Regulator official tells court of Drumm call

A former senior official at the financial regulator's office has said he believed the so-called Maple 10 investors were going to pay for Anglo Irish Bank shares from their own funds as part of a large share-buying scheme in 2008.

Con Horan, who was prudential director at the regulator's office in 2008, said he raised no objections to a plan outlined to him in a conference call with investment bank Morgan Stanley on July 12th, 2008.

The proposed transaction, which was executed two days later, involved unwinding businessman Sean Quinn’s 28 per cent contract for difference (CFD) stake in Anglo and placing the underlying shares with 16 individuals, including members of the Quinn family.

Mr Quinn’s large bet on Anglo through CFDs – investment products based on share price – was at the time felt to be destabilising the bank and the wider financial sector.

Mr Horan told Úna Ní Raifeartaigh SC, prosecuting, that on July 9th, 2008, he got a call from Anglo chief executive David Drumm, who said it had been decided to unwind the Quinn CFD positions by placing the bank's shares with members of the Quinn family and with Irish and international investors.

Mr Horan said it was his understanding that Anglo would initially put up the money to buy the totality of the shares, worth around €938 million.

On the same day the new investors would come in and buy €445 million in shares and the balance would be bought by Credit Suisse, who he understood were financing the Quinn family members' purchases.

Assistance
Mr Horan said he asked Mr Drumm if any financing was being provided to the non-Quinn investors. Mr Drumm replied that in the event of any of those investors having "cash flow issues", Anglo would provide them with assistance "for a very short period of time".

Mr Horan said he understood this meant “a matter of days”.

Because of a delay in the Quinn children receiving money from Credit Suisse, Mr Horan said he understood that Anglo were going to provide €169 million to the Quinns for a period of two to three weeks.

Asked how he believed the non-Quinn investors were funding the purchase, he said: “These were high net worth individuals, and that was coming from their own resources.”

Mr Horan said he took part in a conference call with Morgan Stanley on July 12th, two days before the unwind took place. Employees of the investment bank outlined the transaction to him, and the information he received “seemed very consistent with what Mr Drumm had said to me”.

Mr Horan said he asked Morgan Stanley if they needed any approvals from the regulator and they said no. “I said, based on what I was told, I didn’t have objections.”

He said he told them that it was up to Morgan Stanley and Anglo to ensure the deal complied with regulatory requirements. Asked whether lending to the investors was mentioned, Mr Horan said: “I have no recollection of any of that.”

Mr Horan was giving evidence yesterday at the trial of three former Anglo directors.

Seán FitzPatrick (65), of Greystones, Co Wicklow, Willie Mc Ateer (63), of Rathgar, Dublin, and Pat Whelan (51), of Malahide, Co Dublin, have been charged with 16 counts of providing unlawful financial assistance to 16 individuals in July 2008 to buy shares in the bank, contrary to section 60 of the Companies Act. Mr Whelan has also been charged with being privy to the fraudulent alteration of loan facility letters to seven individuals. All three have pleaded not guilty.

'Big problem'
Mr Horan, who joined the Central Bank in 1979 and had previously been head of banking supervision, said he first became aware of the full extent of the Quinn CFD position on Good Friday (March 21st) 2008, when the chief executive of the regulator's office, Patrick Neary, briefed him on a meeting he had with Anglo. "It clearly indicated there was a big problem," Mr Horan said .

He said the events of St Patrick’s Day 2008, when Anglo’s share price fell and there was a “mini-run” on the bank, was “a very difficult situation for us to find ourselves in”. There was “ongoing engagement” with Anglo after that.