Court hears Seán Quinn laid all his eggs ‘in one basket’

Brendan Grehan, senior counsel for Patrick Whelan, Anglo Irish Bank's former managing director lending Ireland, cross-examined former Quinn Group chief executive Liam McCaffrey yesterday afternoon in the Criminal Courts of Justice.

McCaffrey had earlier been taken through the sequence of events around how Seán Quinn ended up borrowing so much money from Anglo Irish Bank by prosecuting counsel Úna Ní Raifeartaigh SC.

“We need to go back over matters in a bit more detail,” Grehan said, however.

He asked McCaffrey where was his job relative to company founder Seán Quinn.

“On top of me if I can put it like that,” McCaffrey said. “Seán Quinn was the boss,” he explained.

McCaffrey agreed that Quinn had initially invested in shares based on his opinion of their senior management using an offshore company owned by his children called Bazzely Ltd.

Michael O'Leary of Ryanair and David Drumm of Anglo Irish Bank he agreed were two examples of company leaders Quinn admired.

Grehan asked McCaffrey when did he believe Quinn first began to prefer using contracts for difference, a financial instrument, versus buying shares to invest.

McCaffrey said he was not sure but he believed “brokers in London” had introduced the Fermanagh businessman to the idea.

'Enamoured' of CFDs
Grehan contended Quinn had gradually become "enamoured" of CFDs. "Clearly it ended up that way, yes," McCaffrey said.

Grehan asked McCaffrey had a “laying all ones eggs in one basket type of situation,” developed in relation to Anglo. “Yes,” McCaffrey replied.

McCaffrey said the Quinn Group had made profits of up to €500 million during the boom. He said the Quinn Group had never formally valued itself so he was unable to agree with Grehan’s contention it was worth €5 billion.

“I saw figures in the paper,” he said.

Grehan asked McCaffrey what would have happened if Quinn had been unable to fund his margin calls in relation to his CFDs.

“If funding hadn’t been forthcoming, the course of action would have been to close out the positions,” McCaffrey said. Quinn did not want to do this.

“I think his view of the scale of the recovery changed, but ‘How low can it go?’ was one comment I remember him making.”

Grehan put it to McCaffrey that the scale of Quinn’s punt meant “effectively the bank was joined with Seán Quinn at the hip”. “I don’t really know,” McCaffrey replied.

Grehan said Quinn had continued to increase his CFD position in Anglo even after it became a “major problem” for him in late 2007.

“I think he did, yes,” McCaffrey replied.

Grehan said ultimately Quinn’s stake went to 29 per cent, but McCaffrey said he thought this figure was 28 per cent.

Grehan said that part of the reason Anglo had lent Quinn €500 million in December 2007 was to replace money that had been loaned out of the insurance company to Quinn in order to fund his CFD position.

McCaffrey said the “maximum” taken out was €300 million.

He disputed Grehan’s assertion that the Quinn Group had had major difficulties getting its accounts signed off on by its auditors in 2008 because of various actions taken at that time.

McCaffrey disagreed with Grehan's claim that PwC had reported Quinn Insurance to the financial regulator because of its concerns.

“The company reported the matter to the financial regulator.”

McCaffrey agreed the regulator had “concerns,” about what had happened in Quinn Insurance and admitted the company was later fined.

‘Light

-touch' regulation
Grehan described the

regulator as practising “light-touch regulation” at that time. “It is a matter of opinion,” McCaffrey said.

Grehan asked in general was it fair to say the regulator tried to work with companies rather than “jump on their backs”. McCaffrey replied: “In general terms I would have thought so.”

McCaffrey said the Quinn Group had borrowed €200 million from Anglo in June 2008 to prevent it breaching its agreements with its other banks and bondholders.

He said if this loan had not been given it would not have been “terminal” for the Quinn Group, noting that companies breached their covenants without losing control.

“It is speculation to what extent it would have damaged the group,” he said.

He said it was wrong to conclude as Grehan claimed the Quinn Group was “running out of money”.

McCaffrey said the Quinn Group was “low on cash reserves,” to meet its covenants with banks and bondholders but it was never short of enough money to run the business.

Funding 'dried up'
Grehan said that "funding all around the world had effectively dried up" and claimed the Quinn Group had nowhere to turn but to Anglo for money.

“I suspect nobody else would have funded margin calls.”

Grehan claimed this should be more than a suspicion for “an intelligent man.”

The jury heard that by the first week of July, the Quinn Group owed Anglo €2.4 billion.

Grehan put it to McCaffrey that Anglo was close to breaching banking rules if it lent the group any more money.

McCaffrey replied: “I don’t recall the matter coming up.”

The case continues today.