Maple 10, the Anglo Golden Circle

This is mainly a stock-taking entry with the details that are now in the public domain of the transaction involving what has become known as the “Anglo Golden Circle” or the “Maple 10”. There is an ongoing investigation into the Maple 10 transaction, so please be careful with any comments. The one piece of new information that doesn’t appear to be in the public domain is the skeleton argument lodged by Belfast developer Peter Curistan at the High Court in Belfast dated 1st September 2011 in which he refers to the “suppression of allegations as to Anglo’s Golden Circle illegality” and there is a claim that Anglo sought to appoint administrators to Peter’s company, Sheridan Millennium Limited, so as to stop that company pursuing a legal action against Anglo which would have forced the disclosure of information in respect of the Golden Circle transaction.

The background: Irish tycoon Sean Quinn had built up a significant shareholding in Anglo in the mid 2000s. He was reported to have bought a 5% stake in Anglo in January 2007 and increased his stake subsequently by means which included the use of contracts for difference (CFDs). In September 2007 Sean Quinn alerted Anglo to his potential 24% stake in Anglo – potential as much of it was via CFDS. It is understood that he wanted to dispose of the shares and it is further understood that Anglo management was concerned at the effect such a large disposal would have on the bank’s share price generally. So, the story goes, Anglo set about contacting a number of its major clients with a view to arranging a transaction whereby part of Sean Quinn and family’s shareholding would be acquired by the 10 without the share price being affected. The 10 were to be provided with loans by Anglo for the full purchase price. The 10 came to be known as the “Anglo Golden Circle” and Anglo had an internal code-word for the borrowers and the transaction was “Maple 10”

How much: There were reportedly 10 loans of €45m each, to the ten people who comprised the Maple 10. The loans are reportedly non-recourse but it seems that Anglo’s present management is accusing the former management of altering the loan terms from recourse to non-recourse. Earlier reporting in 2009 suggested the loans totalled €300m or €30m each.

When: Some time between 17th March 2008 when Anglo informed then-Taoiseach Cowen of Sean Quinn’s then-28% stake in the bank, and the end of July 2008 (see Dail exchanges below). Curiously Brian Cowen claims that he did not discuss Anglo business with Sean Fitzpatrick at the infamous golf outing at Druids Glen on Monday 28th July, 2008. Some reporting has suggested the transaction took place in July 2008.

Who: According to Simon Carswell in the Irish Times the Maple 10 comprised

(1) Jerry Conlan*

(2) Patrick Kearney*

(3) Seamus Ross*

(4) Gerry Gannon*

(5) Joe O’Reilly*

(6) Brian O’Farrell

(7) Paddy McKillen

(8) Gerry Maguire

(9) John McCabe*

(10) Seán Reilly

* reportedly in NAMA

NAMA?: According to Simon Carswell writing in the Irish Times seven of the 10 loans have transferred to NAMA. These seven are assumed to include Jerry Conlan, Patrick Kearney, Seamus Ross, Gerry Gannon, Joe O’Reilly and John McCabe – it is not clear who the seventh is. Paddy McKillen avoided the bulk of his loans going to NAMA. [UPDATE: 3rd August, 2012. Anglo says that one of the three borrowers who remain at Anglo has repaid his loan in full which seems generous given the claims about the loans being non-recourse and the Anglo shares to which there was recourse being worthless. And two others are said to have repaid their loans in part]

This is an illegal share support scheme surely? You might well think that but official pronouncements suggest that it wasn’t, or at least wasn’t understood to be and it appears that the Financial Regulator was not just aware of the transaction but may have given his imprimatur to it. A Northern Ireland judge, Judge Deeny has already dubbed the scheme “prima facie improper and unlawful” But to demonstrate the ambiguity on this side of the Border, on 17th February, 2009 Taoiseach Cowen fielded questions on the transaction in the Dail. Here’s an extract:

“Deputy Enda Kenny : When did the Minister for Finance know about the unwinding of the Quinn-Anglo position where, we understand, ten people were given €30 million each to boost the shares. Do we know who these people are? When did the Minister for Finance tell the Taoiseach about this? There is a difference between protecting the national interest and protecting the interest of the Fianna Fail Party or that of Anglo Irish Bank.These are fundamental questions that must be answered now. As the Taoiseach knows, there is no trust and no confidence in Irish financial institutions among the markets. It is patently wrong that the regulatory authority should be investigating these matters when it is a fundamental part of the problem. The board and senior management should be gone and the Taoiseach should take decisive action in that regard, not in an individual sense but to send out a message of a clear, fresh and new beginning in this regard. That is fundamental. On what date did the Taoiseach find out about this? Did the Minister for Finance tell him about the unravelling of the Quinn-Anglo deal? If there are issues of governance or criminal activity involved, why has the Government not sent in the fraud squad to investigate? People want answers quickly from the Taoiseach as our country edges ever closer to an economic precipice. Everybody has an interest in protecting our financial institutions. Everybody has an interest in ensuring our economy develops. However, the lack of leadership, strength and decisive

action from the Government is only adding further to the confusion and the darkening clouds that lie ahead. Does the Taoiseach know the names of the ten persons involved? Can he confirm that no member of the Government was involved in any way by encouragement, support or any other activity to facilitate this situation whereby ten persons were each given €30 million from Anglo

Irish Bank? It is necessary from the Taoiseach’s point of view and that of the Government that there be an absolutely clean sheet. Will the Taoiseach answer these questions? When did the Minister notify him of the unravelling of the Quinn-Anglo deal? Can he confirm that no member of his Cabinet was in any way involved in the decisions of a new golden circle? TheGalwaytent may be gone but its spirit seems to be alive and well.

The Taoiseach: In regard to the second matter, I do not know any names. I am not involved in any names.

Deputy Dinny McGinley: The Taoiseach knows very well who these people are. We all have our suspicions.

An Ceann Comhairle: This is Leaders’ Questions. Deputy McGinley cannot——

The Taoiseach: In the interests of the seriousness of the question being raised, I wish to respond to the Deputy. Whatever about Deputy McGinley’s prejudices towards me, when I make a statement, I stand by that statement. I wish to make it very clear that I do not know the names of any people involved in this process, nor is it my function——

Deputy Dinny McGinley: Are they Irish?

The Taoiseach: If we are not going to have a civilised discussion, fair enough.

A meeting took place last March at which the governor indicated to me, as Minister for Finance, that a situation was developing in regard to the contracts for difference issue in Anglo Irish Bank. That had to be dealt with by the bank. It proceeded with that and Mr. Quinn made a statement on 13 July relating to it. It was indicated at that time that the matter had been resolved. I had no indication and no involvement whatsoever in names of any description. That was not my function. Nor do I have available to me information regarding the current investigation being undertaken by the Financial Regulator and the Director of Corporate Enforcement. That issue has arisen as a result of a due diligence that took place after the policy statement made in regard to recapitalisation. In regard to the other matter, as I said, I received a telephone call inJapanfrom the Minister for Finance. His discussions with me at that time related to the need to proceed with the nationalisation on the basis of what was emerging in regard to directors’ loans and other corporate governance issues which he said had been referred to the regulator. That is where it was at and there were no further details at that point.

Deputy Enda Kenny: What is the date?

Deputy Eamon Gilmore: The Taoiseach said he knew about the Quinn situation in March and that his understanding was that the matter was resolved with the statement on 30 July from the Quinn group. We now know that the so-called resolution of the Quinn issue involved an arrangement whereby Anglo Irish Bank provided \300 million to ten wealthy individuals, who in turn used the money to buy shares in Anglo Irish Bank. According to newspaper reports at the weekend, the loan arrangement that Anglo Irish Bank made with the ten individuals was on very favourable terms to the point where there was no security against the loan other than the shares. The net effect of this is that the taxpayer is left with a bill for €300 million following the nationalisation of Anglo Irish Bank. There are a number of questions I would like answered about this arrangement. Did they Financial Regulator, the Department of Finance or the Minister for Finance know about the arrangement involving the ten individuals when the decision was taken to proceed with the bank guarantee in September? Were details of the arrangement included in and described in the PricewaterhouseCoopers report, which the Taoiseach did not receive and which the Minister for Finance did not read in full? Did the Taoiseach and the Government know about the arrangement involving the ten individuals when the decision was made to proceed with the nationalisation of Anglo Irish Bank? If the Taoiseach knew about it, why was the House not told about it? In response to comments made by Deputy McGinley, the Taoiseach said he does not know who are the ten individuals. I do not want to challenge the integrity or credibility of the Taoiseach but I find that difficult to accept. If this arrangement, involving ten individuals, was made and linked so intimately with the Quinn arrangement, and this led initially to the guarantee scheme and ultimately to the nationalisation of Anglo Irish Bank, I find it difficult to accept that the Head of Government that nationalised Anglo Irish bank would not know about the extent of that arrangement. The people of the country need to be told who these individuals are. When will we find out who they are? This is no longer a matter of commercial confidentiality and the confidentiality of the individuals. We now own the bank and we are stuck with the debt. Teaching assistants are being let go, children are being told they cannot get vaccinations, book grants are being abolished and staff of the State are being levied because of the financial and economic difficulties that arose from this. We need to know the names and identity of this golden circle. It is no longer a matter of commercial confidentiality. This is the rotten borough of Irish banking. What has been going on ranges from what might be mildly described as impropriety to illegality and criminality. It must be outed and we need to know who is in the golden circle. Who were these ten people? If the Taoiseach does not know, will he find out and tell the House?

The Taoiseach: I want to be clear with Deputy Gilmore. There is no reference to this matter in the PricewaterhouseCoopers report. Deputy Gilmore referred to arrangements that were the other part of the resolution of this unwinding of the CFDs that Mr. Quinn had built up in the bank. Regarding loans by Anglo Irish Bank to customers for the purchase of Anglo Irish Bank shares and the Government’s knowledge of the matter, as Minister for Finance I became aware, from contacts between the Department of Finance, the governor and the Financial Regulator over the course of last year, that a large overhang of shares were held by the Quinn group and related persons in the family. This was considered by the bank and the market to be a source of instability and the institution was seeking a resolution of the issue. The details of this were a matter for Anglo Irish Bank and, as appropriate, the Financial Regulator. The Minister for Finance was advised in late July 2008 that a number of investors had invested in Anglo Irish Bank but the Minister was not advised of who the individuals were or the nature of the transaction. As a result of due diligence recently undertaken on behalf of the Minister, certain matters in connection with transactions involving the Quinn stake in Anglo Irish Bank and related loans to Anglo Irish Bank customers for the purchase of shares came to the attention of the Minister and these are now being investigated by the various regulatory bodies, including the Financial Regulator and the Office of the Director of Corporate Enforcement. In January, the Government made clear that an important factor in the decision to nationalize Anglo Irish Bank was concern that corporate governance issues at Anglo Irish Bank could destabilise the bank and threaten the stability of the financial system. However, it would not have been appropriate for the Government to publicly disclose partial information that was, and remains, the subject of investigation by the responsible statutory authorities. As part of its normal operations, the annual accounts of Anglo Irish Bank will be published in the coming week. I understand there will be detailed notes in the accounts that will address the matter of loans issued by Anglo Irish Bank for the purchase of its shares as well as the transaction involving Irish Life & Permanent. The new board of Anglo Irish Bank is reviewing corporate governance practices of the bank and will put in place arrangements to guide the bank in the future. I am confident the new board will pursue the necessary changes in this regard. In the midst of the ongoing investigations into corporate governance at Anglo Irish Bank, the Government’s priority is to ensure the stability of the Irish banking system. Depositors and creditors with Irish banks have been and will be protected and the Government will ensure that actions that cause damage to the reputation of our financial system are fully pursued in accordance with the law. Deputy Gilmore suggested that he found it difficult to believe me. I am telling the truth. This is an internal arrangement of Anglo Irish Bank that was understood at the time to be in compliance and that was found in due diligence to raise certain questions that are being addressed by the Financial Regulator and the Director of Corporate Enforcement. Those investigations must be completed as quickly as possible so that full details and facts can be provided by those with the statutory authority to do so. I will not get involved in rumour or anything else. I deal with the facts and the facts are as I have outlined. If Deputy Gilmore accepts my integrity, as he says he does, that is the situation and I have no reason to say otherwise. If I knew, I would tell him.

Deputy Eamon Gilmore: I accept what the Taoiseach says. I am not trying to impute anything to him. I want to pursue further what the Taoiseach said in his reply. The Taoiseach said he knew in March about the Quinn overhang in Anglo Irish Bank. Did he know the full extent of it in March? The Taoiseach says he thought it was resolved in July. Given what we now know, did he know the full extent of how it was resolved — so-called — in July? The Taoiseach keeps

referring to corporate governance, which is becoming a mantra in these discussions, and said the Government discovered corporate governance issues in Anglo Irish Bank. Corporate governance is becoming a code phrase. We do not know yet for what it is a code, but it is code for something. Did the Taoiseach and his Government know about the arrangement involving the ten individuals when the decision was made to nationalise Anglo Irish Bank? If the Government knew this information, why was it not shared with the rest of us who were asked to approve the legislation?

The Taoiseach: As I explained to Deputy Gilmore with regard to the overhang of shares, I,  as Minister for Finance, was informed, to ensure that the impact on the stability of the bank would be off-loaded and unwound. That was a matter which Anglo Irish Bank was proactive in seeking to achieve, as it understood the difficulty being caused. Others were gambling or suggesting that the share price would go down. These were in hedge funds or whatever.

Deputy Joan Burton: They were gambling.

The Taoiseach: I am not having an argument about what words to use. I am trying to explain to people the context of what was going on and why it was important it be unwound. Part of that was the conversion of those contracts for difference to 15% of shareholding for the Quinn family. There was also the other question of other investors taking up the remainder. As I understand it, all of those ten were under the thresholds and the action was therefore not disclosable under law. It was under 3% of a shareholding.

Deputy Eamon Gilmore: The Taoiseach knew about this in July.

The Taoiseach: No. I am trying to explain the facts. The Financial Regulator obtained legal advice from Anglo Irish Bank’s advisers regarding the fact that this transaction was in compliance, and this was accepted at the time. It was a matter between the Financial Regulator and the bank rather than one involving me as Taoiseach or the Minister for Finance.

The Taoiseach: The issue, as I understand it, was accepted by the Financial Regulator at the time on the basis of the legal advice furnished.

Deputy Eamon Gilmore: Was that in March?

The Taoiseach: No.

Deputy Richard Bruton: Whose legal advice? Was it that of Anglo Irish Bank?

The Taoiseach: It was the legal advice of Anglo Irish Bank.

Deputy Alan Shatter: There was no independent advice.

Deputy Joan Burton: Was it Arthur Cox Solicitors?

The Taoiseach: The due diligence that arose in December raised certain questions which were referred to the Financial Regulator, who also referred them to the Office of the Director of Corporate Enforcement. As I have said in regard to this matter, it would not be appropriate to bring forward partial information which is still under investigation. We await the outcome. What we are concerned with here relates to corporate governance, the loans of the directors and the Irish Life & Permanent back-to-back loan, and there is also the question of the unwinding of the contracts for difference with the investors and the Quinn family. Those are the issues of corporate governance arising now and they are under consideration and investigation by the relevant authorities.