Anglo Irish overcharged customers €1.2bn, court told

Anglo Irish Bank and its successor Irish Bank Resolution Corporation overcharged customers by an estimated $1.6 billion (€1.2 billion) and continued to overcharge since the Government liquidated the bank in February, a forensic banking specialist has claimed in a US court.

Expert witness
The expert witness made the claim in a legal challenge taken against IBRC's application for bankruptcy protection in a court in Delaware by developer John Flynn and related parties who claim they were overcharged $11 million on loans of about $200 million with the bank.

Mr Flynn, who is best known for his involvement in the redevelopment of part of Smithfield in Dublin and his shareholding in the Blackrock Clinic, the private Dublin hospital, has taken a separate lawsuit against IBRC in a New York court over the overcharging.

IBRC, formerly Anglo, is seeking “Chapter 15” protection from creditors under US bankruptcy law that allows foreign companies to have overseas liquidations recognised by the American courts.

Protection
In August the bank's liquidators KPMG sought protection in Delaware to prevent creditors seizing about €1 billion in US assets.

KPMG has been paid €5 million in fees on IBRC’s liquidation since February while the firm’s lawyers A&L Goodbody are earning an estimated €1 million a month, it was disclosed in court yesterday.

Mr Flynn, who attended court yesterday, is challenging the bank’s petition as it would block his lawsuit in New York along with others taken by borrowers and creditors of IBRC in the US.

Lawyers for the developer, a US resident, claimed that the liquidators were trying to stop Mr Flynn’s New York litigation “with unclean hands” because the overcharging had continued under their watch.

Testifying by video-link from Belfast, Eddie Fitzpatrick who runs financial services company Bankcheck, told the court that he had analysed accounts for 16 customers of the bank and found that the overcharging continued after the bank's liquidation in February – a claim denied by the liquidators.

Mr Fitzpatrick, a witness for Mr Flynn, said the overcharging was “sophisticated,” “intentional” and a “fraud” on customers, saying that it continued “well past 2004” and “it continues to this very day.” He estimated that the bank was still overcharging Mr Flynn between €80,000 and €100,000 a month.

One of IBRC's two special liquidators, Kieran Wallace of KPMG, who travelled to the US to testify in court, acknowledged that the bank overcharged Mr Flynn interest "before 2004" but that the quantum was "up for debate."

He said that he was “very comfortable” that the bank was not still overcharging and that former IBRC management addressed the problem in 2012 when affected customers were contacted and refunded.

Variable rate
The liquidators said in a statement last night that the majority of Anglo's "variable rate" customer loans in the Republic, Isle of Man and the US from January 1990 to July 2004 were overcharged, and that a quarter of "variable rate" loans in the UK were overcharged from September 1991 to June 2005.

Mr Wallace told the court he was charging €295 an hour for work on the liquidation, while solicitor Mark Traynor of A&L Goodbody said he was charging €400 an hour.

The court was told last month that former Anglo chief executive David Drumm, who moved to the US after resigning from Anglo in 2008, is willing to testify on Mr Flynn's behalf.