The second week of the Anglo Irish Bank trial heard from Sean Quinn, the one-time billionaire who gambled away a fortune, unwittingly helping to destabilise the bank. And from some of those who were recruited by the bank to a scheme designed to unwind Mr Quinn's excesses.
Before the court are Sean FitzPatrick (65), of Greystones, Co Wicklow; Willie McAteer (63), of Rathgar, Dublin; and Pat Whelan (51), of Malahide, Dublin. Each of the three faces a total of 16 counts of providing unlawful loans, and Mr Whelan faces seven charges in connection with alleged fraudulent alteration of loan documents. All three men have pleaded not guilty to the charges.
Mr Quinn explained how he built up a 25 per cent stake in Anglo, using "contracts for difference", a financial product designed to increase both gambling power and the size of potential losses. As Anglo share prices fell, Quinn repeatedly lost money – and borrowed from Anglo to pay his losses.
At that stage, Quinn needed another €200m to stay in the game. He told the court he was furious as the matter reached its climax. "We lost €3.2bn through the Anglo fiasco. I was a fool."
Mr Quinn didn't get any argument on that point. As prices continued to fall and his stake reduced in value, Quinn agreed to reduce the stake he had patiently built.
The trial heard from bankers who were involved in the attempted unwinding of Quinn's investment. The trial process is slow. Each defendant has a team of lawyers, so each witness faces up to three interrogations, plus the questioning of the prosecution. Stacks of boxes sit at the back of the court, crammed with documents, and as one lawyer or another calls for various documents to be opened the relevant documents are displayed on various screens around the room.
"Document SDMP 4 dash 1 dash 2" is called for, but that appears to be the wrong one, so it's replaced with "SDLM 4 dash 1 dash 1 4". The trial is expected to last until the end of April.
The plan was to regularise matters by recruiting 10 wealthy men to help buy out Quinn's share. Over the years, Anglo had financed a lot of deals, with a lot of developers – the bank made a lot of money out of those transactions, and so did its clients. Ten clients with whom the bank had a close relationship were selected.
Gerry Maguire, a property investor, told the court of how he was resting in Nice, on holiday, when he was told that Pat Whelan, one of the defendants, was on the phone. Maguire rang back to Whelan in Dublin. Whelan, he said, told him the bank was looking for assistance, that the bank's shares were under attack from hedge funds.
Maguire asked if Whelan wanted him to fly back to Dublin, but Whelan and David Drumm, the bank CEO, instead flew to Nice. There, at a two-hour meeting, Maguire was asked for assistance. Maguire didn't know much about contracts for difference, but he was well disposed towards the bank and eventually agreed to help.
Was the Central Bank aware of this, he asked? It knew and approved, he was told.
Thereafter, he had a number of meetings, one at Morgan Stanley, the financial outfit involved in the deal. It was at Morgan Stanley that the deal was given the code name "Maple", and the 10 Anglo borrowersbecame the Maple 10.
Developer Gerry Gannon told the court, "Pat Whelan told me an opportunity had come up and would I be interested in meeting David Drumm?" Developer John McCabe felt the bank had been good to him, and when he was asked to help out he agreed. He asked first if it was legal and was told it was "totally legal". The Central Bank knew about it, the Regulator too, and the Department of Finance.
The deal initially involved a €600m loan, €60m to each of 10 investors, at two per cent interest. Anglo shares were falling so fast that by the time the deal went through the same number of shares were bought for €450m, so each investor needed €45m. On the matter of security, Anglo insisted that the majority of its customers be fully liable for their loans. However, different arrangements could be made in certain instances.
The word applied is "recourse". If something went wrong, to what would the bank have recourse? For many customers, the bank could go after all money and assets belonging to the borrower. However, there was evidence that the top 25 loan deals at Anglo at the time, involving 43 per cent of the money loaned by the bank, came under different rules. Of those, only five loans were subject to full recourse. For the deal involving the Maple 10, the bank would have recourse to only 25 per cent of the debt. Which meant that if things went wrong it could only seek €11.25m from any one of the 10 who each borrowed €45m.
There was evidence that at a later date, the recourse was lowered to zero – so the borrowers would be liable for nothing – but, after some discussion within the bank, this was brought back up to 25 per cent. It was all in vain. Anglo's slide was inexorable. In one bank document, the 10 rich men were described as "heroes". But not even "heroes" could save the collapsing bank.
The trial continues.