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News : Irish Last Updated: May 31, 2011 - 4:49 PM

Quinn family say loans of €2.34bn from State-owned bank Anglo Irish Bank “unenforceable”
By Finfacts Team
May 31, 2011 - 5:14 AM

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Seán Quinn founded his business in 1973 and it became Ireland's biggest private company with a payroll of over 5,000. The insurance business had been the cash cow of the operation. Business and personal debts amount to €4.0bn with €2.9bn owed by the Quinn family to the bankrupt State-controlled Anglo Irish Bank, following a disastrous reckless bet, which brought the family crashing to earth.

The Quinn family is suing the State-owned bank Anglo Irish Bank claiming that loans totalling €2.34bn, which were advanced in 2007 and 2008 are “unenforceable” as they were made for the purpose of “an illegal objective” of manipulating the stock market to support the bank’s share price.

The wife and five children of Seán Quinn say Anglo’s lending was “tainted with illegality” and “intended to support an illegal purpose” in breach of EU market abuse rules.

The family is seeking hundreds of millions of euro in damages and on Monday Mr Justice Peter Kelly the head of the Commercial Court, a division of the High Court, agreed with Anglo's  consent to the case being fast-tracked.

The Quinn family has a debt to Anglo about €2.9bn and the €2.34bn relates to loans that were advanced to cover Seán Quinn's exposure on the option he took to build up a stake of 28% in the bank (see below).

The bank unwound Quinn’s stake in 2008 as the businessman incurred huge losses on his option gamble, by lending to his family and 10 customers, and dividing the shares to avoid a collapse of the share price through a sudden sale.

In October 2008, the Financial Regulator said in a statement: "The Financial Regulator has reasonable cause to suspect that breaches of regulatory requirements occurred in relation to QIL (Quinn Insurance Limited).

These breaches related to contraventions by QIL of obligations under the Insurance Acts and Regulations, including failure to notify the Financial Regulator prior to providing loans to related companies.

The Financial Regulator required QIL to pay a monetary penalty of €3,250,000. The Financial Regulator also required Mr Quinn to pay a monetary penalty of €200,000."

Quinn was forced to resign from the QIL board.

In March 2010, the Financial Regulator applied to the High Court to have administrators appointed to QIL.

Again it was suspected that there were breaches of Insurance Acts and Regulations through cross-guarantees from the insurance unit for borrowings by other group firms.

In jurisdictions such as the United States, breaches of insurance and investment regulation risk imprisonment.

Seán Quinn, Ireland's once richest man, built up a conglomerate originally from quarrying and later he moved into cement and glass production. In the hospitality area he operated hotels and golf courses but his biggest cash cow was Quinn Insurance that beat rivals on price and convenience using phone sales in the pre-internet age.

He was felled by a disastrous gambling bet that shares in the famed 'builders' bank Anglo would keep on rising and as the recession began to bite with personal losses mounting, the group became increasing reliant on the cash cow.

On March 30, 2010, provisional administrators were appointed to take control of Quinn Insurance, which had 1.3m customers, including those who transferred from the health insurance business of the Irish unit of UK company BUPA in late 2007.

Quinn Insurance had posted a loss of €788.4m in unaudited accounts for 2009, which had been provided to the Financial Regulator by the court appointed administrators. The loss comprised a trading loss of €127.5m on its underwriting activities and exceptional costs of €677.6m resulting from the writedown of certain non-core assets held by subsidiaries, understood to be a wind farm in Derrylin, Co. Fermanagh and a number of hotel properties. The losses on underwriting activities was made up of €41m related to its business in the Republic and €86m to the UK.

The Quinn Group made a €900m loss in 2009, reflecting losses at Quinn Insurance and write-downs on its manufacturing and property interests.

A Reckless Gamble

Seán Quinn had built up a stake in Anglo Irish Bank through a financial betting product called Contracts for Difference (CFD). The CFD's allowed him to acquire a right to buy shares by providing 10% of the value and the tax regime was also favourable compared with an outright purchase. He was expecting the price of Anglo's shares to continue rising.

By 2008 Quinn had used CFDs to build a potential stake of 28% in Anglo but the Anglo price was sliding and in July 2008 to cut his potential future losses, he converted the CFDs into an ordinary 15% shareholding. It cost him around €2.5bn and some of the shares were bought with borrowings from Anglo. Besides, the remainder of his position was bought out by 10 major customers of Anglo and the bank lent them the money for the deal.

Anglo Irish Bank closed at 22 euro cent on the Irish Stock Exchange, on its last day of trading, Jan 16, 2009, before becoming a State-owned bank.

On February 21, 2007, the ISEQ index rose to an-all time high of 10,041 and the Financial sub-index rose to 18,098. Bank of Ireland closed at €18.65; Anglo Irish closed at €16.64 and AIB closed unchanged at €23.95.

A year later, on February 21, 2008, AIB closed at €13.80, Anglo Irish Bank finished at €8.84, while Irish Life & Permanent closed at €10.20 and Bank of Ireland traded at €9.50.

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