- Day three of the Anglo Irish Bank trial at Dublin Circuit Criminal Court
- Former chairman Seán FitzPatrick, and former executives Patrick Whelan and William McAteer have pleaded not guilty to providing unlawful financial assistance to 16 people to buy shares in the bank
- Recap of Day Two updates here
16.10. The trial ended for the weekend at 3.45pm. Seán Quinn sat in court all day and will have to return on Monday to begin his evidence.
The court earlier heard that from November 2007 to July 2008 the Quinn Group borrowed €1.975 billion from Anglo in order to service margin calls on Contracts For Difference.
SC Michael O’Higgins asked: "It's an awful lot of money isn't it?" Mr McCaffrey agreed.
The barrister said that Morgan Stanley was brought in to "clean up the awful mess" that Quinn and Anglo found themselves in.
He said: "Part of Morgan Stanley's brief was to try and get the toothpaste back into the tube. I'm suggesting they were brought in to clean up the awful mess."
Mr McCaffrey said that this was not an accurate description of the law firm's brief.
15.45. Pat Whelan's barrister, Brendan Grehan SC, finished his cross-examination of Liam McCaffrey at 2.45pm.
His questioning of the former Quinn group CEO lasted over three hours.
"Would you agree that Seán Quinn lost €2.4bn on this spectacular punt on CFDs?", Mr Grehan asked Mr McCaffrey.
"He paid a very high price for investing in that bank," replied the former Quinn group CEO.
"He paid a very high price for investing in CFDs. That can't be called investing," counsel said.
"It's a matter of terminology," was the final response from Mr McCaffrey
Before this Mr Grehan told the court that after the unwinding of the CFD position in July and the subsequent press announcement, the price of Anglo stocks recovered and "Mr Quinn came back for another rattle".
As evidence of this Mr Grehan exhibited a letter from Seán Quinn to David Drumm on 26 July 2008.
In this letter, Mr Quinn wrote: "I'm not sure we were treated fairly. We were in effect forced to sell the shares regardless of market price on the downside while the purchasers were given a maximum price.
"I feel that the Banks insistence on the sale was detrimental to our position. I'm sure that your motivation was to protect the Bank and by definition our holding of it.
"There seemed to be a degree of panic driving the process.
"After a heated discussion on Friday I call you back to say we should all consider it over the weekend, however the approach from Anglo on Monday morning was just as aggressive and you walked out of the telephone call. I called you later that day but my call was not returned."
15:00. The trial resumed at 2.14pm when Brendan Grehan SC continued to question the former CEO of the Quinn Group, Liam McCaffrey.
Mr McCaffrey wrote in a letter: "I was told by Anglo they had taken legal advice to clear the transaction and therefore presumed that no issues were raised as regards it legality.
"Normal practice in banking followed by Anglo and others is that they would check the legality of the transaction.
"In addition Morgan Stanley (who were executing the transaction) were experts in this type of transaction and I would have relied on them to raise any concerns they may have had as regards the legality of the transaction.
"I was also aware that the Financial Regulator was familiar with the transactions. However they raised no concerns with us as regards legality."
They raised no objections to us, Mr McCaffrey told the court.
"He was more positive than he had been in March" is how Mr McCaffrey described in July the attitude of Con Horan to the CFD unwinding.
A press release issued on 15 July, 2008 by the Quinn family was displayed to the jury.
"They are in the process of unwinding their interests held in AIB through CFDs and as part of this process individual family members are purchasing long holdings in the bank's ordinary shares which will represent close to 15 per cent of Anglo Irish Bank's ordinary shares capital.
"The family regards these shareholdings in Anglo Irish Bank as long term holdings with significant opportunity for capital growth.
"In recent years we've been highly impressed with Anglo's ability to outperform the banking sector in terms of profit growth and we are confident this trend can be maintained over the longer term notwithstanding the current difficulties being experienced in international banking."
Mr McCaffrey described his relationship with Mr Whelan as "a good professional" one and said both men had "a high degree of mutual regard for each other".
The share price began to climb after the execution of the July transaction, back to the "lofty heights" of in and around €7.
"A bit like one of those lines on a hospital monitor, it goes flat in the end," Mr Grehan said of the plot of a graph of the Anglo share price in 2008.
13.30. "The whole thing at this stage was a house of cards. The whole thing could come crashing down," Mr Grehan tells Mr McCaffrey, describing Quinn's position with Anglo in 2008.
The former CEO of Quinn Group disagreed, saying: “We had large debts and covenant problems. The Quinn Group had no liquidity issue. Quinn Group had substantial debts.
"Many profitable companies have substantial debts. That doesn't mean they will come crashing down. The ratio of profit to debt was not exceptional."
The court has seen an email sent on 14 July 2008 from Anglo to Mr McCaffrey.
The brief email states: "Although Anglo have confirmed that FR are happy with transaction, can you put in a call with Con Horan out of courtesy?"
Mr McCaffrey said he called the Financial Regulator and: "spoke to Con out of courtesy. He seemed reasonably well briefed on what was happening. I said there would be a press release when the shares go long."
"He was positive about the matter, is that right," counsel asked.
"You were happy with that comfort from him that what was happening was in order and above board?"
"I was", the witness replied.
The trial has now broken for lunch. Mr McCaffrey will return to the witness box for further cross-examination at 2pm.
13.15 The court heard that Mr Quinn's stake in Anglo, through CFDs, went from 24% to 29.3% between September 2007 and Easter 2008.
Mr McCaffrey met the financial regulator on 31 March 2008, along with Colin Morgan from Quinn Insurance Ltd.
Con Horan, described as "second in command" with the financial regulator, was also there.
The minutes of that meeting, again displayed to the court via the document scanner, state that Mr McCaffrey told the regulator of the company's plans to unwind the CFD holding in Anglo and how a press release would be released on the morning of the transaction day.
The minutes state: "In terms of cash amounts involved closing CFDs would free up margin. This combined with borrowings from Anglo of €460 million would allow a long position of some €900 million to be achieved.
"It is anticipated that about 50 per cent of this could be refinanced within two months - discussions are on-going with Lehman Brothers and Credit Suisse."
Mr Grehan asked: "As far as you were concerned the financial regulator were four square behind it (the deal to unwind the CFDs)?" Mr McCaffrey agreed with this.
Mr Grehan had a draft letter sent on 19 May 2008 from Mr McCaffrey addressed to Con Horan but beginning "Dear Patrick".
Describing a number of transactions in 2007 and early 2008 which were "not subject to proper due diligence" the letter continues: "We have brought these transactions to the attention of the Financiers. They require comfort from the Financial Regular as whether any action is envisaged against Quinn Insurance that could impact its ability to continue to trade as usual.
"You have approved this repayment plan subject to the provision that, should equity markets improve, we will accelerate repayments.
"On this basis we would appreciate acknowledgement that the Financial Regulator is aware of the transactions and the actions taken by Quinn Insurance as outlined above and does not envisage taking any action that could impact the ability of the Company to trade as normal."
Mr Grehan put to the witness that this draft letter presented "a very sanitised version of events" that were subject of the Financial Regulator's investigation.
He said that the letter contains "no mention that quite an extraordinary amount of money had to be borrowed from Anglo to replenish the coffers of the Quinn group".
Mr McCaffrey disagreed and said all the transactions with Anglo were disclosed.
12.30: Mr Grehan asked Mr McCaffrey about a letter from Anglo referring to an agreement made with the Quinn group to reduce a €500m debt to the bank by selling off a portfolio of properties in Prague, Istanbul, England and Russia.
"Did any of these sales take place?" counsel has asked.
"No," replied the former CEO of Quinn group.
On 28 February 2008, a meeting took place between Con Horan, financial regulator Patrick Neary and Seán Quinn in which Mr Neary said he was concerned about the situation between Anglo and Quinn.
Mr Quinn said that he deeply regretted the situation and believed that "Seán Quinn needed to be reined in", referring to himself.
He told the meeting he believed it would be a mistake to sell off the CFD position in "an uncontrolled fashion and this would not be in anybody's interest".
Mr Grehan said that the collapse of Bear Stearns on St Patrick's Day 2008 significantly changed the situation for Mr Quinn.
Before this, counsel said, "Seán Quinn was able to tell the regulator 'I'm not going to sell shares'."
"No one was able to tell Seán Quinn what to do until the St Patrick's Day Massacre," he said.
On the following day, Mr McCaffrey wrote a letter to Anglo referring to the advance of a €220 million facility to Quinn Finance Limited.
In the letter, displayed to the jury through the use of a document scanner and the numerous computer terminals in the court room, he wrote: "I can confirm that as additional comfort to the security on this facility the Quinn family are prepared to support their personal guarantees by giving Anglo Irish Bank Corporation plc. physical custody of their shares in Quinn Group (ROI) Limited."
"As a further measure of comfort Quinn Group (ROI) Limited will not incur any further indebtedness within the Group without the prior permission of Anglo Irish Bank."
Mr Grehan has described this as the Quinn family handing over "the keys of the shop" to the bank.
Mr McCaffrey responded that he did not think this letter significantly altered the security on the loan, stating "It's a matter of degree".
11.30: The case is progressing swiftly with four witnesses called already and 99 remaining. Again it is standing room only in Court 19.
This may be because one of the most recognisable names on the witness list, Seán Quinn, is expected to give evidence today. The Cavan businessman is already in court and sitting behind the jury box.
He will have to wait until later to take the stand however as his former CEO, Liam McCaffrey, is still being cross-examined by counsel for Pat Whelan.
Mr McCaffrey is continuing to explain the large amounts of money Mr Quinn had to pay out in "margin calls" when his investment position in Anglo began to go wrong.
Mr McCaffrey agreed with Brendan Grehan SC that Mr Quinn was willing to take money from all the various Quinn companies to fund these margin calls.
The witness has also confirmed that in February 2008 the Financial Regulator was unhappy with Mr Quinn over his financial management of inter-company loans used to fund the margin calls.
Mr McCaffrey agreed that Mr Quinn was fined a record €3.5m by the regulator for this.