Thursday 18 October 2018

Auditor 'shrugged' when told about Anglo's €7.2b interbank loans, court told

David Drumm is accused of conspiracy to defraud. Picture: Collins
David Drumm is accused of conspiracy to defraud. Picture: Collins

Andrew Phelan

An auditor “shrugged” when he was told about Anglo Irish Bank’s €7.2bn interbank loans during the financial crisis and said he thought they were “technically sound,” a court has been told.

Former Anglo official Colin Golden said the auditor gave him this response when he brought him through the details of the cash exchange with Irish Life and Permanent weeks after it happened in 2008.

Mr Golden also noted that when he told an officer of the Financial Regulator that he understood the transaction had been approved, she “sniggered and said she didn’t know but led me to believe someone more senior was knowledgeable.”

Mr Golden was giving evidence at Dublin Circuit Criminal Court today in the trial of Anglo’s former CEO David Drumm.

Former head of group finance at Anglo Irish Bank, Colin Golden, arrives at the Dublin Circuit Criminal Court this morning where he gave evidence in the trial of former CEO of the bank, David Drumm, who is charged with conspiracy to defraud. Pic Collins Courts.
Former head of group finance at Anglo Irish Bank, Colin Golden, arrives at the Dublin Circuit Criminal Court this morning where he gave evidence in the trial of former CEO of the bank, David Drumm, who is charged with conspiracy to defraud. Pic Collins Courts.

Mr Drumm (51) is pleading not guilty to conspiring to defraud Anglo investors by dishonestly creating the impression that the bank’s customer deposits in September 2008 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 ILP Denis Casey, and others.

The case centres on multi-billion euro interbank loans which circulated between Anglo and ILP.

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

Today, Mr Golden, then-Head of Group Finance said the bank’s preliminary 2008 results were published in December that year and were “available for whoever needs them.”

The board would approve the accounts and a number of directors would actually sign them, he said.

Mr Golden said he first became aware in the first few days of October 2008 of the scale of the September ILP transaction and the fact that it was a “straight cash transaction.”

There had been talk of smaller transactions of a “slightly different nature” with ILP throughout the summer of that year.

Mr Golden told Paul O’Higgins SC, prosecuting, they were different firstly in that the earlier transactions were €3bn as opposed to €7bn Secondly, he had been told there was going to be a collateralised transaction where lending on both sides would be secured by stock.

Mr O’Higgins asked him what did happen.

“There was a “straight exchange of cash” whereby there was no underlying security supporting both legs of the transaction,” Mr Golden replied.

He said he heard this from Ciaran Cunningham head of Treasury Finance. Mr Golden and others spoke to the auditors in the middle of October, before they came on site to do their full year audit, he said.

Mr Golden said he and Kevin Kelly, Head of Financial Reporting asked to meet Ernst and Young’s audit partner Vincent Bergin to bring him through what were called “judgemental matters.”

Mr Golden said he brought Mr Bergin through the substance of the transactions while Mr Kelly covered technical aspects.

“Vincent Bergin said they were technically sound from an accounting perspective,” Mr Golden said.

Asked if he was aware of initiatives to gain funds for the bank in the run up to September 30, Mr Golden said there were “a multitude of initiatives to gain funds” but they began to fall away toward the end of September.

Mr Golden said he had no involvement in any specific initiative other than providing information for reporting.

A number of days after he spoke to Mr Bergin, Willie McAteer called and asked him to ring the Financial Regulator about the transactions.

It was clearly an idea to make sure the Regulator was specifically aware of them, Mr Golden said.

The call took place on October 24, 2008 - a number of people were on the call including Mary Burke, from IFSRA. They “brought her through” the transactions and Mr Golden later mailed her details of them. He believed Ms Burke said on the phone call that she was not aware of the transactions.

Mr Golden said Price Waterhouse Cooper (PWC) was in the bank for an assessment from early October, following the Government guarantee at the end of September. They were primarily concerned with the lending side, he said.

“Ciaran and I both felt we needed to tell PWC about the ILP transactions,” he said.

PWC’s report outlined the transactions.

Mr Golden and Mr Kelly were both invited to a meeting of the bank’s audit committee on November 18.

The jury was shown again an item of discussion at the meeting, headed “customer accounts.”

This outlined the ILP transactions, stating that Anglo had entered into “an arrangement,” including a description and the result - an increase in “loans and advances to banks” of €7.2bn.

It stated that IFRS “does not allow the group to net the financial assets and liabilities” and “there was no legal right of offset.”

“In addition, on maturing all accounts were settled on a gross basis,” the document stated.

Mr Golden said he brought the meeting through the points on this note and Kevin Kelly and Ciaran Cunningham would have been involved in writing this.

Mr Golden was aware there were “a number of inaccuracies,” including the sequence in which that the transactions had been carried out.

He told the jury “it was a surprise” when he found out in 2009 that the transactions had actually been settled net instead of gross.

Mr O’Higgins asked him why he thought they had been settled gross.

“I had been told,” he said, but did not recall by whom or if there had been a misunderstanding. He had “no idea” why the sequence was wrong.

Mr Golden was shown several different drafts of the minutes of the meeting and said he felt what he said was reflected in the company secretary’s handwritten note, that about Ernst and Young were brought through the transactions and the Financial Regulator was “aware.”

At the meeting, he recalled Donal O’Connor, then a non-executive director, was on conference call and asked about the transactions being “window dressing.” Mr Golden recalled Willie McAteer addressed this, saying they were “balance sheet management.”

Mr Golden could not say personally who got what documents in advance of the meeting. He said the transactions were not discussed at a subsequent audit committee meeting on November 24.

Mr Golden said he pointed out to Ernst and Young the pages in the PWC report that dealt with the transaction.

He sat down with the auditors prior to the audit committee meeting and talked them through what was going to be discussed at the meeting.

The jury was shown an e-mail from Mr Bergin seeking additional information after the meeting.

Peter Geissel, Anglo’s bonds portfolio manager wrote to colleagues, saying: “Guys, we need to be careful about the corp deposit flows. The €2.5bn net inflow is after we adjust for ILP etc”.

The jury then saw a mail from Ciaran Cunningham to Mr Bergin on November 24, with a breakdown of corporate deposits.

A table showed Irish customer deposits rising by around €7bn between September 15 and 30, 2008, before falling back by a similar amount by November 18.

Another figure showed minus-€5.329bn.

Mr Golden said the minus figure seemed to refer to a drop representing the reversal of the €7bn ILP transaction, combined with a €2bn in new deposits that resulted from the benefit of the  Government guarantee. Mr Golden said it was clear to him that Ernst and Young were aware of this.

On November 25, Chief Financial Officer Matt Moran emailed Mr Bergin about Anglo being in breach of the regulatory liquidity test. He informed Mr Bergin of Anglo’s plans to become compliant again.

Mr Golden said he had no personal involvement in the March transactions and anything he knew about them he learned subsequently.

Questioned by Bernard Condon SC, defending, Mr Golden said the auditors had right of access to all documents.

During cross-examination, the jury was shown a typed note Mr Golden had made of the meeting with Mr Bergin.

“He shrugged his shoulder and said he believed it was ‘technically sound’,” the note read.

Mr Golden had also noted what was said in a phone call with Mary Burke of IFSRA on October 25, 2008.

“I said I was led to believe that the transaction had been approved by the FR,” it stated. “She sniggered and said she didn’t know but led me to believe someone more senior was knowledgeable.”

The trial continues.

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