Documents released by the Oireachtas Public Accounts Committee this morning, show that the former financial regulator, Patrick Neary, told the Taoiseach, Brian Cowen, that Anglo Irish Bank was in good health three days before the Government issued the State banking guarantee at the end of September 2008. Anglo Irish Bank was simply judged as being "resilient" without being aware of the true state of its loan book.

One of the documents is a presentation by Anglo Irish Bank on September 18th, setting out a positive summary of its development with 7,000 clients, 17,500 properties and over 45,000 cash flows. Anglo compared various indicators with those of Bank of Ireland, such as loan-to-deposit ratios. The builders' bank said its loan-to-value ratio was 73 per cent.

On September 19th, days after the collapse of US investment bank Lehman Brothers, Patrick Neary had commented:"Irish banks are resilient and have good shock absorption capacity to cope with the current situation."

US Investment bank Merrill Lynch produced a document setting out various scenarios and in respect of Anglo, said only 3 per cent of its loans valued at €72bn were impaired, according to the banks' management. It said Anglo needed  to raise funding of €4.9bn by Oct 24th.

Speaking points were produced for the Taoiseach on September 30, 2008, the first day of the State guarantee.

The asset quality in the financial institutions, the document said, was good with a strong concentration in residential mortgages with a relatively low loan-to-value ratio. It said there is a"very significant capacity within the institutions to absorb and losses."

“There is therefore, a significant buffer before there is any question of credit impairments on the Exchequer on foot of the guarantee,” the note said.

Neary told the Taoiseach, days before the guarantee was issued "there is no evidence to suggest Anglo is insolvent on a going concern basis - it is simply unable to continue on the current basis from a liquidity point of view."

Prof. Morgan Kelly of University College Dublin and Brendan Keenan, Group Business Editor of Independent Newspapers on Sept 30, 2008, the day the guarantee took effect. Kelly in a stunning tour de force, accurately presents the enfeebled state of Irish banking:  

Bank guarantee documents

Finfacts article: May 2009; Irish Financial Regulator’s failure to control property bubble contributed to economic crash and consumer wealth losses

The Minister for Finance Brian Lenihan commented on Friday: “The Department of Finance has released documents generated in the run up to the State Guarantee to assist public understanding and critical analysis of the decisions taken by Government that night.

It is predictable but disappointing nonetheless that the Fine Gael Leader, Deputy Enda Kenny and Labour’s Pat Rabbitte would seek to misrepresent these documents for their own political purposes.

These are the facts:

On 26th September 2008 in an analysis of the strategic options, Merrill Lynch said a Guarantee for the 6 Irish Banks was the “Best / most decisive / most impactful from market perspective”. It said it would stem funding outflows and may result in inflows. It also envisaged the guarantee would protect senior and subordinated creditors.

In a further analysis, provided three days later, Merrill Lynch says 'All solutions require financial resources from the Government and could add pressure to the sovereign credit rating and borrowing costs of the Government”. The Memorandum also stated “there is no right or wrong answer and the situation is very fluid.'

The document goes on to explore all the options, laying out the advantages and disadvantages of each. In the case of Anglo Irish Bank and Irish Nationwide, Merrill Lynch set out the option of nationalisation with a full State Guarantee given to all creditors and senior creditors as well as dated subordinated debt holders. They say this would again send a strong implicit message to the investor community that this level of protection would be afforded to all other Irish banks.

It is wrong to suggest that Merrill Lynch recommended one option over another. Indeed, the only option which Merrill Lynch discounted, after full consideration, was the option of allowing an Irish Bank to fail. This is the option that Fine Gael has advanced since 2009.
In the context of rapidly deteriorating circumstances on the night of the 29th September, the Government decided in favour of the option considered by Merrill Lynch of the 'Best / most decisive / most impactful from a market perspective.'

In his report on the Banking Inquiry, the Governor of the Central Bank, endorsed the Government's approach of issuing a broad guarantee and he made clear the catastrophic consequences if the Government had not taken action. The Governor also agrees that Anglo Irish Bank was systemic and could not be allowed fail.”

However, Governor Honohan made clear that he did not support guaranteeing existing bank debt.

Ireland and Denmark were the only countries to guarantee bank liabilities.