THE BEGINNING of Anglo Irish Bank's public battle with former chief executive David Drumm in the commercial division of the High Court has coincided with the departures of senior Anglo executives who had reported to him, writes SIMON CARSWELL

The two events are unconnected, but both signal that the nationalised bank is trying to break from the past by being seen to pursuing high-profile borrowers who are in default and to install a new, largely external interim management team.

The arrival of Australian banker Mike Aynsley as chief executive marked a turning point for Anglo as he steps up efforts to recover loans and restructure the bank.

Four loans that the bank is clearly intent on recovering in part or full are the €8.34 million debts owing by Mr Drumm, which are the subject of the legal action that was admitted by Mr Justice Peter Kelly to the Commercial Court list.

A chain of letters submitted to court by Anglo chronicle the rapidly deteriorating relationship between Mr Drumm and his former employer between September and late November when the bank issued legal proceedings.

Anglo is not just suing Mr Drumm to recover its loans, but is pursuing Mr Drumm and his wife to overturn the transfer of the ownership of a house in Malahide, Co Dublin last May from the couple’s joint names into her sole name.

The bank claims that two loans – one for €7.7 million secured on 886,000 Anglo shares which became worthless after the nationalisation of the bank last January and another for €221,500 to cover interest rolled up on the bigger loan – were payable on demand.

Mr Aynsley wrote to Mr Drumm on September 28th, 2009, shortly after his appointment as chief executive, demanding repayment of the two loans. Anglo said Mr Drumm had not made “any realistic proposal” to repay the loans.

Mr Drumm has disputed the bank’s ability to demand repayment. In addition, he claims that the bank owes him €2.6 million in termination pay and bonus payments which could be offset against his outstanding loans.

Central to his case are conversations he said he had with Declan Quilligan (now head of Anglo’s UK operations) and Donal O’Connor, the bank’s chairman, between the date of his resignation as chief executive on December 19th, 2008, and when the bank was nationalised in mid-January.

Mr Drumm claims that in these conversations, the bank had agreed in January – the week before the nationalisation – that the two loans totalling almost €8 million would not be reviewed before January 2010.

Documents show that on January 7th, 2009, Anglo agreed to provide him with “a bespoke/tailor-made loan facility” of more than €8 million, which was a re-arranged loan, comprising an existing €7.7 million loan secured on the bank shares, plus another facility of up to €325,000 to cover the interest owing on this loan.

The interest rate on the loan facility was agreed at 1 per cent above the one-month Euribor rate, an interest rate at which banks borrow from each other.

The bank said the interest rate on his loans was 1.426 per cent at November 23rd, 2009, two days before Anglo issued its proceedings.

The loan was signed off by Eugene Murray, a lending director and Peter Butler, acting chief risk officer.

In addition to the share loan and associated interest roll-up loan, Mr Drumm also owed a loan of €408,000 to fund an investment in a UK banks fund managed by Anglo Irish Assurance Corporation, Anglo’s investment wing. A fourth loan of €8,414 was provided to fund an investment in a Dublin-based film finance firm.

By the time the bank issued its proceedings, the €8.34 million debt included €221,500 in accumulated interest owing on the loans.

Two letters from Mr Drumm to the bank are particularly revealing of his position on the loans.

On October 13th, 2009 – the week after meeting Mr Aynsley in Dublin to discuss his loans – Mr Drumm wrote to the Anglo chief saying that the bank was incorrect to pursue him over his loans but he still wanted to resolve matters.

“It is difficult to have a normal bank-to-borrower relationship when you have incorrectly and unreasonably demanded repayment in full of the loans, including the main share loan which has not even matured,” Mr Drumm wrote.

“This is in breach of my express agreement with the bank. I would ask you to withdraw these demands to allow proper negotiations to take place in good faith.”

Mr Drumm offered to allow for valuations to be carried out a house that had been let in Skerries, Co Dublin and a property in the Massachusetts town of Chatham in Cape Cod in the US.

(In a later letter, Mr Drumm’s solicitors tell the bank that he sold another house in Cape Cod for $412,000, lodging the proceeds into two separate accounts.)

He told Mr Aynsley he was “prepared to engage in constructive negotiations” and asked that Anglo “recognise and respect my right to seek an overall and comprehensive repayment plan from the bank in relation to the full and final settlement of my debts”.

Mr Drumm was particularly angry that The Irish Times had a journalist and photographer waiting outside his meeting with Mr Aynsley the previous week and he asked the Anglo chief executive to launch an internal investigation, saying he was “seriously concerned regarding media leaks”.

The bank vehemently denied in subsequent letters that it had leaked any details on Mr Drumm.

This did not suffice and Mr Drumm later threatened to ask the Financial Ombudsman to review the matter if he did not receive a satisfactory reply within 28 days.

Mr Drumm repeated his concerns about Anglo’s pursuit of his loans in a letter to Donal O’Connor on November 16th, saying the loans were not due and Anglo had “from the start adopted an overly aggressive and inappropriate stance”. Anglo was in breach of a banking code of practice on how it should treat customers, he said.

He was willing “to do whatever necessary including selling any assets” to repay the bank, he said.

He had presented a statement of net worth to the bank, he said. The statement “shows that I have sufficient assets to meet my liabilities to the bank and like many borrowers all I need is to agree a time schedule for repayment”.

Mr Drumm said that he had not received “a request to meet to discuss a possible repayment plan” from the bank but had received a stream of threatening legal correspondence and “a most upsetting phone conversation” with Tom Hunersen, an executive at the bank “in which he threatened me and my wife with litigation”.

The former Anglo chief told Mr O’Connor that he had resigned as chief executive on the basis that he would be treated fairly.

“I am sorry to say that this has not been the case. In circumstances where I am willing to repay my debt, and make myself available to meet and discuss matters, this is disgraceful behaviour by the bank,” said Mr Drumm.

The case is scheduled go to full hearing early next year.