Inside the first hour of day three of the trial of three former directors of Anglo Irish Bank yesterday, Brendan Grehan SC, defending former Anglo executive Patrick Whelan, introduced the first document to refer to the financial regulator.
Grehan showed the jury a note taken by Andrew Mawdley, of the financial regulator's insurance division.
The note was of a meeting between Liam McCaffrey, who was in the witness box in court 19 yesterday, Seán Quinn, former chairman of the Quinn Group, and others including Patrick Neary, the financial regulator, and Con Horan, prudential director.
The note dated February 20th, 2008, described Quinn as having “apologised sincerely,” for the trouble he had caused by taking money out of his insurance company to fund his outside investments in shares.
"Anything that was told to the financial regulator from Quinn Insurance Ltd from now on was 100 per cent true," the note said.
Quinn assured the regulator that his insurance company’s difficulties would be “resolved very quickly,” by share sales and future profits of the group.
The businessman told the regulator it should “accommodate a company that made a mistake.”
The note said Quinn told the regulator his stock market investments were “in good companies with perhaps too much weighting towards the Irish market” .
“It wasn’t quite true was it?” Grehan asked. McCaffrey replied: “There was a number of companies but I am subject to correction.”
Grehan said Anglo's chief executive David Drumm, and Seán FitzPatrick, its non-executive chairman, had told their board and the governor of the Central Bank, John Hurley, about Quinn's large position in its shares soon after they became aware of it in September 2007. McCaffrey said he did not know this.
The February 2008 note also said that Quinn expressed concerns that his issues with the regulator had to remain private in case it damaged consumer confidence.
“There was effectively an agreement with the financial regulator not to disclose what was going on?” Grehan asked. McCaffrey agreed.
On February 28th another Central Bank note shown to the jury detailed a meeting between Neary and Horan with Quinn alone.
Neary the note said expressed “concerns” about Quinn and that he knew the businessman was a big borrower from Anglo because of regulatory documents the bank filed in relation to large exposures.
Grehan said the note appeared to quote Quinn as saying in the third person: “Seán Quinn needs to be reined in.”
He also said he was “greedy in relation to CFDs”.
The note stated that Quinn had previously lost money betting on tech stocks in 2001 but he felt he "understood" banks and building stocks better.
'Mistake'
Quinn told the regulator that it would be a "mistake," to sell down his Anglo position in an "uncontrolled manner . . . and this would not be in anybody's interest."
McCaffrey said the meeting, which he was not at, was, he believed, a “general review.”
Grehan then showed the jury a document called "Quinn – heads of agreement." This showed that Quinn from his initial 24 per cent stake in September 2008 had kept buying and he now owned 29.3 per cent or 223 million shares.
'Restructure' its debt
Dated March 29th, 2008, the heads of agreement outlines how the Quinn Group would "restructure" its debt with Anglo and repay it.
Quinn’s family would take about 15 per cent of the banks shares, almost 10 per cent would be placed in the market, and 5 per cent would remain in the control of Quinn as CFDs.
The agreement stated it was subject to various approvals including by Anglo’s board and the regulator.
On March 31st, 2008, another note details a meeting between the regulator and McCaffrey.
The minutes of the meeting state that McCaffrey outlined the details of the “agreement” with Anglo to Horan and Mawdley.
The note stated that Anglo would fund the purchase of its own shares by the Quinn family.
This would only, however, be for "two months" when it would then be refinanced with Lehman Brothers and Credit Suisse.
Grehan asked McCaffrey did he agree the note said the Quinns would be financed by Anglo to buy its own shares.
McCaffrey said: “Yes.”
Letter of comfort
The note also said that the Quinn Group wanted a "letter of comfort," from the regulator for its auditors that it would not take any action against the company for 12 months and not do anything to "undermine" Quinn Insurance as a "going concern."
The regulator said it would “consider” this request.
“You were telling the financial regulator it would have to do its bit for the plan to work?” Grehan said.
McCaffrey said this was a “request.”
Grehan noted Horan said getting the deal done “may need exceptional approval” by the regulator.
Grehan then produced an email sent from Matt Moran, Anglo's chief financial officer, on March 31st, 2008, to Horan which had a subject line "memorandum of agreement".
This set out the terms of the proposed deal and said that any action had to be “in accordance with the law and company regulation”.
Grehan said it was impossible to execute the deal because nobody could be found to buy Anglo’s shares.
Regardless, he said, “as far as you were concerned the financial regulator was full-square behind it”?
“Yes,” McCaffrey replied.
On July 14th, the day Anglo and Quinn executed the transaction to place the businessman’s shares with his family using Anglo funding, Grehan said a colleague of McCaffrey suggested he should put in a “courtesy” call to Horan in the regulator’s office.
An email from McCaffrey afterwards said “spoke to Con. Seemed more positive than the last time we spoke”.
McCaffrey said his recollection of the phone call was: “He seemed reasonably well briefed on what was happening.”
“He was positive about the matter?” Grehan asked. “Yes,” McCaffrey replied.
“You were happy that all was in order and above board?”
“I was yes,” McCaffrey replied.
McCaffrey agreed he would have expected Horan would have mentioned it to him if he had legal concerns about the transaction.