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Tuesday 11 December 2018

Drumm email asked 'how banks could help each other', court told

David Drumm has pleaded not guilty to two charges
David Drumm has pleaded not guilty to two charges

Former Anglo chief executive David Drumm wrote to the bank's senior executives to ask for their thoughts on how Irish banks could "help each other" as the financial crisis deepened in 2008, a jury has heard.

Mr Drumm (51) was passing on a request from the governor of the Central Bank, a day before Anglo's own share value plummeted in what was known as the "St Patrick's Day Massacre".

Mr Drumm's e-mail was sent to Anglo's head of capital markets John Bowe and forwarded to several other executives in the bank on March 16, 2008.

Meltdown

Dublin Circuit Criminal Court heard that Anglo Irish Bank was making efforts to secure more deposits to improve its cash flow as international banking went into "meltdown".

Then director of treasury at Anglo, Matt Cullen, was among those asked for his assistance when the e-mail was forwarded to him.

He was giving evidence in the trial of Mr Drumm, who denies taking part in a conspiracy to defraud in 2008.

Mr Drumm is charged with conspiring to defraud Anglo investors in 2008 by dishonestly creating the impression the bank's deposits that year were €7.2bn larger than they were.

He is alleged to have conspired with former Anglo officials William McAteer and Mr Bowe, as well as Irish Life and Permanent's then chief executive, Denis Casey, and others.

Mr Drumm is also charged with false accounting, by providing misleading information to the market on December 3, 2008.

The accused, from Skerries, Co Dublin, has pleaded not guilty to both charges.

The court has heard that in conjunction with Irish Life and Permanent (ILP), Anglo organised an initiative in which money was circulated between the two banks, through Irish Life Assurance (ILA), a company owned by the ILP group.

It is alleged the intention was to fraudulently create the impression that the bank's balance sheet was stronger than it was.

Mr Drumm admits authorising the transactions but denies there was anything dishonest or fraudulent in them.

Mr Cullen said the balance sheet when he joined Anglo in 2003 was €7.5bn and it was €90bn in 2008, five years later.

Mr Cullen agreed with Paul O'Higgins SC, prosecuting, that in August 2007 Northern Rock collapsed after a run on that bank.

Anglo was approached by the financial regulator and that September there was a limited form of guarantee on deposits given by the Government.

The court heard Mr Drumm set up an incremental funding initiative and an e-mail showed figures totalling €4bn.

However, in March 2008 Anglo and other banks' share prices fluctuated on St Patrick's Day.

Bear Stearns collapsed in the US, and there were "all kinds of rumours going around as to what was happening in the market", Mr Cullen said.

A March 16, 2008, e-mail from Mr Drumm to Mr Bowe was shown to the jury.

In it, Mr Drumm asked Mr Bowe: "Will you put some thought into what the governor asked us, to look at how the Irish banks could help each other?"

Worsened

"Our funding figures would have worsened as time went by," Mr Cullen said.

Funding deteriorated in July.

There were 50 initiatives with different banks and corporations to increase corporate funding.

However, by September a lot of these initiatives had fallen away and the financial market "was going into meltdown".

On September 15, Lehman Brothers collapsed in the US.

"In the middle of September, the funding initiative with ILP increased, because the other initiatives were all falling away," Mr Cullen said.

On September 29, the day before the Government's bank guarantee, Mr Cullen said that he delivered a signed letter to the Central Bank, signed by Mr McAteer and Mr Drumm.

The letter was seeking €1.4bn in emergency funding.

The trial continues.

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