Parts of Anglo share deal not usual, court told
Investment bank solicitor had not seen a financial regulator “take part” in a deal before
Director at investment bank Morgan Stanley, Harry Eddis yesterday told the Dublin Circuit Criminal Court he was present for a call between Con Horan from the Irish financial regulator’s office (left, above) and Morgan Stanley on July 12th. Photograph: Cyril Byrne
Elements of the deal to buy Anglo Irish Bank shares, including the “heavy” involvement of the bank and of the financial regulator, were “not quite usual”, a director at investment bank Morgan Stanley told the Dublin Circuit Criminal Court yesterday.
Harry Eddis, a solicitor and director at Morgan Stanley’s legal and compliance department, said people who bought and sold shares in a listed company typically did not involve the issuer of those shares – in this case the bank – in the deal.
“To have the issuer of shares involved was not usual for these transactions,” he said. He also said the fact the Irish financial regulator had been involved “and seemed to have sort of sought this transaction to happen” was unusual.
A regulator would be informed of a transaction but “we wouldn’t often have a regulator take part or seem to be suggesting a transaction takes place”, he said.
“That wasn’t something I’d seen before,” Mr Eddis told prosecuting counsel Paul Anthony McDermott. It was also “not usual for an issuer of shares to be taking power of attorney over shares”, he said.
The court had previously heard that in a deal to unwind businessman Seán Quinn’s holding in Anglo, the bank had sought power of attorney from the “Maple 10”, the businessmen who agreed to buy bank shares with money lent by the bank.
Seán FitzPatrick (65) of Greystones, Co Wicklow; Willie McAteer (63) of Rathgar, Dublin; and Pat Whelan (51) of 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 men have pleaded not guilty.
No ‘franchise risk’
Mr Eddis told the court yesterday Morgan Stanley was hired as an intermediary in the deal to unwind the Quinn holdings. Under cross-examination from Lorcan Staines, for Mr Whelan, Mr Eddis said Morgan Stanley wanted to ensure there was no “franchise risk” or “ Wall Street Journal risk”, meaning the investment bank would not want to be involved in something that might embarrass it. He agreed with Mr Staines that Morgan Stanley followed its usual due diligence procedures in relation to the transaction.
Mr Eddis said he was present for a call between Con Horan from the Irish financial regulator’s office and Morgan Stanley on July 12th, two days before the unwind deal went through. In a contemporaneous note, Mr Eddis said “from CH perspective it is fine” and there was “nothing out of the ordinary”.
Mr Horan confirmed he was willing to take a call from the UK financial regulator.
Reading from a statement he gave to the Garda, Mr Eddis said Mr Horan indicated on that call he was “comfortable” with the transaction.
‘Heads up’ to UK regulator
A separate call took place between Morgan Stanley and the UK’s Financial Services Authority (FSA) on July 14th. Its purpose was to “give the heads up” to the UK regulator regarding the transaction and “to elicit if the regulator had any particular red flags”.
Mr Eddis said the UK regulator “effectively deferred to the Irish regulator”. “If they were happy given they were the main regulator where the shares were listed, [the FSA] would be comfortable.”
He told Mr Staines that, in financial services terms, he took comfortable to mean there were “no red flags” that would cause concern from a market perspective.
Over the course of the weekend of July 12th, Morgan Stanley had raised some concerns about the transaction. If none of the shares they were trying to get hold of were available on the day of the transaction it could cause “significant market dislocation”, known as “a short squeeze”, Mr Eddis said. He said Morgan Stanley came up with a plan to deal with this but needed the consent of each of the Maple 10. But when they asked Anglo about this, they were told they would not be able to get consent.
Asked why, Mr Eddis said: “We weren’t given exact reasons; we were variously told they were either not available or it was just not possible.”
The case continues.