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Taxpayer now exposed on secret Anglo loans deal
Sunday, February 01, 2009 By Ian Kehoe, David Clerkin and Cliff Taylor
Anglo Irish Bank is likely to have to write off much of the €300 million in loans that it advanced to a group of investors to finance their purchase of a 10 per cent stake in the bank.

The investors bought in at the time businessman Sean Quinn was unwinding his 25 per cent investment in Anglo. Any loss now falls on the taxpayer, following the nationalisation of the bank.

The Sunday Business Post has established that in at least some cases the only security over the loans was the value of the shares, now virtually worthless following the bank’s nationalisation. This means it is doubtful that the money will be repaid, unless the investors, believed to number around ten, decide they want to do so.

Anglo’s new management will have to examine the specifics of the share agreements in an effort to determine if they have any scope to force the repayment of the money. In a further twist it appears that some of these loan agreements were altered following the putting in place of the state guarantee on bank liabilities at the end of last September.

The bank would not comment last week on any aspect of the transaction. Its former chairman Sean FitzPatrick declined to answer any questions, citing legal advice.

The issuing of the so-called ‘‘limited resource loans’’ - on which the only security is the shares - is unusual, but effectively shields the borrowers from any losses.

The structure of the loans is believed to have shown up in a study undertaken for the government by Pricewaterhouse Coopers, which examined the books of all the banks. This study is also believed to have drawn attention to some changes in the loan agreements with some of the Anglo investors, following the putting in place of the state guarantee.

This is also now being examined to see why this happened and how it affected the liability of the investors.

The government has now instructed the Financial Regulator and the Anglo board to investigate all aspects of the share deal, which occurred when businessman Sean Quinn and his family unwound a 25 per cent interest they had held in Anglo through contracts for difference.

As part of the process, Quinn took an actual 15 per cent stake in the bank and the investors were offered the remaining stake of around 10 per cent.

Quinn confirmed last week that losses arising from his interest in Anglo exceeded €1 billion, but declined to give exact figures. As well as losses incurred on the investments through contracts for difference, the 15 per cent holding acquired by the Quinn family is now virtually worthless.

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