The "doomsday" situation for AIB would have been if it had to move on Mr Charles Haughey's debt with the bank and force him into bankruptcy, a former director of the bank told the Moriarty tribunal yesterday.
Mr James Fitzpatrick, who was a director between 1976 to 1980 and a former chief executive of the group's banking section, said the settlement reached with Mr Haughey in January 1980, was "in the circumstances a good settlement".
In late 1979 Mr Haughey had a debt of around £1.14 million with AIB and had not made a payment into his account for some time.
The debt was settled in January 1980 for a payment of £750,000 and a promise that a further £110,000, on which no interest would be charged, would be eventually cleared.
It never was.
Mr Fitzpatrick said the discounted amount was interest which had been put into "suspense", meaning the bank had already decided it might never be paid. This meant the discount did not affect the bank's profits.
Mr Haughey's £750,000 covered the principal and some interest. The deal also meant "the troublesome account was now closed", he said.
Mr Fitzpatrick said he had no involvement in the negotiation of the settlement and this was true of the other five former directors who also gave evidence yesterday. The directors said they had been in general aware that Mr Haughey was a customer of the bank, was troublesome, and that he had come to a settlement.
Figures were not disclosed to the board, they said.
Mr Fitzpatrick said Mr Haughey's account was "more or less out of control". Mr Haughey, who had just been elected Taoiseach for the first time, was a very prominent figure who had a very strong following.
The "doomsday situation" for the bank would have been to make Mr Haughey bankrupt, though he agreed this might be unlikely. Being perceived as taking action damaging to Mr Haughey could have negative repercussions for the bank, he said.
Another former director, Dr Liam St John Devlin, who was on the board from 1972 to 1991, said the settlement of Mr Haughey's debt was "the most sensitive issue that came up during my time in the bank". He said it would not have been practical to stop honouring Mr Haughey's cheques, given his position. Mr Haughey was "averse" to realising any of his assets because it would "send a message that he was in financial difficulties".
Mr Joseph McGlynn, a director between 1972 and 1985, said his memory was that Guinness & Mahon bank had taken on Mr Haughey's account and he described the feeling in AIB as "one of considerable relief".
Mr Charles Grayson, a director between 1972 and 1984, said his memory was that the issue of the settlement of Mr Haughey's debt was mentioned at board level, though there was no minute of this. He had a memory of a director asking for the figures and not getting them.
Prof Paddy Lynch, who was a director between 1971 and 1984, said he had been aware at the time that Mr Haughey was prepared to "face down the bank" if it tried to move against him. He was aware that the then chairman, the late Mr Niall Crowley, and the then chief executive, Mr Paddy O'Keeffe, negotiated the settlement with the late Mr Des Traynor. Mr Crowley, he said, was a full-time non-executive chairman and worked closely with Mr O'Keeffe.
No evidence has been heard as yet from Mr O'Keeffe and the tribunal has given no indication if he is to be called.
The tribunal was told the bank has offered to produce comparative material which could be used to help estimate whether the settlement with Mr Haughey was beyond the norm or was particularly generous. The chairman, Mr Justice Moriarty, in response to a point made by Mr Haughey's counsel, Mr Eoin McGonigal SC, indicated that material relevant to settlements with politicians might be included.
The witnesses yesterday were also asked about a 1983 press release from AIB which said a newspaper article in the Evening Press concerning Mr Haughey's debt was "outlandishly inaccurate". The article had said Mr Haughey had a debt of £1 million with the bank the year before, whereas the debt had been cleared in 1980.
The witnesses said they knew nothing about who had authorised the press release.
The tribunal has adjourned until Tuesday, when it will deal with some remaining matters concerning Celtic Helicopters. It will then adjourn, probably for a number of weeks, before beginning hearing evidence on other payments relevant to its terms of reference.
