Anglo Trial
Rolling updates from second day of the Anglo Irish Bank trial
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This event has now ended
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10:06The second day of the trial of former executives of Anglo Irish Bank is due to commence shortly. Check in regularly for live updates.
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10:07
Sean FitzPatrick leaving Dublin Circuit Criminal Court yesterday. Photograph: Dara Mac Dónail/The Irish Times -
10:10Watch video from the first day of the Anglo trial.
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10:19
Willie McAteer leaving court following the opening day of the Anglo Irish Bank trial at Dublin Circuit Criminal Court yesterday. Photograph: Dara Mac Dónail/The Irish Times -
10:46Day two of the Anglo Irish Bank trial is about to start here in Court 19 of the Courts of Criminal Justice in Dublin.
The three former directors are seated closely together in the dock. Sean FitzPatrick is wearing a charcoal grey suit, white shirt with a blue pinstripe and a bright red tie.
Willie McAteer is wearing a darker suit, white shirt and a pastel pink tie. Pat Whelan, the youngest of the three accused, is dressed in a dark suit and a light blue shirt with the top button open and no tie.
This morning we expect to hear evidence detailing how Anglo is defined under the law as a company. A second witness will be explaining precisely what Contracts for Difference (CFDs) are.
Stay here for updates throughout the day. -
10:54
Pat Whelan, former chief financial officer of Anglo Irish Bank, arrives at the Circuit Criminal Court in Dublin this morning. Photograph: Niall Carson/PA Wire -
11:15Úna Ní Raifeartaigh SC, for the prosecution, has begun questioning Claire Pyke, who she described as having “the dubious honour of being the first witness in this case”.
Ms Pyke is an officer in the Companies Registration Office (CRO).
Her evidence is being given with the aid of computer screens dotted around the courtroom.
There are nine small flat computer screens on view to the legal teams, seven small screens shared between the 15 jurors in the jury box and one small screen shared between the three accused in the dock.
Additionally, there are two very large flat screens mounted on the walls of the courtroom.
The barrister has asked Ms Pyke about a document now on display on the screens. The document gives details from the Companies Register, detailing the registration of the “City of Dublin Bank Limited”, the precursor to Anglo Irish Bank.
The document shows that on December 31st, 1986, the bank changed its name to Anglo Irish Bank Corporation plc.
It notes the various changes in directors and secretaries in the company in the time up to 2008.
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11:27Here's a link to comprehensive coverage of the Anglo trial from The Irish Times.
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11:44The jury has been shown a graph showing changes in the price of Anglo shares over 2008.
The graph shows a “very clear decline” in the share price from the start of 2008 to the end of the year.
In January, a single share was priced at €10.72. By December 31st, the price of a share had dropped to 17.1 cent.
On St Patrick’s Day that year, there was a significant drop in the price to €6.95. This coincided with the failure of Bear Stearns Bank, the court was told.
Heading into July 2008, the price of a share had dipped to €5.95. It went below €5 for the first time about July 10th.
It went back up after July 17th and hovered around the €5-€6 mark during August.
By September 24th, the price had dropped to €3.98. It was at €2.03 on September 29th.
Brendan Grehan SC, defending Pat Whelan, formerly the bank’s managing director of lending in Ireland, referred to the failure of Northern Rock in the UK and queues forming outside a branch in Dublin.
He then quoted Warren Buffett as describing Contracts for Difference (CFDs) as “weapons of mass destruction”. -
12:05Court 19, one of the largest in the Criminal Courts of Justice building, is packed out, with standing room only in the back.
There are more than 30 members of the public standing in the back, ranging from young teenagers in hooded tops to well-dressed middle-aged women, to a few men in suits.
There is also an overflow courtroom to accommodate anyone else who wants to view proceedings.
The court has just heard evidence from Natasha Mercer, a company secretary with the bank in 2008.
She said the board of directors would normally hold eight to 10 scheduled board meetings a year. But, in 2008, the board met 33 times.
Ms Mercer said she would normally take handwritten minutes and type these notes up later.
Under cross-examination by Lorcan Staines BL, for Pat Whelan, she said she did not have these handwritten notes at hand, but might be able to produce them for another occasion on which she may give evidence.
There were six meetings where Ms Mercer was not present, and no-one acted as secretary - except for one meeting where Willie McAteer acted as secretary, the court has heard.
The dates in 2008 of these board meetings were Ms Mercer was absent include meetings on March 18th and 24th, September 9th and three meetings on September 29th.
The witness said she talked to Mr McAteer about the recording of these meetings and typed up minutes based on his notes. -
12:08If you missed live updates from day one of the trial yesterday, click here.
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12:12
Sean FitzPatrick arriving for today’s sitting in the Anglo Irish Bank case at the Circuit Criminal Court. Photograph: David Sleator/The Irish Times -
12:18Read Tom Lyons's piece on day one of the trial.
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12:46Seamus Coffey, lecturer in economics at University College Cork, has been giving evidence. He specialises in macro-economics and banking.
He is present to “try to explain” what Contracts for Difference (CFDs) are.
He has told the jury that a share is a right to the future income stream of a company. But a CFD is an asset that is derived from the performance of the company. It is known as a derivative.
He compared it to the difference between having a share in a racehorse and placing a bet on the performance of that horse. The value of a horse racing bet is based on the performance of a horse. He said this is broadly like a CFD.
The key word in CFD is the final word - difference. Using the horse betting analogy, if the horse won by a certain distance you would gain more, he said.
Just like you would go to a bookmaker to make a bet, you would go to a broker to buy a CFD, Mr Coffey continued. In this case, these could be very large investment banks. -
13:04Mr Coffey continued with his analogy of the purchasing of these financial instruments from brokers with the placing of a bet on a horse with a bookie.
Say a person makes a contract with a broker, he said. The buyer will hope the share price rises. The buyer doesn’t have to actually buy the shares, but put up a margin, or a deposit.
If a person owns a CFD and there’s a rise in the share price, the difference in the value of the shares accrues to the owner of the CFD.
The owner can then end the CFD, end the contract, and walk away with the profit.
If the share price drops, the owner of the CFD loses out.
The broker earns money from commissions. The broker can, if they like, purchase the actual shares in order to protect themselves from the risk of a big payout. He compared this to a bookie “hedging their bets” by laying out a large bet elsewhere.
This means that if one person is buying CFDs, the brokers could be laying out their risk by buying shares elsewhere.
If the price falls, they can close out the deal and take the loss. Or they can persist in the belief that it is merely a temporary fall.
When the price falls the broker will deduct money from the deposit to cover their loss. In order to continue the CFD holder must maintain the deposit with the broker.
The broker will then ask the CFD holder for a “top off” of the deposit in cash - this is called making a margin call.
If the CFD owner is not prepared to top up, the broker will close out the CFD. If shares have fallen in price, the buyer must make up the difference.
If the CFD ends, the broker may go back to the market and sell the shares. -
13:23The trial has broken for lunch.
Before the break, Cork economist and lecturer Seamus Coffey was under some colourful cross examination from Michael O'Higgins SC, counsel for Sean Fitzpatrick.
“It's a bit like that movie, Trading Places. Win, lose, or draw, they always get paid," Mr O’Higgins said, describing how the big international institutions profit from the use of CFDs.
“It's all done in the dark, To use a buzzword, there may be a lack of transparency,” Mr O'Higgins said. The economist agreed that this is an issue with the use of CFDs.
The court heard the investment banks lend shares to people who bet against the value of the share. This is called short selling. If a person feels a share might drop in value they can borrow the shares from an investment bank. They then sell it at a high price, wait for it to drop and buy it back at a lower price.
The investor then returns the borrowed shares to the bank and pockets the profit.
Mr O'Higgins presented an example: "Let's suppose I borrow a million euro and I give (the investment bank) my million euro worth of shares as collateral.
“A person in the meantime has taken out a CFD betting that my shares will go up. If the share goes down the bank gets paid because the CFD owner has to make up the difference.
“The hedge funds may also go to my investment bank and borrow my million euro shares to short-sell them. They might have done this with a hundred banks and have €100 million in their back pocket."
He said that to exploit the prospect of the share falling, the investment bank can borrow as many shares as they can, sell them, then rush back in and buy them. The flood of new shares on the market will have the desired effect of lowering the price for the hedge fund, he added.
Describing how the hedge funds are “hoping” the share price might fall, Mr O'Higgins said they are trying to damage the shares. “They're not saying Hail Marys. They are selling large amounts of the share”, he said.
He put it to Mr Coffey that the CFD owner would see these hedge funds as “gougers”.
“These people are ruthless,” the barrister put to Mr Coffey.
Mr Coffey said the CFD market is known as a grey market. Mr O'Higgins said that “black art” would be more accurate.
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13:30Mr O’Higgins SC presented an example: “Let’s suppose I borrow a million euro and I give (the investment bank) my million euro worth of shares as collateral.
“A person in the meantime has taken out a CFD betting that my shares will go up. If the share goes down, the bank gets paid because the CFD owner has to make up the difference.
“The hedge funds may also go to my investment bank and borrow my million euro shares to short-sell them. They might have done this with a hundred banks and have a hundred million euros in their back pocket.”
He said that to exploit the prospect of the shares falling in value, the investment bank may borrow as many shares as they can, sell them, then rush back in and buy them. The flood of new shares on the market would have the desired effect of lowering the price for the hedge fund.
Mr O’Higgins said the hedge funds would effectively be trying to damage the share value by “hoping” the share price would fall.
“They’re not saying Hail Marys. They are selling large amounts of the shares,” he said.
“These people are ruthless,” the barrister put to Mr Coffey.
Mr Coffey said the CFD market is known as a grey market. Mr O’Higgins said “black art” would be more accurate.
The trial has now broken for lunch.
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14:42
Seamus Coffey arriving at the Circuit Criminal Court in Dublin for the Anglo trial this morning. He explained in court what the financial instruments known as contracts for difference are used for. Photograph: Niall Carson/PA Wire -
14:46Court resumed after the lunch break at 14.12pm with senior counsel Patrick Gageby, for Willie McAteer, cross-examining Seamus Coffey for a short time.
The jury has just heard that Sean Quinn will give evidence tomorrow. -
15:06
Claire Pyke of the Companies Registration Office leaving the Circuit Criminal Court today after giving evidence in the Anglo trial. Photograph: David Sleator/The Irish Times -
15:28
Natasha Mercer, formerly a secretary to the Anglo Irish Bank board, leaving the Circuit Criminal Court today, after she gave evidence. Photograph: David Sleator/The Irish Times -
15:29The court is now hearing evidence from former Quinn Group chief executive Liam McCaffrey, and has been told he had nothing to do with the CFD holding built up by Sean Quinn.
He says that during a meeting in September 2007 in the Ardboyne Hotel in Navan, the main item of discussion was this CFD holding. -
15:48Mr McCaffrey said the Quinn CFD build-up in Anglo had begun from 2006 onwards.
The September 2007 meeting lasted around 60 to 90 minutes.
Mr McCaffrey said by March 2008 the brokers were making “margin calls” on Mr Quinn because the Anglo share price was falling. Mr Quinn had to fund these calls.
The money to fund these was coming from Anglo. -
15:50Mr McCaffrey told the court: “In and around March 17 (2008), with the fall of the share price, the margin calls (on the CFD holding by Quinn) became extreme.”
This date was earlier referred to as the St Patrick’s Day Massacre, because of the collapse of Bear Stearns bank in the US.
He said these margin calls were around the magnitude of “two, three hundred million, a significant amount of money”.
During a meeting on March 24, 2008, there was a suggestion that Mr Quinn would get out of the CFD holding. Some of the shares would be purchased under the “Quinn umbrella” and some would be sold elsewhere.
He said Mr Quinn didn’t accept that proposal. “He had an underlying belief the shares would recover.”
At another meeting “Sean agreed to move forward” with the unwinding of the CFDs. Mr McCaffrey said Sean Quinn’s attitude was “one of reluctant agreement”.
Fifteen per cent of the 25 per cent CFD holding would be purchased outright by the Quinn family and 10 per cent was to be placed in the market.
“There was a marketing exercise and it became clear in mid-April that no buyers could be found,” Mr McCaffrey said.
A conference call on the morning of July 14th was “a difficult and angry conversation”, he said.
Sean Quinn was reluctant to go ahead with the unwinding because he was holding out for a recovery of the share price.
“Either (former Anglo chief executive) David Drumm walked out or Sean (Quinn) hung up. There was a row,” he told the court. -
16:32Before the court rose for the day, Mr McCaffrey told Brendan Grehan SC, defending Pat Whelan, that the idea behind the CFDs was to provide the Quinn family members with independent wealth. He said this plan “went fatally wrong in the end”.
“At some stage, contracts for difference entered stage left. Where did that suggestion come from?” asked Mr Grehan.
“I suspect it came from some of the brokers who were purchasing shares,” Mr McCaffrey replied.
Mr Grehan put it to him that “Sean Quinn became quite enamoured by CFDs”, and Mr McCaffrey replied that this appeared to ultimately be the case.
Mr McCaffrey said the money to buy CFDs came from bondholders and surplus cash in the Quinn Group.
He said after the Ardboyne Hotel meeting in September 2007 he felt the situation with the CFD holdings was “concerning”. He agreed that Mr Quinn never wanted to close out the CFD position.
Mr Grehan said: “He (Mr Quinn) maintained an eternally optimistic view that it (the Anglo share price) would recover.” Mr McCaffrey said it became a question of “How low can it go?”
He declined to comment on a suggestion by the barrister that “the bank was conjoined with Sean Quinn at the hip in terms of their fates”.
The barrister said the situation reminded him of the old adage, “If you owe a bank a thousand euro it’s your problem. If you owe the bank a million it’s the bank’s problem.”
Evidence has now ended for the day here in Court 19. Check back tomorrow for the latest updates on the trial, when we expect to hear from Sean Quinn.