Saturday 22 November 2014

Red alert – but Anglo kept on lending to Sean Quinn

Businessman received almost €1bn despite Drumm's ban on giving loans

Paul Williams

Published 19/07/2014 | 02:30

David Drumm, Anglo Irish Bank’s former chief executive. Photo: Frank McGrath
David Drumm, Anglo Irish Bank’s former chief executive. Photo: Frank McGrath
Anglo Irish Bank

DAVID Drumm put Anglo Irish Bank on "red alert" in January 2008, telling senior staff the bank could no longer afford to lend money – but then went on to lend almost €1bn to Sean Quinn in the following six months.

Internal emails from Anglo in January 2008, obtained by the Irish Independent, show the bank's then chief executive telling staff to go through lending commitments "like a dose of salts" in order to see what loans the bank could get out of.

With finances dwindling, Mr Drumm sent an email to senior staff describing the situation as "not pretty" and warning that they needed to "really shut down on future deals".

However, the bank went on to permit loans worth a staggering €957m to be issued to Mr Quinn, as the then-billionaire businessman chased his losses after gambling on the bank's share price.

The correspondence shows the panic setting in at Anglo two months before the so-called 'St Patrick's Day massacre' when its share price collapsed by 30pc.

Despite the "red alert", the toxic bank gave Mr Quinn €300m in two days in March alone as part of a package of nearly €1bn, which brought his total debt to Anglo up to €2.1bn.

Another €450m was given to the Maple 10 clients, who were involved in a plan to unravel Mr Quinn's Anglo share portfolio.

But in his email marked 'lending' on January 4, 2008, Mr Drumm informs a senior Anglo executive the bank could not afford to issue new loans.

"I've just finished our funding meeting and the situation is not pretty," he warned.

"There is a lending figure in for January of €1.8 billion net which is way too high. Yourself and XXX are the culprits with Ireland showing €500m net in the month," Mr Drumm admonished his senior executive. He continued: "Can you go thru (sic) it with a dose of salts to see what we can get out of – in addition we now need to move to red alert and really shut down on future deals – we can not afford additional lending in February and March at this stage.

"We are going to have to get much more clinical – there is no choice around this now," he added.

Mr Drumm's "strongly worded" email covering lending, costs and a recruitment ban was forwarded to another half-dozen executives.

"We are now on 'red alert' on lending and basically have to stop," the management team was bluntly informed.

One of the executives was instructed to examine the loan book and see what the bank could "get out of".

Anglo management was also informed all recruitment was "effectively banned".

"Could you get the 'projected' lending drawdowns from finance and let's see what we can get out of. Regarding costs, you will see from the tone of the mail (to follow) that recruitment is effectively banned," another email said.

The email was forwarded to another executive in the command chain who warned a colleague: "Please keep this to yourself and talk to me when you get in tomorrow."

The documents seen by the Irish Independent clearly show that the bank was headed for disaster – while at the same time touting the official line that it was in great shape.

The order to cease lending as a way of preserving capital was a direct contradiction of the line that Mr Drumm was peddling to the markets.

On March 6, 2008, in an official trading statement, Anglo Irish Bank declared that lending was growing – though at a slower pace – and claimed it was because the bank was being more disciplined.

In the bank's interim results for six months ended March 31, Mr Drumm said: "The bank has delivered another strong performance in the six months . . . with underlying earnings per share increasing 15pc to 67.7 cents."

Mr Drumm went on to state: "The relevance of our strict underwriting criteria and relationship focused business model has been underlined by the current challenging environment for all banks.

"Organic potential in each of our core markets combined with the strength of our franchise creates significant opportunity for our business in the medium to long-term."

However, in the same month, the doomed bank loaned Mr Quinn €365m.

On March 18, the day after the St Patrick's Day massacre, Anglo gave the former billionaire a staggering €240m in two tranches. The following day he got another €60m.

In May, he got €151m and in June another €232m, which brought his total borrowings to €1.9bn, which was then following by another €200m.

Next April, the High Court will be hearing an action by Mr Quinn's family over the issuing of €2.34bn in loans, which they claim were illegal.

Regulations

Mr Quinn's wife Patricia and their five children are taking an action against the Irish Bank Resolution Corporation claiming that it breached company legislation and market abuse regulations when it gave loans to the family in its former guise as Anglo Irish Bank.

The family argues that the purpose of the €1.8bn in loans was to prop up the share price of the bank, and the money would not have been drawn down if they knew the true state of Anglo's finances.

An internal review of the Quinn Group's transactions with Anglo, compiled in January 2009, also shows how the businessman built up his secret shareholding in the bank through 'contracts for difference' (CFD).

The Anglo report showed how Mr Quinn used nine different financial institutions to secretly build his 28pc stake in the bank through CFDs. It meant that no single institution was aware of the true extent of his exposure. The single largest position with any of the nine banks was a 6pc shareholding in Anglo, which was held through Credit Suisse.

Irish Independent

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