Project Maple: Anatomy of a deal

The events that led to three men appearing in the dock

Part 1: September–
December 2007

September 11th, 2007: Ardboyne Hotel
Early autumn in Dublin. A foggy morning gave way to warm blue skies, but this was a day filled with portents of the storms that were to come.

That morning, just months after a general election had returned Bertie Ahern's Fianna Fáil to power, the talk in Dublin was of Ahern's imminent appearance at the Mahon tribunal – an episode that would hasten his departure from public life eight months later.

In that day's Irish Times , an editorial noted that "next year, the economy is set to slow sharply, with some economists predicting a growth rate of less than 3 per cent." That could give Fine Gael its best opportunity to make progress, the writer observed.


Global stock markets were volatile. The previous day, the Iseq index of Irish shares had had €1.7 billion wiped off its value – ending the day at its lowest closing level in almost a year. Just the previous week, Anglo Irish Bank had raised its profit target for the year on the back of "strong loan growth". Yet on the same day the bank's shares fell 2.5 per cent. Something was amiss.

Meanwhile, Seán FitzPatrick and David Drumm – Anglo Irish Bank's chairman and chief executive, respectively – got into separate cars and drove north of the city. Their destination: the Ardboyne Hotel near Navan, Co Meath. Awaiting them was Seán Quinn, reputed at the time to be Ireland's richest man.

For months, Anglo had been aware of market rumours suggesting that Quinn had a stake in the bank through contracts for difference (CFDs), high-risk investment tools that involve betting on a share without buying it. Unlike shares, whose holders appear on a register, CFD positions could at the time be built up in secret. Anglo was in the dark. It thought the Quinn holding could be in the low teens but it couldn’t be sure. For the bank, the problem was that it believed the rumours about Quinn’s holding were prompting hedge funds to short-sell its shares – thereby destabilising the share price. FitzPatrick and Drumm were on a mission to establish the size of Quinn’s stake and persuade him to reduce it.

What Quinn told them at the Ardboyne came as a shock. The tycoon had built up a huge CFD position against 24 per cent of Anglo’s shares, he explained. He could see the surprise on their faces.

FitzPatrick and Drumm duly reported the news back to the Anglo board. "I was horrified when I heard it," recalled Anne Heraty, a non-executive director. According to several of its members, the board instructed Drumm to tell the financial regulator immediately.

Mid- to late September, 2007
Sitting in his office in the Central Bank on Dame Street in Dublin, Pat Neary – the moustachioed, softly spoken chief executive of the Irish Financial Services Regulatory Authority – took a call from David Drumm. The Anglo chief executive wanted to meet him in person. It was an unusual request, Neary thought – he normally didn't meet chief executives.

In Neary’s account of this “low-key” and “private” meeting, Drumm said he was concerned about rumours that Seán Quinn might have CFD positions in the bank’s shares. Drumm felt the holding might be “even bigger” than 10 per cent, Neary said, and he wanted to know if the regulator could find out.

Neary had heard the rumours, he would later say, but at the time, given that CFDs were unregulated, his office had no statistics or other information on them. Neary said he asked Drumm to let him know if he established any further information.

What happened at that meeting would later be in dispute. Anglo board members understood Neary was told of the Quinn holding, but Neary would say in court that he wasn't told the level. "You didn't ask outright?" defence counsel Brendan Grehan asked during the trial. "I don't recall asking and he didn't tell me," Neary responded. After the meeting, an official at the regulator's office presented Neary with a document on what CFDs were.

November 2007
Inside Anglo, word of Quinn's gamble was spreading fast. Michael O'Sullivan, a divisional head of lending, recalled being left in shock when, in November, David Drumm told him that Quinn had built up a 28 per cent stake through CFDs and shares. "It was one of those moments you never forget in life," he said in court. For O'Sullivan, the news felt almost personal: after all, he was responsible for the Quinn relationship with Anglo, having brought Quinn with him when Anglo took over his former employer, Smurfit Paribas, in 1999. "We had a very good working relationship with Quinn Group. It was news to me," O'Sullivan recalled. When O'Sullivan heard the news in November, he was told the regulator was already aware of it.

The CFDs in themselves were bad news, but for Anglo – and the regulator – there was a more immediate concern. As the Anglo share price continued to decline, Quinn had to pay “margin calls” – in effect, topping up deposits demanded by his nine CFD providers, who included some of the world’s biggest investment banks. The money for those margin calls was ostensibly coming from a company named Bazelly, set up specifically for Quinn’s CFD portfolio, but ultimately it was Quinn Group – including its insurance division, Quinn Direct – that was footing the bill. And as the margin calls increased, Quinn Group was running out of cash. It turned to Anglo to fill the hole. In November 2007, Team 91 – the lending group within Anglo that dealt with loans to the Quinn Group – was told the Quinns needed an injection of €150 million.

December 2007
This became a pattern. As Quinn Group's funds were gradually depleted by continuing margin calls, it turned to Anglo to replenish its coffers. In December, Elma Kinane, a manager on Team 91, was told there was an additional requirement for €500 million. Numerous credit applications were put together involving various properties held by Quinn to fund the loan.

Kinane was at a meeting when Drumm “popped in” and mentioned he was keen the loan be accommodated. He said “you must find a way to do it, or words to that effect”. She said the money was advanced without all of the security being perfected.

Part 2: January – March 2008

January 2008
Pat Neary's secretary picked up the phone; it was Seán Quinn. He was in town and thought he should drop in and see the regulator. When they met, according to Neary, the tycoon outlined the strength of the Quinn Group, whose insurance division was regulated by Neary's office. He also said he had a small CFD holding in Ryanair and Anglo, but did not intend to hold on to it.

In the witness box, Neary said he didn’t ask Quinn “straight up” about his CFDs but came at it in a roundabout way, as he “didn’t feel it would be fair or appropriate to tackle a person about his own investment portfolio”. Quizzing people about their investments was “not something a regulator would go around doing”, he felt.

Meanwhile, tensions were mounting at Anglo, where efforts to grapple with the CFD problem were intensifying. Drumm told Anglo's chief financial officer Matt Moran to contact the investment bank Morgan Stanley to see if they could suggest ways of dealing with the situation. In January, Moran and Willie McAteer travelled to London to discuss the Quinn situation with the firm.

February 2008
On February 8th, the financial regulator's office was contacted by the Quinn Group's auditors, Pricewaterhouse Coopers. The auditors had discovered that funds had been transferred from Quinn Insurance to another Quinn-owned entity. PWC had been advised by Quinn employees that the family had lost a lot of money on CFD positions and this was why the funds had left the insurance company, Con Horan, prudential director at the regulator's office, said in court.

By now concerns about Quinn's CFD position had reached the Government. On February 22th, a meeting took place of the Domestic Standing Group – a high-level body where officials from the Department of Finance, the Central Bank and the financial regulator's office were tasked with planning for financial emergencies. A note of the meeting, which was attended by Neary and Kevin Cardiff, then head of banking at the department, mentioned the ramifications "if current positions become publicly known". Items for discussion at the meeting included "understandings of CFDs".

Giving evidence in court six years later, Neary would say he didn’t know about the Quinn CFD position until the following month – March 21st – but by now there were serious discussions taking place between the Quinn side and the regulator’s office over the insurance company. On the same day as the Domestic Standing Group meeting, a separate meeting took place between Neary and Seán Quinn – the second in as many months.

In a note of the meeting, Quinn is quoted as having “apologised sincerely” for the trouble he had caused by taking money out of his insurance company to fund his outside investments in shares. The tycoon assured the regulator that his insurance company’s difficulties would be “resolved very quickly” by share sales and future profits of the group.

Towards the end of the month, another meeting took place between senior figures at the regulator’s office and Quinn Group – this one attended by Neary, prudential director Con Horan and Seán Quinn. According to the note of this meeting, dated February 28th, Quinn said he was “greedy in relation to CFDs” and, referring to himself in the third person, said: “Seán Quinn needs to be reined in.”

In the background the email traffic was picking up pace. In correspondence with the regulator's office, the Quinn Group outlined Seán Quinn's €2 billion exposure through CFD positions.

March 2008
Lorcan McCluskey was at the St Patrick's Day parade in Dublin when he got a call from his line manager in Anglo's lending division, Michael O'Sullivan, telling him to drop what he was doing and make his way to the bank's headquarters on St Stephen's Green. The news was bad – so bad that in later months and years, the events of this day would become known in Anglo as "the St Patrick's Day Massacre".

From McCluskey's perspective, everything changed with this "Mayday call". With the markets extra-jittery over the collapse of the US bank Bear Stearns, Anglo's share price was taking a hammering; it would fall by about 20 per cent on March 17th alone. Anglo was flashing red, and the share price was now in a catastrophic spiral. At the trial, no evidence would be given that Anglo made any effort to examine whether investors had any legitimate underlying reasons for concern about its exposure to property or its funding position. The bank was fixated on the Quinn problem. And the St Patrick's Day disaster locked Quinn into an even tighter vice-grip. The reason McCluskey was needed back in the office that day was that Anglo had to make an urgent €20 million transfer to cover Quinn's latest margin calls from his broker-dealers.

Memories of queues forming outside Northern Rock were fresh in the mind. At board level, concerns about a potential run on Anglo were being discussed. Others were worried too. After a board meeting in early March, Anne Heraty's understanding was that the regulator "was putting significant pressure" on Drumm and FitzPatrick to find a solution to the problem of Quinn's position. Between March 17th and March 19th, five Anglo board conference calls were held to discuss the Quinn crisis, according to a report into the matter prepared by Anglo director Pat Whelan in January 2009. Quinn needed cash urgently to meet his margin calls, and in return he offered to the bank security on the shares in the Quinn Group which were held in his children's names. "This effectively gave us control of the Quinn Group," Whelan wrote in his report.

About a week and a half after the St Patrick’s Day Massacre, Drumm and FitzPatrick had another meeting with Quinn and former Quinn Group chief executive Liam McCaffrey at Buswell’s Hotel. The purpose of the meeting was to encourage Quinn to agree to an orderly unwinding of his Anglo CFDs. The bank wanted Quinn to cut his CFD holding by half and to “go long on” – purchase outright – the other half, about 15 per cent of the bank’s shares. But Quinn wasn’t keen. Buying the ordinary shares would mean he would be crystallising losses on his CFD positions – losses he still believed could be reversed. After a tête-à-tête between FitzPatrick and Quinn, however, Quinn agreed to sell CFD positions in 9.4 per cent of Anglo’s stock, leaving him with about 20 per cent. He would “go long” on about 15 per cent of this and the rest would be left in CFDs to be unwound later. Quinn stipulated he would only sign up to the deal if both Anglo’s board and the financial regulator approved it.

At 6.01pm on March 31st, Matt Moran emailed Con Horan at the regulator’s office to report that Quinn and the bank had struck an agreement t

o unwind part of his CFD stake. Under the deal, Quinn’s 15 per cent shareholding would be split among his five children. Anglo was to lend a total of €460 million to the Quinn family, with €100 million of that going into Quinn Insurance. In court, Pat Neary said he was not aware of the agreement at all at the time.

That was the easy bit. The second element of the March unwind plan involved Anglo finding an institutional investor to take a stake of 10 per cent in the bank. It was a big ask, given that Anglo was so heavily exposed to property and had shed more than €6 billion in value in less than a year, but the bank believed it could work. So, in March, David Drumm, Willie McAteer and Matt Moran – chaperoned by Morgan Stanley go-betweens – travelled to the Middle East to pitch the proposal to some sovereign wealth funds. The bank also approached the Boston private equity firm Bain Capital. Morgan Stanley came up with a code-name for the project to deal with Quinn's position: "Project Maple."

Part 3: April –
July 2008

April 2008
The scramble for an investor continued apace. On April 1st, Drumm gave an upbeat presentation at an investor conference run by Morgan Stanley at a hotel in London. He was there to sound out potential investors, but by the end of the day, Morgan Stanley advisers were telling him the mood wasn't propitious.

The regulator had every reason to wish for a rapid resolution of the Quinn CFD problem. Its concerns about Quinn Insurance were growing. The regulator had been informed that Quinn’s auditors, Pricewaterhouse Coopers, would not be in a position to sign off on the 2007 accounts of the Quinn Group because of guarantees held by Anglo that were affecting the calculation of the ratio between the company’s debt and earnings.

Unless Anglo released the guarantee, the accounts would trigger a breach of covenants with the group’s other lenders and bondholders. If those lenders demanded the immediate repayment of the group’s loans, Quinn could have trouble meeting his CFD margin calls – prompting the CFD providers to dump the Anglo shares on the market. That could send the Anglo share price into freefall and panic depositors in the bank.

Around this time, a number of Anglo’s directors, including Seán FitzPatrick, Anne Heraty and David Drumm, were called to a meeting on Dame Street. Across the table were Pat Neary and Con Horan.

Heraty said the purpose of the meeting was not clear. Neary “talked around the subject” but he wanted Drumm to help him out with “an issue he had with the accounts of Quinn Insurance”.

Meanwhile, Anglo still hadn’t found an institutional investor. At the April meeting of the financial regulator board, members were informed that the March unwinding plan had not happened. The board instructed Horan to speak to the Department of Finance and the Central Bank “to see if some domestic solution” could be found.

May 2008
Con Horan wasn't as coy as Neary on the subject of the Quinn guarantee when he called Anglo executives Pat Whelan and Michael O'Sullivan to Dame Street on May 8th. He asked them to release the guarantee. Whelan and O'Sullivan were puzzled by this. In his January 2009 report, Whelan said: "Our view at the time was the regulator had a conflict of interest because releasing the guarantee could be viewed as increasing our exposure and considering he was looking at us to reduce risk, this didn't make sense."

O’Sullivan in his evidence put it more succinctly: “I think, to be fair, we were speechless.” In the event, it was academic. Anglo concluded it could release the guarantee because by now it had a much stronger form of security: a charge over the Quinn Group’s shares. That gave the bank the right to take ownership of Quinn’s businesses if he couldn’t repay his loans.

By now Anglo’s efforts to deal with Quinn’s CFDs were growing increasingly frantic. Efforts were continuing to find institutional investors, but other ideas were also being explored. One initiative, code-named Operation Dribble, involved releasing a small portion of the shares on to the market each day at a rate that would not affect the share price. But Quinn didn’t play ball and the number of shares actually released ended up being too small to make much difference.

Dribble died. Next up was Project Sleeve. This would entail the bank making a rights issue to existing shareholders, which would have the effect of diluting the Quinn CFD position as a proportion of the overall stock. It went nowhere.

June 2008
On June 3rd Quinn requested a meeting with Drumm in Buswell's Hotel. He said that despite the release of the guarantee, he now needed a cash facility of €200 million to allow him meet his covenants to his bondholders. Quinn said he had told his lead syndicate bank Barclays of the potential breach, and it had replied that it would require a full investigation into all group and non-group activities if this occurred. This would undoubtedly reveal Quinn's massive punt on Anglo and trigger his bondholders taking over the group to protect their position. On June 24th another meeting took place between Anglo and Horan to discuss the crisis.

On June 27th, the Anglo board gathered at the Sheraton Hotel in Fota Island, Cork. Drumm dialled in by conference call from Cape Cod. This major item up for discussion was the Quinn CFD crisis. Morgan Stanley employees gave a presentation on the options still open to Anglo, including the possibility of finding an institutional buyer for the shares – a possibility that was still in play at the time – and a deal that would involve Anglo buying ACC Bank in order to bring that bank's Dutch parent, Rabobank, in as an investor in Anglo. But the message from Morgan Stanley was clear: nobody, it seemed, wanted to buy Anglo's shares.

The board also discussed Quinn’s latest request for a €200 million loan. This was very significant in that a loan of that size would push Anglo over the key regulatory threshold that restricted a bank from lending more than 25 per cent of its “own funds” to a single borrower. The bank approved Quinn’s request, but in return it insisted it should obtain full power of attorney over Quinn’s CFD positions in Anglo. Quinn eventually agreed. The deal put Anglo in the driving seat to effect an unwind, but the basic problem remained: nobody wanted to buy its shares.

On Monday morning, June 30th, Anglo’s executives again met Horan in his office on Dame Street and told him of the €200 million loan. According to Whelan’s report: “Con acknowledged the Bank’s decision but was concerned that the exposure to SQ [Seán Quinn] was increasing with no real progress being made on the placement of shares.”

Quinn got his €200 million. His borrowings from Anglo on June 30th now stood at a vertiginous €2.1 billion.

July 2008
Enter the Maple 10.

On July 6th Drumm forwarded a memo to his board outlining progress to place part of Quinn’s stake with Bain Capital. It appeared progress was being made, but Anglo’s share price kept falling.

Every day Quinn needed more money to meet his margin calls. On July 1st he needed €84 million; on July 2nd, €31 million; July 3rd, €35 million; July 7th, €16 million. Rumours swept the market about Anglo. Bain Capital started to get cold feet.

On July 8th, Con Horan and David Drumm met to discuss the crisis. In a briefing note prepared after the meeting, Horan referred to “some discussion as to . . . other alternative such as approach HNW [high net worth] individuals.” Asked during his cross-examination who had raised this idea, Horan said he “may have raised it” but could not recall.

At about 7.30pm that evening, Matt Moran was finishing up at work when Willie McAteer popped in and asked him to come to his office. According to Moran, McAteer told him that “the executives” had decided to approach 10 clients of the bank to see would they take some of the shares underlying Quinn’s CFD stake.

At 8.54pm, Drumm sent an email to Matt Moran with the subject line “Maple”. “Matt, I spoke to Willie [McAteer] about moving the game forward tomorrow with a select group of clients – he will brief you. Time for action.” From there, events unfolded rapidly.

July 9t h, 2008
The next morning, McAteer met Moran and Fiachre O'Neill, Anglo's head of compliance, and outlined the plan to approach clients of the bank and ask them to take up to 13 per cent of the bank's shares and for the Quinn family to convert the rest of their CFD positions into actual shares. Moran and O'Neill would be tasked with logistical preparations in tandem with Morgan Stanley, who would effect the unwind.

At 2.13pm that Wednesday, after a phone call with Con Horan, Drumm emailed Declan Quilligan, the bank's head of UK lending, with just a subject line: "Regulator squared." Quilligan replied a minute later: "Excellent! Hope he was grateful!" Drumm responded: "Excited I would say – I think he's lying awake at night like the rest of us."

Drumm worked the phones. Around lunchtime on July 9th, he called the non-executive chairman, Seán FitzPatrick, who was on holiday in France. According to an interview FitzPatrick gave gardaí in 2010, Drumm outlined the plan, including the lending element, but did not mention recourse or name the individual investors. FitzPatrick told gardaí he asked Drumm whether they were “people of substance” and was told they were. “What he said was I didn’t need to know their identities,” FitzPatrick said.

He was not surprised at this, as Drumm said none of the individuals knew of the others’ identities and he was “keeping all that tight”.

At Drumm’s request, FitzPatrick then called the bank’s other non-executive directors to apprise them of the transaction. One non-executive director, Donal O’Connor, recalled FitzPatrick ringing him to say he had some good news.

Meanwhile, Pat Whelan, the head of lending for Ireland, met two members of the lending team, Lorcan McCluskey and Elma Kinane. Whelan gave Lorcan McCluskey the names of the Maple 10 and asked for loan facility letters to be drawn up for them.

Kinane said she prepared memoranda for Anglo’s risk division on the 10 “Maple” loans. Part of the memo for each borrower stated: “Given the opportunities that now exist, [named borrower] has approached us seeking a share-dealing facility.”

In court, Kinane said she had “assumed” the borrowers had come to the bank, but that nobody had told her that. “I had limited knowledge, I made some assumptions and assumed they would be reviewed by the right parties,” she said.

Whelan, in his January 2009 report, said the bank had “run out of options”. He said he discussed placing the shares with a number of clients of the bank as a “short-term measure”.

July 10th, 2008
The developer Joe O'Reilly was in Portugal when he received a call asking him to meet David Drumm and Pat Whelan. A few days later, the two Anglo executives met him at a restaurant in Faro.

He was told a person had a large CFD stake in Anglo and it was driving the share price down. At a meeting that lasted just over an hour, O’Reilly was asked to buy 1 per cent of Anglo’s shares – worth up to €60 million at the time. Anglo would lend him the money.

O’Reilly was told the financial regulator and Morgan Stanley were on board and the bank had obtained positive legal advice. Anglo had similar exchanges with nine other loyal clients, among them some of Ireland’s richest men. All agreed to take part in the scheme. All Maple 10 loans were given on 25 per cent recourse.

At 6.16pm on July 10th, non-executive director Gary McGann sent an email to David Drumm. He wrote: “You and the team are doing fantastic work in very trying circumstances and I just wanted to acknowledge that – we are all rooting for you! Keep up the great work.”

July 12th – 13th, 2008
This was a busy weekend at Anglo's headquarters, where last-minute preparations were under way for the transaction, planned for the following Monday.

At Morgan Stanley’s request, two conference calls took place on the Saturday. The first was between Morgan Stanley and Con Horan of the regulator’s office, with Anglo officials also dialling in.

Brian Gillespie, Anglo's head of compliance for Ireland, said in court his impression was that Horan was "very, very, very positive" about the transaction. According to Matt Moran, the fact that the bank would be lending to the share-buyers was discussed on the call.

Gillespie was also present when Anglo dialled into a call between Morgan Stanley employees and Robert Heron of Matheson Ormsby Prentice Solicitors.

Asked for his overall view of Heron’s stance on the transaction, Gillespie said he was “pro”. As far as he understood, there was “no question” of Morgan Stanley being dissatisfied.

July 14th, 2008
At 9.30am on Monday, July 14th, Pat Whelan and Willie McAteer joined Drumm in his office on the third floor in St Stephen's Green for a conference call with Quinn and Liam McCaffrey, the Quinn Group chief executive.

Quinn was furious. He was unhappy about the transaction – and the loss he would crystallise in the unwinding – but Anglo reminded him that they had power of attorney of his CFDs.

The call was so acrimonious that Quinn and Drumm both stormed out. A few minutes after the call ended, Liam McCaffrey emailed Pat Whelan to formally authorise the transaction on behalf of the Quinn Group.

Morgan Stanley got the green light. The scheme was activated.