Business Irish

Sunday 25 February 2018

Super-rich are hosed as Anglo swaps deal crashes

Glen Dimplex boss O'Driscoll is one of the high rollers to sue the bank

Roisin Burke

Several well-known figures claim to have lost millions on a notorious interest rate swap product they were persuaded to take out by former Anglo Irish Bank (now IBRC) in a transaction that netted the rogue bank €20m in lucrative fees.

Those taking legal action against IBRC's UK arm (which is unaffected by the liquidation) include Harcourt Development's Pat Doherty, Sean O'Driscoll of Dimplex, Kevin Lagan of Lagan Cement, and hotel group boss Garvan O'Doherty.

The case relates to a €100m investment in a British chain, Somerston Hotel Group, in which dozens of wealthy Irish business figures are stakeholders since 2007.

Anglo's wealth division attached an interest rate swap of 7 per cent to a €100m investment it arranged.

"As a result of the swap, the value of the interest bought by investors has been destroyed by €87m," the Sunday Independent has been told.

A complaint is also being made to Britain's financial watchdog the FSA as part of the litigation, regarding how Anglo's wealth arm conducted itself while putting together the deal.

Interest rate swaps are hugely controversial financial instruments sold to many business people during the boom, and have been linked with serious mis-selling issues.

In Ireland alone, it is estimated that banks are on the hook for €3.5bn in compensation related to these products. In Britain it is put at over €11bn.

IBRC's boom-era interest rate hedging derivatives are being looked at as part of a major ongoing FSA probe.

On a €100m loan deal Anglo is believed to have netted a startling £20m-£25m in fees associated with the transaction that it promoted and underwrote.

The FSA complaint will assert that Anglo committed "very significant breaches" of FSA rules in the way it marketed the deal, by issuing unsolicited information memos to prospective investors and backdating documentation that hadn't been completed as it should have been ahead of the transaction closing.

"This thing is riddled with conflicts of interest," an individual with knowledge of the case said.

Although loans were sold to investors for periods of two or three years, Anglo put in place a seven-year interest swap. Because sterling has plummeted since then, this has cost shareholders a fortune.

Many investors are hugely perturbed that there has been no shareholder meeting of Somerston in over four years, despite repeated requests by investors.

"The same investors constantly asked for meetings and Anglo constantly refused. Over two years ago, 30 of the investors wrote to Anglo to ask for it to call a general meeting. It hides behind the fact that it can't force the company to hold one," we're told.

"The loan has been refinanced twice by Anglo without any consultation with the majority of shareholders," one investor said.

Other Anglo Private Wealth investors include Galway developer brothers Brian and Luke Comer; boxing impresario Barney Eastwood; Ballymore's Sean Mulryan; former Anglo banker John Rowan; and John Moulton, whose Better Capital has contracts with the National Pension Reserve Fund.

The former Anglo Irish Bank boss Sean FitzPatrick had a €4.2m stake.

Irish Independent

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