Patrick Honohan gives unexpectedly frank answers about bank crisis…

Updated 10.25pm

THE GOVERNOR OF the Central Bank has made his first remarks about the Anglo Tapes controversy – to a German newspaper.

In an interview with Marcus Theurer of Frankfurter Allgemeine Zeitung (FAZ), Patrick Honohan said there was one element to the recordings that the regulator was not aware of, indicating it could lead to criminal prosecutions.

He also said his feelings echo the anger expressed by Angela Merkel on hearing the conversations between Anglo Irish Bank executives in the lead-up to the banking crisis, describing the behaviour as “hugely embarrassing”.

Here is the transcript of the interview, in full:

Did the Central Bank know about tapes and content?

“No, actually we didn’t. We were aware of the Garda inquires and the case that was being built around some criminal matters in relation to Anglo and we knew they had assembled that information. These were not tapes that were held for regulatory purposes, so the Central Bank did not have access to them, so we didn’t know the content but we knew the investigation was in progress and was in the hand and we weren’t feeling ‘oh we should be looking for this’.”

These are the police investigations regarding Fitzpatrick and the Anglo loans?

“Yes, so there is one element in what has been disclosed in these tapes which alerts us at the Central Bank to the dimension which we had not been aware of and which we think needs further scrutiny and that is the indications that the management of Anglo were deliberately misrepresenting the position of the bank with a view to accessing financial support from the Central Bank. So this is new in the sense that we knew they were looking for support but we did not know they felt their situation was much worse than they were communicating to the Bank.”

Lowballing their position effectively?

“Absolutely, deliberately, that’s what the tape seems to say. So this is a new dimension in terms of substance. The other thing in terms of the tapes is not substance but the style and attitude it conveys and the culture, the really offensive culture which it displays, which I have to say, in my report looking into the regulatory system, I said that the management at Anglo were known to be ‘slick and buccaneering’.

“What we hear in the tapes now is exactly that. It’s an offensive culture. It’s something that was an outlier in the banking system of Ireland but this sort of culture gives rise to other problems, it’s not just a question of style.”

In which way?

“I think this kind of behaviour is not conducive to careful assessment and management of risks, and prudent management of the responsibilities of banks to depositors, customers and shareholders but also to wider society. It’s absolutely unacceptable.”

You said the new thing in terms of content was they lowballed their value for financial assistance. In which way could this have changed things? Could we have had another way?

“Of course they didn’t get the loan at that time as the guarantee was put in place and of course the guarantee is what has resulted in these huge costs to the Irish society. The Irish state and the Irish taxpayer so in fact the attempt to get the loan actually failed but that doesn’t take from the fact it looks like a deliberate attempt to misrepresent the position of the bank. So I don’t think it had real consequences.

What did have real consequences was the fact the regulator did not have a proper grasp of the situation. It should not have been possible for a properly regulated bank to misrepresent its position so badly.

So it shouldn’t have been possible to fool the regulator in that way?

“I think so, it may be sometimes possible to fool regulators on some details but it should not have been possible to fool them in such a simple and gross way.”

Do these revelations give rise to criminal investigations?

“Well I won’t pick out particular names but that’s why we’re looking at them. So on the face of it there could be some issues in that direction.”

So the Central Bank could take legal steps?

“Of course in all these matters there are two areas, the Central Bank has direct powers on regulatory matters, these are largely civil matters. Things that we can do relate to fining people and disqualifying them from certain functions. But criminal matters are dealt with by the Gardaí and DPP, but the responsibility of the Central Bank is to communicate to the Gardaí and assist them in this regard and we’ll certainly not be slow to do that.”

What the Central Bank can do is punish them and pay fines?

“These are the sorts of sanctions that are available to us. The maxim in legal circles is that one looks at criminal cases before pursuing the civil cases. This is the most effective way normally to proceed. First of all we want to see, what criminal possibilities there are.”

Why has it taken so long for this to become public?

“There have been the three reports which have been in a sense preliminary, based on interview and documentary evidence. But there were not public inquiries.

And as you know there has been for some time an expectation there would be a public inquiry. We at the Central Bank are looking forward to the public inquiry and that this is an essential part of the process nationally. We can get on with our job without it but that doesn’t mean it isn’t an important thing.

It’s the public nature of these tapes I think that dramatises the difference between a report on paper based on facts and seeing or hearing the participants. I think the general public want to understand and want to see that.

“Yes there have been delays…has been a proposed constitutional referendum to design how a public inquiry might be held and other routes that were chosen but its Government spokespeople and other legals who can advise you on that.”

The outcome of the referendum shows the Irish people don’t want such inquiries to have more teeth?

“I’m probably not the best person to answer this precise question. I think the Irish public without question do want a public inquiry but the exact way and legal powers under which this would be conducted has been a matter of dispute and has resulted in these delays but hopefully they will not be prolonged.”

Have the tapes damaged Ireland reputation ally in Europe and what might be the fallout? Does it worry you regarding possible further assistance – Ms Merkel seems to be quite angry?

“Yes, and I would echo, I thought her remarks were very much to the point. People in Ireland feel exactly the same way about it. Everyone I have been talking to is hugely embarrassed by the culture displayed by these chaps and their casual, offensive comments and behaviour is really hugely embarrassing. So will this have consequences. Nobody likes to see their fellow countrymen behave in a bad way and it touches all of us.”

But you’re worried it might have consequences?

“It’s not simply an instrumental ‘oh look, we might suffer from this’. It starts with ‘we’re hugely embarrassed, we just don’t like it’. Not because a calculation that it might be damaging to us. I think Ireland has, for the last few years, it has re-engaged with Europe in a way that it had in the 70s and 80s. Ireland was a very active participator and builder of the European Union and there was some degree of relaxation.

“But in the last three years, as we realised how interdependent we were, particularly in the last six months of the Irish presidency we have shown our enthusiasm, our willingness to roll up the sleeves and do the hard work, adjust our economy, contribute to the legislative process in Europe and I think that is something which we will be appreciated for and that these scandalous recordings will become something that is placed to one side. Recognised as part and parcel of the buccaneering and damaging banking culture that has actually destroyed the Irish economy. It is we in Ireland who have suffered from this.”

Ireland would like to get rid of part of its legacy banking debt – will this create a bad mood?

“Well I hope not. I think that the discussions and the design of the financial arrangements around the Irish recovery are there presented on their merits. So when you talk about the ESM it’s a question of the best balance of risks and indebtedness. The government has been making many proposals which, in some they feel they can represent as being good for both sides. So I think that after the initial fallout of these tapes, I think these matters will be considered on their merits and not on the basis of some annoyance that may be there on all sides.”

Why should German politicians and others in Europe believe that things have really changed in Ireland over the last few years?

“Well I think they do. They see the extensive changes in personnel and those who interact with Irish officials and policymakers do see how….I think the hubris of the past has definitely gone.

These recordings are a blast from the past. They’re from five years ago.

“We remember that time. We don’t remember it with great satisfaction. On the contrary. But Ireland has changed. It was an aberration.”

How credible is it to get to the bottom of the story when over five years it has not had any movement? E.g Fitzpatrick trial not till next year, six years at that stage. Who has a real interest in getting to the bottom of the Anglo story?

“I can only speak for the Central Bank and my colleagues and we are certainly determined to push this forward. We have given all assistance to build those cases. The additional information in the tapes in terms of something concrete is important but it’s a limited aspect. The cases that are being built around other more concrete aspects I think are more well advanced.”

You mean the Anglo cases?

” Yes I mean all those cases where there have been charges brought and court cases. You know in the legal system that we have it does seem to take an enormous amount of time to build the evidence books required to get a conviction. That is the excuse that I am being given. It is not a sufficient excuse not to do the cases. The cases are going ahead. We do see delays like this in other countries. Convictions are difficult to get and I find it surprising myself that it takes so long but it takes so long, not only in Ireland but in other countries that are doing it.”

Do you think this could be a game changer for the mood in the country? The Irish have been very disciplined. Is this petrol to the fire?

“I think that people in Ireland find this reopens old wounds. But I think it reopens them into a context where much more is understood about the overall ‘what went wrong’. We actually do understand what went wrong. There are particular details that we need, that we would like to have more information about but the broad picture, we understand. Reopening those wounds in the context where we do understand a lot will reconfirm peoples determination to do different in the future, in the direction that we have been moving. We have a different cultural environment in business in Ireland, in the banking sector and I would say in our engagement with Europe.”

Is it necessary for Ireland to get a deal on legacy debt under ESM?

“That is there for discussion. It’s not going to come up immediately. It’s not a pre requisite for successful exit from the programme. It’s certainly something the Government will be taking up in the future but not this week or next week.”

But would you expect the Anglo tapes have it difficult for Ireland to exit the Programme?

“I don’t see that.”

First published 9.30am