Sunday 22 July 2018

Drumm admits approving circular deals to boost bank's balance sheet

Former Anglo Irish Bank chief executive accused of conspiracy to defraud denies his actions were dishonest, writes Alan O'Keeffe

David Drumm arrives at Dublin Circuit Court last week where he denies two charges against him. Photo: Collins Courts
David Drumm arrives at Dublin Circuit Court last week where he denies two charges against him. Photo: Collins Courts

Alan O'Keeffe

The man who once "called the shots" at Anglo Irish Bank sat in the dock in a Dublin courtroom on Friday as lawyers spoke of the global financial crisis that shook the banking world a decade ago.

The former bank chief executive David Drumm sat listening to the barristers as the trial, which is expected to last for several months, got underway in the Circuit Criminal Court.

The 51-year-old former executive denied charges of conspiracy to defraud and false accounting.

He frequently appeared to consult notes as he reached into his pocket and put on his glasses on a few occasions.

As the 10 men and five women on the jury listened to the explanations of the jargon used in the banking world, the former executive sat quietly in his open-necked blue shirt and dark business suit.

His lawyers told the court he was submitting a number of written admissions which would be expected to shorten the duration of the trial.

The court was told he admitted authorising a number of circular financial transactions that boosted his bank's balance sheet in 2008.

But he denied his actions were either fraudulent or dishonest.

Mr Drumm pleaded not guilty to the two charges against him. He is accused of conspiring to defraud existing and prospective depositors, lenders and investors in 2008 by dishonestly creating the impression that his bank's deposits were €7.2bn larger than they were.

It is alleged that he conspired in this with former Anglo executives Willie McAteer and John Bowe, and with Denis Casey, the then chief executive of Irish Life & Permanent, and with others.

Mr Drumm also denies a charge of false accounting, by providing misleading information to the markets on December 3, 2008, giving the impression that Anglo's deposits were €7.2bn greater than they really were.

As the trial got under way before the jury in Dublin's Circuit Criminal Court, prosecuting senior counsel Paul O'Higgins said Mr Drumm was "the man who called the shots" at Anglo Irish Bank.

Mr Drumm oversaw a situation where money circulated "at lightning speed" between Anglo Irish Bank, Irish Life & Permanent and Irish Life Assurance, before returning to Anglo, Mr O'Higgins added.

The prosecutor said there was "no commercial reality" to the transactions.

Mr O'Higgins said it was Anglo Irish Bank's "prime intention" to ensure that its balance sheet appeared as strong as possible as its financial year came to an end in September 2008.

The jury heard that the Irish banking authorities and the Governor of the Central Bank had wanted Irish banks to assist each other with liquidity issues in rocky times. However, that did not excuse what happened, Mr O'Higgins said.

Mr Drumm's defence barrister, Tessa White BL, read out a number of admissions that the defence said would shorten the trial, which is expected to last a number of months. In the statement, Mr Drumm accepted "all the factual matters" about how the 2008 financial transactions had happened but he disputed that they were fraudulent or dishonest.

Mr Drumm said that from late 2007 onwards, Irish banks including Anglo came under sustained funding and liquidity pressure due to a worsening global financial crisis.

He stated that he had disclosed to others in Anglo in March 2008 that the Governor of the Central Bank had raised the issue of "how the Irish banks could help each other".

This initiative encouraged Irish banks to provide mutual support to each other in response to the financial crisis.

Mr Drumm had stated to others that Anglo should give consideration to this initiative.

Another admission by Mr Drumm was that on or about March 31, 2008, Anglo's half year end, the bank placed €1bn with Irish Life & Permanent.

Irish Life & Permanent (ILP) conducts its banking business under the name Permanent TSB and it conducts its life assurance business under a separate legal entity named Irish Life Assurance. Irish Life Assurance (ILA) then deposited €750m with Anglo.

Shortly after March 31, 2008, ILP repaid €1bn to Anglo and Anglo repaid €750m to ILA.

The purpose of conducting these transactions was to increase Anglo's non-bank deposits by €750m over its half year end reporting date.

Another admission was that on or about June 30, 2008, which was ILP's half year end, ILP transferred bonds worth in excess of €3bn to Anglo.

Anglo placed the sum of €3bn with ILP. Shortly after June 30, 2008, ILP repaid €3bn to Anglo and the bonds were returned to ILP.

The purpose of these transactions was to reduce ILP's reliance on European Central Bank (ECB) funding over its half year end reporting date.

Another admission in his statement was that in the period coming up to September 30, 2008, which was Anglo's year end, in a series of short-term transactions, Anglo placed approximately €7.2bn with ILP.

In return, ILP, on behalf of ILA, deposited approximately €7.2bn in a similar manner with Anglo.

Mr Drumm stated the purpose of these transactions was to increase Anglo's non-bank deposits by €7.2bn over its year end reporting date.

Mr Drumm said he authorised all of those transactions that took place throughout 2008 and assumed responsibility for them.

His statement declared he "accepts all of the factual matters relating to the mechanics of how the September transactions happened and the only issue that he disputes is whether they were fraudulent or dishonest or that there was any dishonesty in their reporting".

The trial continues tomorrow before Judge Karen O'Connor.

Sunday Independent

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