Day Nine: Anglo Irish Bank Trial

Monday 17 February 2014 19.29
The three men deny the charges
The three men deny the charges

Key Points:

- Day nine 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

16.40 "Anglo was a helpless spectator to all this," is how Michael O'Higgins SC, defending Seán FitzPatrick, describes the bank's position during continued attacks on the bank's share price by international hedge fund speculators.

Mr O'Higgins said that the bank came up with a number of plans to deal with the large share position held by the Quinn Group via CFDs and to stop these attacks on the share price.

He said that one of these plans was called Project Sleeve and consisted of a plan to make a rights issue to existing shareholders, giving the banks' customers priority to buy new shares. He said that this would create more shares in the banks and dilute the value of CFDs.

He said another plan considered by the bank was entitled Operation Dribble. He said this was apparently promoted by Morgan Stanley who came up with a mathematical calculation where the bank could sell so many shares into the market without causing a collapse in the share price. He said that the Quinns "wouldn't play ball" with this plan.

He said the third plan in early April saw very senior representatives from the bank travelling to the Middle East. He said when this fell through executives flew to America and the bank came close to doing a deal with an US investment firm Bain Capital.

Michael Jacob agreed with counsel that during a board meeting in June he recalls David Drumm speaking via telephone from America and that he was quite optimistic that Bain would invest. He agreed this option was still on the table in early July but ultimately fell through.

He said that a fourth option was a reverse takeover by Rabobank and that on 10 July senior representatives from both banks met in Holland.

He said that he was aware in June that the final plan was to sell shares to "well regarded customers of the bank". He said the board were not aware that the bank would provide the funding for these transactions.

He told Úna Ní Raifeartaigh SC that he did not think he knew himself in advance of the transactions that there was lending.

He said he remembers getting a brief phonecall from Seán FitzPatrick in July during which the then chairman told him that "the transaction was completed".

Mr O'Higgins, for Mr FitzPatrick, said his client's memory of the call is that it was around lunchtime on 9 July and occurred after he had taken a call from Mr Drumm about the transaction.

Counsel said that Mr FitzPatrick's recollection of the phone call is that he described ten high net worth clients of the bank who were taking up the shares, they were people of substance, the Financial Regulator was aware and legal advice had been received.

The witness said that he only remembers being told the transaction was completed. He had earlier testified that it was common practice for Mr FitzPatrick to "pick up the phone" and ring board members to circulate any new information as he received it.

The trial has ended for today.

15.33 The trial resumed at 2.15pm with Brendan Grehan SC, continuing his cross examination of Michael Jacob, who served as a non executive director of the bank from 1988 to 2009.

He agreed that after the collapse of Bear Stearns there was a global turn against banks and this made it difficult for Anglo to unwind the large shareholding held by the Quinn Group.

"We were at the end of a long queue of people who might have been looking for investors," he said.

He agreed that another part of the fallout from the St Patricks massacre was there were hedge funds spreading rumours about the bank. The board made representations to the Financial Regulator about this issue and the Regulator made a public announcement reassuring people about the bank and launching an inquiry into whether people had been "bad mouthing" the bank.

Describing the bank's attempts to find investors to buy part of the Quinn Group share position he said:"The board was assured that the regulator was kept aware."

Mr Jacob said that the plan to get a sovereign wealth fund in the Middle East failed and then executives from the bank went on road shows in the US looking for investors but this also came to nothing.

"There was some hope for a period of time but it petered out," he said. He testified that discussions also took place with Dutch bank Rabobank.

The bank can only loan a maximum of 25% of its assets to anyone individual borrower. He said that by the first week in July the Quinn Group was at or near this limit. Meanwhile, he said, the share price was still falling.

He agreed the share price was a barometer of the bank and had an affect on the ability of the bank to build up large deposits.

Mr Grehan said: "We've got to the situation in July where there is no white knight. The unwind hasn't happened. The situation, as bad as it was, is worse. The rumour mill is still going with the hedge funds."

Counsel asked Mr Jacob when he learned of the plan that individuals would be approached in order to unwind the CFD position.

"I didn't know who they were. I knew they were clients of the bank," he said.

13.30 Before breaking for lunch the trial heard evidence from Michael Jacob, who was on the board of Anglo.

He told Brendan Grehan SC, defending Pat Whelan, that the board discussed concerns that there would be a run on the bank after the wiping out of the Bear Stearns bank on St Patrick's Day 2008.

Mr Grehan asked him if the board had discussed the organising of large queues and the need to open the bank outlets early and ensure customers were inside the bank.

Mr Jacob said he could not recall these specific matters being discussed.

Mr Grehan put it to him that the board also discussed the possibility that hedge funds would plant people inside bank queues to "whip up hysteria".

The witness replied that he remembered hearing a lot about hedge funds at that time and agreed that they were acting purely as "profit merchants" and that this was related to the widespread rumours that Seán Quinn had a wide shareholding position in the bank.

He agreed "the Quinn problem" was the "biggest black cloud on the horizon" for the bank in 2007 and 2008.

"We had a loose cannon … It was uncontrollable as far as we could see."

He said he was horrified when he discovered that the Quinn Group had increased his CFD position.

12.45 "The bank went, I went," Mr O'Farrell told Brendan Grehan SC, defence counsel for Pat Whelan.

He told Mr Grehan that he had a very successful business relationship with Pat Whelan over the years, adding: "During those 15 years we formed a strong bond of friendship."

Witness number three this morning is Michael Jacob, who was non-executive director of the bank from 1988 to 2009.

He said his role on the board was to attend board meetings, to monitor the affairs of the bank and to guide the strategy of the bank.

He said that during his tenure he sat on all of the various committees of the bank.

He said decisions were made collectively by the board and each person had one vote.

He said he became aware of Seán Quinn's large CFD position in the bank in mid-2007 when Mr Drumm brought it to the board during a meeting.

The board was very disturbed to learn of the level of Mr Quinn's holding. The board collectively asked that the Regulator be informed immediately.

He was told it would be possible to dispose some of the shares through the international investors and he didn't think these would require funding from the banks to buy the shares.

"I would expect not, any of those organisations would have their own resources to manage a trade," he said.

He said he believed this plan changed later to a plan to allow for some individuals, who had loan facilities with the bank, to purchases shares.

"The plan was altered sometime after the end of June when the original plan found not to be working," he said.

He said he did not know anything about the funding arrangement for such a plan and only became aware in August that the bank had funded the transaction.

He said before this there was discussion of ten investors, and no naming of the ten, at any board meeting.

He said that sometime in July Seán FitzPatrick made a brief telephone call to him and told him that "the transaction was complete".

He said the nature of calls like this from the chairman were often brief because Mr FitzPatrick would probably be calling all the members of the board to "convey the same message".

He said he could not recall if he became aware, from this phone call, that ten people had bought the shares or how the transaction had been funded.

11.40 Lorcan Staines BL, defending Pat Whelan, asked Mr Kieran about an email sent from Matt Moran to himself on the week before the Maple Ten loans were executed.

The email read: "Project Maple – Regulator conversation done and went fine".

The second witness of the day was Dublin property developer Brian O'Farrell.

He said he was a long standing customer of the bank and had dealt primarily with Pat Whelan and David Drumm.

He said his company dealt in residential and commercial property and did not normally have any dealings with stocks or shares.

He said he was on holidays in July 2008 when Pat Whelan rang him and asked to meet him with David Drumm.

He met the two bankers at his home at Beechbrook, Back Road, Malahide at 8.30am on Monday 14 July 2008.

He told the court: "David Drumm asked me did I know what CFDs were, did I know about short selling, did I know about hedges funds. I didn't. He spent an hour explaining them to me.

"He said a major client of the bank, who he didn't name, had amassed a large shareholding and it had put the bank in a very bad position.

"The bank was going to provide me with money to buy the shares. It was 100% of the shareholding. They told me that a group of business men were being put together by the bank.

"He told me that you'd probably make no money in this you'd be a friend to the bank.

"I asked if this transaction was legal. He said yes. I asked him who was aware. He told me the Financial Regulator, the Central Bank and the Department of Finance knew about it.

"It was a short-term plan. I understood it to be several months. The shares would be placed with an institution as soon as possible.

"David Drumm told me if this hole wasn't plugged immediately, Anglo would be gone within a week and after that they would probably drag down AIB and Bank of Ireland."

Ms Ní Raifeartaigh, counsel for the State, asked him if his own loans in the bank were part of his motivation for agreeing to be part of the deal.

He replied: "My loans were all performing. I would have been dependent on the bank for loans in the future. I made the decision there and then. I signed it."

11.35 It is week three of the Anglo trial in the Criminal Courts of Justice.

Matt Moran, former chief financial officer at the bank, was due to give evidence today but the court has been told that he will not appear until tomorrow.

While it is no longer standing room only in court 19, the room is still full.

There are 14 lawyers present this morning.

The 15-strong jury arrived into the court room at 10.42am and Úna Ní Raifeartaigh SC, prosecuting, called the State's 22nd witness, chartered accountant Dermot Kieran.

In 2008 he was working in group finance in Anglo, having joined in 2003.

He said he worked for Mr Moran. He said he became aware of Seán Quinn's CFD shareholding in Anglo in late 2007.

He prepared "pitches" or presentations for senior banking executives to use in their attempts in 2008 to find investors in Anglo shares.

He said these potential investors included private equity funds, a large Dutch bank and large institutional investors.

He said he took part in conference calls between Morgan Stanley, Quinn Group and himself over the weekend of 12 July.

He was working with Fiachra O'Neill and Brian Gillespie on the weekend that the plan to unwind the CFD shareholding through the Maple Ten investors and the Quinn family was put in place.

They were operating under instructions that weekend from the CEO, then David Drumm, and the board, he said.

The jury were shown an email outlining an agenda for discussions to take place over that weekend, including market abuse considerations, potential market impact of settlement structure and disclosure requirements.