Thursday 19 January 2017

'Main auditor of Anglo concerned in 2009 about allegedly circular billion euro transaction,' court hears

Declan Brennan

Published 15/03/2016 | 17:58

Left to right, William McAteer, Denis Casey, John Bowe, and Peter Fitzpatrick
Left to right, William McAteer, Denis Casey, John Bowe, and Peter Fitzpatrick

The main auditor of Anglo Irish Bank was uncomfortable and concerned in February 2009 about an allegedly circular billion euro transaction between Anglo and Irish Life and Permanent, a court has heard.

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Four former senior bankers from the two banks are accused of conspiring to mislead investors by setting up a €7.2 billion circular transaction scheme to bolster Anglo's balance sheet in 2008.

Peter Fitzpatrick (63) of Convent Lane, Portmarnock, Dublin, John Bowe (52) from Glasnevin, Dublin, Willie McAteer (65) of Greenrath, Tipperary Town, Co. Tipperary and Denis Casey (56), from Raheny, Dublin have all pleaded not guilty at Dublin Circuit Criminal Court to conspiring together and with others to mislead investors through financial transactions between March 1st and September 30th, 2008.

The transactions allegedly involved money being transferred by Anglo to Irish Life and Permanent (ILP) and then ILP placing money on deposit with Anglo on behalf of Irish Life Assurance (ILA).

The jury has heard evidence around whether both banks had agreed to “set-off” and “net” the deposits and loans to each other. This would reduce the risk to parties involved in financial transactions because the parties agree to set off or consolidate competing claims against each other.

This would then have implications for how the deposits and the loans were presented in each bank's accounts.

Matt Moran, Anglo's then Chief Financial Officer told gardaí: “It was understood from the outset that these transactions would not be netted in the [Anglo] accounts as this would not have the desired effect, i.e. the boosting of the [Anglo] deposit figure at year end”.

He said when it later became known that ILP had recorded the transactions in their accounts as netted some of his colleagues were “very annoyed”.

The jury previously heard that Kevin Cardiff, Secretary General in the Department of Finance, later contacted ILP “enquiring about the accounting treatment for the transaction”

The jury were shown an email dated February 17, 2009 from Anglo's auditor Vincent Bergin to Mr Moran and Mr Goldin.

In the email Mr Bergin wrote: “I am increasingly concerned abut this transaction. We discovered last evening that contrary to everything we have heard up to now the ILP transaction were actually netted and setted, despite there being three counterparties.

“ILP, as you know, claim the cash was cash “collateral”

Mr Bergin added that the auditors needed “chapter and verse on this”. He said: “I think that Finance [in Anglo] are relying on assurances from other people and these assurances are falling away.

“We need audit evidence to support the fact that there was no set off agreement. Whether this is written deal confirmation or tape transcripts I am not sure but at the moment I am feeling very uncomfortable.”

The trial continues before Judge Martin Nolan and a jury.

Mr O'Higgins told the jury that in February 2009 his client Mr Casey released a public press release indicating that the transaction had been collateralised and this set off a chain reaction.

He asked Mr Moran if he was aware “the tapes” - recordings of the bank's internal telephone calls – were listened to by his colleagues in Finance and by the auditors for the first time after this press release.

Mr Moran replied: “I believe the tapes were listened to. The lens or the prism had changed.”

Counsel said: “The lens changed when my client released a press release saying we did collateralised transaction, which had major reporting implications for Anglo Irish Bank”.

The jury also heard evidence that staff in the Finance department of Anglo Irish Bank were “very annoyed” when they learned how the allegedly circular billion euro transaction with ILP was being treated as netted.

Mr Moran told Michael O'Higgins SC, defending Mr Casey, then CEO of ILP, that the transactions were flagged to Anglo's auditors in November 2008. The auditors, Ernst and Young, would normally audit the bank's accounts in advance of their publication in December.

The witness said the transaction had been represented to his department, the Finance Department, and it was captured and flagged as significant early in the audit process. Counsel put it to him that Anglo represented the transaction to the auditors as having no set off.

“You are saying, it was understood from the outset, it seems to be consistent with the view, come what may, we’re going to report this as a gross transaction,” Mr O'Higgins said.

Mr Moran replied: “I don't accept that. I think Finance wasn’t aware of the netting. It was expressed in good faith...I genuinely believe that no-one in the Finance team thought that those transactions were netted.

“I know certain colleagues in my department were very annoyed in learning the transaction had being netted.”

He said in January 2009 he attended a meeting with the Financial Regulator and his Anglo colleague Kevin Kelly. He said that during that meeting Mr Kelly said the transactions were not netted.

Counsel suggested Mr Kelly honestly believed this to be the case but asked what the response in Anglo was when it emerged this information was incorrect.

Mr Moran said he recollected “significant annoyance” when certain colleagues learned the transaction had been netted.

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