ANGLO IRISH Bank agreed a short-term reciprocal transaction with UK bank Royal Bank of Scotland in the turbulent run-up to the end of the bank’s half-year in March 2008 to make the bank’s balance sheet look healthier.
The transaction was among a number of deals agreed by the old management team at Anglo over an 18-month period to improve the bank’s financial state ahead of key reporting dates during a time of intensifying financial volatility.
An internal memo prepared by Anglo shortly after its nationalisation in January 2009 says the bank agreed “balance sheet management transactions” with Irish Life Permanent, RBS, Merrill Lynch, German bank Hypo and US insurance giant AIG.
The memo says that Anglo provided “reciprocal arrangements” with these counterparties.
Anglo completed the transaction with the global banking and markets division of RBS in London in March 2008 with the approval of the Financial Regulator. The sum is believed to have been less than €1 billion. A spokeswoman for RBS declined to comment.
Anglo has declined to comment on the bank’s counterparty relationships with other institutions.
The bank suffered significant withdrawals of customer deposits in March 2008 after the so-called St Patrick’s Day massacre, when Anglo’s share price fell more than 15 per cent in one day amid market fears about the bank’s stability.
Around this time the Financial Regulator and Central Bank urged banks to assist each other with funding in what became known as the “green jersey agenda”, as overseas lenders withdrew liquidity to the overall Irish banking system.
In a separate development, the bank’s management decided – in the weeks following nationalisation – to disclose details of a £156 million (€174 million) loss on a foreign exchange funding position in the bank’s 2008 annual report published in February 2009 to avoid misunderstanding at a later date.
According to minutes of a board and management meeting on February 5th, 2009, Donal O’Connor, bank executive chairman at the time said the bank had to disclose the loss incurred on a yen-sterling funding transaction.
Mr O’Connor told the meeting that disclosure was required but that the transaction “seems strange”. A senior executive, Colin Golden, said the bank “should get it [the loss] out now; people will misunderstand”.
There was also a lengthy discussions how loans to Anglo executives David Drumm, Willie McAteer, Declan Quilligan and Pat Whelan to buy Anglo shares were issued as non-recourse – meaning they were only secured on the shares – but were later renewed as fully recourse in January 2009.
Mr Quilligan told the meeting the loans were not intended to be non-recourse, but that the loan facility letters were “amended by DD [David Drumm]”.
Mr O’Connor said that there was an “issue of management override by DD”, while another Anglo executive asked if it was normal for loans to be drawn down without a facility letter being issued. Mr Quilligan replied: “Yes, [it] has happened but [it is] not normal.”
