INBS developer loans without any personal guarantees can't be chased
A SELECT group of developers who borrowed from Irish Nationwide cannot be pursued for debts personally because they received loans without personal guarantees and via special purpose vehicles (SPVs), the Irish Independent has learned.
The news comes as the beleaguered society prepares to report post-tax losses of up to €2.5bn in mid-April on the back of unprecedented loan losses, according to sources. The loss marks a ten-fold increase on its shortfall for 2008.
Irish Nationwide has already signalled that it will need up to a €2bn bailout from the State. However, this is likely to be higher as the new head of financial regulation puts pressure on lenders to hit higher capital levels. An internal review of the society's UK and Irish loan books has discovered a high-risk lending model which rarely used personal guarantees, in contrast with Anglo Irish which had a policy of taking this additional precaution.
The society's loan book was built up under ex-chief executive Michael Fingleton, who has to date refused to repay a €1m bonus from the lender. While some clients of the building society like Liam Carroll were required to provide guarantees, others, particularly in the UK market, were rarely asked to provide them.
The building society also lent to SPVs owned by borrowers and secured on an underlying property asset. However, these companies are not linked directly to the main trading companies of the borrower and, as a result, recovering monies becomes far more difficult. However, the chief property asset can be recovered.
SPVs are a traditional company structure used to minimise risk. They are usually what's known in the industry as "bankruptcy remote", meaning even if they go to the wall the liabilities do not fall at the door of the company which set up the SPV originally.
One well-placed source said that Irish Nationwide often took equity stakes in these SPVs and that their limited liability structures were designed to limit the society's downside risks as well as that of the developers.
The National Asset Management Agency will not apply a far larger discount on Irish Nationwide than any other institution to reflect the nature of its lending and equity participation deals, particularly into the UK. Sources said the haircuts would be all the worse for the fact that interest charges on the society's loans to the SPVs were typically rolled up until developments were completed and were being disposed of. SPVs that are still in existence would be sitting on huge levels of rolled-up interest, according to industry observers.
A new management team at the building society, led by Danny Kitchen and Gerry McGinn, have now reviewed 90pc of the society's loan book.
The review has discovered some of the highest loan-to-value ratios of any loan book in the Irish system. The new team were astonished at the small number of people who have been managing the loan books over recent years.
The building society still has 50 branches around the country, which have been doing a small amount of mortgage business.
It is understood that Irish Nationwide would like to revamp this retail offering. The building society is "agnostic'' on the idea of a third force in Irish banking, but is very keen that any structure includes Irish Life & Permanent.