Saturday 20 October 2018

Former Anglo CEO was 'trying to save the bank' when he authorised €7.2bn deal

Former CEO of the Anglo Irish Bank, David Drumm. Photo: Collins Courts
Former CEO of the Anglo Irish Bank, David Drumm. Photo: Collins Courts

Andrew Phelan

Former Anglo Irish Bank CEO David Drumm “answered Ireland’s call” and was “trying to save the bank” when he authorised a €7.2bn deal at the height of the 2008 financial crisis, his defence has said.

There was “no crookery” in the transaction and what happened was “missing all the hallmarks of conspiracy,” the jurors in his trial was told.

Asking them to acquit the accused, defence barrister Brendan Grehan SC said Mr Drumm was not proud of all the decisions he made back then, but he made them “in good faith with no criminal motivation whatsoever.”

Mr Drumm concluded his closing speech to the jury this afternoon.

Mr Drumm (51) is pleading not guilty to conspiring to defraud by dishonestly creating the impression that Anglo's customer deposits were €7.2bn larger than they really were in September 2008.

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

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

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.

Mr Grehan said the jury had seen and heard a succession of witnesses, statements and phone calls and there was no evidence that anyone, including Mr Drumm was “doing this for personal profit.”

“Mr Drumm, we say, cannot be held criminally liable for the actions, inactions or omissions of those over whom he had no control,” Mr Grehan said.“That cannot be right, that cannot be just.”

Despite the size of the transactions, there was no evidence of any defrauding of anyone.

“No-one got rich, no-one got poor, no-one is living off in a Caribbean island on ill-gotten gains," Mr Grehan continued.

Money was moved at great pace, an accounting exercise followed and it was accepted that it should have included a note.

“That is all, there is no crime, there is no fraud, there is no false accounting, there is no evidence anyone was misled and there’s simply no conspiracy,” Mr Grehan said.

The jury had been told this was “not a trial by accountants” and if it was, Mr Grehan said the prosecution’s accountancy expert Dan Taylor was “heavily outgunned” by those who were there at the time who had different views.

“This case is missing all the hallmarks of conspiracy,” he said. There was no trickery, deception, skullduggery or secrecy and “no one standing over a shredder”  getting rid of evidence.

There was “no whistleblower coming in to say ‘I saw this, I put my hand up and was told to move to a different job’”.

“Nobody, it appears, was struck that something wrong was going on.”

“Mr Drumm is not necessarily proud of every decision he made back then, nor could he claim with the benefit of hindsight that he made all the right decisions, but he made them in good faith with no criminal motivation whatsoever. He was trying to save the bank.”

Yet, the jury had been told by the prosecution that his motivation and the context of all this was “irrelevant.”

“It cannot be the case that that history is airbrushed and pushed to one side,” Mr Grehan said.

The prosecution was telling the jury “we have the bad guy over here” and that they should not be looking at anything else.

“Mr Drumm answered Ireland’s call when it was made to him, he didn’t desert his post. Judge him by what confronted him at the time, and not with 20-20 hindsight,” Mr Grehan said.

Prosecutor Mary Rose Gearty SC had quoted Oliver Cromwell, using the phrase “by hook or by crook” in her closing speech yesterday.

“There was no crookery involved here, there was no hookery involved here, this was not a con job, this was somebody simply doing their best in the circumstances in which they found themselves,” Mr Grehan said. “In those circumstances, you ought to acquit Mr Drumm.”

Earlier, Mr Grehan said everyone in the trial had come to understand that “money never sleeps” and moved at a speed.

When money moved out of an account, It seemed to be very hard to know “where the money is until the music stops.”

He said the jury had heard new language and different meanings to common words, like balance sheet management or bolstering customer deposits. They had also heard more nebulous terms like sentiment, confidence, comfort, stress and panic.

It was “a bit like the film It’s a Wonderful Life” - when word goes out that there’s a problem, people panic and it is a “death knell.”

The jury had been told what happened was a big con job, Mr Grehan said. Confidence was “absolutely key to banking,” he said, particularly when there was a crisis or uncertainty in the market and confidence could be ruined by rumour or gossip.

The jury had heard about the “green jersey agenda” - the notion of the need for banks to “club together” in the crisis.

He also reminded the jurors that two of them would be “going home” as it was an enlarged jury for dealing with longer trials.

Mr Grehan said a governing rule was Mr Drumm’s presumption of innocence. The onus was on the prosecution to prove guilt.

The jury would have to be satisfied beyond reasonable doubt rather than on the balance of probabilities.

“Before you convict you have to be sure that you are right because you can’t come back afterwards and change it,” he said.

The jury was not there “to give some certificate of good character to Mr Drumm” and if they acquitted him it did not mean anything other than that the prosecution had not proved its case to their satisfaction.

They were not there to decide if the transactions were honest, but rather if there was a dishonest intention on Mr Drumm’s part.

The two charges were separate but had been tried together for convenience, he said. The jury had to treat them separately.

A conspiracy charge was a common law offence, was complex and an “unusual class of a beast” because you did not have to prove anything happened, he said.

You “don’t need a victim, you don’t need to prove any loss or consequence, you just have to allege that there was a plan or a plot.”

False accounting was set out in legislation and he read the “ingredients” out to illustrate “just how complicated it is.”

The wording read that what was alleged to have been done by an accused was “to his knowledge” false and misleading.

One of the “ironies” in the whole matter was that Mr Drumm was saying that rather than trying to defraud any investors or cause any depositors to lose any money, “what he was doing was the opposite” - to “save the bank if he could”, to safeguard the interests of those people.

With the scale of the allegations, there “wasn’t a single person putting their hands up saying ‘I did something because of this or I was  at a loss because of this," Mr Grehan said.

The prosecution had to prove the actions and intention in an offence. In this case, the actions were not in dispute, but the “mental ingredient - the intention” was, Mr Grehan said.

The offences could not be committed carelessly or recklessly and intention “means exactly what it says on the tin - you are acting with the purpose of bringing about a particular result.”

In terms of fraud, Mr Grehan told the jury some things they might think are morally wrong “are not a fraud.”

Clearly, “if Mr Drumm had taken all the money out of the bank and gone off with it” that would be a fraud or theft, and so would it if someone lied to the auditors to get them to sign off on the accounts.

There was no evidence that any of this happened notwithstanding the “gallows humour of some of the phone calls that you heard.”

Mr Grehan said the transactions were linked and could not be viewed in isolation. The prosecution had suggested what happened in March was a prototype and what happened in September had been planned in March.

“That simply cannot be so,” he said.

The financial crisis started in 2007 when Ireland was swept up in a “tsunami” that started on the other side of the Atlantic with the “dodgy business” of subprime mortgages. The crisis spread, there was a run on Northern Rock in England, “people got the jitters” and there was a loss of confidence. This continued in 2008 with the takeover of Bear Stearns in the US and in response Anglo’s share price fell by 30pc in the so called “St Patrick’s Day Massacre”.

Everyone thought after that things would settle down and nobody could possibly have foreseen how bad things were going to get in September, he continued. Nobody could have predicted that the height of the global crisis would come at the “worst possible time” for Anglo - its September 30 reporting date.

To say that March was the prototype and there was advance planning “I would suggest makes no sense,” he said.

What was done in March to increase customer funding (a €750m transaction) did not seem to have been viewed by the prosecution as a crime and Mr Grehan said “we are dealing with elastic concepts” like materiality.

It was a “question of scale” rather than black and white rules. Balance sheet management existed and people had different views as to how to go about it and how much of it you could do, he said.

“That is fundamental to why we say David Drumm is not guilty of committing any fraud because what he did and authorised and stands over is something that was viewed as legitimate balance sheet management,” Mr Grehan said.

What was “glossed over” by the prosecution was all the “eyes that were looking” at what was happening without “anybody raising any kind of red flag.”

There had been evidence that there was “no commercial rationale” to the transactions and that may be the case if you viewed them individually, but in terms of the relationship between the two banks, there was a clear rationale, Mr Grehan said.

You could put it as simply as “you scratch my back, I’ll scratch yours,” he continued.

Judge Karen O’Connor told the jury to return on Monday, when she is expected to begin her charge, which consists of instructions on the law as it applies to the case and may include a summary of the evidence.

The enlarged jury of 10 men and four women will then be reduced to 12 before they are told to begin their deliberations.

Earlier, Mr Grehan said in December 2008, Anglo had planned another transaction of in the order of €7bn with ILP and the Central Bank told them to wind that up.

The idea that a €7.2bn fraud in September was dreamt up as far back as March was not made out by the records, Mr Grehan said.

Referring to emails that had been seen by the jury, Mr Grehan said €7.2bn was not planned at all and the sum “grew organically.”

The jury had heard from witnesses that there was nothing unusual about banks trying to plan for their reporting dates and putting in place measures to ensure they hit their targets.

An e-mail from Anglo’s Ciaran Cunningham about the “accounting solution” seemed to have been suggested by the prosecution to be “some sort of blueprint for a conspiracy” but Mr Grehan said this was simply people discussing the “nuts and bolts of a transaction.”

In a fraud you “wouldn’t have people leaving a paper trail,” he said.

PWC were retained by the Department of Finance to come in and take a “hard look at Anglo” and if there was something to hide “you would expect there was some attempt to hide it from the good people of PWC.”

But “nothing like that happened” because the transaction showed up in a report which came back before the board in October 2008, well before the publication of the accounts.

What was in meeting minutes about the transaction was “not particularly surprising” because there were more pressing matters and you “would not expect a big, long recital” but “they came up in some shape or form,” Mr Grehan said.

“Nobody thought this was erroneous or the big deal it is now asserted to be,” he told the jury.

The first Sterling transaction in September (of £978m, the equivalent of €1.2bn) was completely separate from the euro transactions and got “stuck in the system and had to be sent back to Anglo,” he said.

Another €2bn was done on September 29, then things “ground to a halt.” Anglo was then running out of liquidity, Mr Grehan said.

That was where things might have stayed but “the most significant event” happened the next day - the Government guaranteed all the banks, which meant money began  to flow into the banks.

€4bn came into Anglo, which happened to be the number that was transacted with ILP that day.

Mr Grehan said it seemed to him the €4bn transaction on Sept 30 was a “totally pointless exercise because there was no need for it.”

In hindsight that was probably not the right decision but he said it was a “fraught” time and nobody knew if the guarantee would work.

The prosecution sought to “draw down the shutter” on September 30 and say that was the end of the alleged conspiracy.

After that, of all the accountants who looked at it; Anglo’s own accountants, the audit committee, Ernst and Young, PWC and the Financial Regulator, “nobody flagged a problem” but when the figures were published “it’s suggested that this man over here committed a criminal offence.”

After the external bodies were told “in explicit terms” about the transactions, “nobody but nobody raises a red flag.”

He pointed to a conversation in whch Anglo’s Ciaran McArdle told Financial Regulator official Clare Taylor on October 1, 2008, about the transactions: “It’s trying to manipulate our balance sheet for our financial year end last night.”

The figures were referred to “in explicit terms” to the Regulator, Mr Grehan said. “Nothing was hidden or massaged.”

“Maybe these people missed it or didn’t see the significance of it, nobody seemed to think it was a big deal at the time.”

Ernst & Young had given an opinion that the accounts were true and fair.

It was hard to see how Mr Drumm could have committed any criminal offence having published the results “in reliance of the external auditors of the bank having this view.”

Where the “buck stops” is with the audit committee, Mr Grehan said.

He referred to the years of experience of Non Executive Directors on it, Gary McGann, Michael Jacob and Donal O’Connor.

“How can it be if these three wise men, these titans of industry missed it, how can it be that Mr Drumm is criminally liable for something that they missed?” Mr Grehan asked.

He said other things were kept secret from the market, such as the Anglo’s own liquidity breach that year.

Other things were happening that demonstrated that “these were the most incredibly trying times” for anyone in a financial institution.

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