Between 2008 and the 2014 external advisors, lawyers and consultants supporting the Irish banking crisis racked in €152.7 million in fees. Even the failing auditors of financial institutions managed to pull in considerable fees helping them back on their feet through government lifelines.
The banking system’s dance with disaster across the globe, sparked by the collapse of Lehman Brothers in 2008, hit the Irish economy hard. The country’s banking institutions, which had heavily stakes in the inflated Irish property market, saw their liabilities considerably outweigh their assets and, like many banks during the dark crisis years, needed to be bailed out by the government, and ultimately tax payers.
The cost of the bailouts were considerable to the government, not merely in the funds required to stabilise private institutions (some of which were nationalised) that were too big to fail, but also the advice and expertise required to oversee and manage the complex financial systems as they had to deal with the most severe financial crisis in recent history.
In a recent report from the Irish Government’s State spending watchdog, the Comptroller & Auditor General, the supervisory body provides insight into the fees paid between 2008 and the end of 2014 to third parties involved in the management of the crisis. An analysis of the data reveals that in total the National Treasury Management Agency, the Department of Finance and the National Pension Reserve Fund paid out of €152.7 million for advisory services to clean up the financial mess.
The largest beneficiaries were Irish law firm Arthur Cox and Blackrock Financial Management, followed by ironically, two institutions whose expertise was relied on to audit various banks' pre-crisis activity. Accounting and consulting giant EY took in €20.9 million in fees, while KPMG billed €13.2 million*. The two other Big Four firms also earned significantly, with PwC billing €8.5 million and Deloitte netting €4.2 million. Strategy consulting firms too racked in a considerable amount, led by the American giants Boston Consulting Group (€5 million) and McKinsey & Company (€4.4 million). Overall, 94% of the total spend went to the twelve largest fee earners.
The fees went to a variety of crisis related advice and auditing activities, with the largest sum paid out to bank restructuring and recapitalisation (€60 million), followed by the 2011 financial measures programme that reviewed the capital and funding assessments of the banks (€31 million) and European Central Bank's comprehensive assessment and stress tests (€22.6 million). Lesser amounts went to "advice of a general nature" (€10 million), crisis management (€5 million) and the banking enquiry (€0.4 million).
Recovering the costs for advice from nationalised and still private banks has so far been a mixed bag. The Central Bank and the National Treasury Management Agency report that they have managed to pass large portions of consultancy fees on to banks, while the Department of Finance states that it has recovered "some of the costs".
* EY was for instance involved in auditing Anglo and EBS, while KPMG audited AIB, Irish Nationwide and Irish Life and Permanent.