Anglo Irish Bank management discussed disguising short-term loans of €750 million from Irish Life & Permanent and keeping them "tight as a duck's arse", the trial of former banking executives has heard.
The four men, including former IL&P chief executive Denis Casey and former Anglo head of finance Willie McAteer, are accused of conspiring to mislead investors by using interbank loans to make Anglo appear €7.2 billion more valuable than it was.
Mr McAteer (65) of Greenrath, Tipperary town, Co Tipperary and Mr Casey (56), from Raheny, Dublin are on trial alongside Peter Fitzpatrick (63), from Malahide, Dublin, who had been IL&P's former director of finance and John Bowe (52), from Glasnevin in Dublin, who had been Anglo's head of capital markets .
They have all pleaded not guilty at Dublin Circuit Criminal Court to conspiring together and with others to mislead investors through financial transactions to make the bank appear €7.2 billion more valuable that it was between March 1st and September 30th, 2008 in Dublin.
On day eight of the trial, the jury heard recordings of telephone calls made between staff at Anglo and Irish Life & Permanent throughout 2008.
The interbank loans allegedly involved money being transferred by Anglo to IL&P and then being put back on deposit with Anglo by their life insurance division, Irish Life Assurance. This would make it look as if Anglo had received large corporate deposits by the time it had to report its year-end figures on September 30th, 2008.
The jury heard Mr Bowe told a conference call with Anglo executives in March 2008, when a similar type of transaction was being discussed in relation to the bank’s half-year figures, that the only issue they had to think about was from a regulatory point of view.
He said: “And the regulator is more or less saying, ‘look, I’m not looking’.”
In another call on March 27th, Matt Cullen, a former director of treasury at Anglo and his counterpart in IL&P, David Gantly, discussed the details of the March transactions. Mr Bowe was also on this call.
Mr Gantly told Mr Cullen: “You put the stuff into us and we put it straight back through our other boys. You just need an overnight transaction through month-end, correct”.
The court heard that “the other boys” referred to Irish Life Assurance.
Mr Gantly said he was purposely not using names because, he said, “the walls have ears in this climate”. He later suggested it would be better to break the €750 million figure into smaller transactions because “it might look better to disguise it, somewhat, you know?”.
Mr Cullen, who is still giving evidence in the trial, told the court that if details of the transaction got out, it would affect confidence in the market so the idea was to “keep it tight inside in their own bank”.
Mr Gantly added later on the same call: “I can vouch for my own people, I know because of them, you have to be tight as a duck’s arse here.”
In a phone call in September 2008, Mr Bowe told Mr Cullen that the bank’s expectations for the year end accounts, that month, were very negative. He said the bank’s figure for customer deposits was “about four billion less” than it needed to be.
The jury heard that Mr Cullen told Mr Bowe that he spoke to Dave Gantly and told him the figure for the September interbank loans could now be higher than the previously agreed €3 billion.
Mr Cullen told Mr Bowe: “I said it could be higher. He said it’s not going to be a problem. If we ask for six, I think they’ll do it. Because, as they see it, you might as well be hung for a sheep as a lamb”.
The jury heard Mr Bowe replied “yeah, yeah”. Mr Cullen added that Mr Gantly then said he’d be looking for a favour, saying: “He was asking, you be there for me at the end of the year”.
Mr Cullen told Mr Bowe: “I says you’ll get first preference. What else was I going to say to him”.
In other evidence, the jury saw a series of internal bank emails sent by Brian Lynch from Anglo's Corporate Treasury to the bank's then chief executive David Drumm and the executive directors showing how depositors were pulling out millions of euro a day during September.
On September 11th, an email noted that "customer flow" was minus €200 million for that day alone and investment bank Lehman Brothers had pulled out €350 million of corporate deposits. The court heard the collapse of Lehman Brothers was days away at that time.
By September 16th, the email showed that, out of around 29 or more funding initiatives originally designed to raise the corporate deposit figure for the bank’s end of year accounts, there was only one left.
This was listed as “Irish Life” and for a figure of €6 billion. The documents stated that funding from “Repos” and from Merrill Lynch was now unlikely as the markets were in turmoil.
Later that month another email noted that the day was “still a negative flow day of minus one billion”. Mr Lynch added that he hoped things settled here.
On September 22nd, Mr Lynch’s daily update stated “more positive day at minus €560 million”. The court heard that this meant the outflow or loss of deposits that day had been less that previous days.
In the March 2008, conference call, Mr Bowe and Mr Cullen discussed what could be done to support Anglo’s balance over March 31st when it had to report its half-year figures. Some executives could also be heard having a short discussion about golf.
Peter Fitzgerald, Anglo's former director of corporate and retail treasury, asked to hear from Mr Cullen and another executive about funding initiatives before opening the floor to "all of the wide and wonderful possibilities".
Mr Cullen discussed the March plan to transfer €500 million and possibly more to IL&P who would then give it back to Anglo through Irish Life Assurance.
The trial continues before Judge Martin Nolan and a jury.