Ex-Anglo lending chief ponders action over failure

THE FORMER head of Anglo Irish Bank’s lending division is considering bringing an action on behalf of Anglo claiming damages against senior Anglo officials, the State, former Central Bank governor John Hurley and former financial regulator Patrick Neary alleging their actions and negligence led to the bank’s collapse and his suffering massive losses on his Anglo shares.

Anglo insists Thomas Browne has no basis for a derivative action [an action on behalf of a company by a shareholder] on behalf of the bank. It also disputes his claims he was “instrumental” in introducing a “more conservative” lending policy in the bank in circumstances where there was a 284 per cent increase in its Irish loan balances from €13 billion to €38 billion before Mr Browne left the bank in 2007.

Mr Justice Peter Kelly dealt with matters arising in proceedings in which Anglo is seeking €50 million summary judgment orders against Mr Browne, Ferney Hill, Brighton Road, Foxrock, Dublin, director of Anglo’s lending in Ireland from early 2005 to autumn 2007, over unpaid loans.

In the Commercial Court proceedings, Mr Browne claims he has a defence and counterclaim to the bank’s summary judgment claim on grounds of “fraudulent”, “deceitful and probably unlawful” conduct of Anglo and its senior officials prior to its nationalisation in early 2009 which resulted in the bank’s demise and it being the “single largest contributor” to the financial difficulties afflicting Ireland.

These actions included the temporary transfer of €7.3 billion by Irish Life Permanent to enhance Anglo’s balance sheet in 2008, concealment of details of the Quinn Group’s shareholding in Anglo, off-market placing of about 10 per cent of Anglo shares in “non-recourse” arrangements funded by Anglo with 10 clients and non-recourse loans by Anglo to its own directors to purchase Anglo shares.

These “entirely wrongful” actions, some of which were apparently conducted “with the complicity” of certain regulatory and supervisory authorities, led to the bank’s nationalisation, collapse of its share price and destroyed his financial security, Mr Browne said.

While he appreciated that his references to “a more conservative lending policy” while he was with Anglo appeared “remarkable”, given the “mammoth writedowns” later applied to Anglo loans, his assertions were “entirely accurate”, he said.

His pursuit of a more conservative lending policy was a source of rancour within Anglo as there was a perception it was losing market share and he had “a somewhat difficult relationship” particularly with chief executive David Drumm, he said. His departure from Anglo in October 2007 was “almost inevitable” after he unsuccessfully applied for the chief executive post in early 2005.

Cian Ferriter, for Anglo, said the bank did not accept any of the matters raised by Mr Browne showed either an arguable defence or amounted to any counter-claim. The proposed potential derivative action could also not amount to a defence and there was no basis on which Mr Browne could bring such an action, he said.

Anglo undoubtedly got into the mess everyone knew about but it was untenable for Mr Browne to argue this was any basis for a defence when, under his stewardship, Anglo’s lending increased from €13 billion to €38 billion, counsel said.

There was an air of real unreality about this, he added.

Dermot Cahill, for Mr Browne, said some of his client’s loans were fully performing and the bank was not entitled to summary judgment regarding those. Mr Browne’s difficulties with loans to purchase Anglo shares were caused by wrongful activity of Anglo and others, he also argued.

Mr Cahill said his client’s only option may be to seek to bring a derivative action against the entities that caused Anglo to suffer loss in circumstances where the bank itself was not bringing any such case.

Mr Justice Kelly said he would allow Mr Browne bring a motion seeking to bring a derivative action and would hear any such motion and the summary judgment proceedings on December 16th.

In his affidavit, Mr Browne said the most problematic aspect of his borrowings from Anglo related to loans to buy shares in the bank. He owned 1.44 million shares at the time of Anglo’s “cataclysmic collapse” necessitating its nationalisation and his shareholding becoming worthless.

In building up his stake, he had relied on public pronouncements by senior Anglo personnel and the statutory and regulatory authorities, including David Drumm’s assertion in March 2008 that the bank’s “overall capitalisation and liquidity continue to be strong” with “no emerging systematic trends causing material concern”. He was also comforted that Anglo’s auditors, Ernst Young, had not reported any irregularity within the bank.

The then Central Bank governor, John Hurley, had also in July 2008 stated he had conducted a comprehensive stress testing of Irish banks based on a scenario of severe economic downturn and had found them “entirely safe”, Mr Browne said. As various investigations into Anglo were continuing, it was neither just nor appropriate for Anglo to seek summary judgment against him at this stage, Mr Browne added.

He believed he was being scapegoated by the bank.

Anglo is seeking summary judgment orders for separate sums of £31.6 million, £1.91 million; €11.6 million and $765,976 arising from various loans to Mr Browne.