Bank feared ‘dangerous adversary’: ThePost.ie


TCH Archives > Sunday Business Post > 2006/12/24 > Bank feared ‘dangerous adversary’

Bank feared ‘dangerous adversary’
Sunday, December 24, 2006 - By Simon Carswell
Mr Justice Michael Moriarty used a football analogy to describe Charlie Haughey’s fractious relationship with his bank, Allied Irish Bank (AIB), in the 1970s.

In his report, which was published last week, Moriarty compared the bank to ‘‘an ineffectual football referee who, faced with continuing fouls by an unruly player, does no more than tell that player that, unless he stops, disciplinary action will be taken, but no more’’.

In other words, AIB threatened to reach for its pocket, but never contemplated showing Haughey a red - or even yellow - card. Moriarty concluded that the £393,000 which AIB forgave Haughey in January 1980 of a total debt of £1.143 million amounted to ‘‘an indirect payment or benefit equivalent to a payment’’.

In effect, the bank was just like the many other donors who contributed a total of £9.12 million - or the equivalent of €45 million in today’s money - to Haughey between 1979 and 1996. It is clear that the only reason AIB reached the settlement and agreed to write off 34 per cent of Haughey’s debt - thus making an indirect payment - was because he was taoiseach.

Taking on a man of Haughey’s stature could lose AIB a lot of friends and customers, or so the bank thought. The settlement ended a difficult chapter for AIB, which had been battling with Haughey to reduce his debts for the best part of a decade.

Haughey had been living lavishly, well beyond his means, at AIB’s expense, running a large mansion and stud farm in north Co Dublin. In December 1979, political expediency forced him to try to sort out his financial difficulties with AIB.

He had reached the pinnacle of his political career, and it was only then that he accepted that a taoiseach could not owe more than £1million to a bank.

It did not seem to be an issue when he was a TD and, subsequently, a minister.

The stakes had become too high for Haughey. Bankruptcy would compel him to relinquish his Dail seat, and news of his massive debts could provide ammunition for his political enemies, or even ultimately force him out of politics.

During negotiations to settle Haughey’s AIB debt in the early 1980s, Des Traynor, the politician’s bagman, had offered the bank £600,000 in final settlement, stating that there were ‘‘no rabbits to be pulled out of hats or blood to be got out of turnips’’. The bank declined the offer.

It was stated on the bank’s behalf that, if Haughey’s debt was reduced to £200,000, the bank would write this off, but could go no further, said Moriarty, ‘‘lest there be questions by their auditors’’. But the bank did go further - as far as £394,000.

Did the auditors ask questions?

It clearly wasn’t an issue in the end, given that the settlement was approved at the highest levels of the bank.

Moriarty also points out that AIB separated the interest owing on Haughey’s overdrawn account from the account itself ‘‘with the intention that it would not be taken into account in the bank’s profits’’.

Haughey was a problem customer, but AIB couldn’t let it eat into its annual profits. Haughey’s debt was not immaterial to AIB. In 1979, the bank made profits of £26 million, so Haughey’s debt represented about 4 per cent of the profit that year. Despite that, the bank in the end settled cheaply and easily.

It claimed that it was backed into a corner by a difficult customer and that it secured the best deal that it could in the circumstances.

But in reality it was a combination of factors that forced the bank to cave in.

Haughey had childlike mood swings in his dealings with AIB. At one point, he had thrown a tantrum when his bank manager tried to confiscate his chequebooks over his extravagant spending. This created an awkward scenario for AIB, but hardly left it fearing Haughey.

However, it was his threats of becoming ‘‘a troublesome adversary’’ if the bank crossed him that made the bank think twice. This threat increased as Haughey’s political star rose.

He had even offered the bank the carrot of a £10 million deposit from an Iraqi bank (then controlled by Saddam Hussein) and his connections to be used by the bank to attract new business.

Perhaps some of the mystery money that Haughey received originated from the Middle East - we are none the wiser because the tribunal could only identify the sources of well under half the £9.12 million he received in a 27-year period. The threats and talk of powerful friends clearly concerned AIB. Moriarty found that the bank had ‘‘shown a clear reluctance to confront a consistent pattern of drawings in excess of sanctioned limits on the part of Mr Haughey’’.

Any warnings issued by the bank to Haughey fell on deaf ears.

To AIB, Haughey was a KBI, a key business influencer, bank-speak for a VIP. But instead of being a banker’s dream, he was a nightmare, as borrowings rose. ‘‘If you owe us £1,000, it’s your problem; if you owe us £1 million, it’s our problem,” was how Moriarty put AIB’s predicament during the tribunal’s hearings.

When Haughey ignored the rules set on his account by the bank, Moriarty said AIB was happy to ‘‘confine its response to an expression of disappointment, with a conclusion that ‘all in all, we have little option but to let matters run’.”

Notes of meetings with Haughey showed that the bank recognised the potential of his political ambition. Nonetheless, it was very peculiar behaviour for the state’s biggest bank and one of the country’s most powerful companies.

In the autumn of 1979, when it looked like Haughey might win the Fianna Fail leadership battle in December 1979, everything changed - both for the politician and the bank.

When Haughey was elected taoiseach, he was under huge pressure to clear his debt.

‘‘His new office made clearing the debt important and the far from unanimous nature of the leadership contest added to the scrutiny that he would be under,” said Moriarty. ‘‘He was under hourly and intense political pressure, of such a nature as to imperil his very continuance as taoiseach, and compared to this, the debt appeared of minor importance.”

It still needed to be cleared, however. Haughey was always fearful of being exposed. Years previously, he had refused to borrow money from ACC Bank to reduce his AIB debt because a senior member of that bank had connections with Fine Gael, and Haughey was feared that his indebtedness would leak out.

When the debt was exposed - albeit three years after it was settled - the bank issued a press statement, attacking as ‘‘outlandishly inaccurate’’ an article by financial journalist Des Crowley in the Evening Press in January 1983 which said that Haughey had been heavily in debt to AIB the previous year.

Crowley may have got the year wrong in the article, but its substance was accurate and he was bold enough to write it based on what he heard from his loquacious sources within AIB. They were more than willing to natter with the reporter over drinks, but were never willing to provide back-up documents.

Moriarty concluded in his report that the bank’s press statement was ‘‘unhappy, misleading and inaccurate’’, and ‘‘disingenuous in the extreme’’.

The press release ‘‘reflected an appreciable degree of sensitivity on the part of the bank in relation to the disposal of Mr Haughey’s indebtedness’’, said Moriarty.

The issuing of the press release confirmed that Haughey’s office as taoiseach ‘‘impacted on the settlement’’ with the bank. Perhaps the bank really did fear Haughey’s threats of being a ‘‘troublesome adversary’’, if the politician believed that the information about his finances in Crowley’s article had been leaked by sources within the bank.

AIB had no intention of taking on Haughey for the full £1.143 million, fearing how his supporters and voters (its customers) around the country might react to a move by the bank against their leader and favourite politician.

It is worth noting that the Evening Press article appeared at a time when Haughey’s political fortunes were at a low ebb, when there were open revolts against him within Fianna Fail. AIB’s false statement rubbishing the Evening Press certainly bolstered Haughey’s position.

It also caused difficulties for Crowley. His credibility as a journalist was tarnished. ‘‘It stopped me getting a staff job as a journalist for two years,” he said. He has now been fully vindicated by the report of a government-appointed tribunal, even if the vindication has come 23 years later.

Had the bank confirmed Crowley’s story immediately after it was published, Haughey might well have been shown a red card by his party and supporters in 1983 - long before his ignominious departure from the political pitch in 1992. But Haughey was considered too great a player in the 1980s.

Haughey’s relationship with AIB features in Something Rotten: Irish Banking Scandals by Simon Carswell, which was published recently by Gill & Macmillan.