Secretary General of the Department of Finance contacted Irish Life and Permanent in 2009 about allegedly circular transaction of €7.2bn, trial hears
Published 14/03/2016 | 19:05
The Secretary General of the Department of Finance contacted Irish Life and Permanent in 2009 about the way the bank was treating an allegedly circular transaction of €7.2bn in their accounts, the trial of four bankers has heard.
Denis Casey (56), the former CEO of Irish Life and Permanent (ILP), told gardai that the intervention from the senior civil servant, Kevin Cardiff, came in the wake of efforts by bankers at Anglo Irish Bank to have ILP to treat the transaction differently in their accounts.
Mr Casey and three other former banking executives are on trial at Dublin Circuit Criminal Court accused of conspiring to mislead investors by using interbank loans to manipulate Anglo Irish Bank's balance sheets in 2008.
At the start of week ten in the trial Matt Moran, Anglo's chief financial officer at the time, came under cross-examination from lawyers for Mr Casey and ILP's former director of finance Peter Fitzpatrick (63).
Mr Casey from Raheny, Dublin, Mr Fitzpatrick of Convent Lane, Portmarnock, Dublin, and former Anglo bankers John Bowe (52) from Glasnevin, Dublin, and Willie McAteer (65) of Greenrath, Tipperary Town, Co. Tipperary have all pleaded not (NOT) guilty to conspiring together and with others to mislead investors through financial transactions between March 1st and September 30th, 2008.
The interbank loans allegedly involved a circular transfer of billions by Anglo to ILP and back to Anglo via ILP's life assurance division. The deposits would appear as a corporate deposit on Anglo's balance sheet, allegedly bolstering their corporate funding figure for the end of year accounts.
Michael O'Higgins SC, defending Mr Casey, showed the jury an excerpt from his client's garda interviews in which he told investigators that Anglo had misrepresented the €7.2bn transactions.
He said that he had insisted the placements from Irish Life would be “collateralised”, meaning they would be secured against the cash deposits placed by Anglo with ILP.
He told gardai: “Their objective was to bolster their deposits. My insistence...[was] that any transaction with Anglo be fully collateralised. Anglo did this by misrepresenting the transactions entered into with ILP as a non-collateralised transaction.”
He said that after he resigned his position in February 2009 three phone-calls were made to change the accounting treatment of the transactions in ILP records to show it as a non-collateralised transaction.
The first of these, he said, were from Mr Moran. Another call was made from Donal O'Connor, who was chairman of the bank at that point.
He said these requests were rejected and following that, Mr Cardiff contacted ILP “enquiring about the accounting treatment for the transaction” and concluding that it was a 'spat' which should be sorted out between ILP and Anglo”.
The trial continues before Judge Martin Nolan and a jury.
In other evidence the jury were shown a transcript of a telephone call in which Mr Bowe compared his co-accused to a “nemesis”.
In the call, made on September 22, 2008 Mr Bowe and Mr Moran are discussing the recent approach by Anglo to ILP to merge the two banks.
Mr Bowe said: “Denis is not engaging. There could be two reasons. One is he's in denial about what's going on. And doesn't believe that it's going to have the impact on him that we think it will.
“Or that he doesn't think he's going to see the impact that maybe he feels we'll have. We could bring him down, may be one way of looking at it.
“The other is that the personal chemistry is just shot. It's a bit like your kind of nemesis sitting across from you, you know, you'll treat everything that is said with suspicion.”
Mr Bowe continued: “I don't know which it is because I haven't attended the meetings. It sounds like he's the boy in the corner with his head in his hands..crouched in the corner saying 'go away, go away',
Mr O'Higgins, defending Mr Casey, said the transcript showed that the relationship between the two banks in September 2008 was fractious and “far from being a cosy relationship”.
He said his client “ran out the door” from the bank merger meeting and the following Sunday there were newspaper articles saying the merger was a great idea and that ILP could otherwise be in a lot of trouble.
Counsel told Mr Moran that his client had left school at 16, got into Irish Life and worked his way from doing door-to-door sales for many years up to the top. He asked Mr Moran if it was true to say he didn't have much regard for his client.
The witness denied this was true.
In relation to the treatment of the €7.2bn transactions on Anglo's end of year accounts Mr Moran said that he believed an explanatory note would have been helpful to readers of the accounts. The jury have heard that notes were often included in accounts to explain or contextualise figures or transactions.
Mr O'Higgins put it to Mr Moran that one of reasons for his belief was that the transaction was “material” to the balance sheet, given it's size and it's unusual nature.
The witness said: “I believe it is a significant material transaction to the balance sheet”. He agreed the first purpose of the transaction was to increase or boost the customer figure for Anglo.
The second purpose was to suggest that a person had accepted the risk of the bank for the period of the deposit.
Mr O'Higgins put it to Mr Moran that the jury didn't have to decide if there was an intention to set off the back to back transactions against each other or if there was a legal right to do this.
He said because the transaction was carried out in a certain way that ILP didn't achieve their aim of having the transactions netted off but that “it's very clear that ILP weren't prepared to take a risk on Anglo in the event of €7.2bn”.
Mr Moran replied: “From what I saw, it is clear that ILP wanted to eliminate the risk”.
Counsel continued: “If you gross it up without a note, you are leaving the reader [of the balance sheet] with an incorrect impression that the €7.2bn deposit represented a risk on the bank when in fact that was not the case.”
The witness replied: “At the time it was understood there was a risk”.
Counsel put it to him that “mindful of what you know now” an explanatory note is demanded under accounting regulations. Mr Moran said “you would put a note into the accounts if there was an anomaly”.