A judge spared two former top Anglo Irish Bank Corp. executives a prison sentence for their role in a loans-for-shares scheme at the start of the country’s financial crisis, criticizing regulators for failing to block the deal.
Willie McAteer, the bank’s former finance director, and Pat Whelan, its one-time head of Irish lending, may face community service, Judge Martin Nolan said in a packed courtroom in Dublin today, adjourning the case until July.
Two weeks ago, the two men were found guilty of authorizing 450 million euros ($622 million) of loans to 10 wealthy clients to buy the bank’s shares, as part of a plan to avoid a stake of about 28 percent flooding on to the market in 2008. The pair were cleared of six other charges.
“I am totally surprised that the regulator did not give some warning to Anglo Irish Bank,” said Nolan, adding a “serious crime” had been committed. “I find it incredible that red lights didn’t go off some place in the regulator’s office and the appropriate legal advice was not sought.”
Anglo Irish came to symbolize Ireland’s boom to bust. After rising to become the nation’s third-largest lender, the bank faced potential collapse in July 2008 as it sought to unwind a stake controlled by Sean Quinn, Ireland’s then-richest man. McAteer and Whelan helped organized loans to clients to buy a stake in the bank, and avoided it cascading onto the market.
The loans were a “misguided attempt to save the bank, ” said Nolan, adding it would be “incredibly unjust” to jail the men. The pair, who denied any wrong-doing, faced maximum prison terms of five years for the charges.
A disorderly unwinding of the Quinn’ holding would have risked the bank failing, the lender’s one-time chief financial officer Matt Moran testified during the trial. Moran, granted immunity from prosecution, said the strategy was a “last roll of the dice” for bank executives.
During the trial, Con Horan, Ireland’s ex-head of prudential regulation, said that the agency “engaged actively” as the bank sought to lift the threat posed by the Quinn position.
Regulators feared that a disorderly unwinding of the Quinn exposure could damage the Irish banking system and encouraged Anglo Irish executives to find a solution, Horan told the court. Still, he was unaware that the bank was financing the deal itself with long-term loans, he said, rejecting a suggestion that he acted as a “cheerleader” for the deal.
While the bank’s share price rose by more than 50 percent in the ten days after the deal was put together in the second half of July 2008, the respite was temporary. The stock started to slide in September, hastened by the demise of Lehman Brothers Holdings Inc. and the worsening state of the Irish property market.
With the shares almost worthless by January 2009, the state took over the bank. Ireland’s police and corporate law enforcement agency began an investigation into Anglo Irish in February 2009, with Whelan, 52, and McAteer, 63, charged three years later.
While banks are allowed to lend to buy their own shares under Irish law, it must be in the ordinary course of business. Prosecutor Paul O’Higgins said the loans only occurred because the bank found itself in an “extraordinary situation.”
Whelan “didn’t for one moment think he was involving himself in something that was unlawful,” his lawyer Brendan Grehan said during a sentencing hearing today.
McAteer said the loans stemmed from an “existential” crisis at the bank, Patrick Gageby, his lawyer, said. Nolan said the two men perceived that lawyers had approved the transaction.
“I find explicit warnings should have been given” both by the regulator and lawyers involved, Nolan said. “It would be unjust of this court to impose a prison sentence in these circumstances.”
Nicola Faulkner, spokeswoman for the central bank, into which the regulator was subsumed in 2010 in the wake of the crisis, declined to comment.