US investment bank Merrill Lynch had a critical role in the banking collapse in Ireland and censored an analyst’s report that predicted the crash back in 2008, magazine Vanity Fair reported on Wednesday.
The US bank retracted a negative report by one of its analysts in March 2008 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 report in the new edition of Vanity Fair.
One of Ingram’s colleagues, Ed Allchin, then apologized to Merrill’s investment bankers individually for the trouble caused for them by the analyst’s suggestions there was still money to be made by short-selling 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 feature is by Michael Lewis, the bestselling author who made his name describing his experiences working as a bond trader at Salomon Brothers in the book Liar’s Poker.
The article includes interviews with Irish Minister for Finance Brian Lenihan, Irish Labour MP Joan Burton, economist Morgan Kelly and a former Merrill Lynch trader who said he had offered to sell “a pile of bonds” back to one Irish bank for US$0.50 in the dollar back in 2008 before the bank guarantee.
“He’d offered to take a huge loss, just to get out of them,” Lewis wrote. When he woke up on Sept. 30 to find the Irish government had guaranteed them, “he couldn’t believe his luck.”
He said Ingram’s note for Merrill had been sent to the market in March 2008 but was withdrawn in hours.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,” he said.
“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,” Lewis said.
He said 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 bowdlerised by Merrill Lynch’s lawyers,” Lewis said.
Merrill indicated that all its reports are pored over by lawyers for compliance and nothing was different for Ingram, but it refused to comment officially on any of the allegations.
Six months later, at the request of the Irish government, Merrill Lynch’s investment arm wrote a seven-page report that said all of the Irish banks were profitable and well-capitalized. It charged 7 million euros (US$9.7 million) for the report, which fed into 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 would itself fall victim to the tightening of the credit markets and the worsening property sector. Merrill says that Ingram’s departure was a result of redundancies caused by that wider restructuring, and insists he was not fired.