Former Anglo executive 'shocked at hostile and aggressive reaction' from Financial Regulator
A FORMER senior Anglo Irish Bank executive was “shocked at the hostile and aggressive reaction” from Financial Regulator officials when they met to discuss an interbank deal done at the height of the financial crisis.
Anglo Irish Bank's then Chief Financial Officer Matt Moran said he was surprised at the tone of the “tense” meeting, which was held after the bank was bailed out and its CEO David Drumm and Chairman Sean Fitzpatrick had both resigned.
The impression was that Mr Moran was “suddenly being asked questions as if the Financial Regulator knew nothing about the transaction.”
Mr Moran was being cross-examined in the trial of Mr Drumm, who denies conspiracy to defraud over the €7.bn deal.
Mr Drumm (51) is pleading not guilty to conspiring to defraud Anglo investors by dishonestly creating the impression that the bank’s customer deposits in September 2008 were 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 (ILP) Denis Casey, and others.
The case at Dublin Circuit Criminal Court centres on multi-billion euro interbank loans which circulated between Anglo and ILP.
Mr Drumm also denies false accounting, by providing misleading information to the market.
As Mr Moran concluded his evidence after four days, the jury was shown a recording of a webcast Anglo published on the bank’s website on 3 December 2008 to present its year end results.
The results stated that Anglo had “continued to win customers, especially retail through the turmoil.”
“We are going into tough times with a very strong balance sheet,” Willie McAteer stated in the webcast.
In his cross-examination, the jury heard Mr Drumm had lived in the US and had a role in running that side of the operation. He had moved there with his family and put down roots, with his children attending school there.
He came back to “perhaps to the surprise of some,” he was selected as new CEO in 2005. Anglo had grown considerably by the beginning of the financial crisis in summer 2007.
A funding overview in September 2008 stated that the “global wholesale markets were broken” following the collapse of investment bank Lehman Bros in the US. The ripples started by this became a “tsunami” by the time it reached Irish shores, Brendan Grehan SC, defending, said.
This could “not have come at a worse time” for Anglo, whose financial year end was September 30.
Other funding options “literally fell away like a house of cards and there was nothing left except ILP”, Mr Grehan said.
Mr Moran agreed with Mr Grehan that the “genesis of the Irish banks helping each other” dated back to an email sent by Mr Drumm to John Bowe and other senior bankers on March 16, 2008.
The subject of the e-mail was “Central Bank” and in it, Mr Drumm said: “Will you put some thought into what the Governor asked us to look at, how the Irish banks could help each other.”
He also asked “how would it work and how would it be structured...how could it be structured so as to be equitable and get support from all banks.”
“I want to get into dialogue with the Central Bank and other CEOs on this sooner rather than later,” Mr Drumm’s e-mail stated.
Mr Moran mailed other Anglo officials Matt Cullen and Caran McArdle, saying: “let’s think what assistance we can give John Bowe on this.”
Mr Moran agreed with Mr Grehan that it “wouldn’t work” for Irish banks to “circle the wagons” as Ireland was a net beneficiary of foreign funds. However, banks were dealing more with a smaller number of “more friendly counter parties.”
Mr Grehan asked Mr Moran if it was correct that the notion of the Irish banks helping each other became known in shorthand as the “green jersey agenda.”
“I have heard that phrase,” Mr Moran said.
Mr Grehan said this was all that was intended by it, that the banks would help each other.
The jury had heard of communications between Anglo and Mary Elizabeth Donoghue from IFSRA in May 2008. Mr Moran said IFSRA was being told that the large ILP transactions were excluded from a behavioural analysis of the bank’s performance because they were not characteristic of Anglo’s normal deposit base, and were short term.
Asked when he became aware of the term “funding initiatives”, Mr Moran said it arose in Summer 2008.
Bonds Portfolio Manager Peter Geissel mailed him on June 17 2008 about a “task team” Mr Geissel was arranging to explore and manage new funding liquidity and capital initiatives.
Mr Moran told Mr Grehan he believed “balance sheet management” was an established practice in the market of banks undertaking transactions that would position them best at year end for reporting purposes.
“Window dressing” was among the terms that might be used to describe it, Mr Moran agreed.
Mr Grehan said if this was a well-known practice then market analysts must know about it.
“Yes, I would believe so,” Mr Moran said.
“Who decides what is OK?” Mr Grehan asked.
Mr Moran said it was market-driven, so investment banks or the counter parties would create the structure of these transactions.
Mr Grehan asked who decided what was acceptable when transactions had to be accounted for.
Mr Moran said Anglo had been in discussions with its auditor, Ernst and Young, who signed off on the year-end accounts on December 2, 2008.
Mr Grehan asked who was in a position to say if a transaction “passed muster” before it ever got to the auditors.
Mr Moran said this was a portfolio management group which structured transactions, as well as colleagues in treasury. Peter Geissel was head of the portfolio management group and was a balance sheet management specialist, the jury heard.
Mr Grehan said Mr Drumm had an accountancy qualification but there were a lot of people with qualifications in areas such as law but it did not mean they were “totally proficient” or had knowledge of all areas.
Mr Grehan asked who “came up with the idea” that these particular transactions would be in compliance with accounting standards and pass muster
Mr Moran said he believed it was Mr Geissel and other colleagues in treasury, like Matt Cullen, John Bowe and Ciaran McArdle. However, the board would have approved the transactions.
Mr Drumm had made admissions that he authorised the ILP transactions, although he denied they were fraudulent.
Mr Moran said Peter Geissel had been “key” to the funding initiatives.
The jury was shown a series of mails sent by Mr Drumm to Auditing and Accounting Supervisory Authority (IAASA) in summer 2008, in relation to the half year end accounts from March. While Mr Drumm signed them, Mr Moran said they would have been compiled by group finance and members of the audit committee.
Mr Moran said he was satisfied that auditors Ernst and Young were briefed on the ILP transactions.
The Financial Regulator appointed Price Waterhouse Cooper to carry out an assessment of various banks including Anglo from the last week in September 2008.
PWC produced a report which referred to the ILP transactions, saying their effect was to “boost customer deposits.”
Mr Moran had said in his statement if the €7.2bn had not been on the balance sheet it could have been “fatal” and led to a total loss of confidence in the bank.
“It would demonstrate that parties weren’t willing to engage with the bank, it would significantly lower the level of funding vis a vis lending, it would show there was difficulty in funding the level of lending that was undertaken,” Mr Moran said.
Mr Moran agreed with Mr Grehan that the subsequent reduction in customer deposits, because of the “contagion” effect also “wouldn’t be good for the whole banking system.”
Mr Moran agreed that there was a “change in attitude” about the transactions in Anglo in January 2009.
The court heard Anglo Chairman Sean Fitzpatrick resigned in December, followed by Mr Drumm and the Government announced its scheme to recapitalise the banks.
The new Chairman, Donal O’Connor denied that the transactions had been discussed at an audit committee meeting the previous November and Mr Moran challenged him on this.
Mr Grehan asked when he became aware there was a problem with the transactions from the Financial Regulator.
Mr Moran replied that he was asked to go and see the Financial Regulator around January 12 to 14, 2008. He took Matt Cullen and Kevin Kelly and met IFSRA officials Con Horan, Donncha Connolly and Bernard Sheridan.
“This issue in respect of the transactions was brought up at that meeting and on a number of occasions, Donncha Connolly asked the question, ‘why did the bank do that transaction’,” Mr Moran said.
“I said I believed he was aware, he knew the bank had done the transaction and why the bank had done it.”
“The meeting was very tense I would say and I didn’t go down to that meeting expecting the transaction or what happened to be brought up in such a strong or aggressive manner,” Mr Moran said.
“Suddenly you were being asked questions as if the Financial Regulator knew nothing about the transaction,” Mr Grehan said.
“That was the impression given,” Mr Moran said.
“You were shocked at the hostile and aggressive reaction,” Mr Grehan said.
Mr Moran agreed, and said he believed IFSRA knew about the transaction.
After that meeting, issues around the transaction seemed to heighten. Mr Moran was asked to undertake a “look back” and to contact Mr McAteer and Mr Drumm.
He asked Willie McAteer about having raised the issue in a meeting with the Financial Regulator on September 20, 2008. Mr McAteer told Mr Moran he had told the regulator he would be “managing the balance sheet” with ILP.
Mr McAteer had told Mr Moran the Regulator, Patrick Neary had replied: “fair play to you, Willie.”
Matt Cullen told Mr Mr Moran “Denis Casey brought the issue up with the Governor, saying that you know we helped Anglo over their year end.”
Mr Moran had noted another comment from Mr Cullen: “The nature of the transaction was not discussed.”
Mr Drumm e-mailed Mr Moran back quickly, stating: “We had been encouraged on a number of occasions, particularly by the Governor who felt strongly about it that we should be engaging with the other Irish banks to find an intra-Ireland market to create some liquidity.”
“I would relish the opportunity to sit in front of Con and ask him to tell me to my face that he didn’t know about this,” he said. “If they insist on killing the bank with this for no reason and try to protect themselves, I will go public with it. It’s not just Con, there was always a room full when you went down there to Dame Street.”
Mr Moran agreed that his opinion was the Central Bank and the Regulator were aware of the transaction before the publication of the accounts.
His reasons included communications with IFSRA in May 2008 about corporate deposits in March, the PWC involvement and report, and his discussions with Mr McAteer.
“I was surprised at the tone of the questioning from the Financial Regulator,” Mr Moran said of the January meeting.
The jury heard Patrick Neary announced his resignation in January 2009.
Re-examined by Mary Rose Gearty SC, prosecuting, Mr Moran agreed that Mr Drumm was qualified as a chartered accountant.
The trial continues.