A former Anglo Irish Bank board member has said he was not aware, when the Maple 10 businessmen bought shares in the bank in July 2008, that funding for the purchases was being provided by the bank.
Michael Jacob told the Dublin Circuit Criminal Court he believed he did not become aware of the loans from the bank to the 10 individuals until "post-August" or "probably September" of that year.
Mr Jacob, who was a non-executive director of Anglo from 1988 to 2009, said he first became aware of the businessman Seán Quinn’s contracts for difference - investment products based on share price - in Anglo in mid-2007.
He was told in March 2008 of a plan to unwind some of the CFDs and he understood that international institutional buyers would “have their own resources to manage a trade”. The plan changed after the end of June, he said. The Maple 10 investors, who were large customers of the bank, were to become share purchasers.
He said he had “no knowledge” about the funding arrangements for the Maple 10 and only discovered post-August or “probably September” that the bank had loaned them the money.
Mr Jacob said he was told that legal advice had been obtained, but said he did not see a written legal opinion about the transaction.
Seán FitzPatrick (65) of Greystones, Co Wicklow, William Mc Ateer (63) of Rathgar, Dublin and Pat Whelan (51) of Malahide, Dublin have been charged with 16 counts of providing unlawful financial assistance to 16 individuals in July 2008 to buy shares in the bank, contrary to Section 60 of the Companies Act.
Mr Whelan has also been charged with being privy to the fraudulent alteration of loan facility letters to seven individuals. All three men have pleaded not guilty to the charges.
Brendan Grehan SC, for Mr Whelan, asked if there were concerns about a run on Anglo in March 2008, when American bank Bear Stearns collapsed and the Anglo share price dropped. “There were concerns that could happen under some circumstances,” Mr Jacob said.
He described Mr Quinn as “a loose cannon” who was “uncontrollable” and whose “loyalty was to the gamble rather than to the share”. He agreed with Mr Grehan that from September until July 2008, Mr Quinn’s CFDs were “the single biggest problem facing the bank”.
Mr Jacob said that when the transaction was completed in July, he received a phone call from Mr FitzPatrick. “It was very brief. He said the transaction was completed. I said ‘well done’.”
In a statement he gave to gardaí, Mr Jacob said he was “reassured” that the Financial Regulator was aware of the transaction and that it appeared to him that there was “unity of purpose” between the bank and the regulator.
Mr Jacob agreed with Michael O'Higgins SC, for Mr FitzPatrick, that after the board learned in September 2007 that Sean Quinn held CFD positions on 24 per cent of Anglo's shares, its first response was to instruct David Drumm, then Anglo's chief executive, to go to the regulator.
Mr Jacob said in this the bank was “very much” influenced by the fact that, unlike outright share ownership, these CFD movements were, in Mr O’Higgins’s words, “happening off radar and out of sight.”
Mr Jacob agreed with Mr O’Higgins that after the so-called St Patrick’s Day Massacre in 2008, when more than 20 per cent was wiped off Anglo’s share price in one day, there was acceptance in the bank that radical steps were needed.
Mr O’Higgins outlined a number of options that were explored at the time. Under Project Sleeve, the bank would make a rights issue to existing shareholders, which would have the effect of diluting the Quinn CFD position as a proportion of the overall stock. A second option, referred to as Operation Dribble, involved selling a certain number of shares into the market without destabilising the share price.
The bank sought funding from Middle Eastern sovereign wealth funds. As of early July 2008, two other avenues were still being “actively pursued”, Mr O’Higgins said. These were an approach to Bain Capital in the US and discussions with Rabobank in the Netherlands.
Mr Jacob agreed with Mr O’Higgins that Anglo found itself in an “extraordinary situation” as it entered July 2008. “Its fate was in the hands of one person, yet Sean Quinn didn’t control his own circumstances,” Mr O’Higgins said.
Mr O’Higgins compared Anglo and Mr Quinn to an aircraft carrier with a rowing boat paddling alongside it. “The rowing boat actually had the capacity to sink the aircraft carrier,” he said.
