Thursday 21 June 2018

Anglo's €7.2bn deal stood out as 'extremely large' - Drumm trial hears

Former CEO of Anglo Irish Bank, David Drumm pictured outside the Dublin Circuit Criminal Court. Photo: Collins Courts
Former CEO of Anglo Irish Bank, David Drumm pictured outside the Dublin Circuit Criminal Court. Photo: Collins Courts

Andrew Phelan

ANGLO Irish Bank had no other deals in any given year as big as the €7.2bn loans to Irish Life during the 2008 financial crisis, a court has heard.

One Anglo executive said the transaction stood out as “an extremely large deal.”

Damian McGuone, head of financial planning and analysis, was giving evidence in the trial of former CEO David Drumm today.

Mr Drumm (51) is pleading not guilty to conspiring to defraud Anglo investors by dishonestly creating the impression that the bank’s customer deposits were €7.2bn larger than they were.

He is alleged to have conspired with Anglo’s former Finance Director Willie McAteer and head of Capital Markets John Bowe, as well as then-CEO of Irish Life and Permanent (ILP), Denis Casey, and others.

The case centres on a series of interbank deposits which circulated between Anglo and ILP in September 2008.

The transfers were routed through Irish Life Assurance (ILA), returning to Anglo where they were then treated as customer deposits, which are a better indicator of a bank’s health.

Mr Drumm also denies false accounting, by providing misleading information to the market.

At Dublin Circuit Criminal Court, Mr McGuone told Paul O’Higgins SC, prosecuting, he had had no direct involvement in statutory reporting at Anglo. Asked if he had any prior knowledge of the ILP transactions, he said: “none whatsoever.”

They were highlighted to him on October 1 or 2 by Head of Treasury Finance Ciaran Cunningham. 

Mr McGuone said €7.2bn was “a large figure in any balance sheet.”

Mr O’Higgins asked him how many €7.2bn deals would have been done at Anglo in a given year.

“None,” he said. “It stood out as an extremely large deal.”

Mr McGuone agreed he had nothing of significance to do with the transactions.

He had no dealings with the external auditors Ernst and Young, but did have two meetings with PWC on preparing a profit and loss model.

He was secretary of the Assets and Liabilities Committee (ALCO) and the transactions were not discussed at its meetings, he said.

Minutes of a September 16, 2008 ALCO meeting noted the market turmoil following the collapse of Lehman Bros and stated that Anglo’s customer funding was to be “in line with March 2008 volumes at €55bn.”

This would have included all funding initiatives, Mr McGuone said.

Dermot Kieran told Sinead McGrath BL, prosecuting, he was a senior manager in Anglo’s Group Finance division in 2008. Mr Kieran had a role in equity investor relations and reported to Head of Group Finance Colin Golden and Chief Financial Officer Mr Moran.

He said part of his job was making sure any IT systems implemented in the bank correctly interfaced with finance.

Mr Kieran was aware there was an investigation into transactions in March and September 2008. He first became aware of the €7.2bn ILP transactions “some time after they happened” and before the annual report was released in February 2009.

He had no involvement in the accounting process for the transactions.

Going from the half-year to year end, Mr Kieran said he was aware there were funding initiatives and was copied on mails from time to time but did not attend Friday meetings where they were discussed.

The jury was shown an email sent by Mr Drumm to Mr Kieran in August 2008.

“Dermot, could you very roughly sketch this out for me on Monday am as follows - as at March 31, how it looks right now," Mr Drumm's mail stated.

"What it needs to look like at YE (year end). Figures don’t need to be spot on, I need it for ED (executive directors) call in pm.”

Mr Kieran told the jury this was to “provide a sketch” of the balance sheet position in March and July and a forecast for September, 2008.

Mr Kieran sent Mr Drumm the figures, including a September balance sheet target supplied by Treasury Finance.

The “as is” funding figure was €50bn and the target was €56bn.

A balance sheet mailed on October 1, the day after Anglo’s financial year end, had a loan to deposit ratio figure of 143pc, versus 125pc in March.

Mr Kieran told Ms McGrath this was seen as a “negative movement”. If a bank had a strong loan to deposit ratio, that was a “positive message to give to the market.”

He agreed with Ms McGrath this ratio included the €7.2bn, and if that had not been there the figure would have been “even higher.”

The jury was shown an email Mr Kieran sent to Mr Drumm and others on November 10, 2008, about a “year end meeting” due to take place the following day. This was a proposed agenda, including a discussion of what would be included in the Chief Executive’s review in the annual report.

On December 2, Mr Kieran mailed copies to Mr Drumm’s PA, Monica Kearney of an analyst’s presentations for a webcast on Anglo’s preliminary year end September 30 statement.

The statement was to be released to the stock exchange and Mr Drumm signed the release on on December 2.

It was filed to the stock exchange the following morning, and included highlights stating customer funding was €51.5bn, an increase of €1.9bn on the previous year and representing 58pc of total funds.

A statement by Michael Casey, ILP’s then treasury operations manager was read out to the jury by Diana Stuart BL, prosecuting. He said he first became aware of a €978m sterling transaction with Anglo on September 25, 2008.

He authorised a credit limit override to enable it to be placed with Anglo.

The trial continues before a jury and Judge Karen O’Connor.

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