One of the most damning bits of Michael Lewis’ “When Irish eyes are crying” article concerns a zoology student, ‘business relationships’ and a missing Merrill Lynch note.
Here’s the extract via Barry Ritholtz over at Big Picture:
The bank analyst who had been most prescient and interesting about the Irish banks worked for Merrill Lynch. His name was Philip Ingram. In his late 20s, and a bit quirky—at the University of Cambridge he had studied zoology—Ingram had done something original and useful: he’d shined a new light on the way Irish banks lent against commercial real estate.
The commercial-real-estate loan market is generally less transparent than the market for home loans. Deals between bankers and property developers are one-offs, on terms unknown to all but a few insiders. The parties to any loan always claim it is prudent: a bank analyst has little choice but to take them at their word. But Ingram was skeptical of the Irish banks. He had read Morgan Kelly’s newspaper articles and even paid Kelly a visit in his university office. To Ingram’s eyes, there undoubtedly appeared to be a vast difference between what the Irish banks were saying and what was really happening. To get at it he ignored what they were saying and went looking for knowledgeable insiders in the commercial-property market. He interviewed them, as a journalist might. On March 13, 2008, six months before the Irish real-estate Ponzi scheme collapsed, Ingram published a report, in which he simply quoted verbatim what British market insiders had told him about various banks’ lending to commercial real estate. The Irish banks were making far riskier loans in Ireland than they were in Britain, but even in Britain, the report revealed, they were the nuttiest lenders around: in that category, Anglo Irish, Bank of Ireland, and A.I.B. came, in that order, first, second, and third.
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 A.I.B.: they’d earned huge sums of money off the growth of Irish banking. Moments after Phil Ingram hit the Send button on his report, the Irish banks called their Merrill Lynch bankers and threatened to take their business elsewhere. The same executive from Anglo Irish who had called to scream at Morgan Kelly called a Merrill research analyst to scream some more. 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 everything Ingram wrote about Irish banks was edited, and bowdlerized by Merrill Lynch’s lawyers. At the end of 2008, Merrill fired him. One of Ingram’s colleagues, a fellow named Ed Allchin, was also made to apologize to Merrill’s investment bankers individually for the trouble he’d caused them by suggesting there was still money to be made on shorting Irish banks.
Merrill Lynch declined to comment.
Now, BIO Philip Ingram on the Bloomberg.
You get very little. Just a recap of his position at Merrill and a few Bloomberg summaries of his research. Check the FSA register and he’s been gone since 2007.
The only remnant of his prescient March 2008 note is this Reuters summary:
(Reuters) – HBOS HBOS.L, Royal Bank of Scotland (RBS.L), Anglo Irish Bank ANGL.I and Allied Irish Banks (ALBK.I) have the most aggressive lending standards in the UK commercial property market, according to a survey of valuers.
“The findings are less reassuring than we had expected,” Merrill Lynch analysts said in a survey note published on Thursday. The note follows record bank lending to Britain’s real estate industry and a post-summer downturn in commercial property which has already lopped 14 percent off capital values.
“The UK commercial real estate bubble is bursting and the banks are going to lose money. The question that investors want answered now more than ever is how good, or bad, has underwriting been and how much money will lenders lose as a consequence?,” the note said.
…
A spokeswoman for Allied Irish Banks said it had a conservative lending policy.
“Merrill says the Irish banks are more relationship driven,” she said.
“We would be well known as a very relationship driven bank with a conservative lending policy and while we may have done some big individual deals you need to look into the lending practice behind them which you’ll find is conservative.”
Oh, the irony.
Related link:
When Irish eyes are crying – Vanity Fair