The trial of four senior bankers accused of conspiring to mislead investors has heard that former Anglo Irish Bank CEO David Drumm authorised €7.2 billion in allegedly dishonest transactions.
The four executives — including former Irish Life and Permanent (ILP) chief executive Denis Casey and Anglo’s former group finance director Willie McAteer — are accused of conspiring to mislead investors by using interbank loans to make Anglo appear €7.2bn more valuable between March 1 and September 30, 2008.
In his opening speech to the jury at the Circuit Criminal Court, Paul O’Higgins SC, prosecuting, said the four men engaged in a scheme on a vast scale which had no commercial substance.
He said on the night that the bank guarantee was being put in place the artificial transfer of €1bn was taking place repeatedly to make the bank’s customer deposits look healthier to anyone examining them.
Mr McAteer (65) of Greenrath, Tipperary town, Co Tipperary; Mr Casey (56), from Raheny, Dublin; ILP’s then group finance director Peter Fitzpatrick (63) of Malahide, Dublin; and John Bowe (52), from Glasnevin in Dublin, who had been Anglo’s head of capital markets; have all pleaded not guilty to four charges.
Matt Cullen, who was introduced by prosecuting counsel Úna Ní Raifeartaigh SC as having “the dubious honour of being the first substantial witness in the case”, outlined his function as senior manager of Anglo’s treasury department in 2008.
He said in March 2008 it had become more difficult for banks to get funding and competition for deposits was fierce. The American investment bank Bear Sterns had collapsed that month and the Bank of England was having emergency meetings, he said.
On March 17, the share price in Anglo had fallen by a substantial amount and this day became dubbed the “St Patrick’s Day massacre”. The half-year-end for the bank was coming up on March 30, he said, and the bank would have to report to the markets.
Mr Cullen was told to approach ILP and ultimately a “back to back” transaction was set up where Anglo placed €750m with ILP and the ILP Group would “give us back a corporate deposit” from Irish Life Assurance Corporate, the non-banking entity owned and managed by ILP.
He said it had to come from this entity so that it would show up as a corporate deposit as opposed to an inter-banking loan. The court heard that non-banking deposits, from the likes of life assurance and pension funds, had a greater value than inter-bank loans from the point of view of the markets and investors looking at a bank’s state of health.
The transfer was short term to cover the month end, he said and testified that the bank’s then chief financial officer Matt Moran and CEO David Drumm knew about the transaction. Mr Cullen said when the transaction was explained to Mr Drumm he said: “That’s not an issue, no problem”.
He said he didn’t have any concerns about getting the normal inter-bank loan limit of €300m increased to €750m, stating: “I believed we were being tasked by the executive management to do so and they wanted us to complete the transaction”.
By June, Anglo had a strong cash flow and Mr Cullen said he was contacted by his opposite number in ILP, David Gantly, who asked about Anglo assisting ILP to reduce their reliance on ECB funding coming up to ILP’s half-year reporting date that month.
“I spoke to David Drumm and Willie McAteer and everyone said yes to that,” he said. Anglo transferred €3bn to ILP and ILP transferred a portfolio of mortgages to Anglo.
He said over the following months a list of about 50 “funding initiatives” was drawn up. By the end of September there were three initiatives left and the ILP/Anglo deal was one.
“As funding initiatives fell away David Drumm turned to me and asked me would I ask Irish Life would they do six or seven billion in September.
“I rang Dave Gantly and told him I’d been asked by David Drumm to ask you to ask ILP would you do six or seven billion over our year end in September. He said who was asking.
“I clarified who was asking. He came back to to say Peter Fitzpatrick said they would do it if we did the same for Irish Life in December at their year end.
“I spoke to Willie McAteer and David Drumm. I relayed that message back to them. They said ‘absolutely no problem, go back and tell David Gantly we will do that’”.
The trial, which is scheduled to run for up for five months, continues before Judge Martin Nolan and a specially enlarged jury of eight men and seven women.