Ex-Allied Irish chairman sheds light on controversial guarantee

By Padraic Halpin

DUBLIN (Reuters) - Allied Irish Banks (ALBK.I) (AIB) did not seek a guarantee on all bank liabilities in 2008 and had assumed the government was instead set to dismantle other "irretrievably broken" lenders, former chairman Dermot Gleeson said on Thursday.

Ireland tied its fate to its financial sector in the early hours of Sept. 30, 2008, when it issued a blanket guarantee, the discussions behind which have not been fully disclosed and will form a key part of a parliamentary inquiry that has entered its most politically-sensitive stage.

Gleeson briefed the government on the night and said he and executives from Bank of Ireland (BKIR.) expressed the view that a guarantee should be provided once Anglo Irish Bank and Irish Nationwide (INBS) had been liquidated or nationalised.

Anglo and INBS were included in the guarantee and went on to account for over half of the subsequent 64 billion euro (£45.79 billion) state rescue - at almost 40 percent of gross domestic product, the most expensive in the euro zone. They were later closed and put into liquidation two years ago.

"What we thought we were talking about was a guarantee for AIB, Bank of Ireland and two other banks (EBS, Irish Life & Permanent) in a context where Anglo and Nationwide were going to be taken down," said Gleeson, the first former banker to appear at the inquiry.

"I first learned that Anglo and Irish Nationwide had been guaranteed along with the other four banks from the media early the next morning."

AIB's rescue cost taxpayers 21 billion euros, the most given to any Irish bank still trading, and Gleeson said he sincerely regretted lending too much to builders during a property bubble that once burst, wrecked the banks, the economy and eventually pushed Ireland into a 2010 international bailout.

Gleeson, a former Irish Attorney General who became chairman of AIB in 2003, said there was a strong consensus at the time that Ireland was on a track of rapid, sustainable expansion but there was also an "intellectual failure" at the bank for not adequately providing for a severe downturn.

"It's a salutary thing when you discover for the first time in your life in your 60s that doing your level best in a job is not sufficient," said Gleeson, who resigned in June 2009, months after being pelted with eggs at an angry shareholder meeting.

"That's a responsibility that I absolutely accept and I can never get away from it."

(Editing by Susan Thomas)