Anglo loaned €451m to 10 clients to buy bank shares

Anglo Irish Bank lent €451 million to ten clients to buy shares to support its share price last year, the bank said today.

The amount loaned for this purpose is 50 per cent higher than earlier estimates of €300 million of  borrowings by ten unnamed individuals to purchase up to 10 per cent of businessman Sean Quinn’s holding in the bank via contracts for difference.

The shares were purchased because Anglo was concerned that the release of 10 per cent of its share capital onto the markets would undermine its share price.

As well as the shares being held as security for these loans “there is additional recourse to the individuals’ personal assets equivalent to 25 per cent of their borrowings”. However, the shares are now effectively worthless.

In its annual report covering the year to the end of September 2008  which was published today the bank said the €83 million of the loans extended to the ten clients had been repaid.

Chairman Donal O’Connor, who was appointed chairman in December, said that the bank would seek the repayment of the loans.

However, because of the collapse in the bank’s share price the bank is planning to write-off up to €300 million of these loans and because the bank is now nationalised this is likely to result in a loss to the taxpayer.

The worsening economic condition has led the bank to increase its impairment provisions to €914 million, or 1.25 per cent of its overall loan book although it said a review of its loan book was ongoing and the results would be published in its first half results in March.

At the end of September Anglo’s balance sheet included €7.3 billion of deposits from Irish Life Assurance and €7.5 billion of short-term interbank placements from Irish Life and Permanent.

Its deposits stood at €51.5 billion at the end of the year.

Mr O’Connor apologised for the controversies, which have badly damaged Ireland's overseas' reputation, prompting investors to give Irish equities a wide berth and triggering a blow-up in its sovereign bond spreads.

"I acknowledge again the sense of hurt, outrage and disappointment that people feel towards the bank following disclosures regarding loans to the former chairman and other matters," O'Connor said in a letter contained in the accounts.

Mr O'Connor, a former senior partner at PricewaterhouseCoopers, has been named executive chairman after the bank said on Friday it had decided to defer the appointment of a chief executive until a new business plan and various reviews are completed.

Declan Quilligan, an executive director, has been appointed chief operating officer and Matt Moran, chief financial officer, has been named director of group finance.

Directors' loans from the bank totalled €179 million at the end of its 2008 financial year, including more than €80 million owed by FitzPatrick, and Anglo Irish said there was likely to be an impairment charge for these loans in its next set of results. It lent a total of €255 million to directors last year.

Anglo said while that guarantee had improved its access to funding markets, its funding position had since been significantly weakened by the string of scandals and ratings downgrades.

An edited version of a report on the banking system commissioned by the Government and carried out by PricewaterhouseCoopers ahead of the nationalisation of Anglo Irish and the recapitalisation of AIB and Bank of Ireland will also be published later this evening. It is likely to paint a picture of the level of exposure faced by the taxpayer following the refinancing scheme.

Speaking today on RTÉ's Morning Ireland, Minister for Justice Dermot Ahern said legal advice from the Attorney General was that the names could not be published.

"The position is that the Attorney General has given advice, very clear advice, in relation to this that the Minister for Finance must ensure confidentiality at all times," he said.

"We're restricted under the central bank act 1942 and indeed subsequent acts where a shareholder must not have information in relation to customers of that bank. As the Minister for Finance is the shareholder on behalf of the taxpayer, that is not allowed and none of the Cabinet have any of this information."

Mr Ahern said if the investors were named, it had to be under due process, and the Office of Corporate Enforcement had to be allowed to do its job.

"From a political point of view, from a Fianna Fáil point of view, it would be far better if these names were out," he said. "What we do want to see is that the wrongdoers - if there are wrongdoers - that they're outed. but we can't out them at the expense of letting them off scot-free if as has been advised that potentially outing them would prejudice subsequent court action."

Tánaiste Mary Coughlan said in the Dáil yesterday that the 10 investors will not be named in either report, citing banking confidentiality conditions.

However, Labour leader Eamon Gilmore said the claims of confidentiality were not backed up by previous judgments of the courts.

"A banker's duty of confidentiality to his clients is not an absolute one. Cases in many common law jurisdictions make it clear that a banker's duty of confidentiality to its clients can be over-ridden where, for instance, fraud is alleged - or where the pubic interest requires it," he said.

Last night, Minister for the Environment John Gormley said the names of the individuals should be made public if it is legally possible.

A Government spokesman said consideration was being given as to whether it was possible to get the names from a source other than the Financial Regulator, or make the disclosure in another way.

Fine Gael leader Enda Kenny last night called for the 10 to be named, saying taxpayers deserved to know who they were bailing out.

Mr Ahern this morning accused Mr Kenny of "whipping up political hysteria" instead of pulling together with other political parties. "They now have a leader who is in effect putting his own political interest and his party's interest before the national interest.

“All he's interested in really is building up the political hysteria in relation to this. Thousands of people have lost their jobs and the political parties need to be pulling together rather than fighting over an issue," he said.