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Sunday 21 September 2014

Regulator's role in Anglo deal was 'unusual' – lawyer

Sarah Stack

Published 08/03/2014 | 02:30

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Former Anglo Irish Bank executive Pat Whelan, right; former chairman Sean FitzPatrick; and former executive William McAteer arrive at the Courts of Criminal Justice in Dublin for the opening day of the trial.
Former Anglo Irish Bank executive Pat Whelan, right; former chairman Sean FitzPatrick; and former executive William McAteer

Elements of a loan-for-shares deal to unwind Sean Quinn's secret stake in Anglo Irish Bank through the so-called Maple 10 were unusual, a legal expert told a court.

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Harry Eddis, former in-house lawyer with investment bank Morgan Stanley, told the trial of three Anglo executives that he had not seen a Financial Regulator so involved in a transaction before.

Mr Eddis, an executive director in the legal department at the time of the transaction in July 2008, said the deal had been normal insofar as Morgan Stanley was acting as an intermediary to effect the unwind of a derivative shareholding.

"The fact that the Irish regulator had been involved and seemed to . . . had sort of sought this transaction to happen, was not something that was usual," he said via videolink from London on day 21 of the trial.

TRANSACTION

"You wouldn't often have the regulator taking a part or seem to be suggesting a transaction takes place. That wasn't something I'd seen before."

Mr Eddis said the principal difference with this case was the "heavy involvement" of Anglo as the issuer of the shares, especially with those selling and buying the shares, and acting as power of attorney over the investors' loans.

Former Anglo chairman Sean FitzPatrick (65), from Greystones, Co Wicklow; former head of risk William McAteer (63), of Rathgar in Dublin; and Patrick Whelan (51), of Malahide, Co Dublin, have pleaded not guilty to 16 charges of unlawfully providing financial assistance to individuals for the purpose of buying shares in Anglo Irish Bank in 2008.

Mr Whelan, Anglo's former head of lending in Ireland, also denies seven charges of being privy to the fraudulent alteration of a loan facility letter.

The deal executed involved Anglo lending €625m to the bank's 10 top customers, known as the Maple 10, and six members of Mr Quinn's family to buy his 29pc indirect stake that had been built up through contracts for difference (CFDs).

Mr Eddis said that he was part of a conference call with Con Horan – number two at the regulator's office – on the weekend before the deal.

The solicitor's contemporaneous notes recorded: "From CH's perspective, it is fine and nothing out of the ordinary and note all that going ahead – very happy to have a chat with FSA."

Mr Eddis said the investment bank checked with the UK Financial Services Authority (FSA) to see if it was "comfortable" with the details of the transaction. The FSA replied that it was (comfortable) if the Irish Financial Regulator was.

Under cross-examination, Mr Eddis told Lorcan Staines, junior counsel for Mr Whelan, that in financial services terms comfortable meant: "There were no red flags from a legal or regulator perspective that would have given cause for concern from a market perspective."

INVESTORS

Mr Eddis also told Paul Anthony McDermott BL, prosecuting, that Morgan Stanley acted in an intermediary role in the deal and represented the Quinn children and not Anglo.

He said Morgan Stanley had followed all due-diligence procedures to make sure the investment bank or the other parties were not breaching any laws or regulations

This "franchise risk" or "'Wall Street Journal' risk" was described as the risk of something going wrong with a transaction which resulted in Morgan Stanley appearing on the front page of the newspaper and suffering reputational damage, he added.

The trial continues.

Irish Independent

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