LOANS FOR SHARES:ANGLO IRISH Bank has revealed that it lent 451 million – far more than the previous €300 million estimate – to "ten long-standing clients" to buy 10 per cent of the bank's shares last year.
The bank said in its 2008 annual report that the loans were provided to buy the shares from the providers of the contracts for difference (CFDs), the high-risk investment products. The CFDs were held by businessman Sean Quinn.
Mr Quinn unwound his 25 per cent interest in the bank from CFDs to ordinary shares, but only acquired 15 per cent of the bank.
The bank organised the so-called “golden circle” of 10 investors to take up the 10 per cent stake made available by Mr Quinn.
The purchase of the 10 per cent stake was organised and financed by Anglo Irish to prevent about 75 million shares in the bank being released on the open market. The bank was concerned the release of 10 per cent of the bank’s stock would lead to a sharp fall in the value of the share price.
The bank’s chairman, Donal O’Connor, said that of the €451 million loaned to the investors, €83 million had been repaid.
Three-quarters of the loans were secured against the shares themselves, with the remaining quarter secured on “the individual’s personal assets”.
The bank said it would seek repayment from the 10 investors “under the borrowers’ obligations as necessary”. This suggests that the bank will pursue the investors for the 25 per cent of the loans they have personally guaranteed.
However, the bank is not optimistic about recovering the rest of the loans as it says in the report it will write off “in the region of €300 million”, taking a bad debt charge for this amount in the six months to March 31st, 2009, the first half of its financial year.
This is because the shares are virtually worthless following the bank’s nationalisation last month.
An assessor will decide later on the value of the bank’s shares. “The value of the underlying shares will not be clear until the assessor’s work is complete,” said Mr O’Connor in his statement.
The €300 million bill will be footed by the taxpayer as the State has taken control of the bank.
The names of the investors were not published, as Mr O’Connor said it “would be wrong for the bank to refer to any transactions or dealings with any specific customer of the bank”.
He said the bank had “engaged independent advisers, including senior counsel, to review all material transactions, including the detailed legal advice that the bank received and the extent of the bank’s consultation with the relevant authorities”.
The Financial Regulator, the Officer of the Director of Corporate Enforcement and the Irish Stock Exchange are investigating the sale of the 10 per cent shareholding.
