David Drumm authorised €7.2 billion in allegedly dishonest transactions, witness tells bank trial

The Dock

The trial of four senior bankers accused of conspiring to mislead investors has heard that former Anglo Irish Bank CEO David Drumm authorised €7.2 billion in allegedly dishonest transactions.

The executives, including former Irish Life and Permanent (ILP) CEO Denis Casey and Anglo’s former group finance director Willie McAteer, are accused of conspiring to mislead investors by using interbank loans to make Anglo appear €7.2 billion more valuable.

In his opening speech to the jury at the Circuit Criminal Court, Paul O’Higgins SC, prosecuting, said that the four men engaged in a scheme on a vast scale which had no commercial substance.

He said that on the night that the bank guarantee was being put in place the artificial transfer of one billion euros was taking place repeatedly in order to make the bank’s customer deposits look healthier to anyone examining them.

Mr McAteer (65) of Greenrath, Tipperary Town, Co. Tipperary and Mr Casey (56), from Raheny, Dublin, ILP’s then group finance director Peter Fitzpatrick (63) of Malahide, Dublin and John Bowe (52), from Glasnevin in Dublin, who had been Anglo’s head of capital markets, have all pleaded not guilty to four charges.

The charges alleged that they conspired together and with others to mislead investors, through financial transactions, to make the bank appear €7.2 billion more valuable that it was between March 1st and September 30th, 2008 in Dublin.

Matt Cullen, who was introduced by prosecuting counsel Una Ni Raifeartaigh SC as having “the dubious honour of being the first substantial witness in the case”, outlined his function as senior manager of Anglo’s Treasury Department in 2008.

He said that in March 2008 it had become more difficult for banks to get funding and that competition for deposits was fierce. The American investment bank Bear Sterns had collapsed that month and the Bank of England was having emergency meetings, he said.

On March 17 the share price in Anglo had fallen by a substantial amount and this day became dubbed the “St Patrick’s Day massacre”. The half-year end for the bank was coming up on March 30, he said, and the bank would have to report to the markets.

He said a decision was taken by the executive directors that the bank should show a “strong corporate number” to the market, meaning to increase their corporate funding.

He was told to approach ILP and ultimately a “back to back” transaction was set up where Anglo placed €750m with ILP and the ILP Group would “give us back a corporate deposit” from Irish Life Assurance Corporate, the non-banking entity owned and managed by ILP.

He said it had to come from this entity so that it would show up as a corporate deposit as opposed to a inter-banking loan.

The court heard that non-banking deposits, from the likes of life assurance and pension funds, had a greater value than inter-bank loans from the point of view of the markets and investors looking at a bank’s state of health.

The transfer was short term to cover the month end, he said, and he testified that the bank’s then Chief Financial Officer Matt Moran and CEO David Drumm knew about the transaction. He said that when the transaction was explained to Mr Drumm he said: “That’s not an issue, no problem”.

He said that he didn’t have any concerns about getting the normal inter-bank loan limit of €300m increased to €750m to facilitate this transaction, stating: “I believed we were being tasked by the executive management to do so and they wanted us to complete the transaction”.

By June Anglo had a strong cash flow and Mr Cullen said he was contacted by his opposite number in ILP, David Gantly, who asked about Anglo assisting ILP to reduce their reliance on ECB funding coming up to ILP’s half year reporting date that month.

“I spoke to David Drumm and Willie McAteer and everyone said yes to that,” he said. Anglo transferred €3bn to ILP and ILP transferred a portfolio of home mortgages to Anglo.

He said over the following months a list of about 50 “funding initiatives” was drawn up with the objective of getting corporate funding into the bank. By the end of September there were three initiatives left and the ILP/Anglo deal was one.

“As funding initiatives fell away David Drumm turned to me and asked me would I ask Irish Life would they do six or seven billion in September.

“I rang Dave Gantly and told him I’d been asked by David Drumm to ask you to ask ILP would you do six or seven billion over our year end in September. He said who was asking.

“I clarified who was asking. He came back to to say Peter Fitzpatrick said they would do it if we did the same for Irish Life in December at their year end.

“I spoke to Willie McAteer and David Drumm. I relayed that message back to them. They said ‘absolutely no problem, go back and tell David Gantly we will do that’”.

The trial, which is scheduled to run for up for five months, continues before Judge Martin Nolan and a specially enlarged jury of eight men and seven women.