A former director at Ulster Bank has told the Anglo trial that in his experience, banks normally gave personal loans at 100 per cent recourse, meaning the borrower would be liable to repay the total value of the loan.
Tom Reid, who retired from Ulster Bank in 2004, also told the trial it was not normal procedure for a bank to approach customers to get them involved in loan deals.
He was giving evidence for the prosecution yesterday at the trial of three former Anglo Irish Bank directors.
Seán FitzPatrick (65), Greystones, Co Wicklow; William McAteer (63), Rathgar, Dublin; and Pat Whelan (51), Malahide, Co Dublin, have been charged with 16 counts of providing unlawful financial assistance in July 2008 to buy shares in the bank, contrary to section 60 of the Companies Act.
Mr Whelan has also been charged with being privy to the fraudulent alteration of loan facility letters to seven individuals. All three men have pleaded not guilty to the charges.
Mr Reid, a former head of lending for Ireland at Ulster Bank, told the court he had studied a number of documents related to the present case.
Recourse rates
He said it struck him that in the case of the so-called Maple 10 borrowers, the borrowing was at 25 per cent recourse while in the case of the Quinn family members – who also took loans as part of the July 2008 scheme to unwind businessman Seán Quinn's stake in Anglo – the borrowings were at 100 per cent recourse.
On an internal memorandum prepared by an Anglo lending team for each of the Maple 10 loans, Mr Reid said: “I felt the paper in itself is brief and would not certainly personally have given me the comfort to bring this to credit committee.”
Asked about the 25 per cent recourse on the loans, Mr Reid said this meant that if the shares fell to nil, the only amount the bank could recover would be 25 per cent. “That, in my experience, would not be the normal way to lend money for this purpose.”
Mr Reid said the memorandum stated the clients approached the bank in relation to the loans. From the other evidence he had looked at, it was the bank that had approached the clients, he added.
Asked by Paul O'Higgins SC whether he had seen lending by a bank for the purchase of its own shares, Mr Reid said he had. At Ulster Bank, he told the court, staff members borrowed money to buy shares in Royal Bank of Scotland – of which Ulster Bank is a subsidiary. These loans, which ranged from £20,000 to "a couple of million", were at 100 per cent recourse.
'Over-aggressive' lending
Cross-examined by Brendan Grehan SC, for Mr Whelan, Mr Reid said his involvement with Ulster Bank ended in 2004. He agreed with Mr Grehan's assertion that prudence "went out the window" in banking in subsequent years. "Over-aggressive" lending became a feature of banking, he said.
Mr Grehan put it to him that he was speaking with “that most marvellous capacity we all have for hindsight”.
Mr Reid responded that this did not take from the values by which lending should be assessed.
“Should, but they clearly were not – in all banks,” Mr Grehan said.
“Correct,” Mr Reid responded.
Mr Grehan suggested that nowhere in Anglo’s credit policy did it state that personal lending should be at 100 per cent recourse. Shown a copy of the policy, Mr Reid agreed that this was not stated.
He told Mr Grehan he knew nothing about the Maple 10 individuals other than the information contained on the papers he had studied.
He did not know their net worth or their borrowing history with Anglo.
He agreed that he was not purporting to comment on Anglo’s policy but on his own experience, and agreed with Mr Grehan that there were always exceptions to a credit policy.
He also agreed the interest rate charged to the Maple 10 was a commercial rate and that it was a short-term loan facility of six months. He said the bank stood to make money on the loans.
"Micro level"
In cross-examination by Michael O'Higgins SC, for Mr FitzPatrick, Mr Reid agreed with him that he was not able to say "on a micro level" how loans at Ulster Bank were extended after his retirement.
Mr O’Higgins suggested that the culture in Irish banking changed in the mid-2000s, when growth became a central factor in how business was done. “Life changed,” Mr Reid agreed.
He also agreed with Mr O’Higgins that the prosecution had not provided him with information on the integrity of the Maple 10 borrowers or on their net worth.
