The Anglo Trial

40 minute Sean Fitzpatrick interview from 2007. Only just skimmed through it. He talks a good game, he does.

the Jury must be fairly fucking bamboozled by the attempts to explain things.

irishtimes.com/news/crime-an … -1.1682020

berkshirehathaway.com/letters/2002pdf.pdf

The barristers are confusing CFDs with CDS/other derivatives. No wonder B Lenihan SC was so on top of things

CFDs are very simple. They are the exact same as buying shares, except you are using a middle-man to buy and hold them for you. This should be very simple, and it’s actually beyond disgraceful that the barristers don’t understand what they are talking about.

Quinn used a middle-man (a CFD firm) to buy shares in Anglo because he wanted to build up such a huge stake without alerting anyone, especially the regulators. The middle-man gave him a loan to buy the shares. Or in the parlance of CFDs - they allowed him to buy “on leverage”.

This is simple shit. It’s appalling that the barristers have confused such a basic concept.

Mkay, on advice that we need to be careful not to prejudice the outcome of this weighty trial please pour all your stuff on the trial into this single thread. Which may or may not be monitored as the moderation team is thinner than bertie’s academic cv at the moment.

Does that make me an accountant ?

Well in bertie’s world you are free to be whatever you wish.

Surely the really significant wrong done in this country was that which was legislated and instituted, and done within the safe bounds of same… I’m sure you’re probably being facetious in the above. But i’m curious as to how much this trial is perceived as the circus that it really is in the general population and abroad. If it’s generally taken at face value, I despair… It’s a fucking circus. A big deal being made about the sacrifice of a couple of lambs. A charade to distract from our need to reflect on the institutional and legislative and social and cultural pathologies underlying EVERY economic injustice experienced by people in this country.

There is nothing facetious about observing the laws surrounding the publication of material during a criminal trial. Don’t prejudice the jury. Don’t get yourself jailed for contempt. Don’t get OW jailed.

Don’t refer to material that’s not before the court -even if you think it’s in the ‘public’ domain. Don’t comment prejudicially on material that does come up in court. Don’t link to previous threads or reports. This is a site full of smart people and if someone could suggest that internet rumblings are interfering with their client’s right to a fair trial then there are bigger things at stake than the momentary gratification provided by a rant.

We needn’t think that just the traditional media (who are being very careful) can be held to account, times are changing.

This is not facetious.

I have no intent of prejudicing a trial. My intent was to point out that the significant set of phenomena that bear on this country’s problems are a different set than are encompassed in that trial. I am clearly within my rights to say that. I’m not stupid, but I won’t bleat platitudes.

Edit - Just to clarify, the ‘facetious’ reference is to the description of this trial as ‘weighty’ (not to the law stipulations that a trial should not be prejudiced) — yes, it would be weighty in the context of normal day-to-day business, occurring in a country whose laws and institutions were functioning with a proper integrity… They are very serious charges, and this trial should properly investigate those charges. BUT, there is also the fact that there is a tacit underlying message that this trial is about investigating what went wrong in this country to bring us to the situation we found/find ourselves in. That is what I object to. It is untrue. It was merely one of many consequent phenomena following from other root causes. These ‘root causes’ are entirely legitimised from the perspective of the prevailing institutional mores in this country. I feel with trials like this one, we get further and further away from that question.

Well put. There is still complete confusion in the press on the issue. Eg, in today’s Irish Times: “CFDs allow investors to speculate on the price of shares without actually owning them.”

There’s lots more stuff about ‘betting on horses’, as if Quinn was just betting on the share price rather than having undertakings to buy the actual shares. There wouldn’t have been any problem for Anglo (in this particular regard that is) if Quinn was just betting on the share price, rather than building an actual stake (at one remove) in the bank.

The way CFDs work is as follows:
Say I have 1m euro and I want to buy shares in XYZ corp. These are trading at 10 euro per share. So with my cash I can buy 100k shares. Now, if the price of the share moves up to 11 at the next CFD reset, I will have made 100k * (11-10) = 100k euro. Not bad.

But say I want to be greedy and I “know” the share is going up. Then I could enter a CFD contract with a bank. Normally I would need to give about 10% collateral (depends on the volatility of the underlying). My 1m euro becomes collateral now, I dont hold any asset (unlike buying the share itself), I will be buying 10m worth of stock. The way it normally works is that the bank will pay me interest on my collateral at a rate x. They will then lend me the money to buy the 10m worth of stock, using my 1m as collateral. They will buy the shares (normally) and hold them for me. The bank makes their money from the interest that I pay for the 10m loan and also on the low rate of interest that they pay me for the collateral. This is where they make money, they are not interested in the moving price of the share, they lent the money to me to buy it at price 10. So the person who enters into the CFD contract is taking all the risk and the bank just makes some money from the spreads on the lending.

Now lets say the price goes down to 9. The bank is now holding 9m worth of this share, but they also have 1m collateral from the guy. So they will not lose out, they will ask him for more collateral or they will close the position. In this case they will sell for 9m, plus keep his 1m collateral, result = bank has the money the lent.

Now lets say instead of going down it went up to 11. In this case the bank will pay 1m to the other party. They hold 11m worth of stock, they sell this, give him his 11m + 1m collateral back and they have still made money on the interest rate that they were charging. No matter what way the stock moves the bank will make money.

The point of CFDs (apart from the tax issues) is that a bank would never normally lend someone money to go and buy stocks themselves, they get to keep money and the stocks as collateral. It allows the other party to take a highly leveraged bet.

Of course I was being facetious. On the first day of one of the most high profile trials in business ever here, everyone manages to fuck up in the definition of CFDs. Christ, can you imagine the endless tortuousness inflicted on the poor jurors when they get to considering something vaguely complicated. It’s a joke.

There are some subtleties to consider:

  1. By holding CFDs rather than the actual share Quinn’s stake in Anglo did not appear on any share register - hence Drumm and Fitzpatrick’s surprise when they learned the extent of it (the description of the lunch in Buswells (I think) where they learned of it is quite dramatic - Drumm describes it as the first time he had ever seen Fitzpatrick lost for words)
  2. By not holding the actual shares Quinn did not have to get Financial Regulator approval for his ownership stake in the bank which may not have been forthcoming given his record fine for dipping into Quinn Insurance’s assets

CFDs are nowhere near as simple as shares. It’s a sequence of simple transactions involving shares, to understand them the jury need to remember and understand each step. This isn’t going to happen, a typical juror, judge or barrister will find a mental one liner to describe them e.g. CFDs = “like betting on horses”.

According to “Breakfast at Anglo” Simon Kelly and many in the developer circle were using CFDs on bank shares towards the end of the bubble. No intention on their part to take over the company they just wanted to day trade. I’m not sure we can say definitively what Quinn wanted to do.

To people like Kelly the idea of investing directly in a stock to get a return of even 20% per annum seemed as conservative as putting money on deposit, to get massive and quicker returns they they chose CFDs.

That’s waaaay too complicated. A CFD broker will lend you money to buy shares on your behalf. He will want part of the loan repaid early if the price drops, and he will allow you to borrow more if the price increases. Simple.

The analogy of betting on horses is just plain wrong. The horse could win the race but the owner of the horse could still make a loss.

First day of Anglo trial concludes → carlow-nationalist.ie/2014/0 … concludes/

Former Anglo executives knew of ‘illegal scheme’ to buy bank’s shares - → irishtimes.com/news/crime-an … -1.1680228

Day Two: Anglo Irish Bank Trial → rte.ie/news/2014/0206/502616 … ank-trial/

Lise Hand: Jury took copious notes as jargon of CFDs explained → independent.ie/irish-news/co … 87606.html

Whelan accused over loan letter alterations - → irishtimes.com/news/crime-an … -1.1681162

‘Then the tide turned and Quinn began to lose’ - → irishtimes.com/news/crime-an … -1.1680962

Anglo chiefs ‘surprised’ to learn of Quinn’s 24% stake - → irishtimes.com/news/crime-an … -1.1682020

Quinn ‘reluctantly agreed to loans’ - → kildare-nationalist.ie/2014/ … -to-loans/

Anglo lent Sean Quinn €2bn for ‘spectacular punt’ - → independent.ie/irish-news/co … 90932.html

What happened on the furious phone call between Sean Quinn and Anglo bosses - → thejournal.ie/anglo-trial-li … 0-Feb2014/

At a glance: Week 1 of the Anglo trial - → irishtimes.com/news/crime-an … -1.1684219

Many thanks Boyracer we have been up the walls at work and havent had a chance to peruse the press

Kuehn, in the example does the bank take the original 10m back first leaving him with the difference and original collateral i.e 2m total?

Yes, he gets 2m back in that case.

You seem to be describing margin lending (to buy stocks) rather than CFDs? My idea of a CFD is simply a bet on share price movements without owning the underlying stock. I didn’t think CFDs would usually lead to physical delivery of the shares (unlike e.g. some warrants). So for me the missing link is how Quinn went from a CFD position to an actual ownership position.

FAOD: I am using the words “stock” and “share” interchangeably here.