An expert banking witness at the trial of three former Anglo Irish Bank executives has identified what he believes were unusual lending practices in relation to the Maple Ten.
Tom Reid - formerly of Ulster Bank - has said normally borrowings are initiated when a customer approaches the bank, but in this instance it appears Anglo approached the ten bank customers.
He has also found the information the bank held on the borrowers net worth was 'a bit sparse' given the nature of the loans.
Dublin Circuit Criminal Court has already heard in July 2008, €45 million was lent to 10 developers who were Anglo customers to buy a stake in the bank. Loans were also issued to the family of Cavan businessman Sean Quinn.
The jury has been told the purpose of the transaction was to dilute the 29% Anglo stake secretly built up Mr Quinn using Contracts for Difference, over concerns it was destabilising the bank.
Pat Whelan (51), Willie McAteer (63) and Anglo's former Chairman Sean FitzPatrick (65) deny providing unlawful financial assistance in breach of Section 60 of the Companies Act 1963.
'Not typical' approach
Mr. Reid, who is now retired, headed up Ulster Bank's risk and lending departments during his 40 year career. He said he was struck by the fact that the Maple Ten and Quinn loans were on 'different terms'.
The Maple borrowers were only to be held personally liable for 25% of their loans in case of default whereas the recourse on the Quinn family loans was 100%.
The jury has heard in practice, this meant that if the share price dropped to zero, the bank could only attempt to recover a quarter - around €12 million - of the loan.
Mr. Reid has told the jury, shares are 'very, very volatile' and in his experience 25% recourse for lending of this nature would not be typical security. He said one would expect that the recourse would be 100% for all personal loans.
The retired banker said it was arguable the bank's position was weakened in a follow up facility letter to the Maple Ten in January 2009, extending the loan at a time when the bank's security on each debt was at €2.24 million.
In the circumstances he said 'one would normally review the value of the facility, have a conversation with one's auditors and in all likelihood be required to make provision for bad debt against that borrower'.
He added that providing for a shortfall in the facility would be the 'prudent' thing to do.
