‘Then the tide turned and Quinn began to lose’

Quinn revealed bet on shares at meeting with Anglo executives

Senior Business Correspondent Tom Lyons reports on day one of the trial of former Anglo Irish Bank directors Seán FitzPatrick, William McAteer and Pat Whelan at the Criminal Courts of Justice. Video: Bryan O'Brien

Thu, Feb 6, 2014, 10:27

“No doubt you all have heard of Seán Quinn, the Quinn family and Quinn enterprises,” prosecuting senior counsel Paul O’Higgins told the jury in court number 19 of the Criminal Courts of Justice yesterday.

In an extended narrative O’Higgins outlined how the prosecution believed the fortunes of Ireland’s once richest man collided with Anglo Irish Bank.

Sometime in 2007, he said, it was “rumoured” that Quinn had an interest in the shares of the bank. Normally speaking, he said, any large shareholder in the bank would have to disclose their stake publicly.

In this case, however, Quinn had taken his position in a manner that “many people regret ever existed in light of the financial turmoil in the last couple of years.” O’Higgins said Quinn built up his stake using derivatives, a type of financial instrument.

Quinn had engaged in a “form of gambling,” called contracts for difference (CFDs), O’Higgins said, adding CFDs effectively allowed investors gamble on the future price of shares without actually owning them

Unlike actual shares, he said, investors did not have to disclose CFD positions to the market.“Either you pay the bookie or the bookie pays you,” he said, depending on whether a share went up or down. If a share fell in value, to “stay in the game,” an investor had to “top up” his position by putting more money on the table.

Alternatively investors could accept their losses and “close off their positions”.

Quinn, O’Higgins said, had build up a large stake in Anglo Irish Bank using CFDs. “We are not talking about thousands here, or millions here, we’re talking about tens of millions, maybe hundreds of millions,” he said.

Initially Quinn had done “very well,” as Anglo’s share price continued to rise during Ireland’s boom. “Then the tide turned and he began to lose,” O’Higgins said.

In September 2007, O’Higgins said Quinn, along with Liam McCaffrey, the chief executive of the Quinn Group, met David Drumm, Anglo’s chief executive, and Seán FitzPatrick, its non-executive chairman, in the Ardboyne Hotel in Navan, Co Meath.


Taken a bet
Quinn disclosed at this meeting that he had taken a bet on 25 per cent of the bank’s shares using CFDs. The scale of this position until then had been unknown to both Anglo bankers. Anglo was “not keen” to be so “exposed,” to just one person and was “enthusiastic” to bring the situation to an end.

Anglo made a series of “efforts” to deal with Quinn’s position. By February 2008 “at least”, the Financial Regulator also knew about Quinn’s position and was “very concerned”, O’Higgins said.

In order to reduce Quinn’s position some Anglo executives, including Willie McAteer, its former finance director, he said, went to the Middle East between March 10th and 11th, 2008, to try to convince a sovereign wealth fund to take on some of his stake. The bank was unsuccessful.

On March 17th, 2008, Bear Stearns the American investment bank collapsed, and Anglo’s share price fell by 30 per cent in a single day. From its peak of €17.00 in 2007 Anglo’s share price was now down to €6.50.

O’Higgins said as a result Quinn’s “debts to the bookies,” had grown massively. In order to pay his CFD providers, Quinn borrowed money from Anglo and he gave up shares in the Quinn Group, his insurance-to-cement conglomerate, as security. As a result he said Quinn’s borrowings from Anglo hit “€2 billion or more”.

On March 27th, 2008, Anglo met Seán Quinn and agreed he would stop using CFDs and instead buy some of the bank’s shares, with the rest being placed with other investors.

“Nobody was interested ultimately in buying Anglo’s shares,” O’Higgins said, “And the position became more acute in June.”


Power of attorney
In this month, he said, Anglo loaned Quinn another €200 million to pay his CFD providers. In return Anglo took a “full power of attorney”over the Fermanagh entrepreneur’s position in the bank in order to help finally place his CFDs

The Financial Regulator, O’Higgins said, took a “major interest,” in what was going on.

Sometime around July 8th, 2008 , Anglo decided to do something that the prosecution alleged was “absolutely illegal”.

“The bank decided they would put together a scheme where the Quinns did buy a shareholding in Anglo Irish Bank directly and others were to take a shareholding directly, and there would be a market announcement that the Quinn CFD position and the Quinns had ‘gone long’ [bought actual shares] on their shareholdings,” O’Higgins said.

“The prosecution says that was a choreographed situation,” O’Higgins said. He added that the public was not told about the “complex” situation behind the scenes that included Anglo supplying the money to buy its shares to six members of the Quinn family and 10 other people called the Maple 10.

O’Higgins described these 10 people as “supposedly high net worth people”. O’Higgins said no new money had come in to buy the shares.


Maple10
Anglo he said “channelled,” about €175 million to the Quinns and leant the Maple 10 about €450 million or €45 million each between July 8th and July 30th, 2008.

The prosecution argued that for a variety of reasons this lending bore “no resemblance” to lending by a bank in the ordinary course of business. O’Higgins said this wasn’t just because of the “magnitude” of the loans .

He said the bank went to the Maple 10 to lend the money, and not the other way around, as he claimed was usual. In two cases he said Anglo executives had to go to the south of France and to Portugal to track down its clients. “A lot of people if they were off on holiday and saw their bank manager would head for the nearest sand-dune,” O’Higgins said.

He said Anglo told its clients: “Don’t bother about the details really. We’ll fill in the paperwork.” O’Higgins said another aspect of the lending to the Maple 10 was that the loans were only recourse to the bank’s own shares, with 25 per cent of the loan recourse to the borrower.

O’Higgins contended this again was not ordinary lending. He said the prosecution believed lending by the bank to buy its own shares was “illegal,” and in “breach” of company law as a result.

He said later in the case the jury could expect to hear from Morgan Stanley, an investment bank, and a firm of solicitors that had worked with Anglo. “Don’t think that you have heard everything you need to hear,” O’Higgins noted.

He also said the Financial Regulator would feature too as it had “regular meetings,” to discuss what was going on. Seán Quinn, his family and members of the Maple 10 were listed yesterday as among the potential witnesses the jury could expect to hear from.