Anglo Irish Bank chased clients to the south of France and Portugal in a planned €800m deal to unwind secret share investments built up by former billionaire Sean Quinn, a court has been told.
At the opening of a trial in Dublin of three ex-bankers for the alleged unlawful provision of loans for the purchase of shares in 2008, a jury was told investors were sought in the US, the Middle East and holiday destinations of Nice and Faro.
Sean FitzPatrick, 65, the former chairman and one-time chief executive of Anglo, former chief risk officer Willie McAteer, 63, and former managing director of lending Pat Whelan, 51, face a total of 16 charges each in relation to the lending.
They pleaded not guilty to providing unlawful financial assistance to individuals in July 2008 for the purchase of shares in the bank, contrary to section 60 of the Companies Act.
Whelan faces a further seven charges of being privy to the fraudulent alteration of loan facility letters to seven individuals. He pleaded not guilty.
Dublin Circuit Criminal Court was told that Anglo created a plan to lend money to the Quinns and a so-called “Maple 10” of high net-worth clients, mostly developers and including Belfast-born businessman Paddy McKillen, to buy up the secret Quinn shareholding.
Paul O’Higgins, senior counsel for the State, revealed the original plan to unwind the position was thought to cost 800m euro but as the share price fell it ultimately involved €450m being loaned for the Maple 10 and €175m for the Quinn family.
“This was lending in very extraordinary circumstances which had nothing whatsoever to do with the ordinary course of the bank’s business,” he said.
The prosecution lawyer said one borrower was in the south of France when he was chased down by former chief executive David Drumm – who is living in the US and is not on trial – and Whelan.
“A lot of people if they were on holidays and saw their bank manager might head for the nearest sand dune,” Mr O’Higgins said.
Unsuccessful attempts were made to get investment from the US and at a roadshow in the Middle East where Anglo tried to line up sovereign states to invest.
The court heard the enormous lending was designed to let investors buy the Quinn holding, 25% of the bank’s share value. The former business tycoon Quinn built it up in undisclosed stock market deals known as Contracts For Difference (CFD).
Mr O’Higgins told the jury the now bankrupt businessman’s investments were a bet.
“At some time financial geniuses of some description offered an extraordinary form of gambling to members of the public – it was called Contracts For Difference,” he said.
“It’s what they called somewhat horrifically a leveraged investment – gamble large sums on shares that may go up or may go down. At the end of a fixed period the person who has gone in on the CFD wins or loses. There has to be a closing off.
“The bookie pays out or you pay the bookie.”
Mr O’Higgins told the court that the true extent of Mr Quinn’s holding became apparent when he met Mr Drumm and FitzPatrick at the Ardboyne Hotel in Navan, Co Meath in September 2007.
The prosecution claims the loans were arranged between July 8-30 2008, months before the bank was nationalised.
March 17, 2008 was highlighted as a key date. The court was told that after hitting a high of about €17 in 2007, Anglo’s shares were down to €6.50 by St Patrick’s Day the following year.
The court was told each member of the Maple 10 was due to get €60m but that fell to €45m as the share price continued to come down. They were only liable for 25% of the value of the loan, documents will show.
FitzPatrick, of Whitshed Road, Greystones, Co Wicklow; McAteer, of Auburn Villas, Rathgar, south Dublin; and Whelan, of Coast Road, Malahide, Co Dublin, are on bail.
The trial is expected to run until the end of May.
Lawyers for the three accused made a number of admissions on their behalf to the court after the prosecution opened the case.
Brendan Grehan, senior counsel for Whelan, said his client had written a report entitled “Review of Quinn and Related Transactions January 2009” before a criminal investigation was launched into the loan issue. It was later handed over to authorities.
The lawyer told the court Whelan believed that the loans were part of the bank’s ordinary business and that the then financial regulator Patrick Neary, and the regulator in the UK, agreed with the plan.
He said Anglo’s own compliance department had received legal advice on the plan and that a major international finance house executed the transaction.
The case itself is making legal history. A jury of eight women and seven men are hearing the case – the first time such a large number has been convened. Only 12 will be asked to return a verdict.
It is regarded as one of the most complex in Irish legal history with vast amounts of technical and financial evidence – 24 million documents and 800 witness statements.
Among the witnesses due to give evidence are the Quinns, former financial regulator Mr Neary and former Central Bank of Ireland governor John Hurley.
Anglo was ultimately nationalised in January 2009.
The Government stepped in following commitments made the previous September under the bank guarantee scheme and the bailout cost €29bn.
Anglo was subsequently rebranded the Irish Bank Resolution Corporation and then liquidated last year.