Police arrest Anglo Irish Bank's ex-boss

DUBLIN (Reuters) - Police have arrested Sean FitzPatrick, the former chairman of Anglo Irish Bank, sources said, the first casualty of a fraud investigation seen as vital to Ireland's efforts to win back investor confidence.

Grappling with twin fiscal and bank crises, the government has said it wanted to investigate fully the role of nationalised Anglo Irish and other banks in the collapse that brought a spectacular period of growth to an abrupt end.

It has announced a series of tough new regulatory measures, but until Thursday no arrests had been made.

"It is Sean FitzPatrick," a source familiar with the situation told Reuters on condition of anonymity. Irish public radio RTE also named the arrested man as FitzPatrick.

Police said they had arrested a man in his early 60s after an early morning search, but did not name him or the institution involved in their inquiry.

The finance ministry, which has pumped 4 billion euros (3.5 billion pounds) of capital into Anglo, also refused to name the man, but issued a brief statement. "There is an extensive Garda (police) investigation under way," said the statement, adding it was "eager to see justice take its course."

FitzPatrick said in December 2008 he had kept shareholders in the dark for years about loans worth 84 million euros he had received from Anglo Irish Bank, which had to be nationalised in early 2009.

The regulator has also been investigating whether Anglo Irish used more than 7 billion euros of short-term deposits from bancassurer Irish Life & Permanent to mask large customer disposals.

STEP IN RIGHT DIRECTION

Many investors avoided all Irish assets in the period after Anglo's nationalisation but Dublin has started to clean up its image by taking drastic steps to cut its budget deficit and by starting to overhaul its regulatory system.

Taxpayers who have footed the bill for the fiscal reforms and bank rescues have been demanding heads roll in the financial sector.

"Given the mood of mounting anger in the country at what the government has been forced to do to correct the public finances, it's absolutely essential that justice is seen to be done," said Jim Power, chief economist at financial services firm Friends First.

"This is certainly a step in the right direction, but of course it remains to be seen how this will be followed through," Power said.

Anglo will transfer at least about 28 billion euros of property loans to the National Asset Management Agency (NAMA), making it the biggest contributor to the government's "bad bank" scheme.

It is also expected to post the biggest loss in Irish corporate history around the end of March. A report in Thursday's Irish Independent newspaper said Anglo's pretax loss for the 15 months to the end of December would come in at almost 12 billion euros, which would be more than what Ireland collects in income tax per year.

It plans to split what remains after the NAMA transfers into its own "good" and "bad" bank.

(Additional reporting by Barbara Lewis; Editing by Andrew Callus and Simon Jessop)