Tuesday 27 June 2017

Developer's victory raises questions over 'bad bank'

Siobhan Creaton

PADDY McKILLEN'S court battle to stop €1.4bn of his loans being transferred to NAMA has paid off and dealt a blow to the all-powerful bad bank.

The decision will allow the reclusive property developer to continue running his successful empire the way he knows best and may prompt other developers to have a tilt at NAMA.

Mr McKillen, through a spokeswoman, said he was "delighted" with his victory and the fact that he would recoup up to €7m it cost to prove his case.

He always maintained his business was different and that his loans shouldn't be lumped in with those of other bust developers being managed by NAMA.

There was nothing "risky" about his loans, he argued.

His borrowings should never have been classed as a "systemic risk" to the banking system as NAMA claimed, he said, and argued the agency had failed to give him a "fair hearing".

Mr McKillen is a long-term property investor who owns prime properties and shopping centres that are paying their way.

They include the Jervis Shopping Centre in Dublin 1, as well as the Clarence Hotel and, ironically, Treasury Building in Dublin where NAMA is based.

He jointly owns the Maybourne Hotel Group, which includes Claridges and the Connaught and Berkeley hotels in London.

Those loans have since been sold by Irish banks to a Malaysian sovereign-wealth fund so no longer fall within NAMA's remit. He also has properties in France, the US, Asia and South America.

The Belfast native's quarrel with NAMA was that he was a "good" borrower who was paying his loans and believed he would be able to pay them into the future.

To ensure the valuable property portfolio he had amassed since the 1980s would stay intact, he needed to have a traditional banking relationship, he claimed, and not have his loans managed by an agency set up to work out bad loans.

The key difference would be that NAMA, with its extensive powers, could call in those loans at any time, for example, or force the sale of some properties thereby potentially destroying their long-term value.

Nobel prize-winning economist Joseph Stiglitz agreed with him and told the court it wasn't in the Irish taxpayers' interest or that of the banks for Mr McKillen to transfer what were commercial loans rather than loans taken out to develop land banks to NAMA. Dr Stiglitz, who examined the €2.1bn loans, suggested the economic benefits of moving them to NAMA were "questionable at best" and there were "compelling arguments" to leave them with Bank of Ireland and Anglo Irish Bank.

Indeed, Anglo's boss Mike Aynsley supported Mr McKillen as he was one of his rare customers who, while owing the bank around €800m, had a steady income stream to repay the loans.

Mr McKillen said that a "minuscule" part of his portfolio had loans classed by the bank as having been taken out for development purposes because they were attached to properties acquired long before the property bubble began to inflate.

Reckless

The court heard he hadn't bought property in Ireland since 1998 and hadn't been a reckless speculator. He had blue-chip tenants on long-term leases and, after meeting his bank repayments, was typically making a 30pc profit from his portfolio.

It was because he was consistently generating plenty of cash that Mr McKillen was able to strengthen his position in his fight with NAMA.

In recent months, he rapidly made a dent in his loans and is estimated to have paid back an extra €75m in capitals so far this year on top of the €95m in interest repayments. His loans are said to be well below €1bn.

And now, in a surprise move, NAMA has decided not to transfer Mr McKillen's loans after all. So Mr McKillen won and his victory will be closely watched by others.

He may be the exception, in so far as he had the substantial resources to rapidly pay down his loans to the level that allowed NAMA to let them fall below its radar.

But his success this week once more raises questions about NAMA's business model and whether Ireland's bad bank will ever deliver the best outcome for Irish taxpayers.

Irish Independent

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