A former associate director of Anglo Irish Bank refused to sign a letter which he said retrospectively altered the conditions of the Maple Ten loans and weakened the bank's position.
Giving evidence at the trial of three former Anglo directors, Lorcan McCluskey said he wasn’t comfortable signing the altered loan facility letters.
The first loan facility letter sent in July set the security on the loan as a personal recourse of 25 per cent. This meant the lenders would be personally liable for a quarter of the amount borrowed.
A second letter shown to the court added a line which said that recourse could be to the value of the shares at the end of the loan period.
Mr McCluskey said that he believed that this change “created a situation where if the share price went to zero there was no recourse”.
He said he had been asked to sign the letters by his line manager in the bank, Michael O’Sullivan.
The letters were based on copies of the original July 10th letters but had hand written amendments.
After he refused to sign the letters, he said they were signed by the accused Pat Whelan and Mr O'Sullivan, who is not before the court.
Asked by prosecuting counsel Paul O’Higgins SC to describe his reaction to the second letter, the witness replied: “Initially refusal.”
“It was an instruction given to me by Michael. I voiced my discomfort to Michael. I had never met or dealt with the Maple Ten. When I read it in isolation I felt it was weakening the banks position.”
“Michael told me that he had been told by Pat that it had been agreed by CEO and the board of the bank. I said that’s ok but I basically refused to sign it”.
The prosecution allege that three former Anglo executives, Pat Whelan, William McAteer and chairman, Sean FitzPatrick, were involved in a plan by Anglo to loan money to the Quinn family and the so called Maple Ten group of investors so that they could buy shares in bank and guarantee the stability of the share price.
The three men have been charged at Dublin Circuit Criminal Court with 16 counts of providing unlawful financial assistance to 16 individuals in July 2008 to buy shares in the bank.
Mr Whelan has also been charged with being privy to the fraudulent alteration of loan facility letters to seven individuals in October 2008.
Mr FitzPatrick (65) of Greystones, Co Wicklow, Mr McAteer (63) of Rathgar, Dublin and Mr Whelan (51) of Malahide, Dublin have pleaded not guilty to all charges.
The court heard that Mr McCluskey said he believed that Mr O’Sullivan asked him to sign the amended loan letters in October 2008. Copies of the letters shown to the court are dated July 17th, 2008.
He said that his next dealing with the Maple Ten loans was in January 2009 when he said “rectification letters” were issued. Following a “high level review” of large loan facilities Mr O’Sullivan was uncomfortable, he said.
“I gave Michael back the written instruction that he had given me to issue the second facility letter. I had retained that as evidence that it was not something of either Michael’s or my creation,” said Mr McCluskey.
He said that letters issued in January 2009 set the recourse on the loans back to the original recourse set out in the first letter sent in July 2008.
Describing that initial process in early July of putting together the €600m loan facilities for Maple Ten, the witness said that it was unusual to prepare ten identical loan facility letters.
He said that on July 18th he was contacted by Mr Whelan who told him to prepare the ten facility letters. He said Mr Whelan gave him the names of the ten individuals and told him that he and Anglo CEO David Drumm had to meet these people.
“Never happened before, never happened since, so it’s very unusual,” he said.
Earlier today one of the so-called Maple Ten told the trial that he was on holidays in Faro, Portugal when Mr Drumm and Mr Whelan travelled there to ask him to buy a one per cent stake in a “major shareholding” position.
Developer and builder Joe O’Reilly of Kerrymount Avenue, Foxrock, Co Dublin said that the two bankers told him over lunch that the shareholding had to be unwound as it was causing turbulence in the markets and driving down the share price.
He immediately agreed to buy the shares and said he was told they had legal advice and that the Financial Regulator was on board along with the Department of Finance.
Mr O'Reilly said he had no qualms about the legality of the loan to buy Anglo shares. He said he believed the bank had "as good a team as you could get" in terms of reputable legal advice and the company carrying out the transaction, Morgan Stanley.
During cross-examination, he said he got the impression another body was aware and he believed that to be the Department of Finance but he said he “could have got that wrong” and that it could have been the Central Bank.
Developer Sean Reilly said that on July 8th 2008 he met with Mr Whelan and Mr Drumm and that Mr Drumm told him that the bank's shares were coming under pressure from short selling and asked him if he would buy up to €60m worth of a share position, or one per cent.
Mr Reilly said a personal recourse of 25 per cent was agreed. He said: “If shares ended up zero I’d have to pay €12.5 million”. He said Morgan Stanley would take over the power of attorney and draw down the loan facility for the purpose of buying the shares.
“It was very simple,” he said.
Mr Reilly of Strokestown, Dunboyne, Co Meath said that the bankers told him the Financial Regulator and the Central Bank was aware of the plan.
“Everyone was aware of it and wanted it done. I said I’d think abut it and get back to him,” he said.
After considering overnight, Mr Reilly said he agreed to come on board because “it was a reasonably commercial deal”.
“The shares had lost 75 per cent at this stage. They’d have to lose another 75 per cent. I felt we could make money from it. We were long time customers of the bank. We had a reasonably good relation. I felt they wanted us to do it,” he said.
He said that when he asked Mr Drumm if he could sell the shares on after buying them he was told he could “as long as I don’t flood the market”.
The document relating to the loan facility shown to the court stated that the borrower must give ten working days notice before selling the shares and that the bank could nominate a third party buyer.
He agreed that the second loan facility letter received sometime later changed the recourse on the loan so that if the shares went to zero he didn’t have to pay any recourse. A third letter dated January 5th, 2009 rescinded both earlier terms.
“I got a call prior to receiving this letter from Pat Whelan saying there was a mistake on the letter,” he told the court. He said by January he had sold most of the shares. He was left with two million which were worthless once the bank was nationalised.
Mr McCluskey said that a document referring to the loan facility for developer Sean Reilly that came before the lending committee was not normal because it did not refer to the pros and cons of lending to the borrower or details of past performance.
This document, shown to the jury, stated: “The Irish equity market is experiencing unprecedented volatility due to the on-going credit crunch. Many market watchers are of the view that it is a good time to acquire equities…Given the opportunities that now exist, Sean Reilly has approached us seeking a share dealing facility. This facility will be used to acquire Irish quoted shares.”
“Mr Reilly is an astute investor and highly regarded client of the bank with a significant net worth…..Our loan will be secured by the shares purchased….In addition we will have recourse to the borrower for 25 per cent of the total loan facility”.
Under cross-examination Mr Reilly told Brendan Grehan SC, defending Mr Whelan, that Anglo were “unusually sticky” when it came to adding a personal recourse to commercial loans.
He said many of the other banks, both Irish and European, had no personal recourse on loans. He said that when they did, ten to 15 per cent was normal and 30 per cent was the maximum.
In the morning Seán Quinn Jnr continued his evidence about how loans were taken out in his name to buy shares in Anglo as part of a plan to unwind the position held by his father through Contracts for Difference.
Mr Quinn Jnr said his family were of the view that the loans were illegal and the security obtained and enforced by the bank was obtained in a fraudulent and illegal manner and should not be enforced.
His sister Colette Quinn said she had absolutely no awareness about the purpose of the loans at the time. She said she was told by her solicitors a couple of years later that she had taken out a loan to buy shares.
She said she would have signed documents given to her to sign at the time but was not aware of the purpose. The documents would have been given to her to sign by staff at Quinn companies.
She never met anyone from Anglo Irish Bank nor did she discuss anything.
Ciara Quinn said her role was confined to signing documents that were put in front of her and that nobody talked to her about these at the time. She agrees that these documents were put in front of her by staff in the Quinn Group.
Her sister Brenda Quinn said she is now aware that she got a €15 million loan to purchase shares in her name but at the time she had no interaction with Morgan Stanley, the Financial Regulator or lawyers about the deal.
Patricia Quinn, wife of Sean Quinn Senior said she played no active role in relation to the Quinn Group or in the building up of private wealth for her children.
She told Una Ni Raifeartaigh SC that her husband took care of all this.
She said she played no role in the CFD deal but agreed that her signatures appear on the documents.
She said : “I don’t know nothing about CFDs. I didn’t know anything about shares, I never met anybody, I was at home looking after the children, I have no involvement with anything here, I’m sorry.”
