Regulator warned Anglo on €300m plan

THE FINANCIAL Regulator warned Anglo Irish Bank that it could not approve transactions which included a scheme to loan €300 million to key clients to buy the institution’s own shares.

The regulator told The Irish Timesyesterday that it did not seek legal advice on the loans and linked transactions, as the bank itself was obliged to ensure that they complied with the law.

The bank’s lawyers, Dublin firm Matheson Ormsby Prentice (MOP), advised that the loans were legal. Anglo showed this advice to the regulator at the authority’s request.

MOP also acted as advisers to Mallabraca, the consortium which at the time was in talks to buy holdings in the Republic’s leading banks, including Anglo. The firm yesterday said it never comments on clients’ affairs.

The Financial Regulator is now investigating these loans. A spokeswoman said that at the time, the question of its approving the transactions in relation to company or market abuse law did not arise.

“Therefore, the question of placing reliance on assurances from Anglo Irish Bank – eg their legal advice – did not arise.

“The Financial Regulator warned Anglo it could not approve the transactions, that Anglo must act on the basis of legal advice and that any breaches of these laws would be pursued fully.”

Last year, Anglo Irish loaned €300 million to 10 as yet unnamed individuals to buy a 10 per cent stake in the bank to prevent the stock being sold on the market.

The shares were part of a 25 per cent indirect interest built up by Seán Quinn through high-risk instruments known as contracts for difference (CFDs), which allow people to bet on share price movements without buying the shares.

The share price tumbled, leaving Mr Quinn and his family exposed to a €1 billion loss. He subsequently converted the interest to a direct 15 per cent stake. Anglo offered investors loans to buy the remaining 10 per cent.

The regulator recently confirmed that it was aware of the CFD investment and the steps taken to “unwind” it.

The agency pointed out yesterday that its discussions with Anglo covered the bank’s approach to dealing with the entire CFD stake, and not just to the €300 million loans.