Drumm warned Anglo would be 'gone within a week', court hears

Monday 17 February 2014 21.49
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The trial is hearing evidence from a member of the Maple Ten
The trial is hearing evidence from a member of the Maple Ten
It is day nine of the trial of Patrick Whelan, Seán FitzPatrick and William McAteer
It is day nine of the trial of Patrick Whelan, Seán FitzPatrick and William McAteer

Property developer Brian O'Farrell said former Anglo chief executive David Drumm told him Anglo would be "gone within a week" if the bank did not plug the hole caused by Seán Quinn's stake in the bank's shares.

Mr O'Farrell is the sixth member of the Maple Ten to give evidence at the trial.

The Maple Ten was a group of Anglo's top customers to whom the bank lent money as part of a plan to unwind Mr Quinn's stake.

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 deny giving unlawful assistance to 16 people to buy shares in the bank.

Mr Whelan denies seven further charges of being involved in the fraudulent alteration of a document.

Mr O'Farrell said he was a property developer involved in residential and commercial properties and had been a customer of Anglo Irish Bank for 15 years.

He said he received a call from Mr Whelan in July 2008 saying there was a problem in the bank.

He said Mr Whelan and Mr Drumm called to his home in Malahide on 14 July. 

Mr Drumm explained what Contracts for Difference, short-selling and hedge funds were.

He said Mr Drumm told him a major client of the bank had amassed a substantial shareholding in the bank through Contracts for Difference and this had put the bank in a very bad position.    

He said they were putting together a group of businessmen to buy the shares.

He was told the bank would provide him with money to buy 1% of the shares.

He said Mr Drumm told him he probably would not make any money in the transaction but he would be a friend to the bank.

He said he was told the bank had got legal advice about the transaction and the Financial Regulator, Central Bank and Department of Finance were all aware of the transaction.    

He said Mr Drumm told him that if the hole was not plugged immediately, Anglo would be gone in a week and after that would drag down AIB and Bank of Ireland.

He agreed to buy the shares.

He later sold €6m worth of the shares but was left with €39m worth.

Mr O'Farrell said he was not expecting to lose money in the transaction.

He said he agreed to it because "if the bank went, I went".

He agreed there was "fear" involved.

Day Nine: Anglo Irish Bank Trial

A former non-executive director of Anglo, Michael Jacob, started giving evidence this morning.

He said he became aware around the middle of 2007 of Seán Quinn's bet on the bank's shares through high-risk Contracts for Difference.

He said the board was "very disturbed" by this and asked Anglo chief executive David Drumm and chairman Seán FitzPatrick to meet Mr Quinn and establish the extent of his holding and his intentions.

He said it became an ongoing issue for the board from then on.

He said in March 2008, the board was told of a potential plan to convert the CFDs into shares and dispose of them with an institutional investor.

He said he did not expect Anglo to be providing funding to such an investor.

He said he became aware the plan changed at the end of June 2008, when the original plan was found not to be working.

He said the fact that the bank was to lend money to ten customers of the bank to buy shares was not discussed by the board.

He said Seán FitzPatrick phoned him in July to tell him the transaction was complete.

Mr Jacob said he had no knowledge of the funding arrangement for the deal and only became aware of that later in the year.

He said the recourse to the investors - the amount they would have to pay back - was not discussed at board level.

He said he only became aware of the recourse at the end of the year.

And he said he only became aware of a letter which altered the recourse at the end of the year.

He said this change, which could have allowed the borrowers to repay nothing, was not discussed by the board.

Former Anglo group finance manager gives evidence

Earlier, the court heard evidence from Dermot Kieran, a former manager at group finance in Anglo.

He said he was involved in a logistical and administration role in the transaction in July 2008, under which Anglo lent money to ten customers to buy shares in the bank.

The transaction was part of a plan to unwind a 28% stake held in the bank by businessman Seán Quinn through CFDs - a form of bet on the Anglo share price.

He also prepared presentations for Anglo executives who had been trying to interest potential investors in buying Anglo shares earlier in the year.

Under cross-examination he said that Anglo's chief financial officer, Matt Moran, was charged with carrying out the transaction on behalf of the chief executive and board of Anglo.

He agreed Mr Moran and former head of compliance, Fiachra O'Neill, were central to the carrying out of the transaction.