Banker witness 'would never have approved' Anglo loans
A BANKING expert has told a court he would never have approved €45m in loans to the so-called Maple 10 to buy shares in Anglo Irish Bank.
The trial of three Anglo executives heard that it was not normal for a bank to approach customers to take loans and to make the borrower personally liable for just 25pc of the debt if they defaulted.
Tom Reid, who worked for Ulster Bank for 40 years until 2004, said he would never have sanctioned the Maple 10 transactions with so little recourse.
"It would have been 100pc (recourse)," he said.
Mr Reid agreed that conceptually he did not have a problem with lending money to customer clients for shares, providing that the loans were issued on commercial terms.
However, he said Anglo's position was weakened even further by a second facility letter, dated July 17, 2008, which reduced the recourse if share prices fell.
The Maple 10 loans should also have been listed as being impaired by the time a third set of facility letters – reinstating the recourse – were posted out in January 2009, Mr Reid added.
The shares were worth just €2.44m at the time, just weeks before Anglo was nationalised.
Anglo's former chairman Sean FitzPatrick (65), from Greystones, Co Wicklow; former head of finance and risk William McAteer (63), of Rathgar in Dublin; and Pat Whelan (51), of Malahide, Co Dublin, deny 16 counts each of providing unlawful financial assistance to 16 individuals in July 2008 to buy shares in Anglo.
The loan-for-shares deal involved unwinding Sean Quinn's secret 29pc stake in the bank, which had been built up through contracts for difference (CFDs).
The 16 charges relate to loans to six members of the Quinn family and 10 high-net-worth Anglo clients – who became known as the Maple 10 – who were approached by the bank.
Mr Whelan, former head of lending (Ireland), also denies being privy to the fraudulent alteration of loan-facility letters to seven individuals.
The court heard the Maple 10 were only liable for 25pc of the loans but the recourse was 100pc for the Quinn family.
Mr Reid was head of group lending and director of group risk at Ulster Bank until 2000, when he joined the board.
He accepted that Mr Quinn's CFD position and loan book were a major concern for Anglo and that steps to unwind the position and protect Anglo's asset base were of "primary importance".
However, he said a normal loan transaction would have involved a customer approaching a branch or corporate executive with a proposition.
"The customer did not approach as would be a normal course of business; in fact, it was the bank approaching."
Mr Reid said information in applications to Anglo's credit committee for the loans was "a bit sparse" and would not have been adequate to persuade him to approve the loans.
He insisted that a credit committee would also have independently assessed every personal or business loan application during his tenure, making a decision based on the risk to the bank and the customer's ability to make repayments.
The trial had previously heard that the Maple applications never went before a formal sitting of Anglo's credit committee or a non-executive board member for noting.
Mr Reid said there was "over-aggressive lending" after he had left the banking sector and that sadly "prudence" went out the window in banks – including Ulster Bank and its parent company RBS – with people being paid bonuses instead of salaries.
But he disputed that he was commenting on the Anglo loans in hindsight.
"It doesn't take away from core principles of lending," he said under cross-examination.
"Through all my career, hindsight was very valuable but you still have to address issues as they crossed your desk."
The former banker told Brendan Grehan, senior counsel for Mr Whelan, that he could not say he "would have done things different than people in the last 10 years".
"I'm going by my period of watch," he said.
"Sometimes market forces drive people to do things that are not necessarily correct."
Mr Reid added: "When a risk person or lending person is put back room because marketing has taken over, it's a dangerous position for any bank or institution."
The trial, which has heard evidence for 35 days at the Circuit Criminal Court in Dublin, continues.