Ireland bank collapse: the strange case of the disappearing Merrill Lynch research note
Merrill Lynch had been hired by Bank of Ireland and Anglo back in 2008 and weren’t happy when one of its analysts said the banks were not in good shape – according to Vanity Fair
Economist Morgan Kelly poses for Vanity Fair in Hogan’s pub
The US bank retracted a report by one of its research analysts in March 2008 that was negative about the banks after the Irish banks called Merrill Lynch and threatened to take their business elsewhere. It toned the research note down and months later its author, Philip Ingram, left the bank, according to a much-anticipated cover-story in the new edition of Vanity Fair.
And one of his colleagues, Ed Allchin, was made to apologise to Merrill’s investment bankers individually for the trouble he’d caused them by suggesting there was still money to be made by shorting Irish banks.
Allchin, who has since set up a new company Autonomous Research refused to comment. “I haven’t even seen the article,” he said.
The 15 page Vanity Fair article is written by Michael Lewis, a former bond trader who described his experiences working at Salomon Brothers in the bestselling book, Liar’s Poker.
It includes interviews with Brian Lenihan, Joan Burton, economist Morgan Kelly and one former Merrill Lynch bank trader who claimed he had offered to sell “a pile of bonds” back to one Irish bank for 50 cents in the dollar back in 2008 before the bank guarantee.
“He’s offered to take a huge loss, just to get out of them,” says Lewis. When he woke up on 30 September to find the Irish government had guaranteed them “he couldn’t believe his luck”.
He says Ingram’s note for Merrill had been sent to the market in March 2008 but was withdrawn within hours.
“For a few hours the Merrill Lynch report was the hottest read in the London financial markets, until Merrill Lynch retracted it. Merrill had been a lead underwriter of Anglo Irish’s bonds and the corporate broker to AIB.
“Moments after Phil Ingram had hit the send button on his report, the Irish banks called their Merrill Lynch bankers and threatened to take their business elsewhere,” says Lewis. Anglo Irish did the same.
“Ingram’s superiors at Merrill Lynch hauled him into meetings with in-house lawyers, who toned down the report’s pointed language and purged it of its damning quotes from market insiders, including its many references to Irish banks. And from that moment on, everything Ingram wrote about Irish banks was edited, and bowdlerized by Merrill Lynch’s lawyers.”
Merrill charged €1m per page for its advice
Six months later, at the request of the Irish government, Merrill Lynch’s investment arm wrote a seven-page memo that stated, “All of the Irish banks are profitable and well capitalised”.
It charged €7m for the seven-page memo which fed into finance minister Brian Lenihan’s controversial decision to introduce a blanket guarantee for the Irish banks in September 2008.
Months later, Bank of America took over Merrill Lynch amid fears that the bank, once the third largest on Wall Street, would itself fall victim to the tightening of the credit markets and the worsening property sector. Merrill says that Ingram’s departure came as a result of the redundancies caused by that wider restructuring, and that he was not fired.
Lewis’s article is part of a Vanity Fair trilogy on the global crisis – and was expected to further dent Ireland’s already battered image in international markets.
In some respects Lewis obliges.
Any Irish reader who wants to save being offended can skip the last quarter of the article which leaves an impression that the Ireland is a land of fairies, potato farmers and rural unsophisticates.
But the article is well worth reading. It packages the drama of the last two years and particularly last November brilliantly.
It has a fascinating interview with Morgan Kelly who says he rues the day he went on TV. “I’ll never do it again”.
He asserts how the Irish Independent first refused to publish Kelly’s article on the impending collapse on the grounds it was offensive and how the PR department in his University College Dublin tried to hose him down by asking the head of the department of economics to “write a learned attack” on Kelly’s piece, which was eventually published by the Irish Times.
Pat Neary – “dragged from a hole”
And Lewis has an amusing description of the night in 2008 when the then financial regulator, Pat Neary, went on TV to be interviewed, looking as if “he had been dragged from a hole into which he badly wanted to return”.
Economist and government adviser Colm McCarthy tells Lewis: “What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a wise old man who was in charge of the money, and this was the first time they’d ever seen this little man. And then they saw him and said ‘who the fuck was that? Is the fucking guy who was in charge of the money?’ That’s when everyone panicked.”
Donal Mac Fhearraigh