MUTUAL LENDING deals agreed by Anglo Irish Bank with other institutions, including the bailed-out US insurance giant AIG, are being investigated to determine whether they disguised the loss of deposits in the run-up to the bank’s failure.
The Garda Bureau of Fraud Investigation and the Office of the Director of Corporate Enforcement (ODCE) are examining a series of back-to-back transactions as part of the inquiry into Anglo’s €7.45 billion loan arrangement with Irish Life & Permanent (ILP).
The ILP transactions flattered Anglo’s balance sheet at September 2008, masking the heavy withdrawals of customer deposits as the financial crisis intensified.
Anglo’s new management is also reviewing the bank’s borrowing relationship with other financial institutions and is assessing any short-term transactions that benefited the bank over key accounting dates. Fees paid by the bank in the transactions are also being scrutinised.
AIG’s financial division, whose losses forced the US government to save the insurer with a $85 billion bailout in 2008, agreed a series of transactions with Anglo over a crucial reporting period at its financial half-year in March 2008.
Anglo benefited from loans of about €1.2 billion from AIG Financial Products shortly after the bank suffered deposit withdrawals due to the collapse of its share price over the St Patrick’s Day week when stock market rumours circulated about the financial health of the bank.
Anglo later in turn provided support to the insurance company’s French lender, Banque AIG, in another back-to-back transaction.
A New York-based spokeswoman for AIG confirmed AIG Financial Products (FP), Banque AIG and Anglo entered into a series of “repurchase transactions” in March 2008.
“AIG FP reviewed those transactions, and based on information that Anglo Irish Bank provided, was satisfied at the time that Anglo Irish Bank entered into the transactions for proper purposes,” she said.
A spokeswoman for Anglo said that it had, in the normal course of business, active “counterparty” relationships with financial institutions but would not comment further.
Anglo’s decision to enter a reciprocal arrangement with state-supported German bank Hypo Real Estate to buy each other’s bonds in May 2008 is also being investigated.
The ILP deposits are the current focus of the Garda inquiry. Investigators are examining whether the transactions were properly disclosed and sanctioned through Anglo’s internal risk approval systems.
Staff have been questioned in recent days over internal e-mails concerning the back-to-back deals.
An ODCE spokesman declined to comment on the investigation.
The High Court was told earlier this week that the ODCE is taking witness statements from 20 people working at Anglo, which is expected to take several months.