Anglo Trial

Rolling news updates from trial of former Anglo Irish Bank directors

Irish Times Reporters Wed, Feb 12
 
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  • This event has now ended
  • 10:26
    We are continuing with live coverage of the trial of former Anglo Irish Bank executives Sean FitzPatrick, Willic McAteer and Pat Whelan shortly. Check back in for rolling updates.
  • 10:29
    For full coverage on our website of the continuing trial, click here.
  • 11:02
    Former Anglo Irish Bank chairman Sean Fitzpatrick arrives at Dublin Circuit Criminal Court today. Photograph: Collins Courts
    Former Anglo Irish Bank chairman Sean Fitzpatrick arrives at Dublin Circuit Criminal Court today. Photograph: Collins Courts
  • 11:46
    Welcome to live coverage of day seven of the trial of Sean FitzPatrick, William McAteer and Pat Whelan.

    Lorcan McCluskey, a former associate director of lending at Anglo Irish Bank, has continued his evidence this morning.

    He identified a letter presented to him by the prosecution. It is a typed loan facility letter dated July 10th, 2008, with handwritten notes made in several places.

    Mr McCluskey said the notes are in the handwriting of himself, Pat Whelan and the former’s line manager at the bank, Michael O’Sullivan.

    One note states: “To replace letter dated 10/7/2008.” This note is crossed out, but legible. Mr McCluskey said he believes it is Mr Whelan’s writing.

    Another of the notes states: “Ten heroes Rec SAT 11/10/08.”

    The witness said this note was also in Mr Whelan’s handwriting. A further note changes the loan amount to the borrower from €60 million to €45 million.

    Mr McCluskey said he believes he first saw this letter on October 13th, 2008. He has previously said he refused to sign this updated letter because it would, he thought, weaken the bank’s position.

    He also said he kept a copy of the letter at the time as evidence that its contents had not been drafted by him or Mr O’Sullivan.

    Under cross-examination, Mr McCluskey denied his account of events “has evolved over time”.

    Counsel for Mr Whelan, Brendan Grehan SC, put it to him that up until now he never said he refused to sign the letter, that the furthest he went was to say he was uncomfortable with its contents.

    Mr McCluskey repeated that he had refused to sign it.
  • 11:48
    An email sent from Mr McCluskey to Fiachra O’Neill on July 10th, 2008 is now being shown to the court.

    The subject reads: “Proposed wording - prepared by ANL (no identities of clients and/or stock revealed).”

    This email references a condition Mr O’Neill sought to have imposed on the loans to the Maple Ten. The condition would require the ten to give Anglo advance notice if they wanted to sell the bank’s shares which had been purchased using Anglo loans.

    Mr McCluskey said he definitely did not draft this letter and that it was probably drafted by a solicitor. He said he believes this document was never used, as it was replaced by a new set of documents drawn up by solicitors’ firm Matheson Ormsby Prentice (MOP).

    Mr McCluskey said he had no dealings with MOP himself but that they did act for the bank and acted as part of the share deal with the Quinn children.
  • 12:05
    Witness Lorcan McCluskey leaving Dublin Circuit Criminal Court yesterday. He has again been giving evidence in the Anglo trial today. Photograph: Collins Courts
    Witness Lorcan McCluskey leaving Dublin Circuit Criminal Court yesterday. He has again been giving evidence in the Anglo trial today. Photograph: Collins Courts
  • 13:04
    Mr McCluskey said in October 2008 a facility letter came to him from his line manager Michael O’Sullivan which required his signature.

    He said he had no direct dealings with the accused, Pat Whelan, about this new facility letter. The instructions came through Mr O’Sullivan.

    Mr McCluskey said he understood the instruction to sign the letter had come from a meeting between Mr O’Sullivan and Mr Whelan. He said Mr O’Sullivan told him Anglo’s chief executive, David Drumm, as well as the board, wanted the new facility letter drafted.

    Defence counsel Brendan Grehan SC asked the witness whether there was anything wrong with the first facility letter which was sent in July.

    Mr McCluskey said the only error he was aware of was that the loan should have been €45 million, not €60 million. This was because the shares’ price had fallen, meaning a smaller loan was required to buy them.

    The witness said the original facility letter was in existence from the date of the drawdown - July 15th, 2008.

    It was then changed in October and the terms of the recourse were altered. Mr McCluskey has previously said this alteration removed the original 25 per cent recourse Anglo could recoup.

    It put in place a new recourse agreement which meant the Maple Ten might be subject to no recourse whatsoever.

    This zero per cent recourse was later amended in a third letter which reinstated the original 25 per cent recourse.

  • 13:10
    The jury has heard that one of the changes in the second facility letter sent to the Maple Ten was to reduce the loan amount from €60 million to €45 million, to reflect the lower value of the shares.

    Mr Whelan’s defence counsel, Brendan Grehan SC, put it to Mr McCluskey that one of the reasons for the new letter was because one of the Maple Ten, Jerry Conlon, came back asking to borrow the extra €15 million.

    “If one came back looking for the extra €15 million, then the rest of them could too,” counsel said.

    He put it to the witness that “the purpose of the second letter was to stop this from happening”.

    Mr McCluskey agreed this was correct, that there was a need to correct the facility letters for this reason.

    Mr Grehan asked Mr McCluskey who it was who decided that the date of July 17th, 2008 should go on the second letter, which Mr McCluskey claimed was drafted in October 2008.

    The witness said he believed Pat Whelan had decided the date should go on the letter.

    Mr Grehan put it to the witness that he presented himself to the jury as “the mouse that roared” when he refused to sign the October letter.

    Counsel put it to Mr McCluskey that he never told investigating gardai¬ that he refused to sign - he merely said he was uncomfortable with the new letter.

    The witness repeated that he had refused to sign it.
  • 13:14
    Mr McCluskey has just been cross-examined by counsel for Sean FitzPatrick, Michael O’Higgins SC.

    He described the process of how loans were decided upon and granted by Anglo.

    He said the ultimate power in this regard was with the bank’s credit committee.

    He agreed with Mr O’Higgins that the only people who could authorise a loan being paid out were the members of this committee.

    The witness said that loan conditions such as pricings, repayment terms and facility durations could be more strict for certain borrowers.

    He agreed with counsel that the opposite was also true - that conditions could be loosened up for some clients if, for example, there was a danger of the bank losing their business.
  • 15:01
    Evidence has resumed after lunch with Judge Martin Nolan telling the jury that the trial will break during Easter between April 15th and 22nd. However he warned that if the trial is near the end, they might keep going, “so I wouldn’t advise you to book any holidays.”
  • 15:04
    Michael O’Sullivan is now in the witness box. He joined Anglo in 1999 when it acquired his employers, Smurfit Paribas. He climbed the ranks to associate director and then divisional lending director.

    The previous witness, Lorcan McCluskey, reported to him and he in turn reported to Pat Whelan.

    Mr O’Sullivan was responsible for a mixed portfolio of property developers and builders.

    The normal lending process would start with a meeting with clients and then progress to bringing a proposal to the bank.
    He said the lending team would examine a proposal.

    If it was a new client there would be extra due diligence carried out. There would then be a “mini-credit committee”, two a week, ahead of the main credit committee meetings.

    If the mini-credit committee agreed it was a good deal they would pass it on to the main credit committee.

    At the main credit committee senior management would ask questions and maybe seek changes to the application.

    Executive directors, senior lenders and members of the risk committee would sit on the credit committee.

    Two “A Signatures” were required for a loan over €5 million. “A Signatories” were executive directors, divisional directors and the risk director. Mr O’Sullivan said he was an A Signatory.

    He said that loans over €25 million would be sent to the non-executive directors for “noting”.

    Loans had to meet certain credit requirements but there could be exceptions for various reasons, including “competitive pressures”, the witness said.
  • 15:22
    Mr O’Sullivan has described the meeting with David Drumm and Pat Whelan where he was told about Sean Quinn controlling a quarter of the bank’s shares through Contracts for Difference (CFDs).

    He said he was shocked to learn Mr Quinn controlled that level of shares in the bank.

    “We had a good relationship with them, it was a huge surprise, not something I expected,” he said.

    Mr O’Sullivan said on May 8th, 2008 he went with Pat Whelan to a meeting with the Financial Regulator.

    He said Anglo had an unlimited personal guarantee from Sean Quinn as security on his loans. There was additional security in the form of a list of international properties.

    They discussed with the regulator how they could reduce Mr Quinn’s exposure by selling Quinn assets. The witness said it was a productive meeting.
  • 15:23
    They continued to fund Quinn’s margin calls up until June, amounting to about €2 billion, Mr O’Sullivan said.

    The CFDs were now a “major concern”, he said.

    The bank was not allowed go above 25 per cent of its own funds and was approaching that number with Sean Quinn.

    On July 10th and 11th, 2008 Mr O’Sullivan was on annual leave. Lorcan McCluskey called him to tell him a solution had been reached to unwind Mr Quinn’s CFDs, he said. This was the Maple Ten deal.

    He came in on July 14th when the paperwork was being finalised and the deal was ready to go before the credit committee.
  • 16:04
    We have been hearing about the altered facility letters, which Pat Whelan allegedly had the witness sign.

    As heard many times already, the first facility letter from July 10th, 2008 to the Maple Ten required them to repay 25 per cent of the loan amount if the Anglo shares fell to zero.

    Mr O’Sullivan has told the prosecution that Pat Whelan came to him on October 11th, 2008 and asked him to amend the loan facility letters which had been sent out in July.

    One of the changes was the insertion of the amended line: “Recourse to the borrower will be limited to 25 per of the balance outstanding under the facility or to the value of the shares at the expiry of the facility.”

    The witness said his understanding of this sentence was “that if the value of the shares were zero the value of the recourse would be zero.”

    He asked Mr Whelan why they were making these changes. Mr Whelan told him it had been approved by David Drumm and the board. Mr O’Sullivan responded: “well if it is, you sign it so.”

    The witness said he then signed the letter and it was sent out to the borrowers.
  • 16:05
    The witness said that several weeks later he attended an “asset review meeting” with non-executive directors, Donal O’Connor and Lar Bradshaw as well as Pat Whelan.

    During the meeting it became clear to Mr O’Sullivan that Mr O’Connor was unaware that the Maple Ten were no longer subject to the 25 per cent recourse.

    He said he was annoyed that the board had not being informed of this. He said he confronted Mr Whelan after the meeting who responded that he would speak to the CEO about it and the matter was left at that.
  • 16:08
    Mr O’Sullivan said he later raised the matter several more times with Mr Whelan. He was concerned that the zero per cent recourse hadn’t been properly authorised and that it hadn’t gone through Group Risk.

    The witness said that on December 16th, 2008 he approached Niall Tuite in the Group Risk section of Anglo and told him about the situation.

    Three days later he spoke with Mr Whelan again “but got no satisfaction.” At this stage the bank was in the middle of being bailed out.

    The witness said that two days after this on December 21st he went to Matt Moran about the situation. Mr Moran was the chief financial officer at the bank and was negotiating the bailout terms at the time.
  • 16:10
    Shortly after this Mr Whelan called Mr O’Sullivan. The witness said there was “a very heated exchange.” Mr Whelan said he was “very disappointed that Mr O’Sullivan hadn’t come to him about his issues.

    Mr O’Sullivan said he responded that he tried several times to discuss the issues “with no satisfaction.”

    “I felt comprised by what had taken place and in my 36 years in financial services, that had never happened before,” the witness said. On December 22nd Mr Whelan agreed that new facility letters should be sent to the Maple Ten. These letters would return the loans to a 25 per cent recourse basis and take away the possibility that the borrowers might have no liability whatsoever.

    These letters were sent to the Maple Ten, nine of the ten signed, Mr O’Sullivan said.

    He said Mr Whelan had spoken to most of the borrowers before the letters were sent and that Mr O’Sullivan visited several borrowers directly to get them to sign.
  • 16:40
    The day’s evidence has finished with the cross-examination of Mr O’Sullivan by Mr Whelan’s counsel, Brendan Grehan SC.

    Mr O’Sullivan first started with Anglo when they took over his previous employer, Smurfit Paribas. Mr Grehan asked him if it was him who brought Sean Quinn to Anglo when he moved. “Unfortunately yes,” he replied.

    Mr O’Sullivan went on to describe the moment when he found out how much of Anglo Mr Quinn controlled in CFDs. “It was one of those moments that you will never forget in your life,” he said.

    He agreed with Mr Grehan’s summary of the situation-“This was a very dangerous position. It could destabilise the bank.” The Central Bank, the Financial Regulator and the Department of Finance had become involved because they were worried about “contagion” i.e. that the situation would “infect other banks”.

    Evidence has now finished for the day.