Bank had a 'duty' to reduce personal recourse to 'Maple Ten' loans from 25% to zero

Conor Gallagher at

Dublin Circuit Criminal Court

Anglo Irish Bank stripped out all personal recourse on €450 million worth of loans to the Maple Ten group of investors because they had come to bank’s aid during a difficult time.
Pat Whelan, the former head of lending in Ireland, told gardaí the personal recourse on the loans was reduced from 25 per cent to zero after Anglo CEO David Drumm said he felt the bank had an obligation to the investors. 
Mr Whelan, who is one of three former executives on trial, told investigating gardaí that the letters were never meant to be sent out to the investors but “a clerical error” led to six of them being posted.
The Maple Ten were ten property developers who were recruited by Anglo to buy a total of 9.4 per cent of the bank’s shares. This was part of a deal to unwind businessman Sean Quinn’s 29.4 per cent control of the bank based on Contracts for Difference (CFDs). These are instruments which allow an investor to gamble on a share price without purchasing the share itself.

Unaware
The trial also heard evidence of interviews with another accused, William McAteer, who was Anglo’s director of finance. He told gardaí he knew Anglo was lending to the Maple Ten so they could buy the shares but that he was unaware it was also lending to Mr Quinn’s children to enable them buy a 15 per cent stake in the bank.
Mr McAteer, Mr Whelan and former Anglo chairman Sean FitzPatrick are charged under Section 60 of the Companies Act 1963 with providing funding for the purchase of Anglo’s own shares.
The three men have been charged at Dublin Circuit Criminal Court with 16 counts of providing unlawful financial assistance to 16 individuals in July 2008 to buy shares in the bank. The 16 individuals are six members of the Quinn family and the Maple Ten group of investors.
Mr Whelan has also been charged with being privy to the fraudulent alteration of loan facility letters to seven individuals in October 2008.
Mr FitzPatrick (65) of Greystones, Co Wicklow, Mr McAteer (63) of Rathgar, Dublin and Mr Whelan (51) of Malahide, Dublin have pleaded not guilty to all charges.
In July 2008 Anglo loaned the Maple Ten €45 million each so they could buy shares in the bank. These loans were issued on the basis of 25 percent recourse, meaning they would be liable for up to 25 per cent of the loan’s value if the share price fell to zero.

Duty
During interviews in April 2010 Mr Whelan told gardaí that in late 2008 there was constant media speculation that Anglo was going to be taken over by another entity, meaning the ten would be forced to repay the loans before the share price had a chance to recover.
Mr Whelan said that the CEO, Mr Drumm, felt the bank “had a duty” to protect the clients as “their support for the bank had put them at risk”.
“We agreed to create a letter amending the original recourse which would allow the clients some breathing space in the event of an aggressive acquisition.”
Mr Whelan said that Mr Drumm ordered that replacement loan offer letters be drawn up which would change the recourse at zero per cent. He said this was designed to “create uncertainty” about what the Maple Ten were liable for in the event of a takeover.
He said that Mr Drumm ordered that letters not be sent to the clients and that they be kept in reserve so they could be issued if needed. He said a clerical error led to six of the ten getting the letters.

'Error in judgement'
Mr Whelan said the letters were “an error in judgement” and should not have been issued. He said they should have been brought to the attention of Anglo’s board, despite the fact that they were ordered by Mr Drumm.
The accused agreed with investigators that the new letters significantly increased the bank’s risk. He said that he thought they were unusual but that he was following the CEO’s instructions as he believed Mr Drumm was going to seek board approval for the new terms.
“You don’t question the CEO,” he said. “I assumed it would come up for discussion and there would be a chance to debate it.”
Mr Whelan told gardaí that later letters were sent out which reverted the recourse back to 25 per cent.
He said that decisions relating to the Maple Ten deal may seem unwise in hindsight but that they were required to “keep the bank alive” during a difficult period.
He said he believed the loans were made in the ordinary course of business and therefore not illegal.
Mr McAteer was interviewed by gardaí on March 24, 2010. He told investigators that he had limited involvement in the Maple Ten deal but that he didn’t have an issue with the bank lending for the purchase of its own shares.
He said he knew the Maple Ten were receiving loans from Anglo at 25 per cent recourse but that he was not aware Anglo was also funding the Quinn children’s purchase of the shares.
The trial continues before Judge Martin Nolan and a jury of seven men and seven women.