Farce over €8m loan sums up unfunny comedy of errors
IF the consequences were not so serious, the past activities at disgraced lender Anglo Irish Bank might be written off as a comedy of errors.
Yesterday, the nationalised bank and its former chief executive, David Drumm, moved to clarify a stunning error that, left uncorrected, might have left both parties facing difficult questions.
The garda fraud squad, amongst others, is investigating €300m in non-recourse loans given by Anglo to 10 high-profile clients to buy its own shares.
Non recourse means that in the event of a default the only recourse against the borrowers were their ultimately worthless shares.
Drumm was forced to resign in January 2009 after it was revealed weeks earlier that Anglo had concealed loans to its former chairman Sean FitzPatrick.
And he is now being sued by the bank for the recovery of almost €8m in loans that he used to buy Anglo shares.
It emerged yesterday in the Commercial Court that the initial January 2008 loan facility letter to Drumm was non recourse, again meaning that the bank could only redeem the loan against Drumm's shares.
The near €8m loan was "renewed" in 2009 according to Anglo, but Drumm says it was a "new" facility and wants documents relating to the discussions in 2008 and 2009.
This was the period when facility number two -- a recourse loan -- was being offered and executed. Yesterday, both parties were at extraordinary pains to point out to Mr Justice Peter Kelly that the description in the 2008 loan facility that the borrowings were non recourse was an error.
An extraordinary error that prompted Mr Justice Kelly to explain for the lay people gathered in court number one the difference between non-recourse and recourse loans.
If the bank was advancing sums to buy shares on a non-recourse basis, the judge said, that would mean that the only security they had recourse to was the shares.
The lender couldn't move against the individual.
The error is a grave one and begs questions about the manner in which the 2008 loan facility was drafted and the due diligence carried out on the loan. Could it have just been a typo?
Anglo loaned around €179m to its directors and, having underwritten the bank's excesses, it is not unreasonable to ask: were those loans issued on recourse or non-recourse terms and have any been renewed or issued afresh on changed terms? The highly anticipated full hearing of the case, in which many of the issues relating to the terms of his loans will be canvassed, will take place later this year.