Former chief executive says Quinn held on to CFDs waiting for price to recover

Seán Quinn's belief that the Anglo share price would recover made him reluctant to exit his contracts-for-difference holding, the former chief executive of the Quinn Group said yesterday.

Liam McCaffrey was speaking at the case of three former Anglo Irish Bank executives charged with providing unlawful financial assistance to 16 individuals to buy shares in the bank in July 2008 .

He detailed his involvement with the group and its dealings with Anglo Irish Bank in 2007 and 2008.

Seán FitzPatrick (65), Greystones, Co Wicklow, William McAteer (63), Rathgar, Dublin, and Pat Whelan (51), Malahide, Co Dublin, have pleaded not guilty to all charges.

Mr McCaffrey said Mr Quinn at one point remarked on the Anglo share price: “How low can it go?” He agreed with Pat Whelan’s counsel Brendan Grehan SC who said Mr Quinn “maintained an eternally optimistic view” that the price would recover.

He spoke of the "slightly different" reactions of Mr FitzPatrick and David Drumm on learning in September 2007 that Mr Quinn's contracts for difference held in Anglo was 24 per cent. Mr FitzPatrick seemed "quite surprised", while Mr Drumm was "less surprised" and thought it was "in the teens, maybe".

The bankers were “concerned at the level” during a meeting at the Ardboyne Hotel in Co Meath, Mr McCaffrey said. Mr Quinn “reassured” the bankers it was “purely an investment”.

The former Quinn chief executive described the CFD funding position as “difficult”. Mr McCaffrey said Mr Quinn had been building up the CFDs in a holding outside the Quinn Group for his children since 2006 and was “enamoured” with the concept.

He focused on companies with people he admired such as Ryanair or Anglo. Mr McCaffrey said he had no involvement with buying CFDs .

When Mr Grehan put it to Mr McCaffrey that the bank was “effectively joined” to the hip with Mr Quinn, he replied that he did not know the answer.

Quinn Group resources had been funding margin calls as the share price fell but when these were not available any more, the money came from Anglo, he said. Mr Quinn borrowed some €650 million from Anglo in November and December 2007 to pay the margin calls as the bank’s share price fell.

The demand for margin calls “became extreme” after the fall in the share price about March 17th, an event referred to as the St Patrick’s Day massacre because of the collapse of the Bear Stearns bank. The court heard 30 per cent was wiped off Anglo’s shares. Following this, Mr Quinn faced €200 to €300 million in margin calls, Mr McCaffrey said.

Following this, a meeting was held in Buswell’s Hotel, Dublin, between Mr Quinn, Mr Drumm, Mr FitzPatrick and himself. Mr Quinn did not accept a proposal at the meeting for him to get out of Anglo CFDs. He had an “underlying belief” the shares would recover, Mr McCaffrey said. However, by the end of the week Mr Quinn “reluctantly” agreed to the plan.

It became clear by mid-April that no buyers could be found for the 10 per cent of Anglo shares. Mr McCaffrey said control of Mr Quinn’s CFD portfolio was given to Anglo because the Quinn Group needed a loan of €200 million in June 2008. Without this loan the Quinn Group would have breached financial covenants of other loans with US bondholders and banks.

However, Mr McCaffrey disagreed with Mr Grehan’s assertion that the Quinn Group had run out of money at this point. It was “still profitable”but “low on cash reserves” to meet the covenant test for the US banks .

By July 2008, a conference call between Anglo Irish Bank and members of the Quinn Group was “difficult and angry”. Mr Quinn “was reluctant to go ahead with the proposal” to unwind his CFDs because he thought the share price would recover.

The phone call “ended badly” with a row and Mr Drumm “walked out” or Mr Quinn “hung up”. Mr Quinn later agreed to go ahead with the proposal. he said. By July 2008 the Quinn Group’s indebtedness to Anglo was €2.4 billion, Mr McCaffrey said.

He recalled that on July 14th, 2008, the process of unwinding the Quinn CFDs began. He agreed that he had signed documents relating to loans for the five Quinn children from Anglo to allow them to buy shares in the bank .

Mr Grehan also asked Mr McCaffrey about an intercompany loan from Quinn Insurance to fund margin calls which the Quinn Group had reported to the financial regulator in February 2008 .

He accepted when asked by Mr Grehan that about the same time, more money was needed to fund margin calls and the shareholding of the entire Quinn Group was handed over to Anglo Irish Bank as security.