Ireland’s Financial Crisis: the Bankers Who Caused it
Ireland’s economic troubles threaten the financial health of Europe and even the U.S. At the heart of the multibillion-dollar crisis are two highflying bankers who some say took the country for a ride.
Ireland’s economic troubles threaten the financial health of Europe and even the U.S. At the heart of the multibillion-dollar crisis are two highflying bankers who some say took the country for a ride. By Niall Stanage
Ireland was hailed as an economic miracle not so long ago. Now, it’s an economic basket-case that threatens the financial health not just of Europe but of the U.S. as well.
But the outsize role of two men in this financial meltdown is a little-known story offering a salutary lesson about the dangers of greed, groupthink, and lax regulation as anything that has taken place on this side of the Atlantic.
Sean FitzPatrick was the CEO of Anglo Irish Bank from 1986 to 2005. At that point, he assumed the chairmanship, and David Drumm, his protégé, became the bank’s leader.
The two men built the bank from a tiny operation—it had eight employees when FitzPatrick took over—to something that looked like an international powerhouse. Looks were deceptive. The bank would be its nation’s downfall.
During the boom years, Anglo expanded its market share by reckless lending, especially to property developers. More established, conservative Irish banks began to ape some of the same tactics to ward off the new contender. Then, the property bubble popped and the whole house of cards tumbled.
The Irish government took control of Anglo in January 2009. It has been hurling taxpayers’ money into an apparently bottomless pit ever since. Irish Finance Minister Brian Lenihan originally estimated the cost of propping up the bank at $6.1 billion. He admitted two months ago that it would actually be between $39.8 billion and $46.7 billion.
The price tag has propelled Ireland’s deficit to hitherto unimaginable levels—and this, in turn, now necessitates international intervention.
“The banks are gobbling up the state,” is the verdict of Martina Devlin, an Irish newspaper columnist and the co-author of Banksters, a 2009 book tracing the roots of the collapse.
“He is just considered a scumbag… I would think his life would be in serious danger if he came back here.”
Brian Lucey, a Trinity College, Dublin finance professor, says that the feeling on the streets of the Irish capital is that “the republic has been raped, torn apart” by the bankers and their political friends.
At the heart of the rapaciousness, at least in the public mind, are FitzPatrick and Drumm.
FitzPatrick was once one of the heroes of Celtic Tiger Ireland. An ebullient former accountant with a fondness for bowties, he was known as “Seanie Fitz” to his many social acquaintances. For those on the way up, FitzPatrick was someone to whom it was useful to pay obeisance.
Devlin recalls seeing the banker’s aura in full effect at a 2007 charity function.
“It really was like the parting of the Red Sea,” she tells The Daily Beast. “People actually did step aside for him.”
FitzPatrick knew some things that the general public did not—notably, that he held personal loans amounting to well over $110 million from the bank. He used the money to finance a host of exotic ventures: a share in a Nigerian oil well; an interest in a casino in Macau; a property investment in Budapest. There were even plans to get into the movie-financing business.
The eventual discovery of these loans precipitated FitzPatrick’s departure from the company in December 2008. David Drumm followed him out the door the next day.
Prior to becoming CEO, Drumm had made his name at Anglo by expanding its U.S. business. Drumm did not share FitzPatrick’s taste for the limelight but he was just as aggressive about growing the business.
The attitude was apparently widespread at Anglo. During a court case in April, an Irish property developer, Michael Daly, described how the company was “extremely anxious” to lend him money during the boom years, in the process allegedly dismissing the need to secure large loans as “a formality.”
The duo’s downfall has had its share of drama. Irish police arrested FitzPatrick in March this year, though he was released without charge soon afterward. In July, a Dublin court took 12 minutes to declare him bankrupt. Around $95 million of the loans he took from the bank have never been repaid. (Calls and emails to a lawyer identified in previous media reports as representing FitzPatrick were not returned.)
Drumm has embarked on a more circuitous path. Anglo says that it is owed around $11.5 million by him. When negotiations over a settlement broke down in Ireland, he filed for bankruptcy in Massachusetts, a move widely seen as an attempt to frustrate the bank.
Drumm has considerable assets in the area, though at least one residence in Wellesley, a tony Boston suburb, is owned by a trust, thus shielding it from repossession. He also owns a home in Chatham on Cape Cod, which is valued at around $3 million.
Drumm’s pushback against the bank received a boost this week, when a court-appointed official in charge of overseeing the bankruptcy process claimed that Anglo acted fraudulently in its dealings with him. Still, many Irish people look askance at Drumm’s efforts, which include an attempt to countersue Anglo for causing him mental distress.
“It shows an extraordinarily brass neck,” says Martina Devlin.
The imminent international bailout, meanwhile, is a source of real desolation to the citizens of a nation that, not so long ago, seemed to have finally transcended its impoverished history.
Killian Forde, a Dublin city councilman and a member of the opposition Labor Party, described the scene in one quintessential Irish setting on Wednesday evening.
“I went to the pub and there were only about 10 or 15 people there, because people don’t have the money to go to the pub anymore,” he said. “But the ones who were there were hopping mad. And behind the anger, there was just this sense of failure—total and utter failure. People kept saying: ‘This is pathetic.’”
Forde is among those who note that every scintilla of blame cannot be put on FitzPatrick and Drumm. He says that the banking crisis has shined a light upon “just how small Ireland is, and how interconnected the bankers are with the politicians.”
Brian Lucey, the Trinity College professor, also wonders if part of the anger directed at FitzPatrick is rooted in a kind of national self-disgust about the way avarice took hold in the boom years.
“When we hold a mirror up to ourselves, we see Sean FitzPatrick’s face looking back,” he says.
Still, there is no mistaking the depth of public rage. In May, an effigy of FitzPatrick was burned on the streets of Dublin. Forde says he believes that David Drumm is now held in even greater opprobrium—if such a thing is possible—because of his departure to the U.S.
“He is just considered a scumbag,” he says. “I would think his life would be in serious danger if he came back here.”
In 2007, Sean FitzPatrick, then seen as a leading captain of industry, complained publicly about governmental interference and “McCarthyism.”
“The tide of regulation has gone far enough,” he protested. “Our wealth creators should be rewarded and admired, not subjected to levels of scrutiny which convicted criminals would rightly find intrusive.”
In Ireland, as in the U.S., the debate about who the real criminals are may be only just beginning.
Niall Stanage is a New York-based, Irish-born journalist and the author of Redemption Song: An Irish Reporter Inside the Obama Campaign (Liberties Press, Dublin).