No ‘red flags’ raised by Irish regulator about Anglo share deal, court told

In a phone call between the Irish financial regulator and investment bank Morgan Stanley about the Anglo Irish Bank share deal, the regulator raised "no red flags", the Dublin Circuit Criminal Court heard yesterday.

David Churton, a director at Morgan Stanley’s legal and compliance department when the Anglo deal took place in July 2008, also said there was no discussion about the bank lending to investors to purchase its shares.

The investment bank handled the unwinding of the Quinn holding in Anglo Irish Bank.

Mr Churton told the trial of three former directors of Anglo that Morgan Stanley was not seeking formal approval from the Irish or UK financial regulators, but wanted to offer them an opportunity to “raise a red flag”.

If the regulators had raised “red flags” about the transaction, Morgan Stanley would not have gone ahead with it unless it could have “mitigated” the concerns.

Mr Churton was the sixth witness to be questioned about the phone call to the financial regulator on July 12th, 2008, two days before the transaction took place.

He said Con Horan, then prudential director at the regulator’s office, “effectively confirmed” the regulator had encouraged the unwinding of the CFDs and wanted it to happen “in the near future”.

Mr Churton confirmed that a note he had written on the phone call recorded that the regulator had been “kept close” by Anglo and believed there was “nothing out of the ordinary” in the deal.

Mr Churton also said Mr Horan had asked who Morgan Stanley was working for, and he had told Mr Horan he believed they were working for the share purchasers.

Mr Churton also confirmed he had spoken to the UK financial regulator’s office about the deal and there was a call between both regulators on the matter.

A note Mr Churton wrote when he spoke to the UK office after the two regulators had talked, said the UK regulator believed the Irish regulator would take the lead and was “relaxed with the aim of the transaction and how it was being structured”.

The transaction involved the unwinding of businessman Seán Quinn’s 28 per cent interest in Anglo held in contracts for difference (CFDs) – investment products based on share price.

The Quinn children were to purchase 15 per cent of the shares and businessmen known as the Maple 10 were to purchase 1 per cent each using money loaned by the bank.

Mr Churton told Úna Ní Raifeartaigh, for the prosecution, that there were non-standard elements to the Quinn transaction. These included the CFD large holding in the bank and the involvement of the financial regulator and of Anglo.

Morgan Stanley also “became aware that financing was going to be provided to purchasers of Anglo shares” and “that gave rise to some concerns”, he said.

Timeline
He also told the court of concerns regarding the timeline on which the transaction would be carried out. Morgan Stanley became aware of it on Thursday, July 10th, and it was to be completed by the evening of Monday, July 14th.

Mr Churton said when they raised concerns on the Friday with the bank that it “might be sensible to have dealings timeline extended”, there was “real disappointment”. “One of the calls came to a very abrupt end on Friday night,” he said.

The Morgan Stanley team subsequently reconsidered its position and went ahead with the proposed timeline.

The case continues.