Quinn loans 'propped up Anglo's share price'
Published 05/02/2012 | 05:00
UK report concludes that bank's conduct was not 'market practice'
AN expert report that the Quinn family unsuccessfully tried to use in their legal action against the former Anglo Irish Bank concluded that the €2.3bn it lent to Sean Quinn artificially maintained its share price.
The Quinn family commissioned the report from UK firm Navigant Consulting as part of its legal action against the bank. Hugo Watson Brown, a director, concluded that Anglo's conduct was "not accepted market practice" and said that no bank other than Anglo would have lent the former tycoon so much money.
A leaked copy of the report suggests that if the former tycoon didn't get the loans, and had to sell his secret stake in the bank, Anglo's share price would have fallen by 67 per cent.
The report supports the Quinns' arguments in their dispute with Anglo as outlined in their statements of claim. Sean Quinn, once Ireland's richest man, is now bankrupt, his empire is in receivership, and his wife, Patricia, and their five children are being pursed for overseas assets worth €500m.
The Quinns claim the loans were illegal in the first place, and are therefore not enforceable. However, Anglo dismisses their claims, arguing that the family members signed personal guarantees for the loans and has accused them of conspiracy to put their assets out of reach.
The London-based consultancy was asked to examine the central plank of the Quinns' case against the bank: that loans to Quinn family companies were made for an illegal purpose and constituted market manipulation. But the family failed to have the report introduced as evidence in their legal action which opened in the Commercial Court with a preliminary hearing on legal issues.
The consultants' report draws on the Quinns' account of how the businessman built up his secret stake in Anglo Irish Bank through contracts for difference (CFDs); how Sean FitzPatrick, the bank's chairman and David Drumm, its chief executive, met with Mr Quinn, when he revealed for the first time that he had a 24 per cent stake in the bank through CFDs.
Mr Quinn was banking on Anglo's share price rising. When it started falling during the financial crash of 2007, Mr Quinn had to pay the brokers' margin calls. If he didn't, his CFDs would have flooded the market, triggering a further decline in Anglo's share price.
Mr Watson Brown noted that "by June 2008, Anglo had lent Quinn Finance or related companies close to €2bn and to the extent that (if) it was secured at all, it was done so against property development projects that had not had the benefit of funds".
Mr Watson Brown said there was "no commercial rationale" behind Anglo's loans to the Quinn companies. He didn't believe that "any bank, other than Anglo" would have loaned money to the Quinn companies to cover losses on Mr Quinn's CFD stake. He calculated that if the Quinns' stake had been sold "under distressed circumstances", Anglo's share price would have fallen by 67 per cent.
Mr Watson Brown concluded that Anglo's loans to the Quinn family companies were "made with the express intention of ensuring that the CFD positions were maintained". He said it followed that the loans "directly maintained" the positions on the bank's shares that otherwise would have been sold.
During last week's court hearing, Anglo's counsel said it was the family's own case that it was Sean Quinn who had engaged in the market manipulation, he was responsible for the investment strategy and had not discussed his decisions with his family.