Regulator begins evidence at trial of Anglo executives

Former Chief Executive of the Financial Services Regulatory Authority Patrick Neary has begun giving evidence at the Anglo Irish Bank Trial.

The bank's former chairman, Seán FitzPatrick, and two former directors, Pat Whelan and William McAteer, deny giving illegal loans to 16 people to buy the bank's shares in July 2008.

Mr Neary started working in the Central Bank in 1971 and became Chief Executive Officer of the Financial Services Regulatory Authority in 2006.

He said an issue about Quinn Insurance came to his attention for the first time in February 2008. 

He said Con Horan, the official in charge of banking in the regulator's office, said he had got a call from the auditors of Quinn Insurance to say they could not sign-off on the company's accounts because of certain problems relating to transfers of valuable assets out of the company.

He said he held two meetings with Seán Quinn subsequently and they agreed a programme of cash injections to restore the company's cash reserves.

Mr Neary said he did not become aware of the scale of Mr Quinn's position in Anglo Irish Bank shares through Contracts for Difference until Good Friday 21 March 2008.

He said former Anglo chief executive David Drumm had come to see him in autumn 2007 and told him he was concerned about rumours about Mr Quinn's CFD position. 

The rumour was that Mr Quinn held 10% of the bank in CFDs, but he said Mr Drumm was concerned it was a bigger position and asked if the regulator could find out.

However, Mr Neary said CFDs were not regulated and they had no way of finding out the level of Mr Quinn's position.

He said Mr Quinn himself then dropped in to see him in January 2008 and said he had a number of small CFD positions in Ryanair and Anglo.

He said on 21 March 2008 Mr Neary and Mr Horan had a meeting with Anglo representatives and the Governor of the Central Bank.  

Mr Neary said Anglo informed them Mr Quinn had a very, very significant CFD holding in Anglo's shares.

He said he got the impression, Anglo had just established this themselves.

He said later the bank's finance director, Mr McAteer, came to his house and gave him a list of the ten brokers who had provided Mr Quinn with the CFDs, amounting to a total of 28.4% of Anglo's shares.

Mr Neary said it was a very serious and worrying disclosure. 

There was a meeting between the regulator's officials and the Governor of the Central Bank the following Saturday morning.  

Mr Neary said if the situation was not properly addressed, it could have serious implications for stability of Anglo and the financial system.

He said it was decided Anglo should be asked to prevail on Mr Quinn to reduce the holding in CFDs.

Mr Neary said he had limited personal involvement in the matter after this and said Mr Horan was in more regular contact with the parties about the issue.

He said there was a meeting between the regulator's office and the board of Anglo at the end of April at which he expressed concern about the increased lending by the bank to the Quinn Group.