Former billionaire Sean Quinn reluctantly agreed to loans from Anglo Irish Bank to unwind his secret share holding following a row with the bank’s executives, a court has been told.
The bankrupt tycoon’s second in command told the fraud trial of three ex-Anglo executives the plan was put forward at a series of meetings in hotels and over the phone.
Sean FitzPatrick, 65, former chairman and one-time chief executive, former chief risk officer Willie McAteer, 63, and former managing director of lending Pat Whelan, 51, have pleaded not guilty to 16 charges of providing unlawful loans for clients to buy shares in the bank.
Dublin Circuit Criminal Court was told the first money from Anglo to cover losses from Mr Quinn’s secret share trades involved drawdowns of €150m in November 2007 and €500m the following month.
Liam McCaffrey, former Quinn Group chief executive and number two to Mr Quinn, said he sat with his boss on several occasions as Anglo chiefs proposed to unwind the secret holding in 2007 and 2008 – one of which was a conference call on July 14, 2008 which ended in a bust-up.
The chartered accountant repeatedly referred to those involved by first names - FitzPatrick and then chief executive David Drumm, who is living in the United States and is not on trial.
“It was a difficult and angry conversation. Sean (Quinn) was reluctant to go ahead with the proposal ... he thought there might be a recovery in the share price,” Mr McCaffrey said.
“It ended, and it ended badly. Either Sean (Quinn) walked out or David hung up. There was a row. And Sean (Quinn) agreed to it reluctantly.”
The court heard Mr Quinn had initially told Anglo in September 2007 that he had built up a 24% stake in the bank.
The secret gamble was run by a Portuguese registered company, Bazzely Ltd, set up by Mr Quinn as an investment engine for his family. It used contracts for difference (CFDs), a loosely regulated investment derivative which at the time did not have to be publicly divulged and essentially amounted to undeclared bets that the share price would increase.
The court heard Mr Quinn initially used the Madeira-based company to make ordinary share investments, including in Ryanair, but later became enamoured with the idea of CFDs. With Anglo he put “all his eggs in one basket”.
Mr McCaffrey said FitzPatrick and Mr Drumm were taken aback when they learned of the scale of trades – by September 2008 Mr Quinn held 29% of the bank.
“They were concerned about the level of it and somewhat surprised,” Mr McCaffrey said.
“Sean (FitzPatrick) seemed quite surprised. David (Drumm) made the remark that he thought it may have been somewhere in the teens.”
Anglo shares peaked at €17.53 on June 1 2007. The bank lost a fifth of its value on the St Patrick’s Day Massacre in 2008 when big US investment bank Bear Sterns collapsed. Anglo was virtually worthless by the end of 2008.
Mr McCaffrey told the court that all along Mr Quinn had an underlying belief that the share price would recover.
But the court heard the demand from margin calls – when the CFDs bets were to be paid – became extreme following the St Patrick’s losses and up to €300m was needed on the back of this.
All the time the Quinn Group, which had been turning profits of up to €500m a year, was being used to cover losses. The court heard this left the company needing a cash boost of €200m in June 2008.
The court also heard Anglo had lent money to the Quinn family, primarily for property investments, and by September 2007 funding for the family’s deals was up at €800m.
A series of meetings with Mr Quinn and Anglo took place in 2008 where FitzPatrick and Mr Drumm are alleged to have urged Mr Quinn to unwind the CFD position by selling shares into the market, by allowing his family to buy some of the holding with money from Anglo and by bringing other investors in.
Anglo moved to take control of the CFD holding in the summer of 2008 and used international finance house Morgan Stanley to execute the transaction.
The trial opened yesterday with prosecution lawyers saying that 16 clients were approached by Anglo in July 2008 to take loans and use the money to buy shares in the bank.
The court was told it was to create a public perception about the bank’s value on the stock markets by unwinding the Quinn holding.
The court has been told it involved loans of €625m – €450m for a group of high net worth clients known as the Maple 10 and €175m for members of the Quinn family.
Lawyers for FitzPatrick and Whelan have said they accept the loans were made but they deny any illegality.
The three accused 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 has also pleaded not guilty to a further seven charges of being privy to the fraudulent alteration of loan facility letters to seven individuals.
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.