Wednesday 15 August 2018

Irish Life executive involved in Anglo deal joked 'I'll need to head to Siberia if this goes wrong', court hears

(stock image)
(stock image)

Andrew Phelan

A SENIOR Irish Life executive involved in a multi-billion deal with Anglo Irish Bank during the 2008 financial crisis joked: “If this goes wrong, I would need to head to Siberia, never to return!”

Irish Life and Permanent’s then-Chief Financial Officer Peter Fitzpatrick made the remark in an email to a colleague as a “glitch” emerged that delayed a back-to-back loan with Anglo going through the banking system.

A jury was told Mr Fitzpatrick was “agitated and anxious” months later when he told the same executive about the eventual size of the deal - €7.2bn.

Evidence was being heard today in the trial of Anglo’s former CEO David Drumm.

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 €7.2bn larger than they were in September 2008.

He is alleged to have conspired with Anglo’s former Finance Director Willie McAteer and head of Capital Markets John Bowe, as well as Irish Life and Permanent’s then-CEO, Denis Casey, and others.

The case centres on a series of interbank deposits which circulated between Anglo and ILP.

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.

ILP Chief Risk Officer Hilary Flood was giving evidence when an email trail about the September 2008 transactions with Anglo was shown to the jury.

The mails were dated September 25, 2008 with the subject FW: Approval.

In one mail, Ger Knowles, Irish Life Investment Managers’ Head of Business Risk Management, mailed Mr Fitzpatrick saying that “no monies have arrived yet to PTSB. We have missed our deadline so if funds come through they will need to go back directly from PTSB. We have booked an accounting record on ILA’s systems for €978m. As this is outside our current limit, please confirm approval for same. The posting of this transaction will be reversed if the funds do not arrive to PTSB to get paid back today.”

Mr Fitzpatrick replied: “I approve the €978m accounting record. I understand that the max limit will be 5bn. I approve that limit.”

Peter Fitzpatrick sent a mail to Mr Flood, asking: “Can you help me with this, I don’t seem to be able to get some communication going between Treasury and Ger. If this goes wrong, I would need to head to Siberia, never to return!”

Mr Flood agreed with Mary Rose Gearty SC, prosecuting, that he picked up the email on returning to his desk and viewed the request as “something to sort out quickly.” He did not speak to Mr Fitzpatrick about it but the email conveyed a “sense of urgency.”

ILP’s Head of Treasury David Gantly was not there when Mr Flood called him to try to sort it out quickly. So he rang Ms Knowles who understood there was a glitch in the operation of the transaction and the funds were not going to be arriving.

When Mr Fitzpatrick approved the £978m, she wrote: “Thanks for the approval Peter, I will take it that the max limit is for STG £5bn. I have just been advised that the £978m will not arrve today. We will immediately reverse the posting.”

She said it would be operationally much less risky for monies to go from Anglo to PTSB and then from PTSB to Anglo.

“PTSB can advise ILIM of the transactions and we can post this to the ILA records. We will work on this basis. I will ring Treasury now to advise,” her mail concluded.

Mr Flood told gardai in his statement that 5bn did not strike him as particularly unusual.

He said the next day, September 26, he was called by the head of group financial risk about the “large excess” resulting from the £978m transaction and Mr Flood told him “Peter Fitzpatrick had signed that off.”

Mr Flood said the Anglo transactions were not mentioned at monthly meetings.

On January 22, Mr Fitzpatrick dropped down to his office and and told Mr Flood there had been a “substantial transaction with Anglo.” Mr Fitzpatrick appeared “agitated and anxious” and the sum of €7.2bn was mentioned. Mr Flood said this was the first time he had heard the sum and he was taken aback by it.

Earlier, Allied Irish Bank’s then Chief Financial Officer John O’Donnell gave evidence about being approached for a proposed back-to-back loan deal with Anglo in March, 2008, a transaction that never went ahead.

Mr O’Donnell said he was contacted by Anglo’s then CFO Matt Moran who organised a golf game in March 2008. He told Mr O’Donnell “some people in Anglo” would like to have a game of golf with him. The game was arranged and that day, he thought it was March 22, Mr Moran approached him and asked “if we would be prepared to do a transaction with Anglo Irish Bank whereby Anglo would place money on deposit with AIB, AIB would transfer that money to our asset management company, AIB investment managers.”

He said that this company did not have a banking licence.

“They suggested we transfer the funds to AIB investment managers and AIB investment managers would place those funds back on deposit with Anglo,” Mr O’Donnell continued.

“I asked Matt was the Regulator aware of the proposal, he said yes, I could ring the Regulator and confirm that it was in order,” Mr O’Donnell said.

Mr Moran told him David Drumm was meeting the Regulator the following day and “I could ring him after that.”

Mr O’Donnell said he took this proposal to AIB’s Group Executive Committee but they did not support it and he told Mr Moran this and asked if he wanted him to take it to the AIB board. Mr Moran told him he did not want him to, he said.

The minutes of the GEC meeting of March 27, 2008 stated that Mr O’Donnell had reported on this approach, not naming Anglo, requesting “that AIB provide a back to back loan facility… to another institution.”

It noted the request was “withdrawn following further discussions with the party concerned.”

Paul O’Higgins SC, prosecuting, asked him if he could recall an amount being proposed.

“I can’t, except to say it was substantial, it was a very large sum,” he said.

Mr O’Donnell said there was a meeting in Government Buildings on September 29 attended by AIB CEO Eugene Sheehy. The Government asked AIB and BOI to provide funds to Anglo, which was “likely to run out of funding the following day.”

After negotiations, each bank agreed to give €5bn to Anglo, which the Government would guarantee to return on demand.

In cross-examination, Mr O’Donnell agreed with Brendan Grehan SC, defending, that the suggestion of the Irish banks helping each ofther was not a specific direction but more a general “exhortation.”

To his recollection, the first time he heard the phrase “wearing the green jersey” was from Financial Regulator Patrick Neary.

He said it would be “fair to say” it meant “togging out for Ireland Inc.”

The GEC minutes from March 2008 stated “the proposal was discussed, the consensus view in respect to it was negative.”

Mr O’Donnell told Mr O’Higgins in re-examination he had no relevant dealings in relation to the September transactions.

The trial continues before a jury and Judge Karen O’Connor.

Online Editors

Editor's Choice

Also in Irish News