Wednesday 12 December 2018

Former Anglo executive says he was asked to sign off on €7.2bn loan after it happened, court hears

Former Anglo CEO David Drumm leaves court. Photo: Collins Courts
Former Anglo CEO David Drumm leaves court. Photo: Collins Courts
Andrew Phelan

Andrew Phelan

A former Anglo Irish Bank executive has said he was asked to sign off on a €7.2bn inter-bank loan after it had happened, which was outside the usual procedures.

Mike Nurse, said he “retrospectively” signed off on a credit limit for the transaction during the 2008 financial crisis, after a team of bankers reporting to CEO David Drumm had already approved it.

Mr Nurse, then-head of the Anglo’s Treasury Risk division was giving evidence today in the trial of Mr Drumm, who is charged with conspiracy to defraud and false accounting.

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

He is alleged to have conspired with former Anglo officials Willie McAteer and John Bowe, as well then-CEO of Irish Life and Permanent (ILP), Denis Casey, and others.

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

The case centres on a series of circular billion-euro inter-bank transactions between Anglo and ILP, routed through ILP-owned Irish Life Assurance (ILA). The money was placed back in Anglo and treated as customer deposits, which are considered a better measure of a bank’s strength. Mr Drumm admits he authorised the transactions but denies there was anything dishonest or fraudulent in them.

Mr Nurse said he was head of Treasury Risk and chair of the Treasury credit committee that approved inter-bank credit limits.

Mr Nurse told Mary Rose Gearty SC, prosecuting, there were two a-level and two b-level signatures needed on sign off on changes in the credit limit for inter-bank transactions.

Mr Nurse was an “a” signatory, as was Tony O’Hanlon.

There was a fast-track credit approval process which was designed to respond quickly to business situations because the committee only sat once per week.

It only required one “a” signature and the fast track approval would then go to the next audit committee meeting for ratification.

Mr Nurse said he was not aware that Anglo had placed the first €1bn with ILP until the day it happened - March 31, 2008.

The credit limit at the time for ILP was €200m, so the €1bn placement was 400pc in excess of the limit.

This was signed as approved by Mr Nurse and Mr O’Hanlon.

Mr Nurse said he saw the €1bn going out of Anglo but was not aware at the time of what was coming in to the bank as a result.

The jury heard there were “repo” transactions with ILP in June 2008 but they did not require any change in the credit limits because there was collateral and they were secure transactions.

That summer, Mr Nurse said he was aware that there were transactions being proposed for Anglo’s year end in September.

Any transaction that was proposed that required additional credit limit would have been processed in the same way as describe in the March transaction, he said.

However, when he was asked if that same process was followed for the €7.2bn ILP transaction in September, he replied that it was not.

It was dealt with at executive management level and by the treasury team who were involved.

Ms Gearty asked if Mr Nurse had been required as a signatory to approve it.

He replied that he signed it post the transaction on an excess report.

Ms Gearty asked him what his understanding was of who approved the credit limit.

He said the treasury team who were performing the transaction dealt with the CEO (David Drumm) and Chief First Officer (Willie McAteer.)

He became aware of the total size of the transaction either during the course of that day or the following morning.

An email from October 1, 2008 was shown to the jury which showed the credit limit for ILP had gone up to €500m in September, This meant the excess was more than €6.7bn.

The signatories on the morning of October 1 were himself and Willie McAteer, and this was a retrospective sign-off.

“Was that common practice?” Ms Gearty asked.

“No,” Mr Nurse replied.

This afternoon, company secretary Natasha Mercer confirmed to Ms Gearty that the transactions with ILP were not mentioned in the minutes of any board meetings until November 18, 2008.

The minutes from a number of these meetings were then showed to the jury.

In one meeting on September 17, 2008, called in response to the collapse of Lehman Bros two days earlier, it was stated that Mr Drumm gave a liquidity update. He told that meeting about the executive management team being on “red alert” and that there was a serious impact expected to the banking sector generally if an indigenous financial institution such as Irish Nationwide failed.

It was agreed at the meeting that contact should be made with offices of the Taoiseach and the Department of Finance to discuss “the ramifications doe the bank and the country if swift and appropriate action isn’t taken.”

On September 22, 2008, Chairman Sean Fitzpatrick was noted as having summarised the key points of a meeting between Anglo executives and Gillian Bowler and Denis Casey of ILP. This was to discuss and gauge interest in potential co-operation between the two companies.

On September 26, John Bowe gave a liquidity update describing the markets as remaining very weak and Mr Drumm reported that the Financial Regulator and Central Bank continued to be fully briefed on Anglo’s liquidity position. Both Mr Drumm and Mr Fitzpatrick said they had received solid assurances from the Central Bank that Anglo would be supported and a funding facility would be made available should the prospect of insolvency present itself, the minutes stated.

Things at that stage were “quite serious,” Ms Mercer agreed with Ms Gearty.

Again, she said there was no reference in the minutes to the ILP transactions.

There were discussions on the strategic long term options for the bank. These were either to remain independent; consolidation in Ireland (ie a possible sale to an Irish bank or merger with ILP); or a sale to a foreign bank.

The case for and against a merger with ILP was discussed and the board concluded that while all the avenues should be explored and the preference was to remain independent the priority at the time was to secure funding and liquidity.

There were three meetings on September 29. In one, Mr Drumm provided an update, referring to the government guarantee and saying management remained on “high alert,” with funding a key priority. The conditions of the bailout were discussed.

Although there was no mention of the ILP transaction in the minutes, Ms Mercer’s handwritten notes contained a reference to “€7.2bn Irish Life B/S.”

She told Ms Gearty she did not recall any discussion of the transaction at the time or any reason for it not to be recorded in the minutes.

The minutes of a meeting of November 4 showed a focus on the preparation of accounts and to “get them out to show that the bank was OK,” Ms Mercer agreed.

There was no sense in the bank that the quality of its assets were poor at that time.

There was a reference to the ILP transaction in a meeting of the audit committee on November 18, in which it was referred to as “customer accounts.”

A director who had also been at the meeting made a change before the minutes were finalised. Ms Mercer looked at her notes and was comfortable that the transaction had been mentioned.

The minutes stated “the year end transactions with ILP were outlined and it was confirmed that they were in the nature of normal year end management activity and that the Financial Regulator and (auditors) Ernst and Young had no issue with them.”

The jury then heard of a question Donal O’Connor, who had replaced Sean Fitzpatrick as Anglo Chairman asked on the phone “about what these transactions represented.”

It was suggested, Ms Gearty said, that he had asked “are these just window dressing?” and someone responded that it was “normal balance sheet management.”

This was not in Ms Mercer’s notes and she did not recall it.

The trial continues.

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