International bank turned down Anglo's proposal for 'back to back' deal during crisis - Drumm trial
AN international investment bank turned down struggling Anglo Irish Bank’s proposal for a “back to back” deal during the 2008 financial crisis, a court heard.
An executive asked an official from Credit Suisse to consider the trade while Anglo was attempting to boost customer funding at the height of the crisis.
Anglo bonds portfolio manager Peter Geissel said it was an “exploratory discussion” to see if the other bank would “entertain” a transaction. However, Credit Suisse declined to enter into the arrangement.
Mr Geissel was giving evidence in the trial of Anglo’s former CEO David Drumm, who is on trial over a separate, allegedly fraudulent €7.2bn deal with Irish Life and Permanent (ILP).
Mr Drumm (51) is pleading not guilty to conspiring to defraud by dishonestly creating the impression that Anglo's customer deposits 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 ILP’s then-CEO, Denis Casey, and others.
The case centres on a series of interbank deposits which circulated between Anglo and ILP in September 2008.
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.
Today, Mr Geissel told Dublin Circuit Criminal Court his role had been to arrange secure funding for Anglo. He said he initially reported to Head of Treasury Matt Cullen and later in 2008 to Head of Capital Markets, John Bowe.
Mr Geissel said he was not involved in the ILP transactions or how they were accounted for.
He was aware of a number of initiatives aimed at reaching the customer funding target, dealt with by a customer funding team in Treasury.
Mr Geissel regularly attended weekly meetings looking at funding initiatives. The court heard there were two meetings each Friday, they were informal and ad hoc and Mr Geissel attended both. Mr Geissel’s attendance at weekly meetings dropped off in early September because he was busy with other projects.
He was aware of the initiatives being considered from June 2008.
The customer funding target, including initiatives, was in the €53bn to €55bn range, he said.
The deposit numbers “ebbed and flowed” between July and September, but the situation deteriorated “quite dramatically” with the collapse of Lehman Bros in the US.
Funding initiatives fell away and there were ongoing discussions with ILP to increase its trade with Anglo from €3bn to in excess of €7bn.
He was asked by Chief Financial Officer Matt Moran to have a conversation with Credit Suisse to discuss the possibility of a short-term deposit.
Customer funding was “not my field of expertise or responsibility,” Mr Geissel said, but he had had previous dealings with Credit Suisse.
He said he had calls with Credit Suisse which were “exploratory discussions” to see would the bank entertain a corporate deposit from Anglo over its year end.
The jury was then played a phone call between Mr Geissel and Jerome Henri of Credit Suisse on September 23, 2008.
Mr Henri said Matt (Moran) had spoken to Ewen (Stevenson, of Credit Suisse), who had asked Mr Henri to “follow up on some of the things they discussed.”
Mr Geissel said in the call that Anglo was looking to increase its corporate deposit number coming up to year end.
“We were looking at just a straight corporate deposit or a back to back type arrangement whereby we would place funds with your bank entity and take a deposit from a corporate entity,” Mr Geissel said to Mr Henri, who asked if he meant it could be a bank.
“No, a non-bank entity,” Mr Geissel replied.
Mr Henri spoke about the money “that you would deposit from Anglo” to whichever Credit Suisse group, asking: “could that be the same corporate entity or no?”
“No,” Mr Geissel replied.
“Let me explore that,” Mr Henri said.
Mr Geissel said “I think we are into a couple of billion here” and asked to “check whether that is possible.”
Mr Geissel agreed with Paul O’Higgins SC, prosecuting, that Mr Henri subsequently told him Credit Suisse was not prepared to make that arrangement and “declined to give the money.”
Mr O’Higgins asked him if the purpose of that was to increase the bank’s corporate deposits.
He replied that it was. Mr O’Higgins asked if it was to have been overnight.
“To my mind it was an exploratory discussion to see would they entertain a deposit in any manner,” Mr Geissel told the court.
The jury was shown a mail Mr Geissel sent to Head of Group Finance Colin Golden and Liquidity Risk Manager Steven Hiles on November 18, 2008
“Guys, we need to be careful about corporate deposit flows - the €2.5bn net inflow is after we adjusted for ILP etc,” the mailed stated.
In this e-mail, Mr Geissel said, he was concerned that the auditors may have got the wrong impression with the outflows from the ILP transaction.
In his statement, Mr Geissel said he went back after the Government guarantee on September 30 and sought “back to back” funds from Mr Henri. Mr Geissel had said “it would have to be back to back” and Mr Henri had told him there was no way they could give “a couple of billion like this naked.” Eventually the cash was refused.
In cross examination, Brendan Grehan SC, defending, asked if relations between banks would always be on the basis of reciprocity.
“Not always but Anglo pursued a 'relationship banking' business model,” he replied. “There would generally be an element of reciprocity with counter parties.”
Asked about balance sheet management at year end, Mr Geissel said it was not an area he was involved in but his understanding was that it was “not uncommon at all.”
Mr Grehan asked Mr Geissel if he had had any dealings personally with Anglo's external auditor Ernst and Young or the Financial Regulator in relation to the ILP transactions.
“I don’t believe so,” he replied.
Today the jury was told the trial, which began in January, is now expected to last until the start of June.
Judge Karen O'Connor said while the duration of trials could never be certain, counsel had considered the issue and "it appears that all the parties are very hopeful that this matter will end by the beginning of June."
The trial continues.