Anglo unhappy at regulator's role in Quinn loan talks


ANGLO IRISH Bank believed the Financial Regulator had a conflict of interest in May 2008 in pressing the bank to reduce its loans to businessman Seán Quinn while urging it to release him from a guarantee that was affecting the financial position of Quinn Insurance.

Internal bank records dating from January 2009 – prior to the nationalisation of the bank – show that Anglo’s former management team felt that the regulator was concerned in May 2008 about potential issues with the insurer, which was also a regulated entity.

At the time, Anglo was working closely with the regulator on the unwinding of Mr Quinn’s indirect 28 per cent interest in the bank which he had secretly amassed through contracts for difference (CFD), a form of share derivative.

Central Bank governor Patrick Honohan said in his report on the banking crisis last month that the unravelling of the Quinn-Anglo CFDs was “a major preoccupation” for the authority or board of the Financial Regulator.

At a meeting in May 2008 the regulator advised the bank that Quinn Group’s auditors, PricewaterhouseCoopers, would not be in a position to sign off on the group’s accounts because of a guarantee on loans held by Anglo.

Quinn owed Anglo in excess of €1.5 billion about this time.

The guarantee had been included in the calculation of the group’s ratios for net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) for a syndicate of banks and bondholders which had provided loans of €1.3 billion to the business.

The increased debt levels had implications for the group’s loan covenants with the syndicate.

Anglo records – seen by The Irish Times– show that the regulator expressed concern about the size of the bank’s exposure to Quinn and sought to reduce this risk while at the same time encouraging Anglo to release Quinn from a guarantee given as a security supporting the bank’s loans.

Anglo believed that this was a conflict of interest because if Quinn was released from the guarantee, it could be viewed as increasing the bank’s exposure when the regulator was still seeking to reduce the bank’s risk.

However, as Anglo had agreed to take a charge over the Quinn family’s shares in the group to cover an increase in lending to the group, the bank felt the guarantee was no longer a relevant issue.

The bank felt that the withdrawal of the guarantee would not weaken its position due to the security over the group’s shares.

The unwinding of Quinn’s indirect investment in Anglo through contracts for difference (CFDs) and the purchase of a 10 per cent stake by 10 Anglo customers are the subject of investigations by the Garda Bureau of Fraud Investigation and the Office of the Director of Corporate Enforcement.

A spokeswoman for the regulator said that it could not comment on whether it had a potential conflict of interest as matters were subject to criminal investigation.

Anglo and the Quinn Group have also declined to comment on events relating to the unwinding of the Quinn interest in the bank.