Anglo and ILP transactions worth €7.2bn for ‘optical benefit only’

The €7.2 billion transactions between Anglo Irish Bank and Irish Life & Permanent (ILP) in September 2008 were for "optical benefit only" and created no new cash, a jury has been told.

Ciaran Cunningham, former treasury manager at Anglo, was continuing his evidence on day 34 of David Drumm's conspiracy to defraud trial at Dublin Circuit Criminal Court.

Mr Drumm, the former Anglo chief executive, accepts that in 2008 transactions worth €7.2 billion took place between Anglo and ILP but he disputes the claim they were fraudulent or dishonest.

Mr Cunningham told Paul O’Higgins SC, prosecuting, there was no commercial rationale to the transactions with ILP other than to present the numbers as customer deposits.

The witness agreed that when a transaction was netted it “would never show in the accounts at all”.

Mr O’Higgins referred to the series of transactions between September 25th and 30th, 2008, involving Anglo, ILP and Irish Life Assurance.

Mr Cunningham agreed the amounts exchanged were identical in terms of size and interest rates and the only benefit to them was an optical one. He said the “cash neutral” transactions generated no new funding.

The jury was shown Anglo’s balance sheet for September 22nd, 2008, which showed the customer loan-to-deposit ratio was 145 per cent, or 165 per cent excluding initiatives. Mr Cunningham said at that point the customer initiatives were recorded as €6 billion, but would later amount to €7.2 billion.

Balance sheet

The court heard that Anglo’s balance sheet recorded Bank of Ireland’s ratio as 157 per cent and Allied Irish Bank as 153 per cent. Of a list of seven banks named on the sheet, only Lloyds’ Bank’s ratio of 142 per cent was better than Anglo’s.

In an email to John Bowe on September 23rd, 2008, Mr Cunningham said he had "no problem" including the €6 billion figure in the document he was drafting for Mr Bowe to present to the board.

The jury also viewed an email sent by Mr Cunningham to his boss in which he said there were “too many moving parts to the balance sheet today”. In this email, Mr Cunningham said the trade would be done in interbank rather than repo format.

Mr Cunningham told the jury that he prepared a balance sheet analysis for the year end, showing customer deposits at €51 billion, and a loan-to-deposit ratio of 143 per cent. Mr O’Higgins asked if the ILP transactions were “actually settled gross”.

“They were not,” Mr Cunningham replied.

He said they were initially settled gross but that, on maturity, the cash flows were settled net, adding that he only became aware of this in February 2009.

During cross-examination by Bernard Condron SC, Mr Cunningham said he believed the transactions were gross “all along” but when they were “undone” they were settled net.

Customer deposits

He said he told gardaí that he believed the possibility of doing a repo with ILP was still being considered in August and September 2008.

Mr Cunningham said he included a reference to the ILP customer deposits in a document he prepared for the bank’s audit committee meeting on November 18th, 2008, “because of their size”.

Mr Drumm, with an address in Skerries, Co Dublin, has pleaded not guilty to conspiring with former bank officials Denis Casey, William McAteer, John Bowe and others to defraud depositors and investors at Anglo by "dishonestly" creating the impression that deposits in 2008 were €7.2 billion larger than they were. He has also pleaded not guilty to false accounting on December 3rd, 2008, by furnishing information to the market that Anglo's 2008 deposits were €7.2 billion larger than they were.

The trial continues before Judge Karen O’Connor and a jury.