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Criminal Investigation of Allied Irish Bank plc


Yesterday evening, 01/03/2013 a Criminal Complaint was lodged and a statement taken by An Garda Siochana at the Bridewell Station in Dublin. The criminal acts complained and alleged in the statement pertain to Allied Irish Bank plc and include reckless lending, operating a Bank without a valid Bank License and breach of Liquidity Laws among others, this only the second such complaint made in the history of the State, the first having been made on February 14th 2013 at Malahide Garda Station, to date no “Pulse” incident number has been provided by An Garda Siochana for the first complaint, that in itself is the basis of a subsequent complaint to the Garda Ombudsman, the Dept of Justice and the Minister himself. The complaint lodged last night has been assigned a Pulse incident number, we will await the outcome of the Garda investigation of this Criminal Complaint.

via Criminal Investigation of Allied Irish Bank plc….. «Awaken Longford Awaken Longford.

via Criminal Investigation of Allied Irish Bank plc….. «Awaken Longford Awaken Longford.

Fraud saga acts as a costly lesson for all financial regulators


It may seem like a stretch but there is a direct correlation between the AIB annual general meeting in 2001 and the conviction of fraudsters Achilleas Kallakis and Alexander Williams in the Southwark Crown Court yesterday.

Twelve years ago the country’s biggest bank had its annual gathering in the RDS. The shareholders were restive. They lacerated the management team for letting the arriviste Anglo Irish Bank eat its lunch. The latter’s profits were surging on the back of runaway property lending.

After the very public dressing down, AIB chief executive Michael Buckley and his fellow senior executives, decided on a change of tack — one that would prove fatal. They might have come to the party late, but there was a lot of money to be made from the gravity-defying property markets and the Ballsbridge-headquartered bank intended to cash in.

Of course the drawback of playing catch-up is that it encourages a much greater risk-taking culture. Nothing else could explain the credulity-defying events that led to Kallakis and Williams receiving prison sentences of seven and five years respectively.

Through a series of outrageous lies they extracted £740m (€884m) from AIB’s London office over a five-year period. They also swindled Bank of Scotland out of £26m.

Handing down the sentences, Judge Andrew Goymer said: “AIB and Bank of Scotland have undoubtedly acted carelessly and imprudently by failing to make full inquiries before advancing the money. Indeed the latter bank was given clear and precise warnings by its lawyers about the risks of accepting assurances in a letter from an alleged co-conspirator, a Swiss lawyer.

“It almost beggars belief senior management chose to disregard that warning and rushed to complete the deal at all costs. It is apparent from the evidence both the defendants took full advantage of the prevailing banking culture in which corners are cut, and checks on them superficial and cursory. The banks do bear some degree of responsibility for what happened.”

AIB declined to comment on the verdict.

The obvious question is how could AIB advance so much money to one source without doing proper due diligence? It points to completely inadequate risk management controls in place at the time.

One senior banking source said that when the cracks started to appear in the financial system in 2007, Anglo Irish Bank and AIB were still very active in London at the same time that other banks were rowing back significantly on their lending operations.

The two fraudsters’ elaborate ruse was finally rumbled when AIB tried to sell on one of their loans to the German bank Helaba. Helaba did a few cursory background checks and found out that the pair’s property empire was built on a tissue of lies.

Kallakis and Williams, or Stephan Kollakis and Martin Lewis, to give them their real names, had created a web of several opaque offshore companies to guarantee AIB loans. Not that along the way AIB London executives shouldn’t have picked up on a few clues that all might not be what it seemed.

Kallakis claimed the Hong Kong investment firm Sun Hung Kai Properties was guaranteeing one of the loans, however, if anybody from AIB contacted the firm then the guarantee would become null and void.

Lured by the promise of spectacular returns from a pair of snakeoil salesmen, the Irish bank could not help itself.

AIB won’t comment on what lessons it has learned from this saga, but presumably it has beefed up its due diligence procedures. The level of exposure to any one lender is another painful lesson to be learned. How to spot irrational behaviour fuelled by a completely unsustainable asset bubble is a lesson not just for AIB management, but also financial regulators in Ireland, the UK, the eurozone and across every Western economy.

via Fraud saga acts as a costly lesson for all financial regulators | Irish Examiner.

via Fraud saga acts as a costly lesson for all financial regulators | Irish Examiner.

Is Michael Noonan the Supreme Master of Waffle?


The most brilliant response to a parliamentary question ever!

Remember the €1.1bn that AIB shoveled into its pension scheme to plug a deficit that prompted all those headlines two weeks ago? A simple question – when the banks were stress-tested in 2011, was this €1.1bn deficit identified in an exercise that cost us about €30m in consultancy fees? The short answer is no, this €1.1bn deficit wasn’t specifically identified in the final report for the stress testing but it remains unclear if a deficit of this magnitude was considered or included in either the base or adverse scenario.

But when asked* in the Dail yesterday, this is Minister Noonan’s response (I’ve read this carefully several times, and it’s still hilarious how it manages to avoid answering the question*):

Minister for Finance, Michael Noonan : The Central Bank has informed me that the Capital Requirements Directive and the Central Bank set the rules around the calculation of the applicable capital base for credit institutions. These rules include reference to defined benefit pension deficits as these can affect the capital base of regulated entities.

In a letter from the Financial Regulator to industry in 2005, banks were informed that those applying IAS 19/FRS 17 are allowed to add back to Tier 1 Capital the amount of the defined benefit pension liability that has accrued in relation to Irish pension schemes in their financial statements and to deduct an amount equal to the sum of (i) the Deficit under the Minimum Funding Requirement plus (ii) three years Supplementary Contributions. A subsequent letter issued by the Financial Regulator in 2009 amended the treatment of the Deficit under the Minimum Funding Requirement element such that credit institutions were required to include at least the Minimum Funding Requirement in its calculation of pension risk under Pillar 2 capital calculations.

The draft Capital Requirements Regulation (CRR) requires the removal of most prudential filters, including the Irish DB scheme pension filter detailed above. Article 461 of the draft CRR, relating to transitional provisions, provides for regulated entities to apply a phased approach to filters and deductions “required under national transposition measures for Articles 57, 61, 63, 63a and 66 of Directive 2006/48/EC” with a five year implementation period. The transitional provisions are the subject of on-going negotiation between the European Parliament (EP) and Council.

The capital base and capital requirements of the PCAR banks were assessed under PCAR and included in this assessment was forecast deductions for defined benefit pension deficits and subsequent capital filters under base and stress scenarios. The FMP report did not disclose details of the assumed levels of deduction for pension deficits. The focus on the PCAR was the forecast income, capital requirements and losses (particularly loan losses) in the three-year period.

The Central Bank included in the PCAR the forecast deduction for defined benefit pension deficits and subsequent capital filters under base and stress scenarios. In addition the Central Bank considered the implications of Basel III (namely CRD IV/ CRR). The PCAR tolerance levels and capital basis were set in accordance with the Central Bank’s definition of Core Tier 1 under the prevailing Capital Requirements Directive rules as at end-March 2011.

It is important to note, that the quality of capital in the Irish banking system has increased significantly as a result of lower tier capital buy backs and Government equity contributions. Whilst it is clear that the Basel III rules impose more conservative deductions than is currently the case, following a recapitalisation to levels determined by the 2011 PCAR, the FMP report stated that all four banks should comfortably meet Basel III Common Equity Tier 1 ratio on a phase-in basis under both the base case and stress case scenarios. The combined surplus to the minimum phase-in Common Equity Tier 1 under the PCAR base case under PCAR was estimated at the time as circa 13.3bn and 3.7bn under the stress case. Three of the banks would also meet the full 2019 minimum standard in the 2013 base case scenario.

*Deputy Pearse Doherty: To ask the Minister for Finance in respect of the €1.1billion top-up made by Allied Irish Banks to the group pension scheme in August 2012, if he will identify in the stress testing undertaken by the Central Bank of Ireland with Barclays Capital, BlackRock and the Boston Consulting Group in early 2011 which resulted in the publication of the Financial Measures Programme on 31st March 2011, where, in this work was the €1.1billion shortfall in the AIB pension fund examined or identified.

via NAMA Wine Lake.

via NAMA Wine Lake.

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