Financial regulator ‘seemed to resile' from 'knowledge and involvement'

The financial regulator's office, in a letter written weeks after the deal to unwind businessman Seán Quinn's interests in Anglo Irish Bank, "seemed to resile" from its "knowledge and involvement with the transaction", the bank's then chief financial officer has said.

Giving evidence at the trial of three former directors of Anglo, Matt Moran said as far as he was concerned, the regulator had been “fully informed”.

The deal involved the unwinding of Mr Quinn’s contracts for difference – investment products based on share value – which by July 2008 involved more than 28 per cent of the bank’s shares. The jury had heard the CFDs were a cause of concern for the bank.

Businessmen known as the Maple 10 had agreed to borrow €45 million each from Anglo to buy 1 per cent of the bank’s shares as part of the unwinding process and the Quinns were to be lent €170 million to buy almost 15 per cent of the shares. The court heard the unwinding deal was carried out in the week of July 14th, 2008.

Paul O’Higgins SC, prosecuting, opened a letter to the court dated August 11th from Mary Burke, who was head of banking supervision at the financial regulator’s office.

The letter was written to William McAteer and asked a series of questions regarding the Quinn position. It also referred to a previous letter from Anglo that included legal opinion provided by Matheson Ormsby Prentice and said the regulator had been kept informed of the transaction.

“With regard to the comment in the letter that Anglo ‘kept the financial regulator informed of the transaction’, I would point out that the financial regulator did not advise as to whether the transactions required approval nor was it in a position to do so given the information available to it,” Ms Burke’s letter said.

Mr Moran said Mr McAteer showed him the letter and was going to respond to it but did not want to raise “the matter of controversy”. He told the court he thought it should be raised. He said the regulator “seemed to resile” from his position of “knowledge and involvement with the transaction”.

He said Mr McAteer had told him some time in March that the regulator did not want to approve the transaction. “He wanted to note it rather than approve it.” As far as he was concerned, however, the regulator had been “fully informed”.

Mr Moran said he spoke to Con Horan, prudential director at the regulator’s office, on July 12th regarding the transaction, so when he read the paragraph in question, he “found that to be at variance with the phone call”.

He also said there was a letter from Mr Horan on July 25th, following Mr Moran’s conversation with him, that discussed the treatment of the Quinn family. It “highlighted the point” that the regulator understood the Quinns were to be provided with finance and that they would seek refinance of that loan.

Cross-examination of Mr Moran is expected to begin today.

AT A GLANCE:
Witness
Matt Moran, former chief financial officer, Anglo Irish Bank

Snapshots
- Mr Moran told the court that on July 10th, 2008 – a number of days before the execution of the Maple 10 transaction, aimed at unwinding businessman Seán Quinn's contracts for difference stake in the bank – he went to Pat Whelan over concerns that a "side letter" for the loan agreement would be put in place. "I thought a side letter in this instance was inappropriate," Mr Moran said. He said he never saw any side letter himself.

- Asked what aspect he was concerned about, Mr Moran said: "If the recourse element of the transaction was not to be in place because of the side letter, that would be inappropriate." He continued: "What I was told was that a side letter would take away the 25 per cent recourse."

- The trial has previously heard that the loans of up to €60 million each to the Maple 10 borrowers was at a 25 per cent recourse, meaning that the borrowers would be personally liable for a quarter of the amount borrowed.

- Mr Moran said he told Mr Whelan that a side letter which took away the 25 per cent personal recourse did not seem "appropriate" in "this type of instance". Mr Whelan said it "wouldn't be done" and he "gave me assurance of that", he added.

- On the weekend of July 12th-13th, 2008, the court heard, a conference call took place between the investment bank Morgan Stanley, who were executing the transaction, and Con Horan from the financial regulator's office.

- A number of Anglo officials, including Mr Moran, dialled in as well. Mr Moran told the court he understood Morgan Stanley wanted to know that the regulator was raising no concerns about the transaction. Among the issues raised on the call was that the bank would be lending to the share-buyers.

- Asked by Paul O'Higgins SC, prosecuting, whether he met Seán FitzPatrick during or after the transaction, Mr Moran said that a short time after the transaction, Mr FitzPatrick visited his office. "He asked me about the transaction. He asked, as if thinking out loud, 'I wonder was that a right transaction to do?', specifically in respect of the recourse to the 10 borrowers . . . He made a comment that he regretted he didn't become more personally involved in this issue than he had done." Mr Moran said Mr FitzPatrick "questioned whether the 25 per cent was enough".

- The court was shown an email dated August 11th, 2008, sent by Mary Burke, head of banking supervision at the financial regulator's office, to Willie McAteer.

- Part of the email read: "I would point out that the financial regulator did not advise as to whether the transaction required its approval, nor was it in a position to do so given the information available to it." Mr Moran said he believed the email, sent about a month after the transaction, seemed to show that the regulator's office was resiling from its "knowledge and involvement with the transaction".