Project Maple: Anatomy of a deal

The events that led to three men appearing in the dock

Fri, Apr 18, 2014, 08:16

On June 27th, the Anglo board gathered at the Sheraton Hotel in Fota Island, Cork. Drumm dialled in by conference call from Cape Cod. This major item up for discussion was the Quinn CFD crisis. Morgan Stanley employees gave a presentation on the options still open to Anglo, including the possibility of finding an institutional buyer for the shares – a possibility that was still in play at the time – and a deal that would involve Anglo buying ACC Bank in order to bring that bank’s Dutch parent, Rabobank, in as an investor in Anglo. But the message from Morgan Stanley was clear: nobody, it seemed, wanted to buy Anglo’s shares.

The board also discussed Quinn’s latest request for a €200 million loan. This was very significant in that a loan of that size would push Anglo over the key regulatory threshold that restricted a bank from lending more than 25 per cent of its “own funds” to a single borrower. The bank approved Quinn’s request, but in return it insisted it should obtain full power of attorney over Quinn’s CFD positions in Anglo. Quinn eventually agreed. The deal put Anglo in the driving seat to effect an unwind, but the basic problem remained: nobody wanted to buy its shares.

On Monday morning, June 30th, Anglo’s executives again met Horan in his office on Dame Street and told him of the €200 million loan. According to Whelan’s report: “Con acknowledged the Bank’s decision but was concerned that the exposure to SQ [Seán Quinn] was increasing with no real progress being made on the placement of shares.”

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Quinn got his €200 million. His borrowings from Anglo on June 30th now stood at a vertiginous €2.1 billion.

July 2008
Enter the Maple 10.

On July 6th Drumm forwarded a memo to his board outlining progress to place part of Quinn’s stake with Bain Capital. It appeared progress was being made, but Anglo’s share price kept falling.

Every day Quinn needed more money to meet his margin calls. On July 1st he needed €84 million; on July 2nd, €31 million; July 3rd, €35 million; July 7th, €16 million. Rumours swept the market about Anglo. Bain Capital started to get cold feet.

On July 8th, Con Horan and David Drumm met to discuss the crisis. In a briefing note prepared after the meeting, Horan referred to “some discussion as to . . . other alternative such as approach HNW [high net worth] individuals.” Asked during his cross-examination who had raised this idea, Horan said he “may have raised it” but could not recall.

At about 7.30pm that evening, Matt Moran was finishing up at work when Willie McAteer popped in and asked him to come to his office. According to Moran, McAteer told him that “the executives” had decided to approach 10 clients of the bank to see would they take some of the shares underlying Quinn’s CFD stake.

At 8.54pm, Drumm sent an email to Matt Moran with the subject line “Maple”. “Matt, I spoke to Willie [McAteer] about moving the game forward tomorrow with a select group of clients – he will brief you. Time for action.” From there, events unfolded rapidly.

July 9t h, 2008
The next morning, McAteer met Moran and Fiachre O’Neill, Anglo’s head of compliance, and outlined the plan to approach clients of the bank and ask them to take up to 13 per cent of the bank’s shares and for the Quinn family to convert the rest of their CFD positions into actual shares. Moran and O’Neill would be tasked with logistical preparations in tandem with Morgan Stanley, who would effect the unwind.

At 2.13pm that Wednesday, after a phone call with Con Horan, Drumm emailed Declan Quilligan, the bank’s head of UK lending, with just a subject line: “Regulator squared.” Quilligan replied a minute later: “Excellent! Hope he was grateful!” Drumm responded: “Excited I would say – I think he’s lying awake at night like the rest of us.”

Drumm worked the phones. Around lunchtime on July 9th, he called the non-executive chairman, Seán FitzPatrick, who was on holiday in France. According to an interview FitzPatrick gave gardaí in 2010, Drumm outlined the plan, including the lending element, but did not mention recourse or name the individual investors. FitzPatrick told gardaí he asked Drumm whether they were “people of substance” and was told they were. “What he said was I didn’t need to know their identities,” FitzPatrick said.

He was not surprised at this, as Drumm said none of the individuals knew of the others’ identities and he was “keeping all that tight”.

At Drumm’s request, FitzPatrick then called the bank’s other non-executive directors to apprise them of the transaction. One non-executive director, Donal O’Connor, recalled FitzPatrick ringing him to say he had some good news.

Meanwhile, Pat Whelan, the head of lending for Ireland, met two members of the lending team, Lorcan McCluskey and Elma Kinane. Whelan gave Lorcan McCluskey the names of the Maple 10 and asked for loan facility letters to be drawn up for them.

Kinane said she prepared memoranda for Anglo’s risk division on the 10 “Maple” loans. Part of the memo for each borrower stated: “Given the opportunities that now exist, [named borrower] has approached us seeking a share-dealing facility.”

In court, Kinane said she had “assumed” the borrowers had come to the bank, but that nobody had told her that. “I had limited knowledge, I made some assumptions and assumed they would be reviewed by the right parties,” she said.

Whelan, in his January 2009 report, said the bank had “run out of options”. He said he discussed placing the shares with a number of clients of the bank as a “short-term measure”.

July 10th, 2008
The developer Joe O’Reilly was in Portugal when he received a call asking him to meet David Drumm and Pat Whelan. A few days later, the two Anglo executives met him at a restaurant in Faro.

He was told a person had a large CFD stake in Anglo and it was driving the share price down. At a meeting that lasted just over an hour, O’Reilly was asked to buy 1 per cent of Anglo’s shares – worth up to €60 million at the time. Anglo would lend him the money.

O’Reilly was told the financial regulator and Morgan Stanley were on board and the bank had obtained positive legal advice. Anglo had similar exchanges with nine other loyal clients, among them some of Ireland’s richest men. All agreed to take part in the scheme. All Maple 10 loans were given on 25 per cent recourse.

At 6.16pm on July 10th, non-executive director Gary McGann sent an email to David Drumm. He wrote: “You and the team are doing fantastic work in very trying circumstances and I just wanted to acknowledge that – we are all rooting for you! Keep up the great work.”

July 12th – 13th, 2008
This was a busy weekend at Anglo’s headquarters, where last-minute preparations were under way for the transaction, planned for the following Monday.

At Morgan Stanley’s request, two conference calls took place on the Saturday. The first was between Morgan Stanley and Con Horan of the regulator’s office, with Anglo officials also dialling in.

Brian Gillespie, Anglo’s head of compliance for Ireland, said in court his impression was that Horan was “very, very, very positive” about the transaction. According to Matt Moran, the fact that the bank would be lending to the share-buyers was discussed on the call.

Gillespie was also present when Anglo dialled into a call between Morgan Stanley employees and Robert Heron of Matheson Ormsby Prentice Solicitors.

Asked for his overall view of Heron’s stance on the transaction, Gillespie said he was “pro”. As far as he understood, there was “no question” of Morgan Stanley being dissatisfied.

July 14th, 2008
At 9.30am on Monday, July 14th, Pat Whelan and Willie McAteer joined Drumm in his office on the third floor in St Stephen’s Green for a conference call with Quinn and Liam McCaffrey, the Quinn Group chief executive.

Quinn was furious. He was unhappy about the transaction – and the loss he would crystallise in the unwinding – but Anglo reminded him that they had power of attorney of his CFDs.

The call was so acrimonious that Quinn and Drumm both stormed out. A few minutes after the call ended, Liam McCaffrey emailed Pat Whelan to formally authorise the transaction on behalf of the Quinn Group.

Morgan Stanley got the green light. The scheme was activated.