Premature evaluation: when local relationship banking attacks!

Following up on the last post, here’s a quick review of Simon Carswell’s Anglo Republic: The Bank that Broke Ireland.

Anglo Irish Bank was the biggest, noisiest, brashest, and most extreme representative of the financial crisis in Ireland, and Anglo Republic is a carefully reported history of the bank and how it got that way. One of the real standout points in it is that Anglo was the relationship bank par excellence.

Relationship banking is often seen as a good thing that we need more of, counterpoised to faceless trading-floor turbo-finance. But relationship banking was precisely what Anglo did. Anglo tended to keep clients for many years, to involve itself deeply in their businesses, and to go to extraordinary lengths to serve them. It would also take risks to win or retain them. Its unique selling point was that it would do anything to get your deal done, and it would do it quickly. They frequently closed property transactions up to a billion euros within the week. In exchange for this, its clients put up with interest rate spreads and fees that were much higher than its competitors’.

This raises a second point, which is that you know it’s a bubble when capital gains come in so fast that changing the interest rate is irrelevant.

The relationships it served so fanatically were, to the exclusion of almost all else, with property developers. Anglo bankers may have thought they were something like a local German or Italian bank serving the local speciality industry. From the outside, though, the bank was a ferociously geared-up bet on property in general, and Irish residential and UK commercial property in particular.

There was also another kind of relationship they carefully cultivated, specifically, corrupt ones. There is just an endless flow of people whose relatives turned up on the other side of the table, or in politics, or in the regulator or the central bank. Carswell tackles this with understated sarcasm and careful inquiry. He also deals with the political, class, and sectarian issues involved with delicacy and good prose. I liked the remark about the bank’s brand, in which he notes that although Anglo’s advertising sometimes implied it was an Anglo-Irish, and therefore aristocratic, company, “Anglo Irish in fact never used the hyphen”.

Its CEO, Sean Fitzpatrick, may have resisted selling the bank to Bank of Ireland because BoI was, in fact, an Anglo-Irish or at least Protestant company. However, the source for this is the same guy who suggested guaranteeing the whole liabilities of the banks, so take it as you will.

Carswell is also good on the financial guts, for example, on the key relationship with Sean Quinn, property developer and their whale client. Quinn was a huge borrower from the bank, under several different company names, a major depositor in the bank, and a shareholder in the bank. After his disastrous speculation in contracts for difference on the bank’s shares went wrong, Anglo was lending him money to meet margin calls, while at the same time worrying that he might no longer be good for the property loans, and also that if his broker had to sell him out, the stock overhang was so monumental that it might finish off the company.

Another detail that sticks out was that their private client operation largely existed to recycle some of the property capital gains into the bank’s funding, in essence juicing it with even more leverage, as most of its clients were themselves Irish property developers. If they weren’t the bank’s own executives, that is. The bank often structured property transactions so that some of its private clients could take some of the equity, somewhere between an investment banking and a brokered deposit model. This helped set up some of the transactions for tax purposes, but it mostly created an opportunity for Anglo executives to buy in. Inevitably, they tended to do so by borrowing from the bank.

Golf plays a special role in the book. Anglo was dedicated to the belief that nothing built relationships like golf, and it constantly took borrowers, depositors, competitors, regulators, analysts, journalists, and random members of Westlife* golfing. It took Irish-American clients and investors to Ireland to play golf, on courses owned by other clients, and then took its Irish clients to meet them while golfing. It gave away as much as €200,000 worth of golf balls a year. Carswell includes a table of spending on hospitality by type. Golf even surpasses drink in it, and there was plenty of that too – one banker recalls deciding to drink only bottled beer at Anglo events in order to stay relatively sober, and being told that “This is Anglo and you drink pints.” That said, at least Sean Fitz didn’t prepare for an appearance before parliament by following a vapour trail of meth and crack all the way around Grindr, like the CEO of the Co-Operative Bank, or if he did we don’t know.

Very often, the business discussed on the golf course was the creation of further golf courses. Not rarely, the clients who golfed their way to a giant loan to build a golf course got the loan because they also played golf with Bertie Ahern and could therefore help Anglo with other issues, for example, getting planning permission for golf courses. One wonders if the point of golf, anthropologically speaking, is to demonstrate that you have well-watered land to waste on totally unproductive activity.

Another interesting point is the role of good old Rabobank, famously the safest and most conservative financial institution in Europe and possibly the world, and all savey and nearly German to boot. Except when it spent ages and millions of money trying to buy not just Anglo but other gamey Irish property lenders as well, and in retrospect only avoided pulling an RBS by good fortune.

*Not actually random at all, but you’ll have to read the book.

6 thoughts on “Premature evaluation: when local relationship banking attacks!

  1. Pingback: Link 11/18/13 « naked capitalism

  2. I guess the follow up to my question on the previous post is that part of the answer is that you have to get the property bubbles under control, to stop money just leaking away into it… Could be tricky in London…

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