THE FINANCIAL Regulator believes it was “misled” by Anglo Irish Bank when a 10 per cent stake in the bank was purchased by a group of investors last year, according to informed sources.
Ongoing inquiries by the regulator into the transaction mean that what was presented to it last year as an arm’s-length commercial investment, “now looks like a very different deal”. The transaction, which looks as if it will cost the taxpayer €300 million, has created huge political controversy for the Government, which is under pressure to name the investors.
The regulator has been “astonished to discover that the deal is very different to what was presented [to it] initially”, one source said.
The regulator did not know the investors were being provided with money from Anglo to purchase the shares, or that the collateral was such that the money may now never be recovered.
The €300 million lent to the 10 individuals may constitute a loss to the taxpayer following the nationalisation of Anglo Irish Bank last month.
It has also been learned that a further 15 per cent stake in the bank bought by the Quinn family, was also financed using the bank’s own money. This means that a quarter of the bank’s shares were purchased in private deals last July, using the bank’s own money.
The bank used a London investment bank, Morgan Stanley, to process the deal with the 10 investors. Legal advice on the deal and on its compliance with market abuse rules and company law was sourced by the bank. Legal advice on the deal was forwarded to the regulator by the bank, but the regulator is now forming the view that the deal that occurred was different to the one that was presented to it.
The names of the investors were not disclosed to the regulator as their shareholdings fell below the disclosure threshold levels. They are believed to be major customers of the bank.
The bank had been seeking international investors since March 2008, when a sharp fall in its share price had been followed by a noticeable withdrawal of deposits, causing alarm in the regulator’s office.
The regulator pressed the bank to organise for an orderly unwinding of a 25 per cent indirect investment in the bank held by businessman Seán Quinn and his family, by way of high risk products called contracts for difference (CFDs). The stake was viewed as damaging to the bank’s share price.
Sources said the bank was warned by the regulator that it would have to unwind the Quinn CFD investment while acting within the laws governing market abuse and other matters.
The Quinn family made a direct investment in 15 per cent of the bank’s shares, apparently using loans from Anglo that are charged against the Quinn group, as part of the transaction. It is understood the regulator did not know all the details behind the purchase by the Quinn family of its 15 per cent stake, and that this transaction is also part of its ongoing inquiries.
The information it was given at the time about how the deal was going to be financed, is different to what it now believes to have occurred, according to sources. The regulator was not told at the time that the whole 25 per cent CFD shareholding was being purchased using Anglo funds.
It is understood Morgan Stanley organised the structuring of the transaction whereby the 10 per cent stake was bought by the 10 unnamed investors. The structuring is one of the matters being investigated by the regulator.
The bank and the regulator were concerned at the time that if the Quinn family closed its CFD position, and the CFD provider put a huge number of Anglo shares on the market at a time when their value was falling, it could cause a collapse in the share price and a run on the bank. The Quinn family lost approximately €1 billion through its disastrous CFD investments. It may have spent a further €450 million purchasing its direct 15 per cent stake last July. That may now be worthless.
New information about the nature of the Anglo deals emerged following a due diligence exercise late last year. The information formed part of the process that led to the nationalisation of the bank. Brian Cowen said this week that neither he nor the Minister for Finance know the identities of the 10 investors.
