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Wednesday 1 October 2014

Anglo changed terms of loans to protect Maple 10, trial hears

Sarah Stack

Published 26/03/2014 | 02:30

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Patrick Whelan
Patrick Whelan
David Drumm, the former chief executive of Anglo Irish Bank
David Drumm, the former chief executive of Anglo Irish Bank

BANK chiefs changed the terms on €450m worth of loans to the so-called Maple 10 to protect them if Anglo Irish Bank was hit with a hostile takeover, a court heard.

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The trial of three former Anglo executives heard that the bank's then chief executive, David Drumm, instructed the preparation of letters slashing the recourse on loans to the bank's top 10 clients to give them some "breathing space" in the event of an "aggressive acquisition".

Pat Whelan, Anglo's former managing director of lending (Ireland), said a "clerical error" saw six of the letters being posted out, instead of remaining on files in the bank.

"The main reason for issuing these letters was to give these clients, who were willing to support the bank at a very difficult time, time for the share price to recover. Our main concern was how they could be dealt with by another institution," Mr Whelan wrote in an internal review to Anglo directors in January 2009.

"We did not want a situation where they would be treated unfairly and we wanted to protect them. The letter created a grey area, which may allow them to buy some time in dealing with the debt."

The new back-dated facility letters to the Maple 10 meant that they were no longer liable for 25pc recourse if the share price collapsed or if the shares were left worthless.

"On reflection, the concept of the 'protection' letter was an error of judgment and they should not have been issued," Mr Whelan wrote.

He later told gardai the change was "David's concept", referring to Mr Drumm, who is in the US and not on trial.

"You don't question the CEO," he added.

Mr Whelan (51), of Malahide, Co Dublin; Anglo's former chairman Sean FitzPatrick (65), from Greystones, Co Wicklow; and former head of risk William McAteer (63), of Rathgar in Dublin, deny 16 counts each of providing unlawful financial assistance to 16 individuals in July 2008 to buy shares in Anglo Irish Bank.

The 16 are members of the Quinn family, plus the Maple 10, a group of 10 former large-scale Anglo Irish Bank customers.

Mr Whelan also denies being privy to the fraudulent alteration of loan facility letters to seven individuals.

During four days of questioning by gardai in April 2010, Mr Whelan said he had understood that the bank could lend to purchase its own shares as an exception to Section 60 as the ordinary course of business. Section 60 of the Companies Act 1963 contains a clause that permits lending if it is in the ordinary course of the company's business.

"The compliance department had no concern. The Regulator and Morgan Stanley were also involved and did not raise any concerns," he told investigators.

In his review, Mr Whelan stated that by creating such a large position in the bank through CFDs (contracts for difference) without the knowledge of the board and the regulator, Mr Quinn had put the bank into a very difficult and vulnerable position.

REGULATOR

It noted that as of January 2009 the Quinn debt to the bank stood at €2.75bn, but that his loans were still performing.

The review outlines Quinn's position and the steps made to unwind it, including the loans to the Maple 10 and changes to the terms of the loans.

"A number of decisions were made during this difficult period which were required to keep the bank alive and, with the benefit of hindsight, may appear unwise," added Mr Whelan.

The court heard that Mr Whelan was born and raised on Marlboro Street in Dublin's north inner city and started working for AIB when he left school, then joined Anglo in 1989.

He handed over his review to gardai in February 2009, which became the "bedrock" of the investigation, defending barrister Lorcan Stains told the court.

The trial, before Judge Martin Nolan at the Circuit Criminal Court in Dublin, also heard from Mr McAteer's interview with gardai in March 2010.

He said he was not aware of lending to the Quinn children, believing that the Quinn Group was funding the loans, but knew money was being lent to the Maple 10 for shares.

"It was as good a reason as any," he told officers.

The trial continues.

Irish Independent

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