ANGLO IRISH Bank has no recourse to pursue Paddy McKillen for any of the €40 million it lent him to buy shares in the bank. Mr McKillen was one of the 10 so-called “golden circle” of large customers encouraged to buy a 10 per cent stake in the bank from businessman Seán Quinn in 2008.
The bank gave loans of about €45 million to each of the 10 long-standing customers of the bank to buy the shares but only 25 per cent was on a “recourse” basis.
This meant that most of the loan – 75 per cent – was backed only by the shares they bought in Anglo so they could only be pursued personally for the remaining 25 per cent.
It is understood that Anglo reorganised Mr McKillen’s share purchase loan in the weeks following the transaction, releasing him from the 25 per cent of the loan on which he would be personally liable. This meant that unlike the other nine, he was no longer obliged to pay about €10 million due on the loan.
Mr McKillen agreed to take part in the share transaction to help protect the bank at a difficult time but on the basis that he did not profit from the transaction, according to well-placed sources.
He was one of 10 trusted customers approached by the bank in July 2008 to buy 10 per cent of the bank. The bank organised and funded the purchase to prevent such a large amount of shares being sold on the open market, a move which would have collapsed the share price at a critical time.
Anglo management liaised with the Financial Regulator on the transaction as the bank sought to reduce Mr Quinn’s interest in the bank down from a stake of about 28 per cent as the lender feared the potential damage to the bank of having a single shareholder holding such a large position in the bank.
Details of Mr McKillen’s loan in the bank’s July 2008 Anglo share transaction emerged this week in his High Court challenge against the National Asset Management Agency to stop the transfer of loans totalling €2.1 billion from a number of financial institutions moving toxic loans to the State agency.
Mr McKillen has claimed in his action that he has no impaired loans and therefore they should not be transferred to Nama. The agency has claimed, as part of its defence, that Anglo classed the share loan as impaired.
In court filings, Nama claimed that a €37 million loan from Anglo to Mr McKillen – and an additional interest “roll-up” facility of €3 million – for “Anglo share dealing” expired in January 2010 and was classed by the State-owned bank as impaired in July 2010.
Michael Cush, for Mr McKillen, told the three-judge court hearing his action that the loan was “non-recourse” so there was no default on the loan.
As part of the July 2008 share transaction, Mr Quinn’s family converted their interest to the bank to a direct shareholding of just under 15 per cent – a move which crystallised a loss of about €1 billion on his investment.
The bank later estimated the Quinn share losses on Anglo at €2.5 billion, according to internal records. He owes €2.8 billion to the nationalised bank, most of which was provided to cover these losses. Anglo’s secret placement of the 10 per cent stake, which propped up the bank’s share price, is the subject of investigations by the Garda and the Director of Corporate Enforcement.
Last year, Anglo set aside €300 million to cover losses on loans of €451 million relating to the golden circle transaction as the security for the loans – shares in the bank – are worthless following the bank’s nationalisation in January 2009.
The bank has also set aside €2.3 billion as provisions in recent weeks to cover expected losses on the Quinn loans of €2.8 billion.
