ANGLO IRISH Bank gave loans to top executives and board members in a share-buying drive encouraged by former chairman Seán FitzPatrick to offset mounting negative publicity in early 2008 as the financial crisis intensified, it has been claimed.
Former Anglo chief executive David Drumm is claiming in the bank’s legal action against him that Mr FitzPatrick believed the adverse publicity surrounding the bank could be offset if the bank’s executive directors showed confidence by purchasing shares.
Following his suggestion, Anglo’s executive directors agreed to invest in the bank by exercising share options, while non-executive directors also agreed to buy more shares, Mr Drumm has claimed.
The purchases were funded with loans from Anglo, Mr Drumm has claimed in his defence of the bank’s legal action against him to recover loans of €8.3 million.
Anglo has also issued a legal action against Mr FitzPatrick in a bid to recover loans of €70 million.
Most of his loans were secured on Anglo shares that became worthless following the bank’s nationalisation in January 2009.
Mr FitzPatrick was arrested last week and questioned for 24 hours by gardaí investigating alleged financial irregularities at Anglo.
In the bank’s legal action against him, Mr Drumm claims that adverse publicity in early 2008 affected Anglo’s funding due to the worsening credit crisis, the collapse of UK bank Northern Rock and the mounting difficulties at US bank Bear Stearns.
All 12 executive and non-executive board members at Anglo increased their shareholding in the bank during the financial year to September 2008, according to the bank’s annual report.
The 12 directors increased their combined interest to 12 million shares at September 2008 from 10.4 million a year earlier. Anglo advanced €255 million in loans to directors during the year, while €115 million was repaid.
Some €179 million was owing on directors’ loans at the end of the year.
Mr Drumm bought 500,000 shares, exercising share options at a cost of €4.4 million.
The purchase was funded with a new loan of €7.65 million provided in January 2008 which also refinanced existing loans owing on his shares.
Mr FitzPatrick bought 396,000 more shares during the year, bringing his stake to 4.9 million shares at the end of September 2008. This made him the largest shareholder on the board followed by former finance director Willie McAteer with 3.5 million shares.
Anglo’s then head of UK operations, Declan Quilligan, and head of Irish lending, Pat Whelan, also exercised share options during the year.
Mr Quilligan bought 300,000 more shares, while Mr Whelan purchased 100,000 more.
It is understood that a number of senior executives at Anglo also purchased Anglo shares in early 2008 using loans from the bank.
Anglo will report losses of close to €12 billion later this month for the 15 months to the end of 2009, as it writes off about €14 billion on loans, including losses on loans of €36 billion moving to the National Asset Management Agency.
As a result, the bank will require a further bailout from the Government, possibly as much as €6 billion, to replenish capital reserves.
The Government injected a total of €4 billion into Anglo in three tranches last year – €3 billion in June, €828 million in August and €172 million in September.