causing a collapse of the property market. Falling
prices in the property market meant the assets of Irish banks were now considerably
lower than their liabilities, creating a banking crisis.
With the solvency of the Irish banking system threatened, the Irish government
moved quickly to inject capital in the banks to keep them afloat. In September 2008, the
Irish government made guarantees to several of the largest Irish banks, Anglo Irish
included. But at the Anglo Irish Bank, the revelation of a major loan scandal meant that
would throw a wrench into the governments recapitalization plan.
From 2000 to 2008, Sean FitzPatrick used Anglo Irish funds to make massive
loans to himself. These personal loans were hidden from the public and from regulators
by moving the loans temporarily to another bank to avoid an end of year audit. After
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.

DISCUSSION:

Chairman Sean FitzPatrick, CEO David Drumm, and board member Lars
Bradshaw resigned in December 2008, following the revelation of a loan scandal.
FitzPatrick and Bradshaw had taken out loans. From 20002008, FitzPatrick transferred
the loans to another bank prior to yearend audits, thereby causing "Loans to Directors"
to be understated.
In 2008, the loan to FitzPatrick and Bradshaw amounted to 87 million the
transfer resulted in the accounts showing only about 40 million outstanding to
directors, instead of 150 million. The revelation that FitzPatrick had hidden millions in
loans he had made to himself capped off a tumultuous series of months that had seen
the Banks value drop from a high of 13 billion to a low of 242 million. Other
questionable loans to employees are: Chief Executive David Drumm to whom the Anglo
Irish made an 8m loan, Chief Risk Officer Willie McAteer to whom the the bank also
made an 8m loan and Managing Director Pat Whelan who was discovered to owe the
Anglo Irish 5.8m in personal loans.
Meanwhile 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. The Anglo Irish banks 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. FitzPatrick, along with a few
other former Anglo Irish directors, would declare bankruptcy, dashing hopes the loans
would be recovered in a timely manner.
By falsifying loan keeping records, FitzPatrick called into question the entire
financial security of the bank. The failure of the 3rd largest bank in Ireland would have
serious ramifications for the entire Irish economy. Nationalization was seen as the only
way to save the bank after the damage done to its reputation following the revelation of
FitzPatricks ethical failings. In order to protect the health of the banking system, the
Irish government was forced to take steps to nationalize the bank.

The troubles with the Anglo Irish would not end with nationalization. Following the
government takeover, Irish authorities ordered a wholesale investigation into all Anglo
Irish dealings, revealing additional ethical failings by senior executives and creating
further pain for the Irish taxpayer. These revelations would further damage the
reputation of the Anglo Irish bank.
In 2013, tape recordings allegedly revealed senior executives deliberately misled
government officials during the 2008 crisis. The tapes feature senior manager John
Bowe, who was involved in negotiations with the Irish government, laughing and joking
as he talks with another Anglo Irish executive. Bowe explains that executives at Anglo
Irish knew full well the 7 billion in bailouts they had asked for was in fact not enough to
save the bank. Bowe states The strategy here is you pull them in, you get them to write
a big cheque and they have to keep they have to support their money. From Bowes
comments it is clear the Anglo Irish strategy was to force the government into continuing
to prop up the bank. Taxpayers would be left with no choice but to continue to provide
loans to support the bank.
Established by Royal Charter in 1888, Chartered Accountants Ireland is Irelands
largest and fastest growing accountancy body. For almost ten years Chartered
Accountants Ireland has been the fastest growing accountancy body in the UK and
Ireland, with membership increasing by almost 50% in the period 2004 to 2014 .
Chartered Accountants Ireland represents more than 24,000 members throughout the
globe Chartered Accountants Ireland works with governments and businesses to raise
awareness of the importance of sound financial advice.

In 2007 the Chartered Accountants Regulatory Board was established to develop

Standards of Professional Conduct and to supervise the compliance of members,
member firms, affiliates and students. They initiated an investigation into the
"circumstances around the issue of inappropriate directors' loans at Anglo Irish
Bank"and into the performance of Ernst and Young.
An April 2011 report into the Irish banking collapse criticised the role of external
auditors in failing to identify and warn of the risky lending practices being adopted by
Irish banks. It said auditors took a narrow interpretation of their job description and

remained "silent" during the excesses of the boom. It found the external auditors of the
main Irish banks consistently failed to report "excesses over prudential sector lending
limits" to the Central Bank of Ireland.
Following the publication of a report by the Financial Reporting Council in
October 2012, the Irish Times in an acid commentary said it speaks " of a profession
that lost its way and, rather than provide a check on rulebending in financial services,
became a willing and wellpaid accomplice." Michel Barnier, the EU Commissioner for
Internal Market and Services, questioned the conduct of the auditors of Irish banks
which lead to the financial crash.
The Central Bank of Ireland in January 2014 demanded better auditing standards
from Institute members following the discovery of 235m black hole at Ireland's largest
car insurer.

PERSONAL INSIGHTS:

Increased consumer scrutiny and effective internal control are the solutions to the
Anglo Irish bank case. Increased consumer scrutiny is the preventive control that can be
employed by the business. The case showed that the personal loans made by the
directors were transferred to another bank prior to yearend audits so that the Loans to
Directors" to be understated. If the bank has a system to properly inspect the records of
those people applying consumer or debtors records to check whether there were
substantial evidences that there were really applying for loans to the company they
could have prevented the unethical acts such as understatement of loans made by the
companys corporate officers. Furthermore, effective internal control could have
detected that the wrongdoings of the later. Proper accounting information systems
control could have seen this.
You should have an eye for the details, this means that as an auditor the have
already questioned the loans made. The substantial amount of money involved in this
case can also be a hint that there might be dubious acts in the company. The internal

and external auditors should have employed this so that the unprincipled acts did not
lasted for several years.
Good corporate governance should have been also implemented. In this way,
the officers shoud have been always reminded of the consequences of their
inappropriate actions.

REFERENCES:

The Anglo Irish Bank Case

<http://sevenpillarsinstitute.org>

Anglo Irish Bank

https://en.wikipedia.org/wiki/Anglo_Irish_Bank

The Men Behind the Anglo Irish Scandal

<http://www.ft.com/cms/s/0/c37841b8dd7611e2a75600144feab7de.html#axzz3u
LE90IQY>

Chartered Accountants- Ireland

<. https://en.wikipedia.org/wiki/Chartered_Accountants_Ireland>