Sunday 22 July 2018

Former Anglo dealer told Financial Regulator they were 'trying to manipulate balance sheet', court hears

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

Andre Phelan

A former Anglo Irish Bank dealer told the Financial Regulator the bank’s customer funding figure was “not a real number” and they were “trying to manipulate our balance sheet,” a court heard.

Ciaran McArdle was on a phone call to Regulator officials they day after Anglo carried out a series of multi-billion euro interbank transfers in the run up to the struggling bank’s year-end at the height of the 2008 financial crisis.

A tape of the conversation was played to the jury today in the trial of Anglo’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 interbank loans which circulated between Anglo and ILP in September 2008.

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

Mr McArdle, who was Head of Liquidity and International Rate Risk Management, was led through his statement by Mary Rose Gearty SC, prosecuting.

He agreed he was told to organise the details of an earlier transaction in March 2008 with his counterpart in ILP, Paul Kane.

The two men agreed Anglo would place money with ILP in the form of an interbank deposit and ILA would place a customer deposit with Anglo.

The amount - €750m - was agreed by Head of Treasury Matt Cullen and Mr Cullen's ILP counterpart David Gantly, and the transaction went “smoothly” on March 31.

In June, Anglo carried out a “repo” transaction with ILP - a repurchasing agreement to buy and sell back Irish Life bonds, reducing ILP’s reliance on Central Bank funds.

After discussing the planned September transactions with Mr Cullen, Mr McArdle’s understanding was that it was going to be a “repo” transaction with ILP, similar to one that was carried out in June, he said in his statement.

A couple of weeks before the deal, it became evident that the size of the transaction was going to be in the region of €7bn, Mr McArdle agreed.

Because of the size of the transaction, there were a number of individual €1bn transactions in “tranches” required to reach the objective of €7bn.

On September 29, Mr McArdle told Mr Cullen there would not be sufficient funds to complete the transactions, Anglo would not have been able to meet its commitments the following day and and emergency funding was sought from the Central Bank.

On the morning of September 30, the Government issued a guarantee scheme, covering deposits in six Irish banks, including Anglo.

The jury was then played a tape of the call between Mr McArdle and two Financial Regulator officials, Clare Taylor and Ciaran Rogers on October 1, 2008.

On the call, Mr McArdle was first asked to give the Regulator an update from that morning.

Mr McArdle said it had been “quite positive” and outlined an expected growth in customer funding. However, he said the wholesale market appeared “to be dead” and a lot of people were not giving Anglo money and there was “no duration.”

“It’s a different picture to where we were this time last week, it’s a different picture to where we were on Monday, but the overall reaction to the scheme has been very, very positive,” he said.

“The momentum has swung and the momentum is probably going to continue as long as there isn’t a change in the legislative paperwork going through the Dail,” he went on.

Asked about the interbank market, he said “we haven’t gone chasing it” and said it was mostly on an overnight basis.

“This most certainly has fixed us somewhat but the system is broken. We need the State tonight to probably bring a little bit more confidence. We need more positive stories from the papers... we need this thing signed, sealed and delivered to see where the lie of the land is,” he said.

“Can I ask you about the corporate figure - is that still a net figure?” Ms Taylor asked later in the call.

After a pause, Mr McArdle said: “That is still a net figure, that is correct.

“It’s trying to manipulate our balance sheet for our financial year end last night, what we have done is we have boosted our customer funding number which we didn’t include in our liquidity number so when our snapshot is produced at the beginning of December, it looks as good as possible,” Mr McArdle said on the tape.

“It’s not a real number. I wouldn’t read too much into it, it just happened to fall on the last day of the month. It’s just something we did.”

Mr McArdle went on to say “you exclude it” from the ratios and it was going out over the next three to four days.

The trial continues before a jury and Judge Karen O'Connor at Dublin Circuit Criminal Court.

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