Merrill Lynch, the US investment bank, advised the government about the dangers of introducing a full guarantee of the banking system and was not involved in the final decision to guarantee the banks, it said in a statement to the Oireachtas banking inquiry yesterday.
A statement provided by Sally Burke, legal counsel for Merrill Lynch, said that no member of the bank’s advisory team was at the Department of Finance on September 29, 2008, when the decision on the guarantee was made. Ms Burke said the bank was only made aware of the move at 3am on September 30.
She said: “The only communication with Mr Kevin Cardiff, Mr William Beausang or Mr Brendan McDonagh [from the Department of Finance] was an email from Mr McDonagh to a member of the [Merrill Lynch] team at 1.30am which said that the NTMA [National Treasury Management Agency] would be seeking advice on how to deal with rating agencies and institutional investors.
“However, there was no information regarding which option was to be pursued. There was then a phone call from Mr Cardiff to Henriette Baldock [a member of the Merrill Lynch advisory team] at approximately 3am on the day of the announcement, in which Mr Cardiff informed Ms Baldock of a draft press release regarding the announcement of the guarantee. Ms Baldock was sent the text of the announcement at 4am and it was released at 7am,” she said.
There were 17 members on the Merrill Lynch advisory team, hired by the Irish government in September 2008 for advice on the banking system’s mounting problems. However, Ms Burke said that only a small number of these individuals still worked at the bank, so the information supplied had not been comprehensive.
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The team met Brian Lenihan, the former finance minister, and senior representatives from the Central Bank of Ireland and the NTMA on 25 and 26 September. It then made a number of recommendations based on the information collected.
“The presentation noted that the advantages of the guarantee were that it was the most decisive and impactful decision from the market’s perspective, it would stem outflows and may result in inflows, and it would protect senior and subordinated creditors. However, the presentation noted that there were a number of disadvantages associated with the guarantee, such as whether the market would find it credible given its scale, the question of whether the Irish government could afford the guarantee, the impact it may have had on Ireland’s credit rating, whether it would pass the test with other EU countries, and the question of how long the guarantee would have to last.”
Merrill Lynch also advised the government to take into account whether Irish Nationwide Building Society and Anglo Irish Bank could be taken under state control, Ms Burke said.
It advised against letting an Irish bank fail on the basis that it posed too great a systemic risk not just to the remaining Irish banks but also European banks.
In a separate statement, Matthew Elderfield, the former deputy governor of the central bank , noted that there had been a number of regulatory failures both at a domestic and an EU level in the years leading up to 2008.
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Reforms had been introduced since then, he said, but more should be done to tackle white-collar crime.
“The inquiry could also consider what measures are required to improve the Irish public authorities’ response to white-collar financial crime. The track record of the Irish authorities should be stronger, encompassing not only the central bank, but also the gardai, DPP and ODCE,” he said.
Mr Elderfield said that a committee should be set up, headed by a judge or former attorney-general, that would look at what reforms were needed to restore public confidence in the enforcement system.