Irish financial regulator spoke to UK counterpart in advance of Anglo share deal

Irish regulator was “comfortable” with deal, investment banker tells court

Úna Ní Raifeartaigh SC, counsel for the prosecution in Anglo trial. Photograph: David Sleator/The Irish Times

Úna Ní Raifeartaigh SC, counsel for the prosecution in Anglo trial. Photograph: David Sleator/The Irish Times

Thu, Mar 6, 2014, 22:28


The Irish financial regulator spoke with the UK financial regulator in advance of a deal to unwind businessman Seán Quinn’s holding in Anglo Irish Bank in July 2008, the trial of three former directors of the bank heard yesterday.

Joel Carter, vice-president of the global capital market department of investment bank Morgan Stanley which handled the unwind, said he was told by his compliance department there had been a call between the UK financial regulator and the Irish regulator in relation to the deal.

He agreed with Úna Ní Raifeartaigh SC, for prosecution, that the UK regulator was involved because Anglo had dual listing on the Irish and the UK stock exchanges.

He also said a separate phone call between Morgan Stanley and Con Horan from the Irish financial regulator’s office left him with the impression that Mr Horan was “comfortable” with the unwind deal.


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

The Maple 10 borrowed €45 million each from the bank to buy 1 per cent of the bank’s shares and the Quinns borrowed €170 million to buy almost 15 per cent of the shares.

Seán FitzPatrick (65), Greystones, Co Wicklow, Willie McAteer (63), Rathgar, Dublin, and Pat Whelan (51), Malahide, 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 to the charges.

Yesterday, Ms Ní Raifeartaigh highlighted a script prepared by Morgan Stanley to be read to the CFD providers when the unwind was being carried out.

It assured the providers that both financial regulators were aware of the deal and had raised no objection to it.

Mr Carter described the unwind plan as a “very neat” solution to the problem of unwinding swaps. “It seemed on the face of it to be an elegant solution,” he said. He told the court the company also felt it would have no impact on the market and would be “neutral”.

Asked by Ms Ní Raifeartaigh what his understanding was of the rationale behind the deal, he said it was that “possibly the Irish regulator was concerned about the build-up of CFDs” and about the “lack of market transparency” and wanted to find a solution.

Asked who he saw his client as, he said Mr Quinn and Bazelly, the company which held the CFDs.

Mr Carter agreed confidentiality around the deal was important and that the Quinns were not to be aware of the identity of the Maple 10. If there were all-party phone calls made between Anglo, Morgan Stanley and the Quinn Group, care was taken not to name the investors.

In the call with the Irish financial regulator, Mr Carter said he did not recall if it was mentioned that the finance being provided to the Maple 10 was being provided by the bank. It was not on the written agenda, he said.


Franchise committee
Cross-examined by Lorcan Staines, for Mr Whelan, he agreed the unwinding deal had approval from the Morgan Stanley franchise committee, an internal committee that examined if “the Morgan Stanley franchise” might be “at risk” as a result of any transaction.

He agreed that Morgan Stanley would not want to breach banking regulations or breach the spirit of regulations. “We also see ourselves as advisers for our clients,” Mr Carter added.

Asked if he understood the share purchasers were the Quinns and 10 investors lined up by Anglo, he said “that was our understanding”.

He also confirmed he was aware Anglo was “lending into the transaction”.

The case continues.