Former divisional head of lending testifies at Anglo trialWednesday 12 February 2014 21.53
The former divisional head of lending at Anglo Irish Bank has told the Dublin Circuit Criminal Court he was in complete shock when he heard that Sean Quinn had built up a significant stake in the bank through contracts for difference.
Michael O'Sullivan agreed Mr Quinn's position had the capacity to de-stabilise Anglo and damage the country's other banks.
The former chairman of Anglo Irish Bank and two former Anglo executives are charged with providing unlawful financial assistance to 16 people to buy shares in the bank.
Seán FitzPatrick, 65, from Greystones in Co Wicklow, 51-year-old Patrick Whelan of Malahide in Dublin and 63-year-old William McAteer of Rathgar in Dublin have pleaded not guilty to the charges.
Mr Whelan has also denied seven charges of being privy to the fraudulent alteration of a loan facility letter.
Giving evidence on the sixth day of the trial, Michael O'Sullivan said that learning of Sean Quinn's stake in the bank "was one of those moments you never forget in life".
He agreed there was potential for disaster that may not have been realised by Mr Quinn but had the capacity to destabilise the whole bank and could have caused a domino effect and damage other banks.
Mr O'Sullivan described his involvement in 2008 in the preparation of loan facility letters for the so-called Maple Ten in a scheme devised to unwind Mr Quinn's position.
Former exec Michael o Sullivan describes complete shock at hearing about Quinn stake in Anglo. Day he would never forget #anglotrial— vivienne traynor (@viviennetraynor) February 12, 2014
The trial has previously heard Mr Quinn's 29% stake through the high-risk CFD investment mechanism was causing turbulence on the markets and pushing the Anglo share price down.
The loans are now the subject of criminal charges against the former chairman and two executives of the bank.
He also said he had raised concerns about a subsequent altering of the loan terms to make them non recourse and was annoyed that the board of Anglo had not been informed about the change.
He said he later challenged Mr Whelan about the fact that the board had not been told and reported it to the head of group risk.
Mr O'Sullivan said he felt compromised by it and in all his 26 years working he had not seen such a thing happen.
The security on the loans was later reinstated to make them 25% recourse loans, meaning the borrowers had a liability for 25% of the money loaned.
The court was also told the terms Maple Ten and the "Maple Transaction" were dreamt up by international financial services company Morgan Stanley.
Senior Counsel Brendan Grehan said Maple was chosen as a code as it had the same number of letters as "Quinn".
Former associate director testifies at Anglo trial
Former associate director of lending at Anglo, Lorcan McCluskey, was cross-examined by Mr Grehan, senior counsel for Mr Whelan, earlier.
Mr McCluskey repeated his belief that the ten identical letters prepared for loans to the Maple Ten to buy shares in the bank were very unusual. He told Mr Grehan he had never come across it before.
He accepted that the CFD position held by Mr Quinn was serious for the bank and that Anglo was coming under pressure from the Financial Regulator to resolve the problem.
Yesterday, Mr McCluskey told the court he later refused to sign letters altering the terms of loans to the Maple Ten because he deemed them less favourable to the bank.
Today, he accepted he had not spoken directly to Mr Whelan about the letters, but understood the instruction had arisen from a meeting his superior, Michael O'Sullivan, had with Mr Whelan.
Mr McCluskey also said he was told former chief executive David Drumm and the board had wanted the letters drawn up.
He also accepted the letters needed to be changed because the original amounts had not, in fact, been loaned out as the share price had dropped.
Mr McCluskey agreed there was a need to correct the letters in this regard in any case.
Mr Whelan denies being privy to the fraudulent alteration of loan facility letters.
During cross-examination this morning, Mr McCluskey said his discomfort with the terms manifested itself in his refusal to sign the letters.
He denied that he had given differing accounts of his involvement with the transactions in various interviews with different bodies.
Mr Grehan suggested that yesterday was the first time he gave the impression of being "the mouse that roared" in refusing to sign the letters, when up to then the most he had said was that he was uncomfortable with the altered terms.
The loans at issue were given to ten investors known as the Maple Ten, along with six members of the Quinn family to buy shares in the bank in July 2008.
They were designed to unwind the position built up by Seán Quinn through a high-risk investment mechanism known as Contracts for Difference, which were causing volatility on the markets and pushing the Anglo share price down.
The prosecution claims the loans were illegal.
During cross-examination by Michael O'Higgins, counsel for Mr FitzPatrick, Mr McCluskey was asked if the credit committee made decisions on loans independently of anyone else in the bank.
Mr McCluskey said he would use the term "objective" to describe their decisions.
He agreed the decision to grant loans rested with the credit committee.