Anglo trial hears about normal lending practiceTuesday 01 April 2014 18.52
A banking expert has told the Anglo trial that it was not normal for a bank to approach customers to ask them to borrow money.
Tom Reid, a former director of Ulster Bank, also told the trial that making borrowers personally liable to repay just 25% of the loans they were given was not the normal way to lend money.
Mr Reid was giving evidence for the prosecution in the trial of Anglo's former chairman Seán Fitzpatrick and two former directors of the bank, Patrick Whelan and William McAteer.
All three men deny giving illegal loans to 16 people to buy shares in the bank.
Tom Reid worked for Ulster Bank from 1964 until 2004 and was on the board of directors when he retired.
He was asked by the Director of Public Prosecutions to look at the transaction at the centre of this case.
He said he had looked at a number of documents relating to loans given by Anglo Irish bank in July 2008 to members of the "Maple ten".
The court has heard these were ten customers of Anglo who were given loans of around €45m each to buy shares in the bank, as part of a plan to unwind Seán Quinn's interest in the bank.
The court has heard that letters sent to the Maple ten setting out the terms and conditions of the lending, made the borrowers liable to repay 25% of the loans.
Loans to the Quinn family made them liable to repay 100%.
He said it would not have been his position or practice to lend money for this nature on the basis of 25% recourse.
It was not the normal way to lend money for this purpose.
He said in his experience there would always be 100% recourse to a personal borrower.
Mr Reid, said normally borrowers approach a bank for money.
But in the case of the Maple ten, they had been approached by Anglo, even though bank documents signed to approve the loan, suggested the customers had approached the bank.
He said borrowing normally originates with the customer.
He said he was not aware that Ulster Bank's private banking arm encourages customers to talk to specialist financial advisers who would offer to sell them certain products.
Mr Reid said the documents prepared by Anglo as part of the credit applications for the Maple ten would not have contained enough information to have persuaded him to approve the loans.
He said they did not contain enough detail about the net worth of those borrowing the money.
He said he was not given any information by the prosecution about the net worth of any of the Maple ten.
He said before approving a loan you need to see evidence that the borrower can repay it.
Mr Reid said it was not common in his past experience to see a block deal to 16 borrowers and he had not seen 16 identical credit committee applications in his experience.
He said a second facility letter sent to the Maple 10, dated 17 July, weakened the bank's position with regard to the loans.
Lawyers for Patrick Whelan put it to him that he left Ulster Bank in 2004.
Times had changed and he would not have been aware of how lending was done in the overly aggressive lending environment after 2003/2004.
Mr Reid said the values and manner in which you assess lending should remain the same whether it was 1982 or 2002.
He said he could not remember seeing any reference in the written credit policy of Anglo Irish Bank to a requirement for 100% recourse to personal borrowers.
He agreed the policy allowed for loans to be approved outside a normal credit committee meeting in exceptional cases.
He agreed the Maple ten loans were intended to be short term facilities and the bank intended to make a profit out of them.
Mr Reid also agreed the Anglo share price had steadied for a time after the July 2008 transaction went through.
He agreed the bank's unwinding of Seán Quinn's position and lending of money was entered into to protect the asset base of the bank which he said was of primary importance.
Mr Reid agreed with lawyers for Seán Fitzpatrick that the lending culture had become more relaxed after 2004.
He said there was too much "short termism".
Senior Counsel, Michael O'Higgins put it to him that he was criticising Anglo's lending policy based on his own information which he had not updated since 2004.
Mr Reid agreed with Mr O'Higgins that "conceptually" he had no problem with lending money to buy shares providing it was done on commercial terms with 100% recourse.