A key witness in the trial of four men accused of profiting from insider trading made a telling statement on how investment bankers are viewed by their corporate clients.
Andrew Palmer, who was chief financial officer of insurance giant Legal & General during the 2008 financial crisis, described to a London court on Friday how he treated his brokers.
Palmer said he retained two investment banks as corporate brokers for the company to advise on how to market the company to shareholders.
But he made sure to tell them only “six tenths” of all the information they might need to know about the company.
When they complained, Palmer said he would tell them (emphasis ours): “‘I can’t reveal everything to you, I don’t know where you’re going to be working next week.’ On the whole, investment bankers are a fairly transient population.“
Palmer had a working relationship with Martyn Dodgson, one of four men accused of illegally making £1 million ($1.4 million) from a series of trades on Legal and General stock as the financial crisis took hold in 2009.
Palmer, and Legal & General, were clients of Dodgson as a broker at UBS, and the two stayed in touch as he moved from the Swiss bank to Morgan Stanley, Lehman Brothers before landing at Deutsche Bank in October 2008.
Last month the court heard how Legal & General bought a £1 billion stake in a collateralized debt obligation (CDO) in 2008 from Deutsche Bank.
A CDO is a portfolio of loans that pays the owner a regular income. In the deal, L&G would receive a stream of payments based on the interest from the loans, while Deutsche would retain the principal asset of the underlying loans, and bear the risk of the value of those loans changing.
As Lehman Brothers fell and the financial crisis got worse in the final months of 2008, the market value of L&G’s CDO collapsed, leaving the insurer owing £155 million to Deutsche Bank, based on the side agreement.
L&G attempted to renegotiate the terms in January 2009. Deutsche Bank initially agreed, but demanded an £18 million fee at the last minute.
Dodgson, along with Andrew Hind, an accountant not employed at Deutsche, Benjamin Anderson, an independent day trader, and Iraj Parvizi, a former director at Aria Capital are accused of profiting from the inside information about L&G’s financial troubles.
They all deny the charges.
The case has been dubbed Tabernula — Latin for little tavern — after the investigation’s codename.
The court case started in January and is set to last at least 12 weeks at Southwark Crown Court in London.
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