Irish Life dealer 'did not know nature of proposed transaction with Anglo at the time' - Drumm trial hears
AN Anglo Irish Bank official said he would have to “have a chat with the rock star” while making arrangements for a multi-billion euro deal with Irish Life and Permanent during the financial crisis, a court heard.
The banker made the reference to an unnamed colleague during a taped phone conversation played to the jury in the fraud trial of Anglo’s former CEO David Drumm.
Elsewhere on the tapes, an ILP dealer involved in the trade with Anglo spoke about a “badger” who was “badgering him” by asking for “so much information.”
The recordings were played today as ILP’s then liquidity manager Paul Kane was giving evidence for the prosecution.
Mr Drumm (51) is pleading not guilty at Dublin Circuit Criminal Court 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.
Referring to Mr Kane’s statement, Paul O’Higgins SC, prosecuting, said there was a deal done effectively for ILP’s end of half year on June 30 and events moved on to the end of September as the end of Anglo’s financial year approached.
ILP Head of Treasury David Gantly told Mr Kane Anglo would be looking for deposits and people from Anglo would be in touch. Mr Kane told the jury he could not remember exactly when he had this conversation.
He did not know the full amount of the transaction, which had got bigger anyway.
He agreed September was a turbulent time and ILP was “finding it more and more difficult to get unsecured funds.”
The jury heard a September 15 phone call Mr Kane had with his Anglo counterpart Ciaran McArdle about “the year end stuff,” followed by a call between the two men and Mr Gantly in which they discussed a “back to back.”
It was discussed whether the transaction could be done as a “repo” (or bonds repurchasing deal) but this did not go ahead. Mr Kane said this was because of the amount of collateral that would be needed.
In a later call, Mr Kane described a deal as “a bit of a rinky dink.” On September 17, he told Mr McArdle they had got the go-ahead from Denis (Casey) “to run with this back to back.”
They suggested meeting and Mr McArdle ended by saying: “Let me go and have a chat with the rock star and I’ll talk to you, OK”
Mr Kane told Mr O’Higgins at that stage they were talking about €5bn and a “back to back” meant ILP would pass that on to ILA and ILA would then deposit the €5bn with Anglo.
This was the structure that was eventually implemented, but on a bigger scale, he said.
In a call on September 24, Mr McArdle said “I don’t give a f**k how I get it back”, as long as he got it back.
“We have to be able to control the dough,” Mr Kane told him.
At that stage, Mr Kane told him, ILP “would have to lose our interbank and our corporate to go short.”
“That is what we start every morning thinking as well,” Mr McArdle said, to laughter.
“I was glad we could f**king do what we did,” Mr McArdle said.
“So was I,” Mr Kane said.
“I know I can’t do f**king six yards worth of funny stuff,” Mr McArdle said in a call on September 25, 2008.
The jury then heard a call made by Mr Kane to ILP Finance Director Peter Fitzpatrick on September 25, 2008.
He first asked Mr Fitzpatrick if he was alone.
“The badger isn’t there badgering you?” he asked, to which Mr Fitzpatrick replied: “no.”
“Badgering me,” Mr Kane said, to laughter.
“F**k sake, don’t return his calls,” Mr Fitzpatrick replied.
Mr Kane went on to say “he sent me an email, he’s looking for so much information now and it’s hard to put this into alphabetical form.”
Mr Kane said Ger (Knowles, Irish Life Investment Managers Head of Business Risk Management) was “a little bit worried about things” and Mr Fitzpatrick replied: “Ger is paid to worry.”
“That’s why she gets paid all the big bucks,” Mr Kane said.
The two men spoke about a transaction, with Mr Kane saying “everything will be netted out.”
“She’s bleating that this has to go through Citibank,” Mr Fitzpatrick said.
“Are we going to be absolutely satisfied that if something goes pop, we don’t have to sort of give Anglo their Isle of Man monies and anything else back?” Mr Fitzpatrick asked.
He said if “Anglo goes bust next week and the liquidator walks in and says ‘give me the deposit back’ and we say ah but like we had an agreement’ - ‘prove it’.”
“He turns around to ILA and he says p*ss off,” he added.
“Oh I know what you mean,” Mr Kane said.
Mr Fitzpatrick said it had to be documented “otherwise we are massively exposed.”
Mr Kane said he would get on this straight away and Mr Fitzpatrick suggested “standard treasury speak so there is absolutely no f**king confusion in anybody’s mind and we can stand over it as a binding agreement.”
Mr O’Higgins asked Mr Kane in the witness box what this conversation was about.
He replied that banks had an agreement to net any exposure between them. Mr Fitzpatrick had wanted him to go and check that their agreement with Anglo would cover the deposit. He checked with a manager and the deposits were included.
Mr O’Higgins asked what the purpose was.
“That ILP were not exposed if Anglo went bust, exposed to losing their money,” Mr Kane replied.
Mr Fitzpatrick had not wanted to take a risk on the transaction, Mr Kane said.
In call later that day, Mr Kane was heard telling Lorraine Hanrahan of ILIM: “what Peter wants is that we have in writing a cover for set off purposes so if Anglo went bust… the money we have, the money you placed is protected by the money that the bank has borrowed.”
Earlier, Mr Kane told the jury his daily work involved acceptance and payment of deposits with other banks.
At 9.14am on March 28, 2008, he received a call from Mr McArdle.
“Before that had you any intimation from anyone that you were going to be approached in relation to these transactions?” Mr O’Higgins asked.
“No,” he replied.
In the phone call, Mr McArdle said “I believe we got to do something.”
Mr McArdle asked if Mr Kane had spoken to Mr Gantly. He replied that he had not, as Mr Gantly was “in the States on some road show.”
“I believe I’m giving you a yard,” Mr McArdle said.
“I’m giving it back to you,” Mr Kane replied.
The jury heard a "yard" meant a billion.
Mr McArdle said Mr Kane may be giving it back “in Irish Life’s name” rather than Irish Life and Permanent’s.
Mr O’Higgins asked what the state of the money markets was at that time. It was “quite dysfunctional” and “Ireland as a whole was floored,” Mr Kane replied.
He told Mr O’Higgins he did not know at the time what the purpose of the transaction was.
Mr O’Higgins asked if the transaction was of any benefit to ILP.
“I didn’t know the nature of the transaction at that time but I subsequently found out it wasn’t of any benefit to ourselves, no,” he said.
He spoke to Mr Gantly who informed him that Anglo would lodge €1bn with ILP.
“That would be placed with Irish Life and Irish Life Assurance would in turn lodge that money back with Anglo,” he said.
ILA was a life assurance and pensions company and was a separate entity, he said.
After speaking to Mr Gantly, he spoke on the phone to Mr McArdle again and said he wanted to be “just a bit clearer on this thing.”
He said they might have mentioned something about sterling and euros and Mr McArdle replied: “whatever you need” to the equivalent of a billion.
“We are solid and tight on this side,” Mr Kane said, adding that they were not sure who they were dealing with on the other side.
“Do a billion into us and we will take it on board and get Irish Life to sort you out,” Mr Kane said.
They discussed doing four transactions of €250m and Mr Kane said he would “just do a back to back.”
It “doesn’t really matter what the overnight rate is,” he said.
The call stopped and Mr O’Higgins asked Mr Kane why the overnight rate did not matter.
“Because the deposit and the loan the other would be done at the same rate, they would cancel each other out,” he replied.
The jury was shown emails in which Peter Fitzpatrick approved the transaction on March 28.
The trial continues before a jury and Judge Karen O'Connor at Dublin Circuit Criminal Court.