
The best forensic account: Anglo Irish Bank's loan book, the Quinn stake and the guarantee night.
Carswell, finance correspondent of the Irish Times, wrote the account of Anglo Irish Bank, the commercial property lender whose collapse required a state guarantee that transferred its losses to Irish taxpayers and forced Ireland into an international assistance programme.
The business model is the substance. Anglo lent almost exclusively to property developers, on relationships rather than on formal credit process, with decisions made quickly by a small number of senior people including Sean FitzPatrick and David Drumm. It funded itself increasingly in wholesale markets rather than from deposits, which meant it depended on continuous access to funding. Loans were frequently made on the developer's personal guarantee and on the value of the development rather than on cash flow, and the same small group of borrowers appeared repeatedly across the loan book. Carswell documents the concentration, the roll-up of interest, and the growth rate, which was the highest of any European bank for several years and which the regulator treated as a success.
The scandals follow from the model. FitzPatrick moved personal loans off the balance sheet at each year end so they would not appear in the accounts. Anglo lent money to ten clients to buy its own shares in order to unwind Sean Quinn's contract-for-difference position, which had built a large hidden stake. Irish Life and Permanent placed deposits with Anglo at year end that Anglo simultaneously matched, inflating the reported deposit base.
Carswell reports rather than analyses, and readers wanting the macroeconomic account of the Irish crisis should look elsewhere. The book was written before the criminal trials concluded. The description of how a concentrated relationship lender funded by wholesale markets fails is precise and generalisable.
Investors and risk managers in banking and commercial property who want a detailed post-mortem of concentrated relationship lending funded in wholesale markets.
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