end corruption,stroke politics, & incompetent administration
None of them served a day in a republic prison.
Man whose Midas touch wore out Sunday, March 19, 2006 - By Simon Carswell(Sunday Business Post)
On the morning of Thursday, April 29, 1982, 31-year-old property tycoon Patrick Gallagher was summoned to the headquarters of the Northern Bank Finance company in Dublin city centre.
His property group, which he had inherited eight years earlier on the death of his father, Matt, had debts of more than £28 million. A series of high-wire property speculations in Dublin had fallen apart spectacularly, threatening to bring down Gallagher’s massive business empire.
Gallagher and his brother Paul stopped at Ryan’s pub on Parkgate Street on the journey that morning from Straffan House, his plush Co Kildare home, now the K Club, to the bank. They had a quick drink to settle their nerves and continued on for the crunch meeting with their bankers.
The bankers told them that the family business could not survive with its rising debts and collapsing property deals.
It was the end of the road, the bankers said. Patrick Gallagher reluctantly conceded defeat.
As he left the boardroom, he turned to the bankers and said, quoting the French king Louis XIV: ‘‘Apres moi, la deluge (after me, the flood).”
Gallagher was right. The flood lasted for more than a decade. It washed out quite a bit of dirt in the process - details of fraudulent practices at the banking operation he ran in the North and the Republic, and cash payments to a Fianna Fail taoiseach. Gallagher ended up in the dock and eventually in jail in Belfast over his management of his bank, Merbro Finance, and in the witness stand at the Moriarty Tribunal over the enormous generosity he showed to Charles Haughey.
Even in death, Gallagher was in the public eye. His passing last week after a short illness made hourly news bulletins on the radio and front page stories in the newspapers.
It was just like the kind of exposure he enjoyed in his early business career; he made waves wherever he went.
However, rather than ruling his empire like Nero after ascending to the Gallagher throne in his 20s, Gallagher ended up becoming the Irish Icarus, flying far too close to the sun over the heady world of property speculation. His deals eventually got the better of him. An unswerving belief in his ability led to a heavy fall, financial ruin and the ignominy of slopping out in a prison cell.
Property speculators are a dime a dozen today but in the 1970s they were a rare breed and Gallagher’s cocky manner made him even more unique.
He played the market like he would a game of Monopoly, but he was naive and failed to spot the Go to Jail corner in his particular game.
Gallagher dispensed with hundreds of building contractors employed by the Gallagher Group when he took over the business at the age of 22 and concentrated instead on property investments. His father developed the Irish business in the 1960s after returning home with a treasure chest amassed on English building sites during the building boom of the 1950s.
The young Gallagher became adept at the game and at the age of 23 made his own first million (the business was already worth about £14 million in the mid-1970s). Gallagher often bought land and sold it on before he had even parted with the deposit on the original purchase. He was regarded as the man with the Midas touch. He made a cool £2 million in 1979 by selling on a property on St Stephen’s Green while the ink was still drying on the papers confirming the purchase.
Money rolled in, and out again, as Gallagher speculated on even bigger plays and enjoyed his vast wealth, spending it on classic cars, racehorses, art and cellars full of vintage wine and champagne.
Then in 1982, while trying to keep his head above rising debt, he spotted four opportunities that he was convinced would save him - the takeover of the 17-supermarket H Williams chain; a quick buy-and-sell of an assembled site on the corner of St Stephen’s Green and South King Street (now the site of the St Stephen’s Green Shopping Centre) and of another property at Earlsfort Terrace; and the resurrection of the Phoenix Park racecourse. All four deals were lined up like dominoes.
A prospective buyer for the St Stephen’s Green deal pulled out at the last minute and the dominoes fell one by one. Gallagher sold off personal assets - shares in racehorses and a private art collection - to try and pay off the banks, but it wasn’t enough; the banks called in their loans.
Company undertakers were called in but the burial was far from peaceful. The receivers and liquidators tried to piece together the complex web of companies, properties, cash trails and transactions that made up the gargantuan Gallagher Group, one of the country’s largest businesses.
Dublin accountant Paddy Shortall of Coopers & Lybrand (which became part of PricewaterhouseCoopers) and his Northern counterpart, William Carson of Pricewaterhouse, set about unravelling the mess that was the group’s banking operation, Merchant Banking and its Belfast subsidiary, Merbro Finance. Set up in 1961 by Matt Gallagher as a hire purchase company to complement his group’s building operation, Merchant Banking became a deposit-taking operation that greased the wheels of the group, providing much-needed cashflow for Gallagher’s fast-paced property plays.
The bank’s customers included shoppers at the Donaghmede Shopping Centre - a Gallagher Group property on the northside of Dublin - who popped into the adjacent Merchant Banking branch every week to deposit their savings after their regular grocery run. These were the less well off; the money was pensioners’ Christmas savings and funeral cash. By the time Merchant Banking closed, 90 per cent of its depositors had less than £5,000 in their accounts; 61 per cent had less than £1,000.
The collapse of the group brought down both banks.
Shortall and Carson (working closely on the Merbro investigation with accountant Paul Rowan, later an Ansbacher inspector) discovered that Gallagher had been using both banking operations as his personal piggybanks, dipping into them whenever the group needed cash to fast-track its property deals or Gallagher needed money.
For example, just weeks before the group’s collapse, Merchant Banking became the proud owner of the Galleria shopping arcade at 6-7 St Stephen’s Green in Dublin (until last year the home of the Habitat home furnishing store) following a transaction with another Gallagher Group company.
However, a day earlier Gallagher had handed the deeds for the property to the Bank of Ireland in an effort to reduce some of his debts. Merchant Banking had paid £2.3 million for nothing.
By the time the entire Gallagher empire crumbled, almost 80 per cent of Merchant Banking’s assets had been ploughed into his group, and depositors were left nursing massive losses.
During Shortall’s investigation, he discovered two loans on Merchant Banking’s books totalling £16,000 to a CJ Haughey and Larchfield Securities, a Haughey-controlled company which owned Inishvickillane, the politician’s island off the Co Kerry coast.
Shortall deduced that neither payment was a loan, as no demand had ever been made for their repayment. The money was quickly paid off after Shortall was appointed. The Dublin accountant recorded the loans in his 1984 no-holds-barred and comprehensive report into the collapse of the bank. The report detailed corrupt and fraudulent practices perpetrated by Gallagher at the bank.
A similar investigation in the North led to Gallagher facing charges of stealing two paintings (valued at stg£110,000), three counts of false accounting and conspiracy to defraud.
Gallagher was picked up in London by the RUC fraud squad in 1988 and brought back to Belfast to face the charges. At the time he was buying and selling land in an attempt to revive his business.
Despite a failed attempt by Gallagher to repay depositors, Mr Justice Robert Carswell, sitting in a Belfast court, said the tycoon had used depositors’ money to fund his high-risk property deals and ‘‘when these collapsed, so did the savings of the investors’’. He jailed Gallagher for two years.
After leaving prison, Gallagher moved to Africa in 1992.
In an interview at his home in Zimbabwe in 1998, he told journalist Frank Connolly, then writing for The Sunday Business Post, that his father and his business friends agreed to bankroll Haughey in the 1960s so the politician could pursue his political career and concentrate on the ‘‘building the nation’’.
He said the Fianna Fail politician was ‘‘financed in order to create the environment which the Anglo-Irish had enjoyed and that we as a people could never aspire to. Everything was planned.”
Gallagher later told the Moriarty Tribunal that in 1979 he paid Haughey £300,000 (€380,000) - about €1.5 million in today’s money - so the politician could clear a £1 million loan to AIB. The transaction was dressed up by Gallagher as a property deal involving Gallagher Group money.
Despite the fact that a successful criminal prosecution was brought against Gallagher in the North - and that similar damning evidence existed within Merchant Banking in the Republic and was presented in painstaking detail by Shortall - no charges were ever taken in the Dublin courts.
Most felt that Gallagher had escaped justice in the Republic, after leaving hundreds of people out of pocket.
His high-flying deals and a downturn in the property market in 1982 ultimately ruined him. However, evidence later emerged from the investigations into his banks and property business about the extent and complexity of his often fraudulent dealings.
Many argue that Gallagher paid only some of his dues; his premature death at the age of 54 last week means the rest will now never be paid.
The story of Patrick Gallagher and Merchant Banking features in the book, Something Rotten: Irish Banking Scandals, by Simon Carswell, which is published by Gill & Macmillan