Tuesday 24 April 2018

'The walls have ears' - taped calls between banking execs played in court as Drumm trial continues

David Drumm Picture: Collins Courts
David Drumm Picture: Collins Courts

Andrew Phelan

ANGLO Irish Bank and Irish Life and Permanent executives warned the "walls have ears" when discussing an interbank loan of €750 million during the 2008 financial crisis.

A jury heard one banker said they had to keep the transaction as “tight as a duck’s arse” because there were fears of what would happen if it got out to the market.

As the amounts agreed to be transferred between the two banks increased to €6bn, another executive said “you might as well be hung for a sheep as a lamb.”

Phone calls between the bankers were being played back to the jury in the trial of Anglo's former CEO David Drumm (51).

Mr Drumm 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 Drumm was not involved in any of the phone calls played back to the jury today.

Giving evidence for a second day was Anglo's former Treasury Director, Matt Cullen. Mr Cullen explained what was taking place in the conversations after the recordings were heard.

The first call was on March 25, 2008 between Anglo executives including Peter Fitzgerald, John Bowe Matt Cullen and Ciaran McArdle.

A proposed transaction of €500m with ILP was discussed. Mr Bowe said they had to think about it “from the regulator’s point of view.”

Mr Cullen described David Gantly, ILP's then Treasury Director as a “sharp cookie.”

“He’s been around,” Peter Fitzpatrick was heard agreeing.

In evidence, Mr Cullen said this was a conversation about the back to back deal with ILP. He rang Mr Gantly to see would they do a transaction and Mr Gantly indicated to him they would “do 500”.

The next conversation was on March 27, between Ciaran McArdle, Paul Flynn from Bank of Ireland (BOI), another unidentified man from BOI and Matt Cullen.

“We want to put out there from everybody’s point of view to show the best picture that we have,” Mr Cullen said to Mr Flynn.

"With all the turmoil we have still got that would be a very positive thing to put out there,” he said.

Mr Cullen said it would fill “one small gap that we have.”

In another call to an unidentified man in BOI on March 27, 2008, Mr Cullen said if “we set up and close that then we will be saying ‘look, everything we have said is exactly bang on.”

Later the same day, there was a conversation between John Bowe, David Gantly and Mr Cullen.

“We will do that alright, yeah?” Mr Gantly said. “You put the stuff into us and we put it straight back through the other boys,” he said.

After laughter is heard, Mr Gantly said: “I’m purposely not using names here. The walls have ears in this climate.”

When he said they can “do that up to three quarters,” Mr Cullen replied “that would be fantastic.”

Mr Gantly said it would be “basically an overnight transaction through both ends.”

“That is all we are looking for from that,” Mr Cullen said.

He then suggested Anglo giving a higher amount - one billion and “you give us back three quarters.”

Mr Gantly was also heard saying: “I can vouch for my own people, I know because of them, you have to be tight as a duck’s arse here”.

Paul O’Higgins SC, prosecuting, asked Mr Cullen if he knew why Mr Gantly had been concerned about not using names.

“If someone had heard him discussing what was discussed… he was afraid it would get out to the market,” he replied.

Before this, the biggest transaction Mr Cullen had been involved in was €200 million.

Asked why there was to be a billion transferred and €750m transferred back, Mr Cullen said at the time people said it was because ILP needed extra funding.

In a March 28 call between Ciaran McArdle and David Gantly, Mr Gantly said they were “approved to do” and “things have to be kept, just absolutely sat on.”

Mr Gantly said he did not know whether there needed to be different payments “just to make sure it doesn’t look very obvious.”

Mr Cullen told the court he understood this to mean “one big amount” of €750m going from ILA to Anglo when the biggest payment before was €57m.

“Obviously there would be questions,” he said.

The next conversation played to the jury was between John Bowe and Matt Cullen on September 16, 2008.

Mr Cullen said he spoke to Dave (Gantly) and five billion, which was higher than a previous agreed figure,  was “not going to be a problem for them.”

“You might as well be hung for a sheep as a lamb, you know,” Mr Cullen said, adding that those were “David’s exact words.”

Mr Cullen told the jury there was a meeting in David Drumm’s office in which Mr Drumm was asked if the Financial Regulator was aware of the proposed transaction.

Mr Drumm had replied “what choice do we have?”, Mr Cullen said.

A figure of €6bn from ILP was discussed at that meeting.

A recording was then played of a call between John Bowe and Mary Elizabeth Donoghue in the Financial Regulator on September 18, 2008.

In it, Mr Bowe talked about the drop in liquidity caused by outflows of €2.7bn over previous days.

Anglo was not anticipating an improvement in the ratio in the next couple of weeks, he said.

Ms Donoghue said the regulator, Patrick Neary, wanted Mr Bowe to put in writing that Anglo was in breach of the liquidity conditions its licence, which he agreed to.

“Our worst case, just to be absolutely clear, our worst case is a run,” Mr Bowe said. “This isn’t a run but this is, I would say our worst case short of a run.”

The trial continues.

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