A senior accountant with Anglo Irish Bank has denied abdicating his responsibilities in 2008 during the trial of four bankers accused of conspiring to mislead the markets.
The former executives from Anglo Irish Bank and Irish Life and Permanent (ILP) are alleged to have conspired to mislead investors by setting up a €7.2bn circular transaction scheme to bolster Anglo's balance sheet in 2008.
Peter Fitzpatrick (63) of Convent Lane, Portmarnock, Dublin, John Bowe (52) from Glasnevin, Dublin, Willie McAteer (65) of Greenrath, Tipperary Town, Co. Tipperary and Denis Casey (56), from Raheny, Dublin have all pleaded not (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.
On day 42 of the trial, Brendan Grehan defending Mr Fitzpatrick, former director of finance at ILP, was cross-examining Kevin Kelly, who was head of financial reporting with Anglo in 2008.
Counsel put it to Mr Kelly that in deciding how to account for the €7.2bn in allegedly "back to back" loans, he had failed in his duty.
"You abdicated your intended function in this perhaps to please more senior people in Anglo who wanted their books to look good," Mr Grehan said. The witness said he didn't agree.
The jury heard that Mr Kelly helped prepare and "effectively signed off on" a document prepared for the bank's Audit committee in November 2008.
An entry in the document under the heading "Customer Accounts" stated: "The Group entered into an arrangement with ILP Group whereby €7.2bn was placed with Anglo from a non-bank subsidiary and Anglo in turn placed an identical amount with ILP.
"The transaction was cash neutral. The deals were done over two days. As a result of this arrangement 'Losses and Advances to Banks' and 'Customer Accounts' both increased by €7.2bn."
Referencing international accounting standards, IFRS, the entry continues: "IFRS does not allow the Group to net the financial assets and liabilities as they were transacted with two different counterparts and there was no legal right to offset. In addition on maturity all accounts were settled on a gross basis."
Mr Kelly agreed that this entry misrepresented the sequence of the transactions because Anglo had first placed €1bn with ILP before ILP deposited the same money back with Anglo in a precise sequence of allegedly circular transactions.
He accepted a submission from Michael O'Higgins SC, defending ILP's former CEO Denis Casey, that ILP were unwilling to take a risk with this transaction with Anglo.
The accountant also agreed that the significance of the deposit figure on a balance sheet was that it demonstrated that depositors had been willing to take a risk on the bank.
Counsel asked him how it could then be represented to persons reading the accounts published in December 2008 that there was €51bn risked on Anglo when it was clear that €7.2bn of this wasn't risk.
Mr Kelly replied: "It's my personal opinion that that full figure was at risk. The figure...correctly represents the credit risk."
Mr O'Higgins put it to him: "ILP weren't willing to take a risk. You had their money knowing they weren't willing to take a risk."
The witness replied: "Willing or not, our assessment was that risk existed, regardless of their intention".
He said that his understanding was that, in December 2008 if Anglo had gone into liquidation or become insolvent the exposure existed for ILP "regardless of people's expectations."
The jury heard that Anglo's accounts delivered on 19 February 2009 contained a number of explanatory notes around the ILP transactions which were absent from the preliminary accounts published in December.
Mr Kelly agreed with Mr Grehan's submissions that "the accounts delivered on February 19 with disclosure notes were a fairer and truer representation than that which had been provided on December 2".
The trial continues before Judge Martin Nolan and a jury.
