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Sunday 24 June 2018

Irish Life executive says management were 'scared sh**less' during 2008 financial crisis, Drumm trial hears

The boy, who cannot be named because he is a minor, was sentenced to nine-months' supervised probation
The boy, who cannot be named because he is a minor, was sentenced to nine-months' supervised probation

Andrew Phelan

AN IRISH Life executive said senior management figures were “scared sh**less” while trades were being done with Anglo Irish Bank during the 2008 financial crisis, a jury heard.

Irish Life and Permanent’s then-head of treasury David Gantly told a colleague at the time “the boys” were scared stiff and business would have to be discussed “boss man to boss man.”

His taped comments were made after ILP had failed to “return a favour” by lending millions of euros to Anglo. This was separate to an allegedly fraudulent €7.2bn interbank deal being carried out at the time.

The tape was played to the jury 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 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.

ILP’s then liquidity manager Paul Kane today concluded his evidence which had begun yesterday. A taped series of phone calls between Mr Kane and officials of both ILP and Anglo was played to the jury setting out how the September 2008 transactions between the two banks were carried out.

The calls also featured another deal, requested by Anglo for which ILP had refused to change its credit limits. Mr Kane was heard explaining this to his counterpart in Anglo, Ciaran McArdle, and his own superior ,Mr Gantly.

In the first call on September 29, 2008 a day before Anglo’s end of financial year, Mr Kane was heard telling Mr Gantly: “Anglo effectively are short” and “are looking to borrow 500 euros off us.”

Mr Kane was then heard speaking to Mr McArdle.

“I was just saying to the lads, special occasions, I haven’t had a smoke in three years,” Mr McArdle said.

“No no, Don’t have a cigarette. I’m shocked here,” Mr Kane replied, saying he had tried but failed “to get these guys to f**king lend a 100 to yous.”

“Tell them to go f**k themselves,” Mr McArdle replied. “Tell them to f**k off, don’t need it.”

Mr Kane told him “you know where I sit in this” and he would say he had to go back and “profusely apologise.”

Mr Kane said he would say nothing else and the jury then heard him reporting back to Mr Gantly, saying: “not happy.”

“What did you say to him, you couldn’t do it?” Mr Gantly asked.

“Said I couldn’t do it. I didn’t know how to lie to him,” Mr Kane replied.

“I just had a session with Denis (Casey) like and Peter (Fitzpatrick), and the boys are scared sh**less about like … more Denis to be honest with you,” Mr Gantly said.

“Weren’t scared sh**less last week when we borrowed €820m,” Mr Kane said

Mr Gantly said he had “f**king pointed the same f**king thing out” and Mr Kane said it was “not the way to do business.”

“You scratch my back and I’ll scratch your back,” Mr Kane said.

“Sorry like, clearly these guys are getting scared stiff… in the scale of things you know,” Mr Gantly said.

He spoke about bosses calling each other.

“It needs to be boss man to boss man you know,” Mr Gantly said.

The tape was stopped and Mr Kane told Paul O’Higgins SC, prosecuting, that Anglo “were obviously disappointed” that they did not get the credit limit increase for that loan from ILP, given that they had increased their limit for ILP to €820m.

There was disappointment “we couldn’t return the favour that day,” he said.

In a later call, on October 1, 2008, Mr Kane was heard speaking to Mike D’Arcy about netting the payments.

Mr O’Higgins asked Mr Kane what the effect of the September deal was on ILP’s liquidity.

He replied that it reduced their liquidity ratio, which was seen as “worse.” Mr O’Higgins asked if there was any positive aspect to the transaction from ILP’s point of view.

“No,” he replied.

Mr Kane agreed he had carried out the transactions from beginning to end, or supervised or communicated with those who did. Although he was later informed that a set-off was not in place for unsecured deposits, during the transaction, “we believed that set off was in place.”

In cross-examination Lorcan Staines BL, defending, said Mr Kane had told the jury neither a €1bn March 2008 transaction nor the €7.2bn September deal had any benefit for ILP.

Mr Staines said this might be the small picture but if you looked at the bigger picture, Mr Kane’s answer was incorrect.

He showed the jury again an email which ILP’s “number 2,” Finance Director Peter Fitzpatrick had sent to approve the March transaction.

In it, Mr Fitzpatrick had told colleagues “to be absolutely clear, this is something the Central Bank is encouraging us to do and at 30 June we will be beneficiaries of this kind of support.”

Mr Staines said ILP had been trying to show in its accounts less reliance on European Central Bank Funding. While each transaction might only have benefitted one side, in the big picture they benefited both parties because they achieved the objective of the Irish banks helping each other, Mr Staines said.

“Absolutely, this was the green jersey agenda,” Mr Kane said.

He agreed with Mr Staines that he had been under instruction from Peter Fitzpatrick to “make sure we didn’t do anything operational that would put us in jeopardy.”

“You made the operational decision after the transaction had closed that you would net the payments for operational reasons,” Mr Staines said.

“Yes,” Mr Kane replied.

Issues had arisen as to whether there was a legally enforceable right of set off, or whether there was an intention to settle net, Mr Staines said.

He asked Mr Kane if he was saying there was no intention in advance of the transactions to settle net.

“There was no intention, no,” Mr Kane replied.

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

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