Quinn family fight against Anglo closest yet to banking inquiry

An indication of the type of material that would emerge were a banking inquiry ever established is contained in an affidavit sworn earlier this year by Aoife Quinn, daughter of the former billionaire, Seán Quinn snr.

The Quinn family, in its battle with the former Anglo Irish Bank, has been given access to a swathe of material as a result of an order of discovery granted by the courts in July of last year.

One of those documents, called the O'Connor Report by the Quinns, is dated January 9th, 2009, and was prepared by Anglo executive Pat Whelan for Donal O'Connor, a non-executive director of Anglo and an accountant with PricewaterhouseCoopers, who was appointed executive chairman of the bank in December 2008 following the departure of chairman Seán FitzPatrick. O'Connor's appointment was made following consultations with the then minister for finance, the late Brian Lenihan.

Aoife Quinn makes repeated use of the report to support the family’s case that, after Seán Quinn snr told the bank in September 2007 that he had a secret 24 per cent stake in Anglo, held by way of contracts for difference (CFDs), the bank told the Financial Regulator about it and then worked with the regulator as it set about handling the explosive situation, one which threatened not just Anglo but the entire banking system.

The family's argument is that the billions of euro in funding that Anglo put into shoring up Quinn's CFD position, as the bank's share price plummeted, was illegal and that, for this reason, the family cannot be held accountable for the resulting €2 billion plus debt. The bank, which was nationalised in January 2009 and became part of the Irish Bank Resolution Corporation, which is now in liquidation, disputes the family's claim.

As the bank’s share price plummeted, Quinn was obliged, under the terms of his CFDs, to put more cash into his investment. Aoife Quinn uses the O’Connor report to document how this occurred and to support the family’s claim that, although the bank described the funding as being for “working capital”, it knew the money was being used to fund the CFD positions and, thereby, to support the bank’s shares.

A facility letter, dated June 3rd, 2008, refers to €140 million being used to fund the capital requirements of the borrower and its subsidiary companies in respect of property holdings in Russia, India, Ukraine, Turkey, the UK and the Czech Republic.

Solutions in a crisis
However, a corresponding note to the bank's credit committee gives some background: "Seán Quinn has built up a large shareholding in Anglo Irish Bank through CFDs using a special purpose vehicle . . . Seán Quinn has requested the bank to provide funding in the amount of €140 million. This is to be used to fund cash calls relating to the recent fall in the Anglo share price."

A bank memo dated May 27th, 2008, refers to a cash-call request from the Quinns that morning for €42.2 million. “This will bring total funds advanced this week to €152.8 million.”

Aoife Quinn also quotes from internal phone conversations in her affidavit. She quotes an April 2008 conversation between chief executive David Drumm and John Bowe, the executive who has featured in the taped conversations published this week, in which Bowe said that every time the bank's share price drops, the bank thinks: "F**k, we have to write cheques now."

Ms Quinn quotes references in the O’Connor report to the Financial Regulator knowing about the Quinn CFD position and wanting the bank to find a solution to the problem as the sums being used to fund the CFD debacle climbed towards €2 billion.

She quotes from the report: “Under Ifsra rules, the regulatory guidelines for large exposures is a maximum of 25 per cent of own funds. This guideline at the time allowed us to lend circa €2.5 billion to one group and [that] we would have to disclose a breach of the guideline. The regulator contacted the bank at around this time and advised that, under no circumstances, could this rule be breached and [that] a solution to the SQ situation was needed as soon as possible.”

Proposed transaction
Eventually the bank funded a move whereby a percentage of the Quinn CFD holding was bought by 10 of the bank's customers, using funds loaned by the bank.

According to Aoife Quinn, emails from the bank show that the scheme was notified to the regulator in order to secure his approval. Morgan Stanley was engaged to advise on the scheme and it also was in contact with the regulator, according to Ms Quinn.

An email from Joel Carter of Morgan Stanley to Fiachra O'Neill of Anglo is quoted in which the former says: "The Irish regulator has been contacted over the weekend and the FSA [the UK regulator at the time] this morning. Both regulators are aware of the proposed transaction and have not raised any objections to it."

The Quinns argue that the Central Bank and the Minister for Finance should be joined to the case. They say former ministers Brian Cowen and Brian Lenihan were informed of the CFD situation and the related lending to Mr Quinn by the bank, during their times in the ministry.

Aoife Quinn quotes a line from an April 2008 telephone conversation between Bowe and bank executive Willie McAteer, which reads: “Willie, David called and he just kind of updated me on Cowen and the board meeting, and I’ve just spoken to Matt as well.”

The family’s case against the bank, and the bank’s counterclaim, will not be heard until pending criminal hearings relating to Anglo have been heard next year.