Morgan Stanley go-between in Anglo deal

MORGAN STANLEY:LONDON INVESTMENT bank Morgan Stanley acted as an intermediary for the entire 25 per cent stake in Anglo Irish Bank that was traded last year, according to a source familiar with the deal.

The bank bought the stake in Anglo that at the time was held by nine institutions that were involved in contracts for difference (CFDs) with businessman Seán Quinn and his family. Morgan Stanley was itself one of the CFD providers.

The source said the buyers of the shares were already in place and the Quinn CFD position was unwound, the shares purchased and then sold on to Quinn family members and a group of 10 other investors, as part of “one big transaction”.

The 10 investors were revealed yesterday in the bank’s annual report to have been “10 long-standing clients” of Anglo Irish Bank.

The source said Morgan Stanley was not involved in seeking out investors for Anglo and had no mandate from the bank. Its clients were the CFD providers and payment was by way of commission on the trading in the shares.

A spokesman for Morgan Stanley would not comment yesterday.

The shares were purchased using funding from Anglo Irish Bank. A 10 per cent stake was taken up by 10 of Anglo’s long-term customers.

In its annual report published yesterday, the bank chairman Donal O’Connor said the amount loaned to these customers in relation to the transaction was €451 million.

He said the bank would list €300 million of this as an impaired loan secured only on the shares of the now nationalised bank.

The remaining 15 per cent stake was taken up by the Quinn family, another significant Anglo customer and again involving Anglo funding.

A number of legal aspects of the transaction are now being looked at by various regulatory bodies, including the legality of the bank loaning money for the purchase of its own shares, acting in concert issues and market abuse issues.

The bank provided legal advice it had received from Matheson Ormsby Prentice at the time of the July 2008 transaction, to the Financial Regulator, which indicated the transaction by the 10 investors was legal.

A source with knowledge of the deal said Morgan Stanley did not structure the transaction, give advice to the purchasers or give funding to the purchasers. It would appear the London bank sold the shares on almost immediately as it never declared ownership of one quarter of Anglo.

The Quinn family lost up to €1 billion on its CFD investment in Anglo and may have lost up to half that amount again, or more, based on the figure released yesterday by Mr O’Connor.

The Financial Regulator was since March of last year pressing the bank to arrange the orderly unwinding of the Quinn family CFD position, which was seen as a threat to the bank.

In July it was told of the arrangement that had been put in place for the transfer of the CFD investment into directly held shareholdings.

However the regulator is understood to be of the view that the deal presented to it in July was substantially different to the deal which actually occurred.