Ex-Irish Regulator Says Unaware of Anglo Irish Loans for Shares

A former top Irish financial regulator said he didn’t know that Anglo Irish Bank Corp. was making long-term loans to clients so they could purchase shares in the company.

Con Horan, Ireland’s ex-head of prudential regulation, understood that clients of the Dublin-based bank would get long-term funding from elsewhere to purchase some of its shares, he told a court in Dublin today during the trial of three former Anglo Irish executives.

“I understood the investors were financing themselves,” said Horan, adding that former chief executive officer David Drumm had raised the possibility of providing “short-term” financing to the investors if needed in the event one of the investors had “cash-flow” issues.

Former Anglo Irish Chairman Sean Fitzpatrick, Willie McAteer, the bank’s former finance director, and Pat Whelan, a one-time managing director of its Irish unit, have pleaded not guilty to charges of having authorized or permitted the bank to give unlawful financial assistance for the purpose of buying shares in the bank.

Prosecutors have claimed the loans were a breach of corporate law and amounted to unlawful financial assistance for the purchase of shares in the bank. The lender has since failed.

Horan didn’t raise any “red flags” about the deal when discussing it in a July 12, 2008 phone call, David Churton, an executive with Morgan Stanley, which was executing the transaction, told the court today.

No Objections

While he raised no objections on the call, Horan said today that he told Morgan Stanley and Anglo Irish executives that it was up to them to ensure that the deal was in line with regulations. The issue of where most of the investors would get the money to buy the shares “didn’t come up” on the call, he said.

The loans were used by 16 customers in July 2008, including the family of Ireland’s then richest man Sean Quinn, as the Quinns unwound a stake of as much as 29 percent in Anglo Irish built up through financial derivatives, known as contracts for difference.

The clients were among Anglo Irish’s wealthiest customers. Horan said he understood that most of them would finance the share purchases themselves while another, Quinn, would borrow from Credit Suisse Group AG to buy his stake.

Horan, who is currently on secondment to the London-based European Banking Authority, told the court the regulator didn’t want Anglo Irish to raise its exposure to the Quinns.

Anglo Irish, which cost taxpayers 29 billion euros ($40 billion) 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.

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

Before it's here, it's on the Bloomberg Terminal.