Wednesday 26 July 2017

Anglo shares boosted by €300m loan to 10 tycoons

Taxpayers left with bill as investigators probe terms of loans to well-connected businessmen

ANGLO Irish Bank loaned a total of €300m to 10 wealthy individuals last July in a controversial arrangement designed to support the bank’s share price, the Sunday Independent can reveal.

In what is feared in Government circles to be a potential new banking scandal, which may have political implications, the 10 millionaire business people, including several household names, each borrowed €30m from Anglo Irish to buy shares in the bank.

The Sunday Independent understands that the regulatory authorities in Dublin are currently investigating whether Anglo Irish subsequently changed the original non-recourse loan terms by substituting as collateral the then plummeting, now virtually worthless, shares purchased by the loans.

The taxpayer is currently exposed to the €300m debt at the now nationalised bank.

Details of the controversial arrangement are understood to be contained in an unpublished Price Waterhouse Cooper report provided to the Government in October.

It is understood to be also referred to in a draft copy of Anglo Irish Bank’s annual report which has been received by the Department of Finance. That document is to be published on Friday.

It is understood that the loans were initially offered and accepted on what, in banking circles, is known as “non-recourse” terms.

A non-recourse loan is secured by a pledge of collateral — typically property — for which the borrower is not personally liable. If the borrower defaults at a later date, the lender can seize the collateral — but the lender’s recovery is limited to the then value of that collateral.

The purpose of nonrecourse debt is to require lenders to underwrite their loans on a sustainable and prudent basis since the lender is in the first-loss position with these loans, not the borrower.

The bank’s 10 high-profile clients used the €300m to purchase shares in Anglo Irish Bank in an ultimately unsuccessful attempt to support the bank’s share price.

It is understood that when the share price continued to fall the borrowers negotiated a new arrangement with Anglo Irish which had the effect of substituting as collateral the Anglo Irish bank shares purchased using the loans from the bank. Those shares are now virtually worthless.

The Government is expected to come under pressure to reveal its knowledge of the arrangement.

Specifically, the Opposition will want to know if the Government had knowledge before it introduced its bank guarantee scheme last September. The scheme guaranteed all debts and deposits in Irish banks.

The Opposition parties will also want to know if the Government was aware of the transactions before Anglo Irish Bank was nationalised in January.

In relation to this arrangement alone, the introduction of the guarantee scheme and the nationalisation of Anglo Irish Bank both separately exposed the taxpayer to potential losses of €300m.

The Sunday Independent understands that the 10 clients are well-connected business figures.

The Government will argue that the guarantee scheme and subsequent nationalisation of Anglo Irish Bank were in the national interest.

It is understood that Anglo Irish entered into the arrangement with the 10 clients at a time when billionaire business man Sean Quinn and his family were in the process of converting their interests in the bank from Contracts for Difference (CFDs) to ordinary shares, which represented close to 15 per cent of the bank.

CFDs are high-risk investment products where investors can bet on the future direction of a stock without having to actually buy the shares.

At this time, in the middle of 2008, the Quinn family said they had decided to convert their holdings in Anglo Irish to reflect their long-term commitment to the investment.

“The family regards these shareholdings in Anglo Irish Bank as long-term holdings with significant opportunity for capital growth over such a period,” Mr Quinn said.

At the start of July 2008, Anglo’s share price had fallen to €4.08. With 769m shares in issue, that still valued Anglo at €3.13bn. In a matter of weeks, by July 23, the shares rose to €6.73 each. However, they soon afterwards began to fall dramatically.

Mr Quinn has confirmed that his family has sustained losses in excess of €1bn on its investments in Anglo Irish.

But he has vigorously denied any impropriety in relation to his share dealings.

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