THE EXTENT of the Financial Regulator's involvement in Seán Quinn's purchase of almost 15 per cent of Anglo Irish Bank has emerged in a confidential letter seen by The Irish Times.
The prudential director at the regulator, Con Horan, signed off on a €169 million loan from Anglo to the Quinn Group to fund the purchase of the bank’s shares in July 2008.
It was unclear until now if the regulator or who within the regulator’s office had approved the bank’s loans to Quinn to buy shares in the bank.
Under company law, a business is prohibited from lending to an individual to buy shares in that company, but certain exceptions are permitted.
Mr Horan stepped down as prudential director at the regulator as part of the restructuring of the Central Bank in the aftermath of the banking crisis. He took over as special adviser to the new head of regulation, Matthew Elderfield, moving to the role created at the reformed Central Bank in December 2009.
The letter shows how Mr Horan told Anglo that the bank should adjust its capital levels to take account of the €169 million loan.
Mr Horan, who at the time of the share purchase reported directly to former head of regulation Pat Neary, forced Anglo to deduct the same sum from its capital reserves in an attempt to encourage the bank to refinance the debt with another lender.
The €169 million loan remains part of the €2.8 billion debt still owing by the Quinn family to the now State-owned bank.
Anglo’s loan was provided to the group founded by Mr Quinn as part of the unwinding of his family’s indirect investment in Anglo, which rose to 28 per cent at its peak, into a direct shareholding of almost 15 per cent in the bank.
Mr Horan wrote to Anglo’s then chief financial officer Matt Moran on July 25th, 2008, saying that the regulator felt the bank should take a deduction from the bank’s “total own funds” – shareholders’ funds held to maintain a bank’s solvency – for the full €169 million loan.
“I refer to our recent telephone conversations and ongoing communication in relation to the exposure of the Quinn Group (Quinn),” wrote Mr Horan in the letter marked “strictly private and confidential”. “Specifically, I refer to the recent loan by Anglo to Quinn for an amount of €169 million to finance his holding in Anglo shares.”
He told Mr Moran that, as discussed, the regulator “considers it appropriate that Anglo take a deduction from Total Own Funds for the full amount of €169 million for solvency purposes until such time as this facility is refinanced”.
“It is noted that it is expected to take between two to three weeks before the requisite structures are in place to facilitate the refinancing of this amount,” Mr Horan wrote.
Last night a spokeswoman for the Financial Regulator said she could not comment as the matter was the subject of a criminal investigation.
The Quinn Group also declined to comment.
The Quinn family lost €3 billion primarily on its investment in Anglo but also on other shares.
The bank took security over the family’s shares in the Quinn Group in return for loans to buy stock.
The family bought the 15 per cent stake after unwinding their interest in Anglo through contracts for difference (CFDs), a high-risk investment that allows individuals take an interest in a firm through borrowings and without declaring it publicly.
The purchase of the stake was announced in mid-July 2008 and completed the following month.
Some 10 per cent of the family’s remaining indirect interest was sold to 10 Anglo customers in a deal managed by Anglo and financed by the bank to support the Anglo share price at a time of market volatility.
This “share support scheme” is being investigated by the Garda Bureau of Fraud Investigation and the Director of Corporate Enforcement Paul Appleby.
Anglo had put pressure on Mr Quinn to unwind his indirect interest as institutions providing the CFDs had loaned the underlying shares to short-sellers – investors who profit from falling share prices – who were betting against the bank.