Tuesday 6 December 2016

Anglo told executives to hush up €200m deal

Plan gave impression bank had no problem getting cash

Emmet Oliver and Joe Brennan

Published 21/04/2010 | 05:00

TOP executives at Anglo Irish Bank were warned not to reveal the details of a secret €200m deal at the height of the banking crisis.

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An email seen by the Irish Independent reveals how Anglo Irish Bank borrowed the money from a major German bank to give the impression it had no difficulty securing money during the financial crisis.

But this was not borrowing in the normal manner, as Anglo returned the same amount to the German bank as part of a so-called 'back-to-back' deal.

The email warned 18 separate senior managers not to disclose the true nature of the transaction with the German bank, in case it damaged perceptions of Anglo on funding markets.

The email says: "Do not mention the back to back nature of this transaction; this was purely a . . . private placement deal as far as the market is concerned."

The Irish Independent has established that the Office of the Director of Corporate Enforcement is now investigating the transaction. Last night, a spokesman for corporate enforcement watchdog Paul Appleby, said: "I can acknowledge that we are aware of the document concerned.

"Beyond that, in accordance with our statutory obligations, we are precluded from making any further comment on any aspect of this or the wider Anglo investigation." The €200m deal was completed in May 2008 -- a crucial period in the financial crisis and just two months after the bank's shares were savaged on international markets in the so-called St Patrick's Day massacre.

Banks the world over were finding it increasingly difficult at the time to access international funding markets, just months after the Wall Street bank Bear Stearns virtually collapsed.

The documents outline how the German bank, which is named as Hypo Real Estate, advanced Anglo all of the €200m it was seeking to raise from investors at the time.

In exchange, Anglo agreed to provide the same amount of money back to the foreign lender -- completing what's known as a 'back-to-back' deal between the two banks.

A spokesman for Hypo declined to comment last night, saying it "must not disclose details regarding transactions due to its confidentiality obligations".

Struggling

The impact of the transaction allowed Anglo to tell the markets that it was able to access the markets when many other banks were struggling to do so.

Critically, the deal meant Anglo was able to announce to investors that it was able to fund the deal at a relatively cheap interest rate -- which would set a benchmark for further borrowing transactions.

The deal also came just weeks after Anglo surprised the market with better-than-expected figures for the first half of its year -- prompting analysts to conclude at the time that it was weathering the storm well.

The bank's then-management team, led by chief executive David Drumm, used the occasion of the results to bat back rumours of Anglo's demise.

It insisted at the time that its funding, cash position and quality of its loans were robust.

However, the Government has already pumped more than €12bn into the nationalised lender and at least another €10bn is likely to be needed in future to keep the bank afloat.

Anglo declined to comment last night.

However, it is understood that the new chief executive, Australian Mike Aynsley, has made it clear to staff since he took over last September that he will have "zero tolerance" for any future lapses in corporate governance.

Anglo set an ignominious Irish corporate record last month by unveiling an annual loss of €12.7bn, after writing down more than €15bn of bad loans and other toxic assets.

Irish Independent

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