The Committee of Inquiry into the Banking Crisis is now resuming in public session. Can I ask members and those in the public Gallery to ensure that their mobile devices are switched off? Our final hearing of this evening is with Mr. Tom Browne, former director of Anglo Irish Bank. Mr. Browne was a director of Anglo from 2004 to November 2007. He joined Anglo in 1990 and was a member of the Dublin lending division from 1990 to 2000. He retired from Anglo in November 2007 and stepped down from the board at the same time. Mr. Browne, you are very welcome before the committee this evening and thank you for your co-operation in being here.

Before hearing from the witness, I wish to advise the witness that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If you are directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to do so, you are entitled thereafter only to a qualified privilege in respect of your evidence. You're directed that only evidence connected with the subject matter of these proceedings is to be given. I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of this inquiry which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings.

Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right. Members of the public and journalists are reminded that these documents are confidential and they should not publish any of the documents so displayed.

The witness has been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee and will be relied upon in questioning and form part of the evidence of the inquiry. So, with that said, if I can now ask the clerk to administer the oath to Mr. Browne, please.

Okay. So, welcome again, Mr. Browne and if I can invite you to make your opening remarks to the committee, please.

Thank you, Chairman. Good evening, ladies and gentlemen. I have been a career banker, starting with AIB in 1979 where I worked in various branch banking and head office departments. In 1990, I joined Anglo Irish Bank as lending manager in its Dublin branch. I was promoted to divisional head in 1997. In November 2000, I resigned from the bank to join the Devey Group as chief executive. The Devey Group was a Dublin-based health care, hospitality and property group with business operations in Ireland and Portugal. After approximately 11 months with the Devey Group, I was approached by the Anglo CEO, Seán FitzPatrick to rejoin the bank. I returned to the bank in February 2002 to establish a new division in the bank called the wealth management division. The wealth management division was an amalgam of various private banking operations in Dublin, London, Vienna, Geneva and the Isle of Man. In January 2004, I was appointed as an executive director to the board of the bank. In January 2005, I was appointed head of lending Ireland as part of significant management changes introduced by the newly appointed CEO, David Drumm. In April 2007, I advised Mr. Drumm and the chairman, Mr. FitzPatrick, of my intention to leave the bank with the announcement of my departure being made to the Stock Exchange on 4 September 2007 and set up a new business LeBruin, which is a corporate finance and debt advisory business now employing 20 people in Dublin, Galway and London. I welcome the opportunity to be of assistance to the inquiry.

Given that I left the bank at this time, I can only be of limited assistance on what happened in the last quarter of 2007 and through 2008 when the bank experienced growing pressures and issues, which culminated in the Government guarantee and, ultimately, the nationalisation and State bailout of the bank.

The inquiry has provided me with core documents. I have, however, not had any insight into the workings of the bank itself since I left in 2007. I will, again, however, do my best to be of assistance to you.

When I left the bank in 2007, I firmly believed that the credit approval process, the loan review process, the ongoing reviews of credit policies and the developing risk function within the bank were sufficiently robust to provide early indications of problems in the loan book to the executive team, the board and to the Financial Regulator. Over the ten years to 2005, Anglo Irish Bank had transformed from being a small player in the Irish marketplace to becoming a serious player in terms of market share in chosen segments in Ireland, with a growing business in the UK and an emerging business in the US. This performance in Ireland was driven by a number of factors: a very active, long-standing client base, many of whom had become the leading players in the property development and investment sectors; very strong customer loyalty across the core client base, which ensured a high level of repeat business for the bank; and an economic environment with low interest rates and wholesale bank funding at unprecedented levels. The success of Anglo over the ten-year period to 2005 was reflected not just in the growth of the loan book, but also in year-on-year increases in earnings and a strong market rating recognised by reputable international agencies such as Oliver Wyman who, in 2007, named the bank as the best performing bank in the world over the previous five years.

Due to this comparative success and to the prevailing economic conditions, competition in the mid-2000's began to significantly intensify. This competition came from existing universal banks in Ireland and from emerging foreign lenders in the market. For example, AIB bank established what they called win-back teams to target former clients who'd moved their business elsewhere, or existing clients who were multi-banked. Emerging players, such as Bank of Scotland Ireland, ACC Bank and Ulster Bank, all competed very aggressively to wrest market share from existing banks, including Anglo. All of this led to an avalanche of credit in the marketplace. The timing of the Savills launch could not have been worse. Asset values rocketed, signs were emerging of a property bubble and, while the general consensus was that the market would have a soft landing, the emerging evidence indicated a serious potential problem.

In early 2006, the Anglo board decided, on the basis of management advice, to change its lending policy reflecting the concerns we held about the acceleration in asset values and given the growing intensity of competition. A decision was taken that no new clients with development funding proposals would be entertained. The bank would exclusively deal with existing customers with a deal carrying an acceptable level of risk. This policy change became widely known in the marketplace and, indeed, some competitors played on this in their tactics to attract new development business. This policy change was Anglo's attempt to curtail activity in this sector of the market, which, clearly, had begun to overheat. On reflection, the motivation for this policy change was entirely correct; however, the policy itself was seriously flawed because it did not go far enough. We continued to support our bigger existing clients who continued to be active in the market, which led to very large exposures to a concentrated number of clients. The lending proposals at that time all met the acceptable levels of risk. These proposals were from long-term, proven operators, each with a depth of expertise and capability to deliver successful projects time and again.

Yet, with the benefit of hindsight, the failure to more forcibly implement the policy decision taken in early 2006 together with the shortcomings in the policy itself was a serious mistake. The consequences of this mistake became very clear when the property market in Ireland collapsed, resulting in very significant losses for the bank. The bank should not have defended its position with its biggest borrowers against the intensive competition in the market to the extent that it did. This defence led to unacceptable exposures concentrated on a relatively small number of customers, and no matter how professional and capable these customers were, the concentrated risk profile which resulted from this defence was to put the bank's loan book at an unacceptable risk.

Regarding the funding of the bank during this period, I did not experience that funding was under pressure prior to my departure from the bank. Through the early part of 2007, wholesale corporate and retail funding had held up well and the performance of the bank in attracting new funding was very good. There was no indication of stress. However, the pressure which emerged ultimately, post the Northern Rock issue, demonstrated that the funding base was not sufficiently wide, deep or stable to underpin the scale of the loan book. It also since emerged that at the time of my departure from the bank, Seán Quinn had a sizeable position in the bank through CFDs, contracts for difference. I was not made aware of this, although other board directors of the bank were. Although Seán Quinn's CFD position would go on to cause difficulties for the bank, it would not, however, be appropriate for me to make any further comment on this matter because of ongoing legal proceedings.

When I left Anglo, I genuinely believed that the bank was solvent and liquid. Indeed, a thought that a liquidity or solvency issue would emerge was alien to me. I did not see a threat to the long-term viability of the bank as I left the bank in 2007. I was a senior executive and an executive director of Anglo until 2007. Given what ultimately happened and the consequent impact on so many people, staff, customers, shareholders and the State, I deeply regret my own role in the building of the loan book to what became an unsustainable, overly concentrated scale. Thank you.

Thank you very much, Mr. Browne, for your opening remarks.

Could we have clarification as to when Mr. Browne, exactly, left the bank?

My announcement was on 4 September 2007 to the Stock Exchange, and I physically departed out of the bank, probably, over the following four to five weeks.

Thank you.

Thank you. Deputy Murphy.

Thank you, Chairman, and thank you, Mr. Browne. You're very welcome.

Thank you.

I'd like to begin with the performance of the board, if I may. There was a board review undertaken by external consultants in 2003 and this review noted that some directors felt that the board pack "fails to ignite debate on important issues". The report also notes that many directors expressed a "frustrating need for more debate on strategic issues". When we come to the Nyberg report in 2011, when speaking about Anglo, it says, "There is little evidence that board directors at the time were active in challenging the bank's approach or its pace of lending growth". And, again, many of these observations were also reflected in a board evaluation that was carried out in November-December 2007. Do you agree, or not, with these observations?

Again, the first report, obviously, would have been carried out before I became a board member. I didn't become a board member until early 2004.

But, would that have been your impression of the board when you arrived?

No, it wouldn't have been.

"Fails to ignite debate on important issues ...many directors expressed a frustrating need for more debate on strategic issues."

I would have always seen the board as a very open, transparent gathering. I never felt, over the couple of years that I was there, that there was any fear of any of the non-executive directors asking any hard questions in regard to any matter pertaining to the business of the bank.

But, do you think that the level of debate and challenge to management of the board was sufficient then from the non-executive directors?

Again, you know, as I said, the atmosphere of the board is very much an open, transparent process, and I never felt that any of the non-executive directors were afraid to actually, kind of, ask any far-reaching questions in regard to any aspect of business.

So, when you came onto the board, though, was there any reference made back to this external consultants review from 2003 on the strategic management committee, was any discussion of how you might improve the board packs, improve debate at the board level?

Well, the board packs were being improved the whole time in terms of the level of information that was being given, so there was continuously upgrading of all the information on an ongoing basis from various aspects of the business. And, again, going back to my point, I never felt there was anything but a very transparent, open environment in terms of discussion around any issue relating to the activities of the bank during my period on the board.

Okay. When Mike Aynsley was before us, he said that the committee structures was not as effective as they could have been, and he was aware that a board within a board existed. Can you comment on this in a general way, please?

Can you just clarify ... what do you mean by that?

Mike Aynsley talked about this idea of a board within a board existing at Anglo.

Again, you know, during my period of time on the board, I never got a sense that there was anything but a very transparent, open process around the board table, and I wouldn't have got a feel ... I wouldn't have got a sense that there was a, kind of, a board within a board during my period of time there.

Okay. The Nyberg report also talked about Anglo having insufficient checks and balances - "Traditional risk evaluation procedures and risk mitigants were not implemented in practice", and that governance also "fell short of best practice". What do you say to that? Do you agree with that?

Again, if you go back to the risk function in terms of how the risk function evolved over the years as the bank grew, I would have felt the risk function was very much on top of its game in terms of actually, kind of, being on top of the loan book.

The bank was growing, you know, in three jurisdictions - Ireland, the UK and in America - and the risk function was staffed up by high-quality people, from within and new hires from other banks, so I would ... Deputy, I would have always felt that the risk function, in particular, was ... you know, it ... it was growing in tandem with the bank. You know, the management structure they put in in regard to watch lists where the ... you know, every manager had his watch-list case, which was actively managed by the managers ... I would have always felt the risk function was very much on top of their game in terms of management of the overriding risk in the bank.

So is Nyberg incorrect when he says that governance fell short of best practice in Anglo Irish Bank?

You know, again, I'd ask the question, "What does that actually ... you know, what does he mean there?" You know, in what context is he saying the governance ... you know.

Have you read the Nyberg report?

I haven't read the Nyberg report.

Okay. Would you have a ... okay, if you haven't read it, I'll move on from that. If you could, just briefly describe to me the corporate culture of the bank during your period on the board.

The corporate culture of the bank was very much ... you know, it was a very inclusive bank. It was a, you know, ... it was a very from the, kind of, top-down in terms of, the bank was very much on the one-way street in terms of what it was doing. It was very focused in terms of what it actually ... it did. You know, the board was very aware of, actually, kind of ... the actual ... the issues around the ongoing activities of the bank, no matter what area of the bank, and any ... and there was always encouragement to actually ... to flag any issue of concern to the board early, and that was very much the mindset, you know, within ... across the board table, that if there was a concern, if there was an issue, bring it up earlier and make the board aware of it.

How often would the board have social occasions, a dinner, for example, where it would bring in someone from outside of the bank to engage with them, maybe make presentations in an informal way? We have heard here before about a dinner at Heritage House, at which the former Taoiseach attended. Those kinds of engagements ... were you party to any of those types of dinners with the bank engaging with people from outside of the bank?

Yes, like, you know, there would have been one or two occasions every year. Somebody from, you know, the industry expert or, you know, from financial markets would have been brought to a, you know, a luncheon or a dinner after a board meeting and would have given their view in terms of the relevant topic of expertise. So that was kind of ... that was something that happened on a regular enough basis.

The purpose of those occasions was to hear from the outside experts-----

Yes, exactly.

-----to speak to the board.

Yes, exactly, to give their view in terms of, you know, whether it was the property market or whether it was the financial markets, you know, in terms of actually giving their view of, kind of, of something that the bank felt was a relevant topic.

Were you ever at a dinner or a luncheon where a politician attended?

No, I don't remember. Yes, I don't because, again, that one you referred to happened after I left the bank.

Okay.

You know, we ... for example, there was ... you know, there was, I think, a couple of lunches where the Financial Regulator attended it. You know, I remember that one, okay. That was back in 2006, maybe.

Was that a lunch or a dinner, do you remember?

I think it was a lunch, Deputy.

And the purpose would have been to hear from the Financial Regulator about-----

Yes, exactly, how ... you know, because what was, kind a, going on in terms of actually the whole regulatory environment around Europe and locally in terms of the impact it was going to have.

Okay.

I think that was ... I think, John Hurley was the man-----

Okay.

-----at the time.

Okay. Moving on from that to your role as managing director for lending, Ireland, can you tell me a bit about the lending culture under your stewardship because Mike Aynsley also told the committee about a story that was related to him about an auction as a way of illustrating the culture and the lending practices in the bank prior to the crisis? This is what Mike Aynsley said to us, and he is talking about someone speaking to him about an auction:

And [the person] said, "I don't know how they found out about it but I was at an auction one morning and a fellow came up and he handed me an envelope, and it was an Anglo Irish Bank envelope, and I opened it up, and there was a cheque inside, which represented slightly more than what the deposit would be and it says ... a note attached saying, 'Just in case you need the deposit'.". So, you know, this is the mindset at the time. It was to go out there at all costs ...

Do you recognise that?

I would absolutely refute that story. That would never have happened, in my view. I'll give you another example of an auction that I attended. In early 2006, when the bank had brought its new policy in place, I attended an auction on a property, which was guiding somewhere in the region of €10 million, in terms of its guide price, and it sold for something in excess of €30-odd million at the time, and I remember coming back to the office and requesting my secretary to get all the lenders into the room because this was, kind a, further justification of the change of policy that we had just introduced, that the market had gone out of control. You know, people were way ... were paying way over the odds based on indicative pricing for assets, and that's the other side of the story where the bank was at in early 2006.

Okay, well, let's look at this change in policy. In the core booklets, in Vol. 1, page 121, is a map of Ireland. It's from a presentation from lending Ireland of 30 April 2007. You've seen this report in the booklets.

Yes, yes.

Yes, so that would have been compiled and put together while you were-----

Yes, it was done in April 2007, yes.

So you were involved in that.

Yes, that would have been ... that would have been ... that would have been of the new information that would have been developed over the couple of years.

There's a map here on page 121 and it is, "Total Drawn Land Balances - €5.29bn Loans by Location as at 30/04/07", and it is up on the monitor there in front of you - €2.7 billion in Dublin, a third of a billion in Meath, a quarter of a billion in Galway, a half a billion in Cork, and it is showing, for each county, the exposures. So was this map presented as a positive to the bank, to the board, to the directors? What was the purpose of this?

The purpose of this was to actually show the ... exactly where the exposures were in terms of land balance. Land was always, you know, the key issue of concern in terms of actually ... because if there was any correction in the market, your land values were the ones that were immediately going to be dramatically affected.

Okay.

And there was three elements in terms of ... you know, you had your unzoned land, your zoned land and land with planning permission. Your real risk category was your unzoned land because, you know, that was the one that, kind of, if markets had continued to actually ... had deteriorated, the value in regard to that type of land would eliminate overnight. So this, the purpose of this presentation, was to show the exposure, kind of, on a geographical basis.

So what was the point or what was the goal of lending Ireland at this point in time in relation to these figures? To reduce them, to increase them, to-----

No, no. The goal was, again, based on the new lending policy that was introduced in 2006, which was very much to curtail the activity in this regard. As I said in my opening statement, we could see from early 2006 that the market was getting seriously overheated.

But if you changed the policy in 2006, why did ... and, again, your internal report shows this, that development lending in Ireland accounted for 30.5% of total lending and that it increased by 50% in the previous 12 months. This is in the report of April '07. If the policy changed in '06, how could lending in Ireland increase by 50% in the following 12 months?

As ... again, as I said in my opening statement, is that we continued to support some of our bigger clients who were still remaining very active and that was the mistake that we made, that we continue to support a lot of these bigger clients in terms of the projects that they brought to the bank, and I think that was the mistake, looking back, that we made.

But 50% is ... I mean, if you recognised something in 2006 and the policy is to try and pull back - I understand the caveat that you put in there - but then to see it still increase by 50% in a 12-month period.

Well, I think it is a reflection of the fact where asset values were going. You know, again, going back to my point about, you know, we had a very active, you know, client base, they were the biggest players in the market and, unfortunately, we continued to actually support those players when we should have actually probably curtailed the level of lending to the bigger players in the market.

So that was a mistake.

Absolutely.

Okay. And just then to note that from September 2004 to September 2007 Irish lending grew by 284% - so that's €13 billion to almost €38 billion - and this was on loans advanced ... It was on loans advanced during this period that Anglo took its heaviest losses and you were MD of lending for most of this period, so what do you say to that?

Again, going back to the ... you know, again, the franchise ... you know, the franchise over those number of years was growing in terms of what ... it just wasn't property lending. We'd attempted to, kind of, broaden the base in terms of cashflow lending, M and A-type lending, corporate ... more corporate lending. So we'd broadened the base over those number of years. Again, going back to the point I made earlier on, we had a very active client base. We had a very high level of repeat business.

Sorry, how did you broaden the base? Excuse me.

How did we broaden?

Yes.

We were trying to move away from just being purely, you know, dominated by actually property lending.

We were trying to move into other areas of activity in terms of------

What kind ... what areas?

Cashflow lending.

Okay.

You know, mergers and acquisitions-----

Okay.

-----management buy-ins, management buyouts. So we were trying to actually, kind of, reduce the over-reliance on property lending.

And what was your view of 100% lending?

Sorry?

What was your view of 100% lending within the bank?

Well-----

Could you intervene in a process, in a lending process, to make sure that a developer, a borrower, would get 100% financing?

No, because, you know, that ... you know, that was, you know, the high-risk area, if you were giving 100% lending on development-type stuff you were ... you know, that was huge risk you were taking at ... you know, at that time, you know.

So you're familiar with the Applewood development in Swords?

Applewood in Swords?

Yes.

Yes.

Were you involved in securing that loan?

That loan was being done back in the ... probably sometime in-----

Just speak in the general if you can there, Deputy, now, okay.

Okay, yes.

Sorry?

I'm just-----

Just ... sorry-----

Just to be general.

Yes.

Mr. Browne.

Sorry, yes, I was aware of that project, yes.

Okay. And just in terms of the finance for that project or finance for projects at the time, in terms of 100% lending being done by the banks in terms of providing all of the money that was needed to secure the site, was that a practice in the bank?

No, it was a unique situation. That would have been a very much one-off situation.

A one-off situation?

Yes.

Okay. And you were involved with that.

Yes.

Okay. So how can such a situation arise in the bank with such strict lending policies as you outlined in your written statement?

Again, I think, if my memory serves, my ... that project would have been done ... that project could have been started probably ... would that have been back in the '90s?

I'm not sure about the start of the project.

Yes, I think it could have been, you know. But, again, I think it was a very unique situation where the bank decided to actually ... because of the actual promoter that was involved there, we decided, you know, to take that position and get involved in that scheme at that time, but it was a very much a one-off type situation.

And that decision was made by the board of the bank?

By the credit committee of the bank.

By the credit committee, not by the board?

Yes. No, it ... it would have been signed off by a non-executive director-----

Okay.

-----under a noting policy.

Okay. And what about the use of personal guarantees in the bank?

Again, the bank, kind of, always, you know, looked for personal guarantees. It was the one key ... one of the key tenets in terms of the way the bank did its business - always looked for personal guarantees from its borrowers.

Okay.

And in many cases, you know, people weren't prepared to give personal guarantees, and we weren't prepared to do the loan.

Okay. But there was an internal inspection report ... or, sorry, an inspection report done by the Financial Regulator in 2007 and one of the issues it highlighted was that the bank didn't have a mechanism for formally monitoring the overall extent of the loan book subject to personal guarantees. Why didn't it?

Well, every loan would have been subject to personal guarantee?

Okay. Every loan would have been-----

Yes-----

-----subject to personal guarantee?

-----because it was either ... it was either borrowed on a personal basis-----

Right.

-----or if there was a company situation, a personal guarantee would have been sought.

I see. So you didn't need to have a mechanism because it applied to every single loan.

No, because it applied ... it was ... and it was one of the key standards that Anglo was recognised for, that they always looked for personal guarantees.

Was that a mistake?

No, because the logic behind it was, is that the reason why you were looking for personal guarantees, that if you got into a difficulty with the client, right, you had leverage over the client in terms of the personal guarantee.

Okay.

I'll give you another five minutes but I just want to pick up on this point, Mr. Browne. There were propositions that people who gave personal guarantees gave personal guarantees to many financial institutions and when NAMA was auditing its loan book, when it took it on board, that was certainly something that was visible in the NAMA. So, while you were taking personal guarantees, were you also examining to see if the person who was giving you a personal guarantee hadn't already given a personal guarantee to another institution?

Yes. And one of the key things we would have done with our bigger clients in the latter years would have been we would have looked for, kind of, full transparency in their total bank obligations.

And did you discover or uncover situations where a personal guarantee was already in place with another institution and you did not issue a loan?

I can't remember that, Chairman, happening. Again, you would have been with, you know, with our bigger clients, the top ten, top 20. We would have, you know, in the latter years been looking at, kind of, their total banking obligations across all their banks.

Yes.

And we ... you know, in terms of actually ... it was a standard ... it was very much standard ... par for the course that we would look for personal guarantees.

Okay. Would you say that the examination of the exposure in personal guarantees in regard to cross-guaranteeing at a personal level was robust enough given where NAMA found themselves when they went and looked at the loan books?

Again, going back to my time there ... you know, to picture a moment in time in terms of where, you know, people's, kind of ... you know, the value of the personal guarantees, you know, back in 2005, 2006, 2007, you know, was significantly, you know, I suppose, greater than their debt obligations.

Okay.

Given where the balance ... their balance sheets would have at that moment in time, Chairman-----

Okay, that's not the question I asked you, Mr. Browne. The question is: given what came out in the wash when the loans were transferred into NAMA, and the level of exposure on cross-exposure on personal guarantees, do you think that the ... that the risk analysis of personal guarantees was sufficient enough in Anglo?

I think, again, it goes back to the case-by-case basis.

I'm not ... look, we know the paperwork transferred-----

Yes.

-----we know what the details of that show. Do you believe, given what NAMA then uncovered when they started looking at each of the books and the personal guarantees that were actually given, that Anglo's risk analysis of personal guarantees ... you say it was a ... it was one of your performing criteria, but when it was washed out and what was seen, was it ... do you now consider it to be robust enough or not?

Again, going back to my time there, Chairman, I would have thought, you know, we were looking at the ... you know, the cases on a case-by-case basis. We would have satisfied ourselves in regard to our position in regard to the loan and the personal guarantee.

Okay. I don't want to be repeating myself, Mr. Browne, but that's not the question I'm asking you. I'm asking you now ... we know what happened afterwards. Do you consider it now ... you're going back to then-----

Yes.

-----and that you think that everything was fine then-----

Yes.

-----and maybe it's fine now even in that regard. That's what was the ... the visible to you then. Given what's visible to you now, do you consider that the risk analysis of personal guarantees was robust enough?

Well, given what happened subsequent to that time, Chairman, you know, it would be clear to say that it wasn't robust enough, you know.

Okay. Thank you. Deputy Murphy.

Thanks, Chair. Mr. Browne, looking then ... continuing on this theme, and enforcement of security, NAMA reported that a downward adjustment of €477 million in aggregate was required to the value of the loans acquired from the participating institutions due to the difficulties with enforcement of security, and Anglo accounted for 57% of this total, €273 million. So can you explain why the discount applying to Anglo's loans in respect of difficulties with security was so high?

Again, you know, the process was that we would have engaged a solicitor, a firm of solicitors to put our security in place. That was always farmed out. We had a panel of ... two panels of solicitors, depending on the size of the deal. And a solicitor would be responsible for putting the security in place. So, you know, when you ... you know ... so on a case-by-case basis, there was individual legal firms appointed to make sure that the security was perfected. And it was the responsibility of the lending team and the banking administration team to ensure that the security was put in place. But, ultimately, the responsibility was actually ... was the role of the legal agent appointed by the bank in terms of perfection of security. And, again, you know, I don't ... it seems ... that when you say that figure, it seemed extraordinary high. You know, again it depends on, kind of, the individual aspects of each case. But it seems remarkably high to me, because again the process was very much, you farmed out your legal perfection work to an appointed panel of solicitors.

Okay. So you don't think this is indicative of a lax approach to taking security-----

No, because, again-----

-----by Anglo?

-----because the primary responsibility in regard to the taking of security was with the actual legal firm that was appointed-----

Okay.

-----to perfect it on behalf of the bank. So in that case then, you know, in ... based on your figures, there's a huge issue in regard to the quality of the work that was undertaken by those legal firms. So, you know, it was very much part and parcel of the actual process that the security was perfected by an appointed law firm acting on behalf of the bank. So that work then was, obviously, not done correctly by the individual law firm. And there should be, you know, there should be a ... you know, initial questions asked of those law firms in terms of why didn't they do their job properly.

Okay. And just-----

Thank you very much. Finally.

Final question, sorry. And it's just in relation to discussions at the board in relation to why the NTMA wasn't placing deposits with the bank. What was your view ... I mean, we have a view from Brendan McDonagh from the NTMA that they were always sceptical about the business model of Anglo and that the bank couldn't get deposits from the NTMA. And then, eventually, it did and the NTMA didn't want to keep those deposits with the bank but it had to because of a direction from the Department of Finance. So did the board discuss this and what was the view of the board?

I don't remember it ever being discussed at the board while I was there. My answer to that would be, you know, over the years that I was there the bank had a tremendous track record in terms of its ... its actual liquidity and fundraising. It always used to amaze me when you looked at the list of corporate depositors, you know, you had international firms across Europe, you know, with €700 million, €800 million, €900 million on deposit. So the bank was very successful in terms of growing its deposit base under a number of strands over many many years but that issue, you know, in terms of the NTMA, I don't remember it ever being coming up at the board meeting.

Or outside of the board in your role as MD of lending Ireland.

Well, I wouldn't ... it wouldn't have been an aspect of-----

On the strategic management committee?

It wouldn't have been an aspect that I would've been looking at.

Okay, thank you. Thank you, Chair.

Thank you very much. Deputy Doherty.

Can I just get clarification on the personal guarantees? You say that the bank always took personal guarantees from individuals. What was the situation when a developer ... when the loan was being applied in the name of the company, as opposed to the person?

Yeah, so if it was being ... if the loan was being drawn down in the name of a company, the client or the person would have had to sign a personal guarantee to support that loan.

So it's the same thing.

Yes, so if you borrow personally you're on the line-----

Yes.

----- you've got personal liability. If you borrow in a company you'll be signing a personal guarantee in support of the loan.

So, their house or whatever their assets, their personal assets-----

Would have been on the liability.

And you say that this happened on all occasions.

That, sorry ... that was very much part and parcel of the actual process in Anglo, the personal guarantees were actually looked for.

But you testified that in all loans that this was the case.

Sorry, in all loans it would have been looked for and that was part and parcel of actually kind of the process. Now-----

The reason I ask is, Michael O'Flynn has come before this inquiry, which ... where he had, I think, loans with a range of institutions, but 50% of them were with Anglo Irish Bank. And he has given evidence to say "I never issued personal guarantees to any lender in relation to the business".

In that situation we obviously didn't take personal guarantees.

So it wasn't every loan.

No, sorry-----

Every loan wasn't backed by a personal guarantee.

You know, maybe that was a very ... too general a statement, but as a matter of form, right, we would have always looked for personal guarantees, and I-----

Of ... of, for example, not wanting to individualise it, but are you suggesting that this case where we know - well, where it has been given in evidence - that there was no personal guarantee ever given, you are suggesting that a personal guarantee would have been asked for, is that what you are saying?

No, no, I'm not saying ... again I, you know, again it depends on where that relationship started out from.

What was the policy? Just explain. You're the head lender in Anglo Irish Bank.

The policy-----

Explain the policy because we're ... you told us there was personal guarantees in all loans, now there was not in all loans but they were always asked for, now you're not-----

The policy very clearly was ... your starting position ... you'd be looking for personal guarantees on all loans.

So did you?

Sorry?

Did you look for it? Did you-----

Yes.

Okay, so in relation to this loan for example, you would've requested of O'Flynn Group for a personal guarantee.

And again, depending on where the relationship started out, it obviously wasn't looked for at that ... in regard to that case.

But you're just after telling us that they was ... they were looked for in all cases.

But the policy very clearly was, you would start out looking for a personal guarantee and then-----

Yes, and I asked you "And did you?" and you said "Yes".

And in the ... in the vast majority of cases the personal guarantees were signed.

So not in all cases.

In the vast majority of cases, yes.

Okay.

Without changing the subject, I just want to round something off on this and we'll stop the clock a second. In just the general area of securitising loans, did you follow that up, this process, with law firms?

Yes.

Did you actually have a legal process for following-----

Yes.

-----up the securitisation?

So, the way it worked, Chairman, is that the ... the law firm was appointed to put the security in place on behalf of the bank.

Okay, and maybe you could just explain to us in that regard when we had the transference into NAMA, the letters of undertaking that were required seemed to be a huge issue in terms of securitisation, the incompletion of legal work by banks and securitisation, and all the rest was a very, very ... was a legacy issue that NAMA had to deal with quite quickly to get its, kind of, deeds and portfolios sorted out. How did Anglo perform in that regard?

Again, it would have been the responsibility of the individual lending manager.

No. I know well. I'm talking about the process when Anglo came in. How did they rate in compare to other institutions in having their legal undertakings completed when the portfolios were transferred into NAMA?

I don't know. I've no visibility on that because, you know, I wasn't involved in it. I wasn't in the banking world at that stage, so I've no ability to answer that question.

Okay. Deputy Murphy, sorry, Deputy Doherty.

Well, I was just going to go on to that issue in terms of security and the perfection of security. And Deputy Murphy rightly outlined the €477 million, I think it was, from NAMA, but NAMA confirmed that that for the institution - the individual banks - was in the region of €2 billion. That's how much loans that could not be perfected because of ... or could not ... had to be written off as a result of unperfected security, and the majority of them rested with your bank. We see on the core documents, Vol. 2, page 63 ... we see an example of 12 files that was carried out. And of ten of those files, no letter from the bank's solicitors confirming the security was complete is evident, that's, 83%. These are loans above €6 million. It talks about the credit policy where draw-down shouldn't happen unless it's authorised in writing by a manager before the perfection of security, but we see that the draw-downs were taking place. And I think in the situation the number of draw-downs up to the time of the review for the 12 selected loans was 67. So, again, we are seeing, like, loans of €149 million which were drawn down with no solicitor's letter on file. So, as a result of your credit policy, that would have had to be authorised by a manager. So, it's not solely the responsibility of the solicitors.

No, that would like ... sorry, ultimately, ultimately, the responsibility would come back to the individual portfolio manager dealing with those cases.

Yes, and ultimately you as head of lending would it be?

Yes, ultimately me, okay.

Yes.

So in those cases here, you look, kind of, in terms of the jurisdictions there. They were across jurisdictions-----

What do you mean "cross jurisdictions"?

Well, you have sterling loans, US dollar loans, right, so ultimately, right, the responsibility for the security being put in place lay at the foot of the portfolio manager and ultimately the directors of the division.

Yes, these are Dublin... just see the top of the paper ... these are Dublin loans.

Yes, so therefore then, we would have been ... we would have ... somebody would have had to sign off, right, okay, on the draw-down of all that money, and in the draw-down form it would have been ... it would have asked, "Has the security been perfected?".

And you would have been told "No, it's not", and you still allowed for draw-downs, for example, of €149 million without any security being effected, £11 million sterling without security being effected, US $30 million, €23 million in another one, €18 million in another one, €14 million in another one, and so on. And that's only ten out of the 12 loans that were inspected, 83%.

But again, you have to look behind each of the individual loans and see why ... why was the loan drawn down. The security could have been perfected, but it may not have a letter on the file.

Well, given the fact that we know that €2 billion from the financial institutions that went into NAMA of loans that were issued, had to be written off basically - the security wasn't perfected and the majority of them rested with your bank - do you not think that there was a serious issue here, which this audit was outlining to you?

Yes, and again, on the basis of this audit, right, action would have been taken to ensure that, you know, you got the letter on file from the solicitor. But, like, the reality of it is ... is that whilst you may not have the letter on file, right, the security, would have been in place, and it would have been signed off by the respective authorised signatures that the security was in place.

But can I put it to you that the reality that we're dealing with today is that, according to NAMA, €2 billion of loans issued by financial institutions, of which the majority of them rested ... originated from your institution, could not be pursued because the security was not perfected? So, it's not ... it doesn't seem to be the case that this was just a delay, that the letter was in the post or something that this ... these loans had to be written off. People who got this money were not pursued as a result of this type of ... managers authorising draw-downs of loans without perfection of security.

And again, I would say to you, on the basis of, you know, the responsibility there, right, in terms of perfection of the security was with the law firm that was actually-----

That's fair enough, but is the responsibility not with you, as head of lending, not to issue the money before the perfection of security is there?

And again, right, in regard to all ... you have to look behind all of these cases to see why, you know ... there's a reason behind why the loans were drawn down, right, without having the letter on file, right. And the follow up would have been, right, to actually, kind of, make sure that the security was put in place, and a letter in the file from the legal firm, you know, verifying the fact that the security had been put in place.

Do you believe that the security was put in place in all of these loans, despite what NAMA has told this committee?

Obviously, you know, on the basis of what NAMA saw after the event, right, there was loans of where the security wasn't fully perfected.

Do you take any responsibility for that as head of lending?

You know, ultimately, it comes down in my ... you know, when I was there for the period of time that I was there. But, like, you know, I was there up to, kind of, September 2007. What happened after, that I do not know.

Okay, and ... but you take responsibility up until that period. Is that what you're-----

Yes. No problem with that.

-----telling me? Can I ask you ... it was mentioned in terms of the culture of lending within the bank and it was talked about in terms of the auction ... evidence that we've had ... you've mentioned that you haven't read the Nyberg report, but have you read Anglo Republic?

Anglo Republic ... which one was-----

Book by Simon Carswell.

I have read it, yes.

Okay. The opening chapter of that there deals with the biggest transaction in the history of the Irish property bubble, a transaction that totalled €1.165 billion. It suggests that the property that was purchased was purchased at 2 o'clock in the morning. A manager from Anglo landed with a bank draft for the purchaser ... to the ... for the purpose of the purchase of that property. Is that an accurate reflection of what was going on in Anglo - that Anglo was on call at 12 o'clock at night, landed down to the office where this auction - so-called auction - was taking place and produced a bank draft at 2 o'clock in the morning to allow this developer to buy the biggest valued asset in the history of the Irish property bubble?

What transaction are you referring to, Deputy?

Well, it's in ... it's in the prologue of ... it's the opening chapter ... it's the opening words of Anglo Republic. It's the Jury Inn property and it was ... the question is in terms of the ... the ... the ... the culture-----

Yes.

-----is this the type of activity that was going on in Anglo?

No. I think that is an unfair reflection, you know. You know, there was a very clear culture in the bank, right, of a loan process that went from ... you know, the team that actually originated the loan or the team who managed the exposure, they would actually look at the actual ... the individual loan. They would decide whether they felt that loan was worth bringing to actually what we used to call our mini-credit committee meetings. The mini-credit committee meeting was a meeting amongst the lenders like in a room like this. There could be 20, 30 people who would actually ... the loan would be presented, it would be debated amongst the actual ... the lenders. If the consensus view was that the loan was a good loan, it would go on to a main credit forum in terms of, actually, for final sign off where non-lenders and risk would have been the final arbitrators of the individual loans. In some situations, you know, there would have been forums - gathered quickly - of senior people to decide whether a loan was actually one that was worth doing in terms of acceptable levels of risk, but the vast majority of, actually, loans would have gone through a very formal process of approval. As I say, from the team up to the mini-credit situation to the main credit situation and being signed off at that level.

But did we have ... the question I am asking is, did we have - as is reflected in this book - at around 2 a.m., a senior lender from Anglo arrived at William Fry with a bank draft for €1.165 billion? Is that ... was there-----

Well, before they ever got to that point, Deputy, right-----

Yes, there was a process.

-----there would have been a huge ... for something like that, there would have been a massive amount of debate. It wasn't someone rocking up with a cheque for that level at 12 o'clock at night. There would have been a massive level of discussion and debate in regard to the merits, demerits of actually doing the deal. So, you know, that - the way it's portrayed - is actually kind of, you know, not the way it happens.