Anglo Irish in share placing row

Ireland's banking industry was rocked by fresh controversy on Friday as Anglo Irish Bank, the specialist property lender nationalised last month, disclosed it lent €451m ($578m) to "10 longstanding clients" to buy its own shares.

The revelation follows evidence of hidden directors' loans and what the regulator termed the "completely unacceptable" support provided by another Irish financial institution to bolster Anglo's deposits in the days running up to its financial year-end. The details are contained in the annual report published on Friday.

The share placing with this unnamed "golden circle" of investors arose after Sean Quinn, the entrepreneur, decided to unwind a position he held in Anglo through contracts for difference – a financial product that allows an investor to take a position without paying the full value of the underlying shares.

Mr Quinn had accumulated a large CFD position, which in July, under pressure from the regulator, he converted into a 15 per cent stake in the bank.

Ten investors were then lined up by Anglo to take the balance of 10 per cent, which the bank and regulator were concerned would damage Anglo's share price if dumped on the market.

Brian Cowen, the Irish prime minister, told parliament this week he was aware at the time of the regulator's concerns over Mr Quinn's large shareholding. Yet both he and Brian Lenihan, finance minister, insisted they did not know the details of how the situation was resolved.

Local media reports suggested the regulator believes it was misled over the terms of the transaction.

The annual report says the bank has personal recourse to the investors for 25 per cent of the €451m borrowing.

The bank said €83m had been repaid, but it also said it would be taking a €300m writedown in the half-year to March 31 "where security consisted solely in shares in Anglo".

Opposition parties last night called on the government to publish the names of the investors.

Ulick McEvaddy, a well-known businessman who made clear he was not one of the 10, defended the role of the investors in the transaction. "We're in an economic war," he said. "Sometimes the Geneva Convention gets offended. But in this economic war we need heroes and those people are heroes who were prepared to come forward and do something."

At the time of the bank's nationalisation Mr Lenihan cited the "reputational damage" caused by the loans to directors scandal that had prompted his decision.

Sean FitzPatrick, Anglo's driving force for more than 20 years, had been forced to resign as chairman after admitting he had systematically hidden from auditors millions of euros of personal loans by transferring them to another Irish financial institution with a different financial year-end. The loans outstanding to Mr FitzPatrick were €83m at the end of 2008.

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But analysts were surprised to read in the annual report that loans advanced to other directors totalled €179m.

The bank also made clear it was reviewing the controversial back-to-back cash arrangements with Irish Life & Permanent, under which the bancassurer had provided €7.5bn channelled by a non-bank subsidiary, apparently to enable Anglo to treat the amount as a deposit and not an inter-bank borrowing.

Denis Casey, IL&P chief executive – together with the finance director and head of group treasury – were forced to resign. But IL&P insists the regulator and Irish central bank were encouraging all Irish banks to show solidarity with each other.

But on Friday most commentators were less forgiving. Jim Power, chief economist with Friends Provident, said: "Ireland is now viewed by international investors as a banana republic."

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