Project Maple: Anatomy of a deal

The events that led to three men appearing in the dock

David Drumm, former Anglo chief executive and Sean Fitzpatrick,  former chairman.

David Drumm, former Anglo chief executive and Sean Fitzpatrick, former chairman.

Fri, Apr 18, 2014, 08:16

Part 1: September–
December 2007


September 11th, 2007: Ardboyne Hotel
Early autumn in Dublin. A foggy morning gave way to warm blue skies, but this was a day filled with portents of the storms that were to come.

That morning, just months after a general election had returned Bertie Ahern’s Fianna Fáil to power, the talk in Dublin was of Ahern’s imminent appearance at the Mahon tribunal – an episode that would hasten his departure from public life eight months later.

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In that day’s Irish Times , an editorial noted that “next year, the economy is set to slow sharply, with some economists predicting a growth rate of less than 3 per cent.” That could give Fine Gael its best opportunity to make progress, the writer observed.

Global stock markets were volatile. The previous day, the Iseq index of Irish shares had had €1.7 billion wiped off its value – ending the day at its lowest closing level in almost a year. Just the previous week, Anglo Irish Bank had raised its profit target for the year on the back of “strong loan growth”. Yet on the same day the bank’s shares fell 2.5 per cent. Something was amiss.

Meanwhile, Seán FitzPatrick and David Drumm – Anglo Irish Bank’s chairman and chief executive, respectively – got into separate cars and drove north of the city. Their destination: the Ardboyne Hotel near Navan, Co Meath. Awaiting them was Seán Quinn, reputed at the time to be Ireland’s richest man.

For months, Anglo had been aware of market rumours suggesting that Quinn had a stake in the bank through contracts for difference (CFDs), high-risk investment tools that involve betting on a share without buying it. Unlike shares, whose holders appear on a register, CFD positions could at the time be built up in secret. Anglo was in the dark. It thought the Quinn holding could be in the low teens but it couldn’t be sure. For the bank, the problem was that it believed the rumours about Quinn’s holding were prompting hedge funds to short-sell its shares – thereby destabilising the share price. FitzPatrick and Drumm were on a mission to establish the size of Quinn’s stake and persuade him to reduce it.

What Quinn told them at the Ardboyne came as a shock. The tycoon had built up a huge CFD position against 24 per cent of Anglo’s shares, he explained. He could see the surprise on their faces.

FitzPatrick and Drumm duly reported the news back to the Anglo board. “I was horrified when I heard it,” recalled Anne Heraty, a non-executive director. According to several of its members, the board instructed Drumm to tell the financial regulator immediately.


Mid- to late September, 2007
Sitting in his office in the Central Bank on Dame Street in Dublin, Pat Neary – the moustachioed, softly spoken chief executive of the Irish Financial Services Regulatory Authority – took a call from David Drumm. The Anglo chief executive wanted to meet him in person. It was an unusual request, Neary thought – he normally didn’t meet chief executives.

In Neary’s account of this “low-key” and “private” meeting, Drumm said he was concerned about rumours that Seán Quinn might have CFD positions in the bank’s shares. Drumm felt the holding might be “even bigger” than 10 per cent, Neary said, and he wanted to know if the regulator could find out.

Neary had heard the rumours, he would later say, but at the time, given that CFDs were unregulated, his office had no statistics or other information on them. Neary said he asked Drumm to let him know if he established any further information.

What happened at that meeting would later be in dispute. Anglo board members understood Neary was told of the Quinn holding, but Neary would say in court that he wasn’t told the level. “You didn’t ask outright?” defence counsel Brendan Grehan asked during the trial. “I don’t recall asking and he didn’t tell me,” Neary responded. After the meeting, an official at the regulator’s office presented Neary with a document on what CFDs were.


November 2007
Inside Anglo, word of Quinn’s gamble was spreading fast. Michael O’Sullivan, a divisional head of lending, recalled being left in shock when, in November, David Drumm told him that Quinn had built up a 28 per cent stake through CFDs and shares. “It was one of those moments you never forget in life,” he said in court. For O’Sullivan, the news felt almost personal: after all, he was responsible for the Quinn relationship with Anglo, having brought Quinn with him when Anglo took over his former employer, Smurfit Paribas, in 1999. “We had a very good working relationship with Quinn Group. It was news to me,” O’Sullivan recalled. When O’Sullivan heard the news in November, he was told the regulator was already aware of it.

The CFDs in themselves were bad news, but for Anglo – and the regulator – there was a more immediate concern. As the Anglo share price continued to decline, Quinn had to pay “margin calls” – in effect, topping up deposits demanded by his nine CFD providers, who included some of the world’s biggest investment banks. The money for those margin calls was ostensibly coming from a company named Bazelly, set up specifically for Quinn’s CFD portfolio, but ultimately it was Quinn Group – including its insurance division, Quinn Direct – that was footing the bill. And as the margin calls increased, Quinn Group was running out of cash. It turned to Anglo to fill the hole. In November 2007, Team 91 – the lending group within Anglo that dealt with loans to the Quinn Group – was told the Quinns needed an injection of €150 million.


December 2007
This became a pattern. As Quinn Group’s funds were gradually depleted by continuing margin calls, it turned to Anglo to replenish its coffers. In December, Elma Kinane, a manager on Team 91, was told there was an additional requirement for €500 million. Numerous credit applications were put together involving various properties held by Quinn to fund the loan.

Kinane was at a meeting when Drumm “popped in” and mentioned he was keen the loan be accommodated. He said “you must find a way to do it, or words to that effect”. She said the money was advanced without all of the security being perfected.


Part 2: January – March 2008


January 2008
Pat Neary’s secretary picked up the phone; it was Seán Quinn. He was in town and thought he should drop in and see the regulator. When they met, according to Neary, the tycoon outlined the strength of the Quinn Group, whose insurance division was regulated by Neary’s office. He also said he had a small CFD holding in Ryanair and Anglo, but did not intend to hold on to it.

In the witness box, Neary said he didn’t ask Quinn “straight up” about his CFDs but came at it in a roundabout way, as he “didn’t feel it would be fair or appropriate to tackle a person about his own investment portfolio”. Quizzing people about their investments was “not something a regulator would go around doing”, he felt.

Meanwhile, tensions were mounting at Anglo, where efforts to grapple with the CFD problem were intensifying. Drumm told Anglo’s chief financial officer Matt Moran to contact the investment bank Morgan Stanley to see if they could suggest ways of dealing with the situation. In January, Moran and Willie McAteer travelled to London to discuss the Quinn situation with the firm.


February 2008
On February 8th, the financial regulator’s office was contacted by the Quinn Group’s auditors, Pricewaterhouse Coopers. The auditors had discovered that funds had been transferred from Quinn Insurance to another Quinn-owned entity. PWC had been advised by Quinn employees that the family had lost a lot of money on CFD positions and this was why the funds had left the insurance company, Con Horan, prudential director at the regulator’s office, said in court.

By now concerns about Quinn’s CFD position had reached the Government. On February 22th, a meeting took place of the Domestic Standing Group – a high-level body where officials from the Department of Finance, the Central Bank and the financial regulator’s office were tasked with planning for financial emergencies. A note of the meeting, which was attended by Neary and Kevin Cardiff, then head of banking at the department, mentioned the ramifications “if current positions become publicly known”. Items for discussion at the meeting included “understandings of CFDs”.

Giving evidence in court six years later, Neary would say he didn’t know about the Quinn CFD position until the following month – March 21st – but by now there were serious discussions taking place between the Quinn side and the regulator’s office over the insurance company. On the same day as the Domestic Standing Group meeting, a separate meeting took place between Neary and Seán Quinn – the second in as many months.

In a note of the meeting, Quinn is quoted as having “apologised sincerely” for the trouble he had caused by taking money out of his insurance company to fund his outside investments in shares. The tycoon assured the regulator that his insurance company’s difficulties would be “resolved very quickly” by share sales and future profits of the group.