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Allegations of dodgy dealings overshadow Irish recapitalisation

The recapitalisation of Ireland’s two main banks, Allied Irish and Bank of Ireland, has been at a cost of €7bn to taxpayers. And it has been overshadowed by continuing revelations of what have been called “dodgy dealings” at Anglo Irish Bank, which has already been nationalised.

Three top bankers at Irish Life & Permanent, including chief executive Denis Casey, are the latest casualties of the affair.

The three were forced to resign following the disclosure that on the day before the Irish government announced its €440bn bank guarantee scheme, IL&P had lent €7bn to AIB.

According to finance minister Brian Lenihan, this was used to convey a false impression of the strength of AIB’s deposit base.

Against the wishes of the IL&P board the government insisted that Casey, who had been chief executive for just 20 months, step down. The minister welcomed his resignation as “an essential first step in repairing the reputational damage done to the Irish financial system by this transaction”.

His departure, along with that of finance director Peter Fitzpatrick and treasury head David Gantly, follows that of Sean Fitzpatrick, the high-profile chairman of AIB who resigned last month after admitting hiding personal loans of €87m he had taken from the bank.

AIB’s chief executive David Drumm and a number of directors also quit, while financial regulator Patrick Neary, who was accused of falling down on the job, took early retirement.

Now both AIB and IL&P are at the centre of a series of official investigations, with director of corporate enforcement Paul Appleby warning that all options will be considered, including calling in the Garda Fraud Squad which can bring criminal charges.

In the Irish parliament some members claimed that the “dodgy dealings” of bankers amounted to economic treason, given the damage being done to Ireland’s financial image abroad.

John Gormley, cabinet minister and leader of the Irish Green Party, said he wanted to see offending bankers being led away in handcuffs, as had been the case in the US.

Taoiseach Brian Cowen used less emotional language but warned that “any wrongdoing established by the investigations must be dealt with by the appropriate authorities in accordance with the law”.

He said the priority was to improve the regulatory system so people at home and abroad can see it works properly.

Meanwhile, pundits are predicting that the €7bn provided for re-capitalisation will not be enough. They point to the recent admission by BoI that it may have to write off property loans totalling €6bn in the next three years, and warn that AIB’s losses are likely to be even greater.

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