Fintan O’Toole demolishes Brian Lenihan jnr on Anglo

A question on Anglo that will not go away

It is terrifying to think that Brian Lenihan’s justifications of the bank
guarantee are factually incorrect, writes FINTAN O’TOOLE

A FORTNIGHT ago, I asked a simple question of the Government: “How much
money for Anglo [Irish Bank] is too much?” Whatever view one takes of the
Government’s banking strategy, this is surely a reasonable question. The
wisdom of any financial transaction obviously depends on the price. Buying
a loaf of bread may make sense if the price is €2. It can’t make sense if
the price is €10.

Minister for Finance Brian Lenihan kindly replied to my article. He
entirely avoided the question. This is surely rather alarming.

The most basic principle that must underlie any Government decision – let
alone one that involves dumping at least €22 billion into a black hole –
has to be a cost/benefit analysis. If you don’t know the cost, if there’s
no upper limit on what you’re willing to pay, then the decision is
implicitly bad. It’s not policy-making. It’s gambling. So let’s ask the
question again – how much money for Anglo is too much?

While he’s answering that question, Lenihan might also address an aspect of
his initial reply that is, if anything, even more disturbing. In the course
of that reply, he made two statements that are, on the face of it,
factually wrong.

The first concerns the views of the governor of the Central Bank, Patrick
Honohan. Lenihan writes: “In his recently published report on our banking
crisis, Prof Honohan . . . endorses the Government’s assessment that ‘a
disorderly failure of Anglo would in the absence of any other protective
action have had a devastating effect on the remainder of the Irish banks’ .
. . On the matter of the guarantee, Prof Honohan said ‘it is hard to argue
with the view that an extensive guarantee needed to be put in place, since
all participants (rightly) felt that they faced the likely collapse of the
Irish banking system within days in the absence of decisive immediate

What Lenihan is telling us is that Prof Honohan agreed entirely with the
Government’s decision to extend the blanket guarantee to Anglo – with the
exception of the relatively minor matter of including subordinated debt.

What’s alarming about this is that it bears little relationship to what
Prof Honohan actually says in his report. In fact, while he argues that
some sort of guarantee was necessary (a position that hardly anyone would
dispute), he is critical of the decision to extend a blanket guarantee:
“The extent of the cover provided (including to outstanding long-term
bonds) can – even without the benefit of hindsight – be criticised inasmuch
as it complicated and narrowed the eventual resolution options for the
failing institutions and increased the State’s potential share of the

On any understanding of the English language, what Honohan is saying here
is that the blanket guarantee covered too much and in the process increased
the risk of losses for the State.

Equally, and specifically in relation to Anglo, Honohan most certainly does
not endorse a blanket guarantee. What he says is that a “disorderly”
collapse of Anglo would have been catastrophic for the other banks “in the
absence of any other protective action”.

The Government, in other words, could have let Anglo go while saving the
rest of the banking system.

Citing these conclusions in support of Government policy is bizarre. But
even more bizarre is another claim that Lenihan makes in his reply: that
“Merrill Lynch [ML] also recommended a blanket guarantee of Anglo Irish
Bank, including, incidentally, subordinated debt.”

So far as I can see from the available documents, this is simply untrue.

Honohan’s reading of those documents is the opposite of what Lenihan
contends: “There were arguments against a blanket guarantee, including one
made by the Department of Finance’s advisers [ML], who observed that the
assumption of such a large contingent liability would have an adverse
effect on the borrowing costs for the State.”

The Department of Finance’s note of a meeting with ML on September 26th,
2008, (at which Brian Lenihan was present) states that “On a blanket
guarantee for all banks – ML felt could be a mistake and hit national
rating and allow poor banks to continue.”

By “poor banks” they presumably meant Anglo and Nationwide.

In this case, there seems to be only two logical possibilities. One is that
Lenihan has access to a document containing advice from ML that has been
withheld from Honohan and the Public Accounts Committee.

The other is that Lenihan or whoever in his department drafted his reply is
making an untrue claim.

This stuff matters – to the tune of €22 billion – and it is terrifying to
think that the Minister could make such mistakes.

Can I therefore ask Brian Lenihan three questions. Where, exactly (with
page and paragraph references), does Honohan express support for a blanket
guarantee for Anglo? Where, exactly, do Merrill Lynch support such a
guarantee? And, back to the original question: how much money for Anglo is
too much?