Day Five: Anglo Irish Bank TrialTuesday 11 February 2014 16.49
- Day five 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
- Mr Whelan has also denied seven charges of being privy to the fraudulent alteration of a loan facility letter
16.00: Mr McCluskey says he was aware of the large fall in Anglo share price on St Patrick’s Day 2008.
He was at the parade in Dublin when he was told to come into the office to deal with an urgent margin call.
He says that on 18 March he became aware of the full extent of Seán Quinn’s CFD position.
Mr McCluskey is now describing the second facility letter sent to Maple Ten granting them an effective 0% recourse. As we have heard, this letter was dated 17 July 2008.
He says his first reaction to sign such a letter was "refusal".
"I voiced my discomfort because I was of the view that it was taking away 25% recourse," he says. "It was weakening the bank’s positions."
"Michael (O'Sullivan, his line manager) told me he had been advised by Pat (Whelan) that it had been approved by the CEO and the board of the bank."
"I said that was ok but I refused to sign it. So the letter dated 17th of July was ultimately signed by Michael and Pat."
The witness says he understands that these letters were then sent out to the ten investors.
He says that in January the team prepared more amended facility letters.
These had the effect of reverting to the original recourse terms of July 2008.
He says these new letters came about as a result of an "asset quality review" with directors.
He says this was a "high level review" of large facilities.
15.45: "I was at home looking after the children, I have no involvement with anything here, I’m sorry," Mrs Quinn tells the prosecution. Her evidence has now finished.
Next up is Lorcan McCluskey, who, in 2007, was associate director of lending in Anglo. He left in September 2012.
He is describing how decisions were made in Anglo on loan applications.
First applications would come through the "mini credit committee". If there was consensus it would go forward to the main credit committee where the head of risk would look at it.
There were criteria that loan applications had to meet in terms of pricing, gearing and recourse. These loans were primarily for property with a small number for share transactions.
He says he was contacted by Pat Whelan around 9 July 2008. He was asked to go to his office where he was told that a CFD position was being unwound and that €60 million each was being loaned to ten investors.
He was instructed to prepare the facility letters for the ten people. He said he had not dealt with most of them before and had never met four of them.
Mr McCluskey has been asked to name the ten people. He remembers most of them before prosecuting counsel Paul O'Higgins SC tells him they can deal with it later.
The Anglo team who were working on the deal was called "Team 91", Mr McCluskey says.
He says the exercise was "very unusual" as he had never before been asked to draft ten identical loan facility letters.
"Never happened before, never happened since, so it’s very unusual," he says.
15.30: The fourth Quinn witness is now in the box.
Ciara Quinn, daughter of Seán Quinn Senior, tells the prosecution she was a 20% shareholder in the Quinn Group and worked in Quinn Insurance as a claims investigator.
She said she signed many documents at the time, including several identical to the ones signed by Mr Quinn Jnr and Colette Quinn as heard about previously.
She says her role was confined to signing documents that were put in front of her and that nobody talked to her about these at the time.
She agrees that these documents were put in front of her by staff in the Quinn Group.
Ciara’s sister, Brenda Quinn, is now in the box. She says she had no knowledge of the build-up to the deal.
She is now aware that she got a €50 million loan to purchase shares in her name.
She says she had no interaction with Morgan Stanley, the Financial Regulator or lawyers about the deal at the time.
We are progressing swiftly through witnesses here.
Next up is Patricia Quinn, wife of Mr Quinn Snr.
She said she played no active role in relation to the Quinn Group.
Additionally she played no role in the building up of private wealth for her children.
Her husband took care of all this.
She also played no role in the CFD deal, she tells prosecuting counsel. She agrees that her signatures appear on the documents.
Speaking of one document she says: "It’s my signature but I don’t remember anything, I don’t know anything about it."
15.10 Joe O’Reilly tells the trial that when Mr Whelan and Mr Drumm approached him they explained CFDs and how they were impacting the reputation of the bank.
He says, in relation to the share deal, he "trusted the bank" and "got good comfort that they were using one of the leading legal firms in town", referring to Matheson Ormsby Prentice.
He also says he got the impression either the Department of Finance or The Central Bank were aware and approved of the deal. He was also aware Morgan Stanley was involved.
"That was as good a team as you could put out there," he says.
Mr O’Reilly agrees with counsel that he was "happy to let the bank get on with the details, having signed the main headlines (of the deal)."
He says that in July he thought the shares were good value. The reasoning was, the shares had fallen 75% in their value and would have to fall another 75% before he would be liable for a loss.
It was his belief the shares would go up.
14.50 Trial resumes after lunch break with the cross-examination of "Maple Ten" investor Joe O’Reilly.
He has already told the jury about the loan he was offered by Anglo, at 25% recourse, to buy shares in the bank to help stabilise the share price.
He is now being cross-examined on this by counsel for Mr Whelan, Brendan Grehan SC.
He agrees that he was involved with large property developments such as the Grand Canal Theatre and the redevelopment of the Carlton Site by O’Connell Street which was to cost around €500,000m.
He agrees he was worth a substantial amount. Mr Grehan suggests a figure of about €1 billion. He also agrees he had loans from many banks.
Mr O’Reilly told Mr Grehan that he was also sometimes approached by Anglo’s private bank division about transactions he might like to get involved in.
He says on some loans the recourse was “interest only”. Some loans had some capital recourse, maybe 20-30% and the interest.
He says his company, Castlethorn, would have a loan from Anglo with a “relatively small personal guarantee”. He agrees in general he would seek to get the best deal possible.
Counsel puts it to him that there’s nothing unique about the bank approaching him with a deal involving a loan with “limited recourse”.
Mr O’Reilly says the bank was involved with him in a development plan for shops near the Gaiety Theatre.
13.30 Before breaking for lunch, developer and builder Joe O’Reilly, was in the box. He is the second "Maple Ten" investor to give evidence.
On 4 July 2008 he got a call asking him to meet Anglo officials. He was in Portugal at the time. He met Mr Drumm and Mr Whelan on 6 July at a restaurant in Faro.
Mr Whelan told them a person had a large stake in Anglo, mainly through Contracts for Difference. This was causing turbulence in the shares and driving the shares downwards, they said.
They said they wanted to unwind the situation and asked him to buy 1% - up to €60 million worth.
The Anglo men explained the shares were being "shorted" which impacted on the share value and the bank’s reputation.
The lunch meeting lasted just over an hour. The bankers said the Financial Regulator was on board with the unwinding deal and it was implied the Department of Finance had also been informed.
Mr O’Reilly says he was also told lawyers and Morgan Stanley had also approved the deal.
Mr O’Reilly agrees he signed an initial facility letter which stated Anglo would have 25% recourse on the loan, in other words 25% of the loan amount if the shares fell to zero.
He later received a second facility letter with was dated 17 July 2008. However, the witness is "certain" he received this "some time" after that date.
It contained an altered paragraph in the loan security section. This read: "Recourse to the Borrower will be limited to 25% of the balance outstanding under the facility or to the value of the shares at the expiry of the facility."
Mr O’Reilly says he took that to mean the recourse would be whatever the shares were worth at the end of the facility in early January 2009.
As it turned out, the shares were worth nothing by that date, meaning no money would need to be repaid.
However, a third facility letter was later issued. This removed the alternative recourse of the end value of the shares and reverted to the terms agreed in the first facility letter, meaning Mr O’Reilly was again subject to 25% of €45 million.
The witness says he sold some of the shares - about 500,000 and was left with 9.75 million which were worthless by the start of 2009.
Counsel for Pat Whelan, Brendan Grehan SC, has re-examined Sean Reilly.
Mr Reilly was in a taxi away from the court when he received a phone call to return.
Mr Grehan asked Mr Reilly if it was unusual for Anglo’s private banking division to approach him with transactions he might want to get involved in.
Mr Reilly says it is not unusual and happened several times. However, he agrees with the prosecution that Anglo had never approached him before with a deal to buy shares in the bank.
The trial has broken for lunch - Judge Martin Nolan joked to Mr Reilly "to get away while you can".
13.00 Mr Reilly has told defence counsel Brendan Grehan that he initially made money on the Anglo deal and was up €7 million at one stage.
He later sold 80% of the shares. The stake he was left with became worthless when the bank was nationalised, but he still had to repay 25% recourse, which was about €2 million.
He said he would have ten to 15 loans at the time, with varying recourses. A maximum recourse of 30% would have been normal for investment loans with Anglo at the time.
Mr Reilly said Anglo would have generally been "unusually sticky" about personal recourse compared to other banks.
He said he had facilities with "practically" all the other banks. With Ulster Bank, he could have loans with no personal recourse or up to 50%.
He also had loans with international banks.
These loans "would not be for millions, we're talking 100s of millions" Mr Grehan suggested. The witness agreed. He said there was no personal recourse on these loans.
Mr Reilly concluded his cross-examination by saying he found Pat Whelan "very straightforward" to deal with.
He confirmed during re-examination that there was no negotiation with Anglo over the 25% recourse in the deal because he thought 25% was "okay".
Mr Reilly has now finished his evidence. Up next is another Maple Ten investor, Joe O'Reilly.
12.30: Mr Reilly is now looking at a letter dated 17 July 2008. It is a facility letter from Anglo which states that it "supersedes" the previous facility letter sent out on 10 July 2008.
This replaces the original €60 million loan figure with a lower figure of €45 million. This reflects the fact that the shares were bought at a lower price than originally envisaged.
It also differs from the first facility letter in that it states the recourse to the borrower would be 25% or the value of the shares.
The word "or" in that last sentence has been introduced into this document in comparison with the letter dated 10 July, counsel says.
Mr Reilly says he understood this to mean that if the shares fell to nothing he would have no recourse; in other words he would not have to repay any of the €45 million.
The jury have also viewed a third loan facility letter addressed to Mr Reilly from Anglo and dated 5 January 2009. This letter states that it "rescinds" the previous facility letters from July.
The witness said shortly before receiving this letter he got a call from Mr Whelan stating there was a mistake on the 17 July letter and the January letter was sent out to address this.
This letter removes the clause stating the recourse could include "the value of the shares at the expiry of the facility".
Cross-examination of Mr Reilly has now begun. He agrees with counsel for Mr Whelan that he was a long-standing lender from the bank.
He agrees he would have been considered a wealthy man with a large portfolio including office blocks in Dublin.
12.00: Mr Reilly is now going through documents relating to the deal to buy the shares.
One document details the 25% recourse he would be liable for if the shares fall to zero.
Mr Reilly says he understands that in the deal, the bank had 100% security on the shares and a 25% additional personal recourse on Mr Reilly.
In other words, if the share price bottomed out to zero, Mr Reilly would have to pay a quarter of the value of the loan.
Mr Reilly says he signed the document on 11 July 2008, accepting the terms of the deal.
Another document signed on the same date has been presented to the witness.
It granted power of attorney to Anglo officials allowing them to engage Morgan Stanley to buy up to 12 million shares in the bank. Its terms extended to 25 July 2008.
This document means Mr Reilly gave power to the bank to act on his behalf when buying the shares, counsel says.
A third document from 11 July 2008 has also been shown.
This details conditions attached to the loan facility.
The document states he must give the bank ten days' notice before selling on the Anglo shares and that the bank may nominate a third party to buy the shares.
The witness says he promised Mr Drumm not to "flood the market" with the shares.
11.30: Another Quinn sibling, Colette, has been and gone.
She gave broadly similar evidence to her brother, saying she had little knowledge of the intricacies of the deal and only found out later that the funding was coming from Anglo.
Sean Reilly is now giving evidence. He was a customer of the bank and received loans from them.
He says Pat Whelan called him in his office in Ivy Court around 8 July.
He was asked to come in and meet David Drumm the next day.
The meeting was in Mr Drumm's Stephen's Green office. Mr Whelan was also there.
Mr Drumm said bank shares were coming under pressure from short selling and they were trying to unwind a position in the bank. They asked him to buy about 1% or 60 million shares.
The holder of this "position" was not disclosed.
"I was told Anglo would loan the money on 25% personal recourse.
"If the shares ended up at 0% I would have to pay 25% or €15 million."
He was told Morgan Stanley would sort out the mechanics of the deal. Told the lawyers and Financial Regulator approved the deal. The meeting lasted about 30 minutes.
He said he would think about it and went off and consulted with his partner. He decided it was a good deal at 25% recourse and they went along with it.
Another reason for going along with it was because the bank wanted him to do it and he had a good personal relationship with the bank.
On 10 July he went in to speak with Mr Drumm and gave them power of attorney to take the necessary steps in the transactions.
About 10 million shares were bought in the end using a loan of €45 million.
The shares were bought at €4.365.
Mr Reilly said he was only aware of the Quinn involvement from reading the newspapers.
He later read the press release announcing the unwinding of the Quinn CFD position and was able to link this to the deal he had done.
11.00: The trial has resumed in Court 19.
Judge Martin Nolan is warning the jury about a front page article in today's Irish Independent, which incorrectly states that Seán FitzPatrick was at a particular meeting with Seán Quinn in September 2008.
The judge has told the jury that Mr FitzPatrick was not present at the meeting.
He said that jurors may read the papers if they like, but to take the evidence as it is said in court.
"Most of the time the reporting is right but sometimes it can be wrong, as shown today."
Seán Quinn Jnr has resumed his evidence and is being taken through documents relating to the Anglo share buying deal by prosecuting counsel Úna Ní Raifeartaigh SC.
Mr Quinn Jnr admits he has very scant knowledge of the deal but that most signatures on the documents are his own.
In 2002 he became a shareholder of the Quinn Group.
Additionally he would sign a large amount of documents as part of his role as Operations Director of Quinn Insurance.
He agrees under cross-examination from counsel for Pat Whelan, Lorcan Staines BL, that he had a large amount of responsibility with 1,000 people under him.
He agrees he and his family are involved in ligation with the remnants of Anglo.
He says this revolves around the fact that the Quinns feel they are not liable for the loans from Anglo because they were illegal and as a result they are not liable for them.