Ex-Anglo Irish Bank Officials Loans-for-Shares Trial Begins

Former Anglo Irish Bank Corp. Chairman Sean Fitzpatrick faces trial in Dublin with Willie McAteer, the bank’s former finance director, and Pat Whelan, a one-time managing director of its Irish unit.

In the case, which started today, the men pleaded not guilty to charges related to loans made to 16 clients in 2008. Prosecutors claim the loans were a breach of corporate law and amounted to unlawful financial assistance for the purchase of Anglo Irish Bank’s own shares.

The loans of about 625 million euros ($845.3 million) to buy shares in this instance weren’t part of the bank’s ordinary course of business which would be allowed under Irish company law, prosecutor Paul O’Higgins said in opening arguments in court today.

“It was lending in very extraordinary circumstances which had nothing to do with the bank’s ordinary course of business,” said O’Higgins.

Brendan Grehan, lawyer for Pat Whelan, said the loans were made in the belief that they were part of the ordinary course of business and that they complied with rules.

The bank rose and fell in tandem with Ireland’s economy. Its loans soared more than 18-fold to 101 billion euros in the decade through 2008, as it financed some of Ireland’s largest property developers during a real estate boom.

Bank Shares

The bank’s shares hit a high of 17.85 euros on May 31, 2007, valuing the lender at almost 13 billion euros. In the wake of the real estate crash in 2008, the shares plunged 99 percent. With Anglo Irish close to collapse, the state nationalized it in January 2009, with the bank becoming the first of five of the country’s largest lenders to be taken over by the government.

In July 2012, prosecutors charged the three defendants in relation to the bank’s loans to the six members of the family of Sean Quinn, once Ireland’s richest man, to buy shares in the bank. The Quinns were lent about 175 million euros to buy the shares, O’Higgins said.

Irish Clients

The three defendants were also charged in relation to 450 million euros of loans given to ten other Irish clients to buy Anglo Irish shares in 2008. The ten were loyal customers of the bank, O’Higgins said.

“There was a lot of turmoil in the financial world,” O’Higgins told jurors. “In particular, Anglo shares fell by 30 percent very close to March 17, 2008. And if you think about position of the bank, in 2007, its share price had been at a time something of the order of 17 euros a share. By the time March 17 was reached, the price had fallen to about 6.50 euros.”

The three men are charged with having authorized or permitted the bank to give unlawful financial assistance for the purchase of buying shares in the bank.

Whelan’s understanding “was and is” that the Irish and English financial regulators agreed to the plan and that the bank had obtained “positive expert legal advice”, Grehan said. The “major international financial services provider” that executed the transaction would only do so if satisfied that it was compliant, his defense lawyer Grehan said.

Whelan faces seven additional charges tied to the alleged fraudulent alteration of facility letters. He has pleaded not guilty to the additional charges. The prosecution said the alleged alterations improperly provided an advantage to seven of the clients who were given loans to buy the shares, at a disadvantage to the bank.

Anglo Irish, which cost taxpayers 29 billion euros to bail out, is now being liquidated by the government. The bank’s rescue was the costliest element of the state’s 64 billion-euro bill for saving the nation’s financial system.

Leading Trial

Una Ni Raifeartaigh is leading the team for the state prosecutor, along with O’Higgins acting for the Office of the Director of Corporate Enforcement. The trial may feature some prominent figures of Ireland’s economic renaissance.

Jurors were told on Jan. 31 that witnesses may include John Hurley, the last central bank governor, Pat Neary, former head of financial regulation and Kevin Cardiff, a former top official in the finance ministry. Former Anglo Irish directors and executives may also testify.

A chartered accountant, Fitzpatrick, 64, joined the bank that evolved into Anglo Irish in 1974 and became the group’s chief executive officer in 1986. He became group chairman in 2005, quitting in December 2008.

Under his stewardship, Anglo Irish bankrolled many of the property developers behind the building boom that drove economic growth to an average 6 percent in the first half of the last decade.

McAteer, 63, joined Anglo Irish as finance director in 1992 and moved on the lender’s board in February 2000. He resigned from Anglo Irish in January 2009.

Whelan, 51, joined the bank in 1989 before being appointed as a board member in 2006 and becoming managing director of Irish lending in 2007. He stepped down from the board in February 2009, leaving the bank 10 months later.

The trial is expected to last four months, Judge Martin Nolan said in court.

The cases are DPP v William McAteer, DUDP1019/2012, DPP v Sean Fitzpatrick, DUDP1019/2012, DPP v Pat Whelan, DUDP1019/2012 (Dublin).

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