STATE-OWNED Anglo Irish Bank was forced to write off a loan of €4.7 million on an investment fund arising from the $65 billion (€44 billion) fraud perpetrated by New York money manager Bernard Madoff.
The loan was provided through the bank’s AIAC Leveraged Hedge Fund, which was managed by Anglo Irish Assurance Company (AIAC), the unit of the bank which specialises in pensions and investment products for customers.
The loan was made on an investment linked to two international funds, Kingate and Trotanoy, both of which fed money to Madoff and incurred losses in the fraud.
Anglo provided the loan on a non-recourse basis, meaning investors behind it can only lose cash invested with the borrowings.
A spokeswoman for the bank declined to comment.
It is understood that an amount equal to the loan was lost by investors in the fund. The equity and the loan were deemed to be unrecoverable following the disclosure of the fraud last December.
Sources close to the bank said the loan was Anglo’s only exposure to the Madoff fraud, the largest Ponzi scheme in US history.
The financier defrauded individuals by using money from new investors to repay debts due to existing investors in his various schemes. He was sentenced to 150 years in prison in June after pleading guilty to the fraud over a 20-year period.
Kingate, based in Bermuda, has been the subject of a legal action through the Manhattan courts by investors seeking $3.5 billion lost in Madoff’s fraud.
Last April the trustee appointed to liquidate Madoff’s company sued Kingate in the US bankruptcy court in New York seeking the return of $255 million that was transferred to the firm’s funds in the months before the collapse of Madoff’s business last December.
The Guernsey-based Trotanoy Investment Company is also listed as a creditor of Madoff’s company in court papers filed in New York.
Anglo set aside provisions to cover the impaired loan on AIAC’s Madoff-related investment in the bank’s half-year accounts to March 31st last. The bank made a pretax loss of €4.1 billion in the six months as losses on loans spiralled following an examination of the bank’s loan book.
The Government has pumped €4 billion into Anglo. But losses on the €28 billion in loans to be transferred to the National Asset Management Agency (Nama) will force the bank to seek further State capital, possibly up to €6 billion, to replenish its cash reserves.
The bank is preparing a business plan outlining its future. The report is expected to be forwarded to Minister for Finance Brian Lenihan in the coming weeks.
The Government must submit a restructuring plan for the bank to the European Commission next month. Under EU rules, the commission must be shown how state-supported banks can become viable again or else plans for an orderly wind-down must be agreed.
Anglo is preparing a redundancy programme that is expected to lead to at least 300 staff leaving over the coming months.
