'Do you want the answer to tell the auditor, or do you want the answer?' - Anglo Irish dealer told colleague, court hears
AN ANGLO Irish Bank dealer said to a colleague who queried an interbank loan: “do you want the answer to tell the auditor, or do you want the answer?”
Mike D’Arcy told a jury his comment on a phone recording about a deal with Irish Life and Permanent during the financial crisis was “a joke.”
Mr D’Arcy, who worked in Anglo’s treaury department was giving evidence today in the trial of the bank's former CEO, David Drumm.
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, Denis Casey, and others. The case centres on a series of interbank loans which circulated between Anglo and ILP in September 2008.
The transfers were routed through Irish Life Assurance, 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.
This afternoon, Mr D’Arcy was in the witness box as a series of phone calls was played to the jury.
In one call in 2008, Mr D’Arcy was speaking to Paul Kane of Irish Life and Permanent about a transaction.
Mr D’Arcy asked: “are we good to go?” and Mr Kane replied: “Mr Gantly says we’re good to go, so that’s enough for me.”
“So do we agree assets, dates, rates, s**t like that?” Mr D’Arcy asked Mr Kane as they discussed the deal.
Mr Kane spoke of getting things done “by hook or by crook internally,” saying “it will work… it’s just a matter of getting the fine tuning.”
The jury was then played a phone call from September 25, 2008 between Mr D’Arcy and Vincent Hibbert, a finance manager in Anglo’s Isle of Man division.
“Just a quick question of you, if you have a moment,” Mr Hibbert said in the call. “Uh, I was ccd in on the request to have our liquidity placement placed with, which one, which one was it?”
Mr D’Arcy replied that it was Irish Life.
“With Irish Life, yeah,” Mr Hibbert said. “Just a quick question of rationale because we will be asked the question now, seeing as it’s (unintelligible) over the year end by the auditors. Uh, why the one party rather than the usual sort of, you know, two or three? Is there, is there any reason for that?”
“Do you want the answer to tell the auditor or do you want the answer?” Mr D’Arcy replied, before going through the transaction, adding: “that’s what it is.”
“No, that’s fair enough. I mean I can completely filter that down just to, you know, liquidity management,” Mr Hibbert said.
Mr D’Arcy said Irish Life had been on to him “wondering where the money is” and said “just gee her up a bit there.”
Mary Rose Gearty SC, prosecuting, said gardai had asked Mr D’Arcy about his comment “do you want the answer to tell the auditor” and he had said it was “more of a joke than anything.”
“Absolutely yes,” Mr D’Arcy agreed.
There followed a number of calls between Mr D’Arcy and Mr Kane on September 26 and 29, in which they discussed the details of carrying out the transaction.
“Have a cracking year end,” Mr Kane said to Mr D’Arcy.
In a call on September 30, they again discussed the transaction and Mr D’Arcy said at one point: “f**king everybody is trying to take money off me this morning.”
The jury also heard calls between Mr D’Arcy, an account manager Tracey Gore and Ciaran Cunningham, head of treasury finance on October 1.
Mr D’Arcy agreed with Ms Gearty that they were “logistically difficult” transactions and took a lot of work.
Earlier, Declan Quilligan, former head of Anglo’s UK division said the 2008 financial crisis became “about the survival of the bank.”
Mr Quilligan was asked by Paul O’Higgins SC, prosecuting, about Anglo’s funding initiatives during 2008.
He said there were attempts to get real deposits over the half-year and year end. Because they were referred to as funding initiatives did not mean there wasn’t work going on throughout the year, he said.
There was “heightened sensitivity” at the half-year and year ends and the initiatives would have been “extra efforts” to make the balance sheet look stronger for “that photograph that was taken at that time.”
Mr Quilligan was not aware at the time of any cash-backed element to the ILP transactions. He also never had any personal dealings with the Irish Financial Regulator or Central Bank. The jury was shown again an email from Mr Drumm to executives on March 12, 2008 in which Mr Drumm spoke of “zooming in” on the“magic number”. The jury had heard this was a customer funding target of €5bn.
Mr Quilligan said of the term “magic number” that “we know what market expectations are… that becomes this target.”
Mr Quilligan said a method of growing the deposit book in the UK was “tweaking interest rates.”
The jury was then shown again a mail of March 16, 2008 in which Mr Drumm asked John Bowe to “put some thought into what the Governor (of the Central Bank) asked us to look at - how the Irish banks could help each other.”
Mr Quilligan, who had been copied on that mail, replied to Mr Drumm saying he was “just wondering… the impact internationally.” In that mail, Mr Quilligan said Ireland was a net beneficiary of interbank lending and asked what happened “if we turn off/ down the tap on others and they do the same.”
Mr Quilligan told Mr O’Higgins this meant that if funding was taken away internationally, the net effect could have been damaging for Irish banks including Anglo.
The jury was shown an email from Mr Quilligan to Mr Drumm and others on July 18, 2008.
“Simple questions are required I think rather than bulls**t which will lead to a blame game,” he said in the mail. Referring to retail, corporate and wholesale between May and the year end, he asked in the mail: “how do we get a customer number with a 7 in it?”
Mr Quilligan told Mr O’Higgins the bank was looking at the September loan book growing by €10bn. They were funding in the typical way they always had done and this was what the market would expect them to do.
He recalled being aware after September 2008 of the rise in the ILP figure from €3bn, but accepted from the evidence that he must have been aware before.
His understanding of the ILP “supports” had been that they resulted from ILP’s December 2007 results which had “gone down badly in the markets” for showing significant dependence on European Central Bank Funding.
ILP had been told by the Irish Central Bank to show less dependency on the ECB and “could they not do more with an Irish bank.”
Mr Quilligan said throughout 2008, “everything was on the table.”
Other correspondence referred to the FSA (the UK’s financial regulator) being uncomfortable with Anglo being on the “best buy tables” and wanting all references to the Irish Government guarantee removed from Anglo’s UK website.
Mr Quilligan explained to Mr O’Higgins that Anglo was operating under a global liquidity waiver in the UK, meaning the Irish regulator could set the bank’s liquidity ratio.
After Northern Rock bank went bust, the FSA became anxious about foreign banks taking deposits from the UK market, creating competition for banks there. They were “trying to protect the British banks,” he said.
In cross-examination, Mr Quilligan agreed with Brendan Grehan SC that up to 2007, Anglo was “an extraordinarily successful bank… one of the best banks in the world.”
Funding had never seemed to be an issue, Mr Quilligan said.
The credit crisis led to competition from other banks for customer funding and Anglo tried in 2008 to rein in lending to zero. This was not possible in Ireland because of “pipeline projects” where Anglo was legally obliged to lend.
At that time, even good actions could be interpreted negatively by the market, he said. ILP’s ECB funding had been “perfectly legitimate” but they “got a carpeting” from the Central Bank because it made them look weak, Mr Quilligan told the court.
He agreed with Mr Grehan that this was the genesis of ILP looking to Anglo and people were protecting their own patch.
In 2008, the Bank of England secretly loaned €60bn to RBS and HBOS banks “because it was in the best interests of the UK banking system,” Mr Grehan said.
During the crisis, Anglo also had an “intolerable situation” in the extent of businessman Sean Quinn’s shares in the bank.
Mr Quilligan agreed with Mr Grehan that although he did not deal directly with the Central Bank or Financial Regulator “that doesn’t mean you wouldn’t be aware of what was going on here.”
Mr Grehan then asked what Mr Quilligan understood from Mr Drumm’s mail about the Irish banks helping each other.
“That the bank was being encouraged to work with other Irish banks to ensure that we all came through the credit crisis safely,” he replied.
Asked by whom, Mr Quilligan replied: “The Governor of the Central Bank.”
Mr Quilligan agreed with Mr Grehan that he was aware of the term “green jersey agenda.”
Mr Grehan said Mr Quilligan’s mailed reaction was a note of caution in terms of what was being suggested because “it might be seen as somewhat parochial for Irish banks to club together, that you might do yourselves down.”
“The retaliation could be worse,” Mr Quilligan agreed.
Mr Grehan then read out Mr Drumm’s response to this caution.
“That’s the art of it, there has to be a ‘level’ of interbank placings we can get to without having the market turn on us,” the email stated. “Since the start of the crisis, we have dramatically cut the number of banks we are dealing with so I assume the limits have gone up for some or that we have placed more with them, but I don’t know which is why I’m asking.”
Mr Quilligan agreed that the failure of Lehman Bros in the middle of September was the “final straw.”
He said he was at an investment meeting in Amsterdam the next day.
He recalled that “a guy came into the room and he was crying because he had invested in Lehmans on Friday and it was worth nothing.”
“There was panic in the market,” he added.
Mr Quilligan said as well as Anglo’s other funding initiatives falling away, the “real market” was also worse after Lehman’s went bust.
“It was about the survival of the bank, not the year end because nobody knew where this was going to end,” he said.
Mr Grehan said there was “effectively a corporate run on the bank” with money being withdrawn.
Mr Quilligan said this was not just happening in Anglo. The jury was shown again handwritten notes from an Anglo Board meeting of September 30, 2008, referring to “€7.2b Ir Life - B/S pic.”
He agreed it appeared to refer to Irish Life and the balance sheet picture.
The trial continues at Dublin Circuit Criminal Court.