Quinn’s shock Anglo stake led to Maple Ten saga

The sequence of events leading up to the offences can be traced back to a meeting in a Navan hotel in September 2007 involving Ireland’s then richest man and two Anglo Irish Bank directors.

Quinn’s shock Anglo stake led to Maple Ten saga

Rumours had been circulating for months that Cavan billionaire Seán Quinn had built up a large control of Anglo through contracts for difference (CfDs), which are investment tools that bet on a stock’s performance.

The concern was that if Mr Quinn could not continue to fund the CfDs, they would be unwound and a glut of Anglo stock would come on the market, destabilising the share price. Anglo’s board of directors decided that CEO David Drumm should meet with Mr Quinn to find out the extent of his control.

It was decided that Anglo chairman Seán FitzPatrick would also attend the meeting as it was known that Mr Quinn was an admirer of how Mr FitzPatrick did business.

When the two directors met Mr Quinn in the Ardboyne Hotel on September 11 they were shocked to learn he controlled 24% of Anglo stock, worth about €2 billion. They had expected a figure in the low teens or less.

Mr Drumm reported back to the board, who ordered him to immediately tell the Financial Regulator. He did meet with the regulator Pat Neary, although Mr Neary later claimed he was never told the extent of Mr Quinn’s stake.

Over the following months Anglo’s share price declined dramatically. This meant Mr Quinn and his Quinn Group had to pay huge sums in margin calls to fund the CfD positions.

This money was coming from Anglo, who could not afford to allow a quarter of their shares to come on the market at once. In November 2007, Anglo lent the Quinn Group €150m. The next month they lent €500m.

Mr Quinn’s situation worsened considerably on March 17, 2008, after what became known as the St Patrick’s Day Massacre. The collapse of US bank Bear Stearns caused 30% to be wiped off Anglo’s share price.

The Quinn Group needed an immediate €220m from Anglo to meet margin calls caused by the plummeting share price. Meanwhile, the Anglo board became concerned about customers withdrawing their money on a large scale as had happened with British bank Northern Rock.

Measures were put in place in the event of a run on the bank and pressure was increased on Mr Quinn to unwind his CfDs, which Anglo believed were one of the causes of the share price decline. The situation was made more urgent with the discovery that Mr Quinn had continued to buy CfDs on Anglo and now controlled 29.4% of its stock. He insisted that the Anglo stock was undervalued and would recover.

Despite Mr Quinn’s reluctance to dispose of his CfDs, an agreement was reached on March 31, 2008, that he would “go long” on 15% of the CfDs. This meant his family would buy the shares outright.

Mr Quinn was unhappy because it would crystallise the losses he had already incurred, but he had no choice if he wanted to keep borrowing from Anglo.

The March plan also involved an institutional investor being found to buy another 10% of the stock. Anglo executives set about finding someone willing to take on the stock and Mr Drumm and Anglo’s head of Irish lending Pat Whelan set off on a tour of the Middle East in search of willing sovereign wealth funds.

Other strategies were also considered. Operation Sleeve involved issuing a new batch of Anglo shares to dilute Mr Quinn’s holding while Project Dribble, which was devised by investment bank Morgan Stanley, involved releasing small amounts of shares into the market on a daily basis.

These plans came to nothing, partly because of Mr Quinn’s continued reluctance to unwind the shares and partly because sovereign funds and finance institutions were not interested in Anglo shares.

Meanwhile, the share price continued to fall and Anglo was forced to continue funding the Quinn margin calls. At this stage, Mr Quinn’s Anglo borrowings were approaching €2 billion.

It is not clear who first proposed the Maple plan. The defence suggested the idea could have even come from the Regulator’s office. The trial was told that on July 8, 2008, Mr Drumm and Con Horan from the Financial Regulator’s office discussed approaching wealthy Anglo customers to buy the remaining 10%.

Events moved quickly after that. Ten long-term Anglo customers were selected and approached by Mr Drumm and Mr Whelan. The meetings happened over the following few days with the executives flying to France and Portugal to meet some of the customers.

The customers, referred to as “10 heroes” by Mr Whelan, were told Anglo would loan them the money to buy the shares and that they would be able to sell the shares after a short amount of time. Most were told they would be helping the bank in its hour of need and that they could potentially profit from the deal.

They were to borrow from Anglo to buy 1% each of the shares. The loans were subject to 25% recourse, meaning borrowers would only be personally liable for around €12m if the shares became worthless. All 10 signed up immediately.

On July 14, 2008, the deal went through. Mr Quinn’s wife and five children borrowed €169m to help buy 15% and the Maple Ten borrowed €45m each to buy 9.4%.

The Quinn Group issued a press release on the deal, although it did not mention the role of the Maple Ten, or that funding for the share purchase was coming from Anglo. At first the plan seemed to have worked with the share price rebounding over the following days.

However, the increase was only temporary. In September 2008, Lehman Brothers went under, sending shock waves through the financial markets and bringing Anglo to its knees. By the following January the bank was owned by the Irish taxpayer.

Few of the facts in the case were in dispute, but the prosecution alleged different levels of involvement by the three accused.

Least involved was former chairman Seán FitzPatrick. He was aware of the Quinn issue from meeting Mr Quinn in September 2007 and from a second meeting in March 2008. As chairman of the bank he was present for all board discussions of the Quinn problem.

He was told over the phone by Mr Drumm about the Maple plan and informed that Anglo would be lending to 10 wealthy customers to buy shares. Mr FitzPatrick told gardaí that Mr Drumm never told him the 10’s identities as he “was keeping it very tight”.

Mr McAteer was more involved. On July 8, 2008, he told chief financial officer Matt Moran about the Maple Plan and the next morning went through the details of the deal with Mr Moran and head of compliance, Fiachre O’Neill. He later told gardaí he wasn’t sure if he signed off on the loans and that he might have been on holidays at the time.

Mr Whelan was most active in arranging the Maple deal. He approached the 10 and drafted the associated documentation. According to prosecuting counsel he was “up to his neck in it”, although Mr Whelan’s counsel insisted he was merely following the instructions of his CEO.

Trial quotes

By Conor Gallagher

* “A lot of people, if they were on holidays and saw their bank manager might head for the nearest sand dune”

— Prosecuting counsel Paul O’Higgins SC on how one of the Maple 10 was in Nice, France, when approached by Anglo officials about the deal.

* “He told me that you will probably make no money in this transaction, but you will be a friend to the bank”

— Maple 10’s Brian O’Farrell on Drumm’s selling him the loan for shares deal.

* “If the bank went, I went”

— Maple 10 borrower Brian O’Farrell on his motivation for helping Anglo.

* “Seán Quinn needed to be reined in”

— Mr Quinn referring to himself in the third person regarding the CfD position he had built up.

* “I was at home looking after the children, I have no involvement with anything here, I’m sorry”

— Patricia Quinn when asked what she knew about the lending.

* “It was one of those moments you will never forget in your life”

— Former Anglo divisional director of lending Michael O’Sullivan on hearing about the extent of Mr Quinn’s control of Anglo.

* “I saw it very vividly. The problem was we had a loose cannon that had invested for the purpose of a financial gamble”

— Anglo director Michael Jacob on Mr Quinn’s CfDs.

* “I was never in his house, he was never in my house, we never socialised together”

— Mr FitzPatrick on his relationship with Mr Drumm.

* “If I tried to run the show with senior executives there would be absolute disharmony, murder and divided loyalty and they would be telling me to bugger off”

— Mr FitzPatrick on letting Mr Drumm assume power as the bank’s new CEO.

* “He asked, as if talking out loud, ‘I wonder was that the right transaction to do’, specifically in respect of the recourse to the 10 borrowers”

— Anglo chief financial officer Matt Moran describes what Seán FitzPatrick said to him after the Maple Ten went through.

* “Matt, I spoke to Willie about moving the game forward tomorrow with a select group of clients — he will brief you. Time for action”

— Email from Mr Drumm to Mr Moran July 8, 2008, regarding the Maple plan

* “I could have signed off on them but I could also have been on holidays”

— William McAteer when asked if he approved the July 2008 loans.

* “Mr Quinn was entitled as a private citizen to have all the investments he wanted to have. I respect that and I did not feel it would be fair or appropriate for me to tackle a person about his own investment portfolio”

— Former Financial Regulator Patrick Neary on why he did not question Mr Quinn about his control of Anglo.

* “I also take the view that the Financial Regulator took no steps to discourage the scheme or in any way stop it. And it seems from regulator witnesses that they were somewhat relieved when the scheme went through and that the CfD issue was alleviated and regularised”

— Judge Nolan’s view on the role of the regulator.

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