Anglo considered ILP merger at height of financial crisis

Monday 07 March 2016 18.41
The court heard the potential acquisition of ILP by Anglo would have resulted in a more 'universal bank'
The court heard the potential acquisition of ILP by Anglo would have resulted in a more 'universal bank'

Anglo Irish Bank considered taking over or merging with Irish Life & Permanent at the height of the 2008 financial crisis, the trial of four bankers has heard.

Anglo's former head of finance Willie McAteer (65, the former CEO of Irish Life and Permanent (ILP) Denis Casey (56), and two others are accused of conspiring to mislead investors by using interbank loans to manipulate Anglo Irish Bank's balance sheets.

The interbank loans allegedly involved money being transferred by Anglo to ILP and then being put back on deposit with Anglo via ILP's life assurance division.

The transfer would allegedly appear as corporate deposits and not an interbank loan so the bank's corporate funding figure would appear bigger for the bank's year-end figures on 30 September 2008.

ILP's former director of finance, Peter Fitzpatrick (63) of Portmarnock, Dublin, John Bowe (52) from Glasnevin, Dublin, who had been Anglo's head of capital markets, Mr McAteer of Greenrath, Tipperary Town, Co Tipperary, and Mr Casey from Raheny, Dublin have all pleaded not guilty at Dublin Circuit Criminal Court to conspiring together and with others to mislead investors through financial transactions between 1 March and 30 September 2008.

At the beginning of week nine in the trial Matt Moran, Anglo's chief financial officer at the time, told Paul O'Higgins SC, prosecuting, that he had been offered immunity from prosecution by the DPP for anything that might arise in relation to Anglo Irish Bank.

He said that throughout 2008 he was involved in an ongoing project entitled "Universe", which was the potential merger of Anglo and Permanent TSB and ILP.

He testified that the potential acquisition of ILP would result in a more "universal bank" as Anglo was a more narrowly focused business bank than a "universal type bank".

Anglo did not lend money to people in the form of residential mortgages, while ILP and Permanent TSB did.

Mr Moran said the merger would have created the third largest banking force in the State but it never came to fruition.

Mr Moran said another project being examined by Anglo at this time was the idea of ILP providing mortgage funding to potential house buyers who would buy from development sites being run and managed by Anglo's developer clients.

He added that this would put liquidity back in to the housing market while not detracting liquidity from ILP.

He explained that when ILP issued a mortgage they were able to take that mortgage to the ECB and turn it into liquidity but a commercial bank like Anglo could not do this.

He said the project ultimately never happened as the mortgage transactions would be quite complex and there were so many other events happening at the time.

The witness said that in March 2008 he was asked by David Drumm, the bank's then CEO, to contact Allied Irish Bank (AIB) to see if it would place a deposit with Anglo, which "we [Anglo] would somehow fund".

He said he had gotten to know John O'Donnell, then group finance director of AIB and they discussed this.

He said Mr O'Donnell came back to him and said the bank was "willing to look at it" but with a key condition that the Financial Regulator be informed.

The jury saw a copy of an email sent by Mr Moran to Mr Drumm on the morning of 25 March 2008 stating: "Matt and I will dial in briefly - tee off with JOD at 12.10pm".

Mr Moran said this referred to his colleague Matt Cullen and himself and to a later golf game with Mr O'Donnell.

Mr Moran said that in the summer of 2008 Mr Drumm began discussing a process of planning for their year-end accounts in September.

In an email shown to the jury dated 28 July 2008, Mr Moran suggested: "It may be worth considering AIB again re depo [deposits] at y/e [year end]. Attitude is possibly more constructive in recent months..."

Mr Bowe replied: "Take care there Matt. The mere fact that we raise it after being turned down shows a weakness on our part that they would react to... if we can raise it in a very soft way…"

Mr Moran then responded: "I agree with the caution and that it's one we should only consider further down the line. My sense there is a softening. All parties were more constructive than I've ever seen."

The trial continues before Judge Martin Nolan and a jury.