A former director of treasury at Anglo Irish Bank has said the purpose of an arrangement between Anglo and Irish Life and Permanent (IL&P) in September 2008 was that €6bn to €7bn would be reported in Anglo's year-end figures as a corporate deposit.
Four former bankers - John Bowe and William McAteer from Anglo, and Denis Casey and Peter Fitzpatrick from IL&P - are accused of being involved in a €7.2bn conspiracy to mislead depositors, investors and lenders by making Anglo's deposits look much healthier than they were.
Matt Cullen said the executive directors of the bank were aware of the purpose of the transactions and he had assumed that the board of the bank was also aware.
The jury has been sent home until Monday at the earliest, after a legal issue arose.
'Arrangement' regularly discussed
Mr Cullen said the arrangement was regularly discussed at weekly Friday afternoon meetings in David Drumm's office, chaired by Mr Drumm.
The court has heard that the scheme involved money being transferred by Anglo to IL&P.
It would then be put back on deposit with Anglo by the life insurance business Irish Life Assurance for a few days so that it would appear in Anglo's figures as a corporate deposit.
Mr Cullen told the court yesterday that the idea for the "back-to-back loans" first came up in March 2008.
He said in September that year Mr Drumm asked him to see if IL&P would do transactions worth €6bn or €7bn coming up to Anglo's year end at the end of that month.
Irish Life agreed, if Anglo would do the same for them in December the court heard.
Mr Cullen said he could not recall where the figure of €6bn to €7bn came from but that was the target that had been agreed by the executive directors.
The court heard Anglo was having difficulty completing the scheme at the end of September 2008 as it had run out of money to make its normal daily payments.
IL&P said it did not want to continue but agreed to complete the transactions on 30 September after the bank guarantee had been brought in by the government.
Anglo was also provided with emergency funding of more than €1bn by the Central Bank before it opened for business on 30 September.
It had informed the Central Bank on the previous night that it did not have enough funding to make all its payments the next day.
Mr Cullen said the transactions began on 25 September when £900m from Anglo Isle of Man was routed by Anglo to IL&P.
They continued on 26 September, but on Monday 29 September he said Anglo did not have enough money to make its ordinary payments and could not continue with the transactions.
Mr Cullen said this was the first time Anglo had been "blocked" in this way.
He described asking IL&P for funding four times but IL&P refused as Anglo was not offering any security.
Anglo eventually raised enough funding to make its payments on 29 September.
But that evening Mr Cullen said Anglo informed the Central Bank that it did not have enough money to make its payments the following day.
He said the Central Bank provided them with emergency funding of more than €1bn.
Mr Cullen said the next day the government guarantee had been brought in overnight.
This had an extremely positive effect on the Irish market and billions of euro started flowing back into Anglo.
He said he spoke to Mr Bowe and a decision was made to continue with the IL&P transactions.
IL&P said no at first but when asked if the guarantee made any difference IL&P said they would continue.
Mr Cullen said the transactions were made in €1bn tranches.
He said the purpose of the money coming back into Anglo from Irish Life Assurance was that it had to come from a corporate entity so that it could be included in Anglo's year-end figures as a corporate deposit.
He said he could not recall if the transactions had any effect on giving extra liquidity to Anglo.
He said he had not considered that there was any commercial purpose to the transactions other than presenting the figures in the year-end report.
Mr Cullen said the executive directors were aware of the purpose of the transactions and he assumed the board knew about it.
He said the transactions were discussed regularly at weekly Friday afternoon meetings in Mr Drumm's office.
He said Mr Drumm would chair the meetings and Mr McAteer and Mr Bowe would also be there.