The Irish Independent reports that former Anglo Irish chief Sean FitzPatrick has told the bank he is effectively broke and cannot repay the €70m he owes in unpaid loans.

As a result, the bank is now entitled to pursue all assets owned by Mr FitzPatrick, including his family home in Greystones, Co Wicklow.  The bank yesterday began legal action against Mr FitzPatrick as it sought to recover €70m owed by its former chief executive and chairman.

Finance Minister Brian Lenihan last night welcomed the move and warned the money owed by Mr FitzPatrick must be recouped.  He said the bank's management team would "pursue it to the ends of the earth". While Anglo can place a claim on the FitzPatrick home, if it is owned by both spouses the bank cannot take possession. Land registry records seen by the Irish Independent show that Ulster Bank already has a claim or "lien"' on the property. This was registered last March and Anglo's claim may rank beneath that of Ulster.

The Irish Independent understands Mr FitzPatrick will not fight the legal action by the bank, but will reveal he has no more assets to convert into cash at this time.

Mr FitzPatrick was worth €90m at the peak of the Celtic Tiger, but the nationalisation of Anglo put a huge dent in his wealth.

The moves against Mr FitzPatrick are separate from a range of investigations about his decision not to disclose the loans to shareholders over an eight-year period.

The loans were moved to fellow lender Irish Nationwide before each year end.

Mr FitzPatrick, his legal advisers and bank representatives have been meeting over recent weeks to thrash out a deal on his loans. However, these negotiations have not proved successful.

A deadline for the payment of the money came this week, but Mr FitzPatrick could not do enough to stop the bank going down the legal route.

The bank, now under new management, entered a summary summons at the High Court yesterday.

It will now seek a hearing at the Commercial Court, which deals with cases involving more than €1m.

The loans held by Mr FitzPatrick are understood to be "fully recourse", which means Anglo can seek judgments against any assets it wants.

It may be more difficult to get judgments against assets outside Ireland.

Mr FitzPatrick owns a share in an oil well in Nigeria, for instance.

Investigations

The Irish Independent has learned Mr FitzPatrick has engaged leading criminal law firm Michael Staines and Company to represent him as he faces as onslaught of civil and criminal investigations. The firm's principal, Michael Staines, will lead Mr FitzPatrick's legal team, which includes an array of specialists to deal with specific issues such as the Anglo debt action.

Mr Staines, a criminal law expert, was a member of the Council of the Law Society of Ireland and chairman of its criminal law committee.

It is understood Mr FitzPatrick is ready to meet the claims.

In recent months, Anglo has issued letters of demand to former executives and further summons are now expected to follow.

The Department of Finance last night said Mr Lenihan was "supportive of actions to reduce the bank's exposures''.

Debts

A statement said Anglo was determined to pursue debts outstanding.

"As a state-owned institution which has been supported by taxpayers' money, the minister would expect nothing less and welcomes the action of the bank."

Mr FitzPatrick and Anglo both declined to comment yesterday.

The negotiations with Mr FitzPatrick have been handled by an experienced international banker called Tom Hunersen, who was hired as a consultant by Anglo back in September.

Mr Hunersen is described as a tough negotiator and has been handling all the loans outstanding with former Anglo executives.

He spent 14 years at National Australia Bank (NAB), where he worked for a period with Mike Aynsley, the current Anglo chief executive.

The Irish Independent also reports that Allied Irish Banks raised €3bn in the bond markets yesterday in two State-guaranteed transactions.

The bank initially tapped investors with a five-year bond, which raised €2bn. Orders for the bond reached €3.3bn.

The issue carries an annual coupon of just over 4pc, or what's known in the market as 1.55 percentage points over the benchmark 'mid-swaps' rate.

AIB also decided yesterday to issue a €1bn two-year bond, as a result of inquiries from bond investors.

"We're very pleased with both transactions, from the perspective of amounts achieved, price and investor and geographic spread," said Donal Murphy, head of wholesale treasury at AIB Capital Markets.

He said the bank took the "deliberate decision to leave unfulfilled demand in the market, being conscious of future issuance from the Irish system."

The transactions were managed by investment banks Credit Suisse, Deutsche Bank, JP Morgan Chase and Societe Generale.

Ahead of the new bond placements, Finance Minister Brian Lenihan revealed this week that over €37bn of bank liabilities are currently covered by the new State guarantee scheme.

The eligible liabilities guarantee (ELG) scheme allows lenders to issue bonds of up to five years in maturity.

The original two-year blanket guarantee for the country's six domestic lenders is due to expire at the end of September. The Government's fees for the new scheme are higher than the original.

Shares in AIB ended yesterday's session up 2.2pc at €1.40. Rival Bank of Ireland advanced 1.2pc to €1.17.

The Irish Times reports that the chairman of Anglo Irish Bank, Donal O’Connor, has decided to step down and will be replaced by former Fine Gael politician Alan Dukes. Mr O’Connor, a former managing partner of accountancy firm PricewaterhouseCoopers, plans to leave the role in July.

The Government is expected to announce details of the change in the coming days. It is understood that Minister for Finance Brian Lenihan intends to appoint at least two and possibly three non-executive directors to the board of Anglo in the coming weeks.

In a separate development, Anglo yesterday issued legal action against former chairman Seán FitzPatrick in an effort to recover loans of €70 million. This is the second lawsuit taken by Anglo against a former senior executive. It follows the action against former chief executive David Drumm over unpaid loans of €8.3 million.

The departure of Mr O’Connor from Anglo will leave only Government-appointed directors on the board of the State-owned bank.

The board currently comprises Mr O’Connor, Mr Dukes, former Bank of Ireland chief executive Maurice Keane and Anglo’s chief executive Mike Aynsley.

Mr O’Connor was appointed a non-executive director on Anglo’s board in June 2008 by then chairman Mr FitzPatrick. The other non-executive directors resigned in the wake of the bank’s nationalisation in early 2009.

It is believed that Mr O’Connor told Mr Lenihan last December of his intention to step down as chairman.

He has held the post since Mr FitzPatrick resigned in December 2008 after it emerged that he had hidden his loans at Anglo over an eight-year period using borrowings from Irish Nationwide.

Mr Lenihan asked Mr O’Connor to stay on as fellow Anglo board member Frank Daly, the former Revenue Commissioners chairman, was becoming chairman of the National Asset Management Agency (Nama).

With a new management team in place – comprising six external executives – Mr O’Connor is understood to feel that the time is right for him to step down.

Mr O’Connor served as executive chairman of Anglo, steering it through the nationalisation in January 2009. He stood down from his executive role at the bank when Mr Aynsley was appointed at Anglo last September.

Mr Dukes, a former Fine Gael leader and finance minister, was appointed to the board of Anglo in December 2009 as a public interest director under the Government bank guarantee scheme.

Mr Dukes, who has other business interests, told The Irish Times he expected the role of chairman to consume about “two days a week” of his time.

Mr O’Connor’s decision to leave the bank comes in advance of the publication of a report into corporate governance at the Dublin Docklands Development Authority, the State agency where Mr O’Connor was chairman and Mr FitzPatrick was a board member while both men were on the board of Anglo.

The Irish Times also reports that Innovation Ireland, an ambitious report by a Government-appointed taskforce, was launched by Taoiseach Brian Cowen yesterday, with the aim of potentially creating 117,000 jobs by 2020.

The report contains 24 key recommendations, and an additional 38 supporting proposals to transform Ireland into an “international innovation hub”.

It calls for innovation and entrepreneurship to be placed at the heart of enterprise policy and says that Irish culture needs to stop stigmatising business failure.

Among the main recommendations included in the report are: the implementation of a more efficient approach to identifying and accessing intellectual property arising from public research investment; investing 3 per cent of gross domestic product in research and development; the creation of a national network of angel funds to invest in early-stage companies; the attraction of new investment and the consolidation of existing foreign-direct investment; the introduction of additional measures to promote the study of maths and science; the creation of placement schemes in companies for both graduate and undergraduates; and the marketing of Ireland as a leading innovation location and destination of choice for European and other overseas investors. While no specific details of the costs involved for each recommendation were contained in the report, it did classify them as cost neutral, low cost or high cost.

Each recommendation was accompanied by one of four “timeline” indications: “immediate”, which indicates that action should be taken within three months; “short-term”, which refers to an implementation period of less than a year; “medium-term”, which indicates a timeframe of one to two years; and “long-term” which suggests over two years.

The report states that regular reports on the progress of the implementation of recommendations should be prepared for consideration by the Government and for publication.

Speaking at the launch of the report at the Science Gallery in Trinity College Dublin yesterday, Mr Cowen said that the report is of central importance to Ireland’s economic renewal.

“Innovation, in both the production and use of ideas, technology and processes, across all areas of economic activity, is crucial because it drives productivity growth, and, consequently, economic growth,” said Mr Cowen

One of the stated aims of the report is that by 2020 Ireland will have a significant number of “large, innovation-intensive companies, which are Irish headquarters and owned”. The taskforce also stressed the importance of fostering indigenous entrepreneurial enterprises, rather than focusing solely on multinationals, which already have a strong base here.

The Irish Examiner reports that four out of five defined benefit pension plans are failing to meet statutory funding standards while a sixth are likely to be wound up due to difficulties.

Pension consultants Mercer said half of defined pension schemes must submit a recovery plan to the Pensions Board by June 30.

They said half of all these schemes will change their benefits or their employee contribution rate this year and one in four have either implemented or are strongly considering an increase in the required employee contribution rate, generally from 5% to between 8% and 10%, or in some cases even higher.

Nearly 15% of schemes will stop providing benefits from the defined benefit scheme for the future and will switch to a defined contribution scheme instead. This means members will receive some of their pension from a defined benefit scheme and some from a defined contribution scheme.

Mercer’s Joyce Brennan said: "You need to take a cold hard look at whether you can realistically continue to afford the costs and risks of current defined benefit pension plans.

"If change is needed, ensure that the change makes the scheme sustainable and robust for the future. Avoid tinkering around the edges and have a fundamental look at what is going to meet the needs of your business and your employees for the next 20 years."

Mercer has called for an extension to the deadlines for funding proposals to give employers and trustees the opportunity to take into account the National Pensions Framework published last week. Several aspects of the framework, such as the increase in state retirement age, a change in the tax treatment of employee contributions, and the outline for a new type of defined benefit pension scheme, could all have a significant impact on funding plans, it said. The consultants said a key reason for the increase in the cost of defined benefit pension schemes is the dramatic increases in life expectancy.

"In the 1970s when many defined benefit pension schemes were established, the expectation was that a pension would be paid for 13 years for a man who retired at age 65. The expectation now for a man in his 20s is that he will receive pension for double that period of time," said Mr Brennan.

Chairman of the pension committee at the Irish Brokers Association Aidan McLoughlin said the sheer cost of many defined benefit plans has resulted in such schemes being closed off by employers.

"As professional trustees to some of the leading companies we have witnessed first hand the issues facing defined benefit pension schemes and have advised both employers and employees on the options available to them.

"Now the employers and in particular the trustees are realising that a potential trap exists for the final members of the scheme and that urgent action needs to be taken to resolve this," he said.

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Hatoyama calls for weaker yen - - Japanese Prime Minister Yukio Hatoyama on Friday called for "firm steps" to weaken the yen on fears that exporters' earnings may be hit. Hatoyama said the current high value of the yen gave a misleading impression of the economy, adding: "Japan's economy and industries aren't necessarily strong."

Data theft hits 24,000 HSBC clients - - HSBC's Swiss wealth management unit, which is based in Geneva, is the first Swiss bank to confirm the theft of a CD containing information on 24,000 clients, mainly from France.

Violence mars protest by Greek unions  - - Greek police fought running street battles with youth Thursday as violence broke out at a protest by an estimated 50,000 people who joined in the latest nationwide general strike against the government's austerity program.

Schäuble calls for tough EMF sanctions  - - Wolfgang Schäuble, German finance minister, is proposing that a European Monetary Fund be backed by tough sanctions to enforce budgetary discipline, with countries failing to comply facing expulsion from the Eurozone “as a last resort”.

Hopes rise as US trade gap narrows- - The US trade deficit decreased by 6.6 percent to 37.29 billion dollars in January, the Commerce Department reported Thursday.

The New York Times reports that it is the Wall Street equivalent of a coroner’s report — a 2,200-page document that lays out, in new and startling detail, how Lehman Brothers used accounting sleight of hand to conceal the bad investments that led to its undoing.

The report, compiled by an examiner for the bank, now bankrupt, hit Wall Street with a thud late Thursday. The 158-year-old company, it concluded, died from multiple causes. Among them were bad mortgage holdings and, less directly, demands by rivals like JPMorgan Chase and Citigroup, that the foundering bank post collateral against loans it desperately needed.

But the examiner, Anton R. Valukas, also for the first time, laid out what the report characterized as “materially misleading” accounting gimmicks that Lehman used to mask the perilous state of its finances. The bank’s bankruptcy, the largest in American history, shook the financial world. Fears that other banks might topple in a cascade of failures eventually led Washington to arrange a sweeping rescue for the nation’s financial system.

According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of troubled assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank’s accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, the chairman of the law firm Jenner & Block and a former federal prosecutor, who filed the report in connection with Lehman’s bankruptcy case.

Richard S. Fuld Jr., Lehman’s former chief executive, certified the misleading accounts, the report said.

“Unbeknownst to the investing public, rating agencies, government regulators, and Lehman’s board of directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption,” Mr. Valukas wrote.

Mr. Fuld was “at least grossly negligent,” the report states, adding that Henry M. Paulson Jr., who was then the Treasury secretary, warned Mr. Fuld that Lehman might fail unless it stabilized its finances or found a buyer.

Lehman executives engaged in what the report characterized as “actionable balance sheet manipulation,” and “nonculpable errors of business judgment.”

The report draws no conclusions as to whether Lehman executives violated securities laws. But it does suggest that enough evidence exists for potential civil claims. Lehman executives are already defendants in civil suits, but have not been charged with any criminal wrongdoing.

A large portion of the nine-volume report centers on the accounting maneuvers, known inside Lehman as “Repo 105.”

First used in 2001, long before the crisis struck, Repo 105 involved transactions that secretly moved billions of dollars off Lehman’s books at a time when the bank was under heavy scrutiny.

According to Mr. Valukas, Mr. Fuld ordered Lehman executives to reduce the bank’s debt levels, and senior officials sought repeatedly to apply Repo 105 to dress up the firm’s results. Other executives named in the examiner’s report in connection with the use of the accounting tool include three former Lehman chief financial officers: Christopher O’Meara, Erin Callan and Ian Lowitt.

Patricia Hynes, a lawyer for Mr. Fuld, said in an e-mailed statement that Mr. Fuld “did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment.”

Charles Perkins, a spokesman for Ernst & Young, said in an e-mailed statement: “Our last audit of the company was for the fiscal year ending Nov. 30, 2007. Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view.”

Bryan Marsal, Lehman’s current chief executive, who is unwinding the firm, said in a statement that he was evaluating the report to assess how it might help in efforts to advance creditor interests.

Repos, short for repurchase agreements, are a standard practice on Wall Street, representing short-term loans that provide sometimes crucial financing. In them, firms essentially lend assets to other firms in exchange for money for short periods of time, sometimes overnight.

But Lehman used aggressive accounting in its Repo 105 transactions: it appears to have structured transactions such that they sold securities at the end of the quarter, but planned to buy them back again days later. These assets were mostly illiquid real estate holdings, meaning that they were hard to sell in normal transactions.

The effect of the accounting was to artificially and temporarily lower the firm’s debt levels to hit certain targets, making the firm look healthier than it really was.

In a series of e-mail messages cited by the examiner, one Lehman executive writes of Repo 105: “It’s basically window-dressing.” Another responds: “I see ... so it’s legally do-able but doesn’t look good when we actually do it? Does the rest of the street do it? Also is that why we have so much BS [balance sheet] to Rates Europe?” The first executive replies: “Yes, No and yes. :)”

Mr. Valukas was appointed by the United States Trustee in the case in January 2009 to investigate the causes of the Lehman bankruptcy, as well as to find out if any fraud or misconduct took place.

Mr. Valukas writes in the report that “colorable claims” could be made against some former Lehman executives and Ernst & Young, meaning that enough evidence existed that could lead to the awarding of damages in a trial. He added that Lehman’s directors were not aware of the accounting engineering.

By his reckoning, Lehman managed to “shed” about $39 billion from its balance sheet at the end of the fourth quarter of 2007, $49 billion in the first quarter of 2008 and $50 billion in the second quarter. At that time, Lehman sought to reassure the public that its finances were fine — despite pressure from short-sellers like the hedge fund manager David Einhorn.

Executives, including Herbert McDade, who was known internally as the firm’s “balance sheet czar,” seemed aware that repeatedly using Repo 105 was disguising the true health of the investment bank. “I am very aware ... it is another drug we r on,” he wrote in an April 2008 e-mail cited by the examiner’s report. At other times, he is described as calling for a limit to the number of Repo 105 transactions.

By May and June of 2008, a Lehman senior vice president, Matthew Lee, wrote to senior management and the firm’s auditors at Ernst & Young flagging “accounting improprieties.” Neither Lehman executives nor Ernst & Young alerted the firm’s board about Mr. Lee’s allegations, according to the report.

Mr. Fuld is described in the examiner’s report as denying having knowledge of the Repo 105 transactions, and there is no evidence that he directed subordinates to make use of that aggressive accounting. (He did recall issuing several directives to reduce the firm’s debt levels.) But Mr. McDade is reported as telling Mr. Fuld about using Repo 105 to achieve that goal.

The NYT in a report from Athens says that Vasia Veremi may be only 28, but as a hairdresser in Athens, she is keenly aware that, under a current law that treats her job as hazardous to her health, she has the right to retire with a full pension at age 50.

“I use a hundred different chemicals every day — dyes, ammonia, you name it,” she said. “You think there’s no risk in that?”

“People should be able to retire at a decent age,” Ms. Veremi added. “We are not made to live 150 years.”

Perhaps not, but it is still difficult to explain to outsiders why the Greek government has identified at least 580 job categories deemed to be hazardous enough to merit retiring early — at age 50 for women and 55 for men.

Greece’s patchwork system of early retirement has contributed to the out-of-control state spending that has led to Europe’s sovereign debt crisis. Its pension promises will grow sharply in coming years, and investors can see the country has not set aside enough to cover those costs, making it harder for Greece to borrow at a reasonable rate.

As a consequence of decades of bargains struck between strong unions and weak governments, Greece has promised early retirement to about 700,000 employees, or 14 percent of its work force, giving it an average retirement age of 61, one of the lowest in Europe.

The law includes dangerous jobs like coal mining and bomb disposal. But it also covers radio and television presenters, who are thought to be at risk from the bacteria on their microphones, and musicians playing wind instruments, who must contend with gastric reflux as they puff and blow.

And Greece may be an early indicator of troubles to come. Bigger countries like Germany, France, Spain and Italy have relied for decades on a munificent state financed by a range of stiff taxes to keep the political peace. Now, governments are being pressed to re-examine their commitments to generous pensions over extended retirements because the downturn has suddenly pushed at least part of these hidden costs to the surface.

The situation in the United States is different but also painful. The government will face its own fiscal reckoning, analysts say, as 78 million baby boomers begin drawing on Social Security and Medicare programs to support them in retirement. Without some combination of higher taxes, benefit reductions or an increase in the retirement age, both programs will run short of money to make their promised payments within the next few decades. And many American states are woefully behind on funding their pension obligations for public employees.

In Europe, the conflict has already erupted on the streets, with workers demanding that generous retirement policies be kept while governments press to pare pensions and raise retirement ages because taxpayers cannot bear any additional weight and creditors will no longer finance excessive borrowing.

The problem goes well beyond how to keep up payments and deal with budget deficits resulting from the financial crisis. Because of generous promises, unfunded pension liabilities in Europe far outweigh the stated debt that governments owe creditors, which have caught Greece and several other weak European nations in a borrowing vise.

According to research by Jagadeesh Gokhale, an economist at the Cato Institute in Washington, bringing Greece’s pension obligations onto its balance sheet would show that the government’s debt is in reality equal to 875 percent of its gross domestic product, which is the broadest measure of a nation’s economic output. That would be the highest debt level among the 16 nations that use the euro, and far above Greece’s official debt level of 113 percent.

Other countries have obscured their total obligations as well. In France, where the official debt level is 76 percent of economic output, total debt rises to 549 percent once all of its current pension promises are taken into account. And in Germany, the current debt level of 69 percent would soar to 418 percent.

Mr. Gokhale, like many other economists, says he believes that this is a more appropriate way to assess a country’s debt level because it underscores the extent to which the cost of providing for rapidly aging populations, if left unchanged, will add to already troubling debt burdens.

“You have to look ahead and see how pension expenditures are rising in comparison to the revenues needed to finance them,” he said. “It’s not just Greece; all major European countries are facing pension shortfalls. It is a very difficult challenge because it involves selling pain to current voters.”

He estimates that to fully finance future pension obligations, the average European country would need to set aside 8 percent of its economic output each year, a practical impossibility given that raising already high taxes so much would impose a crushing economic burden.

Mr. Gokhale has done a similar calculation for the United States and estimates that the truest measure of federal government debt, incorporating Medicare, Medicaid, Social Security and other obligations, is $79 trillion, or about 500 percent of the nation’s output. Currently, its public debt is equal to about 60 percent of its domestic output.

Many of these liabilities will not be coming due for decades. But as most developed countries experience having fewer workers to cover pensions and health care bills for the elderly, their ability to borrow more is rapidly approaching its limits.

In its 2009 annual report on Greece, the International Monetary Fund warned that the government’s excessive pension and health payments to the elderly would result in a debt level of 800 percent of its output by 2050 if left unchecked, similar to the figures Mr. Gokhale calculated. That is a theoretical number, of course: international creditors, who are already balking at lending Greece more money, would require changes in government programs well before Athens borrowed that much.

“The pension crisis is the biggest single test of Greece’s willingness to tackle longstanding reform,” said Kevin Featherstone, an expert on the Greek political economy at the London School of Economics. “Any meaningful reform must lead to reduced benefits for workers — the government needs to show that it can overcome union pressure.”

Greece has proposed raising its average retirement age to 63, and that may be just a beginning.

The French president, Nicolas Sarkozy, has met with union leaders and broached the prospect of raising the normal retirement age from 60. Spain has gone further, proposing to raise the retirement age to 67, from 65. In the face of union opposition, however, the government is wavering.

Pensions have become a divisive topic not just among workers and governments, but among governments within Europe. Germany, which has taken politically difficult steps to increase its retirement age to 67 while reducing benefits, is serving as the most stubborn taskmaster on fiscal matters for Greece.

Greece’s pension problem far outweighs the finagling with its accounts that it relied upon in the early 1990s to get its official deficit figures low enough to qualify to join the euro club. A recent report by the European Commission found that the amount Greece spends on pensions and health care for its aging population, if left unchecked, would soar to about 37 percent of its economic output by 2060 from just over 20 percent today, making it the highest level in Europe.

“Projected pension expenditures are expected to double,” said Manos Matsaganis, a professor at the University of Athens and author of numerous papers on Greece’s pension system. “That is unsustainable.” Still, the millions who have come to rely on these payouts will not give up their pensions easily. “Nobody thinks they have to be the one to sacrifice,” Mr. Matsaganis said.

That’s certainly true of Christos Bourdakis, a retired government accountant. Sitting in a dusty union hall in Athens, he is in no mood to offer any concession on his pension, regardless of the severity of the crisis.

He is a full-throated proponent of a system that pays him a yearly pension of 30,000 euros, or $41,000, more than he was making when he retired 13 years ago at the age of 60. He has even written a book in defense of it, “The Guide to Granting Civil Service Pensions in Greece.”

“We have to protect our standard of living,” Mr. Bourdakis said. “The pensioners should not have to pay for the crisis created by the bankers.”