Regulator investigates €300m loans by Anglo to buy its shares

THE FINANCIAL Regulator has confirmed it is investigating €300 million in loans given by Anglo Irish Bank to 10 business people to buy its own shares. The bank loaned the money to 10 unnamed clients last year so they could take a 10 per cent stake in the bank that was originally part of a holding assembled by businessman Seán Quinn and his family.

The State’s financial watchdog yesterday confirmed it was aware of the issue before the bank was nationalised earlier in the month. In a statement, it said details emerged during a formal evaluation process that led up to the State taking over the bank.

The regulator said it is investigating the loans, but denied it was aware of any “sweetheart deal” between the bank and borrowers. All aspects of the loans were being investigated to pursue and assist “in whatever action is necessary, including appropriate legal proceedings”.

The deal was designed to stop the stock being sold on the market and inflicting further damage on Anglo’s share price, which plummeted throughout 2008. Mr Quinn built his 25 per cent interest in Anglo through contracts for difference (CFDs), high-risk instruments that allow investors to own shares indirectly at a fraction of their price and bet on them increasing or decreasing in value.

As the shares collapsed in price, Mr Quinn and his family had to put up more money to maintain his holding. He has admitted the exercise cost almost €1 billion. Ultimately, Mr Quinn converted the holding to a direct 15 per cent stake. The bank loaned 10 clients €300 million to buy the remaining 10 per cent.

The loans were “non-recourse”, which means if the borrowers defaulted, the bank’s security was limited. The regulator said yesterday it is paying particular attention to this. The regulator’s statement said it and other authorities knew of “a large CFD position held in Anglo Irish Bank” last year, and were aware of steps being taken to have this unwound. Its primary concern related to the “security of deposit holders” and “any stability issues that might arise from the unwinding of this position”.

“The Financial Regulator was not aware of the identity or the financing arrangements of a so-called golden circle of 10 investors,” it said.

It has also provided the Office of the Director of Corporate Enforcement (ODCE) with significant information on the loans. The ODCE has the power to prosecute suspected offences, or to refer files on serious breaches of company law to the Director of Public Prosecutions.

Speaking in Cork yesterday, Fine Gael leader Enda Kenny said there was “a crying need” to restore confidence to the banking system. Because of this need “and not because of any one individual’s wrongdoings”, he believed the board of the Regulator and senior management should resign in light of their “collective failure” to deal correctly with such issues.