Central Bank ‘didn’t query’ Anglo Irish liquidity report with Drumm

Troubled bank disclosed funding figures, conspiracy to defraud trial hears

Anglo Irish trial: David Drumm denies conspiracy to defraud and false accounting. Photograph: Collins Courts

Anglo Irish trial: David Drumm denies conspiracy to defraud and false accounting. Photograph: Collins Courts

 

The Central Bank of Ireland didn’t query a report on the liquidity of Anglo Irish Bank that David Drumm discussed with them in October 2008, a witness has told Dublin Circuit Criminal Court.

Stephen Fox, the nationalised bank’s former head of liquidity reporting, said Mr Drumm, its chief executive at the time, asked him to draft an ad-hoc report before a meeting with the Central Bank. “The Central Bank didn’t query it with me, and if they did I can’t recall.” He said Mr Drumm asked him several questions about the report, which showed the bank’s corporate and retail funding figures, after he emailed him a copy.

Sinead McGrath, a prosecution barrister, read Mr Fox’s evidence to the jury at Mr Drumm’s trial for conspiracy to defraud on Thursday, as the witness lives outside the Republic.

Mr Drumm has pleaded not guilty to conspiring with his fellow former officials Denis Casey, William McAteer, John Bowe and others to defraud depositors and investors at Anglo Irish Bank by dishonestly creating the impression that deposits in 2008 were €7.2 billion larger than they were. He has also pleaded not guilty to a related charge of false accounting.

In his evidence Mr Fox said he was aware of transactions between Anglo Irish Bank and Irish Life & Permanent but didn’t know the details and had thought they were customer deposits. He said the commercial rationale for the transactions was to “put up a higher customer-funding figure”, replacing interbank funding with customer funding.

Mr Fox said that, from late 2007 into 2008, banking “liquidity had dried up. Banks and trading positions had totally changed. Interbank lending was scarce.” The jury heard that Mr Fox took part in up to five conference calls a day in September 2008, to keep management up to date on the bank’s liquidity ratio at a “time of great stress”. “The most stressful days were those leading up to September 30th, 2008. The flows out were unprecedented for a bank our size.”

Isle of Man transaction

The jury then heard the evidence of Emma Hillier, a former supervisor at the bank’s Isle of Man subsidiary, read by the prosecution barrister Diana Stuart. The witness said almost £1 million was transferred from the Isle of Man branch to Irish Life & Permanent on September 25th, 2008. She said the transaction was requested in an email from Mike D’Arcy, in Anglo Irish Bank’s Dublin office, whom she did not know. Ms Hillier said she had never been contacted directly about such a transaction before.

The trial also heard from Brian Lynch, former head of treasury at the bank, who said that despite the “pretty bad times” at Anglo Irish Bank in 2008, Mr Drumm had indicated that he wanted customer deposits of €55 billion or €56 billion by the end of the year. He said there was a shortfall of about €7 billion. Asked who came up with this amount, he told the prosecution barrister Mary Rose Gearty SC that Mr Drumm was never specific about the “target figure”.

Mr Lynch, whose role at the bank was to calculate the ratio between the bank’s loans and deposits, said that as liquidity dried up a number of funding initiatives were considered but that by September 2008 only one remained, “the Irish Life one”. Mr Lynch said he first became aware of the deal during one of Mr Drumm’s regular Friday-afternoon meetings in August 2008, when the bank hoped to source €1 billion from Irish Life & Permanent.

Mr Lynch said he understood that Anglo Irish Bank would give money to Irish Life & Permanent’s banking arm in return for receiving the same amount from Irish Life Assurance, which would improve Anglo Irish Bank’s corporate-deposit figures. He said that by mid-September 2008 the Irish Life idea had “ended up at the €7 billion mark”.

Last week the trial heard that Mr Drumm accepts the facts of the 2008 transactions between Anglo Irish Bank and Irish Life & Permanent but disputes that they were fraudulent or dishonest.

The trial continues.