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Friday 22 August 2014

Liquidation of IBRC may yet cost the State billions

Fears that key figures in banking collapse may not now face court

Published 10/02/2013 | 04:00

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THE Government's decision to rush through the liquidation of the IBRC could end up costing the taxpayer billions of euro.

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Several senior sources with an intimate knowledge of the IBRC's affairs told the Sunday Independent that the appointment of a special liquidator to the bank will inevitably depress the value of its €15bn loan book and warned that a speedy sale could see billions of euro in loans sold off at a heavy discount.

The implications for the taxpayer of such a sale by the liquidator could see the €1bn in short-term savings secured by the Government's successful negotiation of a deal with the ECB on the €30bn promissory notes wiped out.

It has now emerged that all benefit of securing the promissory-note deal in 2013 will be lost in order to repay senior bondholders, who were guaranteed by the State.

According to figures published by the Department of Finance, a €750m payout will be made to the last of IBRC's senior guaranteed bondholders, who had originally been due to be paid in 2015. This cost will rise to €1bn when transaction charges are added.

Undoubtedly, the news of the ending of the promissory note arrangement is a welcome development for Taoiseach Enda Kenny, his Government and the country – but the full consequences of the IBRC liquidation are only now becoming clear.

On the issue of the imminent sale of IBRC's loan book, a source close to the matter said last night: "You're looking at a firesale scenario if you offer these loans for sale now.

"If a loan is bought at 70c or 80c in the euro, that's a loss of 20 to 30 per cent. Repeat that across the €15bn loan book and it adds up very quickly.

"The senior management team at the IBRC consulted a number of advisers on the loan book to ascertain what its value would be in the event of an orderly wind-down and what it would be in the event of liquidation. It shouldn't surprise anyone to find that this liquidation will seriously depress the prices that can be achieved."

An unprecedented sell-off of loans relating to some of the country's richest businessmen and best-known companies will begin from July 1 this year.

This is expected to trigger huge corporate activity involving the bank's biggest borrowers who will have to refinance their loans themselves or see them sold on to private equity houses, sovereign wealth funds and investment banks. Certain borrowers may also seek to exploit the situation by attempting to acquire their loans at a discount.

Some of the most attractive loans in the portfolio are those owned by property investor Paddy McKillen, Davy Stockbrokers, the country's biggest stockbroker, and billionaire Denis O'Brien and his companies, all of which are understood to be fully performing.

Commenting on the liquidation of the IBRC, a spokeswoman for Paddy McKillen said last night: "Like everyone else, Paddy is trying to understand and get to grips with the situation with IBRC.

"He is ahead of schedule in refinancing his loans away from IBRC at full value in an orderly fashion. All of his loans are fully performing and backed by high-quality income-producing assets that generate significant profits after bank repayments are made."

The sell-off will also see high-profile smaller borrowers from Anglo or Irish Nationwide – like politicians Michael Lowry and Phil Hogan and broadcaster Gay Byrne– involved as their property loans are either sold off in the weeks after July or go into Nama.

While the IBRC's larger borrowers will be given the opportunity to buy their loans before they are transferred to Nama, mortgage holders with the former Irish Nationwide are unlikely to be given the chance to move their home loans either at a discount or even at full value.

While welcoming the Government's securing of a deal with the ECB on the promissory notes as an "astute piece of financial engineering", former IBRC chairman Alan Dukes noted that the bank's management team under CEO Mike Aynsley had been exceeding their targets in relation to the IBRC wind-down before the liquidation was announced.

He said: "The management team was excellent. They were all picked deliberately for their expertise and the fact that they hadn't been involved in any of the bank busts where they came from. They performed excellently and the bank exceeded its targets for the deleveraging plan they had put in place at the beginning of 2011.

"They were set to have the whole operation well and truly tied up well within the timeframe that had been given for 2020."

While the outcome of the IBRC loan sales process and its potential implications for the taxpayer remains to be seen, there will be massive anger from the public should any of the high-profile legal actions being pursued by the IBRC flounder as a consequence of the bank's liquidation.

The Sunday Independent has confirmed from impeccable sources that Richard Woodhouse, the senior IBRC executive responsible for heading up the bank's case against the Quinn family, has had his contract terminated.

Mr Woodhouse, who swore most of the affidavits in the highly contentious action, is said by informed sources to be considered vital to the legal team to the pursuit of the Quinns for the recovery of the €2.8bn the IBRC says they owe.

It is understood that IBRC's special liquidator will now consider approaching Mr Woodhouse to see if he can be retained as a consultant on the case, such is his importance to its prospects of success.

The IBRC's pursuit through the courts of former Irish Nationwide chief executive Michael Fingleton, its former chairman Michael Walsh and five other former directors will also have to be reviewed according to sources close to the case.

Last March, the IBRC issued protective plenary summonses against all seven bankers to avoid running up against the expiry of the statute of limitations. Under the statute, legal actions are blocked after six years in contractual disputes.

The bank's proceedings relate to matters dating back to 2006 when the six men were directors of Irish Nationwide and centre on actions taken by Mr Fingleton and the board's oversight of his role and management of the lender. The proceedings followed investigations by Ernst and Young and law firm McCann Fitzgerald, whose reports were passed on to IBRC by the Central Bank and the Department of Finance.

Questions in relation to the IBRC's pursuit of former Anglo Irish Bank CEO David Drumm through the courts in the US could also arise, according to sources close to the case.

Last night, independent TD Shane Ross expressed his concern at the potential collapse of proceedings against former bankers and borrowers of Anglo Irish Bank and Irish Nationwide.

He said: "Any prospect that those responsible for bringing the nation to its knees not being brought to account as a result of this bill is totally unacceptable. Should there be reckless lenders and borrowers who are not held accountable, the Government will have a serious case to answer.

"I will be asking the question in the Dail this week when the entire deal is due for debate. The chaos that accompanied this last week will have to lead to clarification of these issues in the coming days."

On the issue of the IBRC Act's potential constitutional flaws, Mr Ross added: "The state of panic that accompanied its passage through the Dail last Wednesday gives rise to deep concern about challenges to its detail."

Independent TD Mattie McGrath described the IBRC Act as "deeply undemocratic" and a "gross injustice" that infringes on the rights of ordinary citizens to take a case.

On Wednesday in the Dail, Mr McGrath sought clarity from Mr Noonan that the IBRC Resolution Act would not interfere with citizens' rights to take legal action but said his reply was unsatisfactory. In his response to Mr McGrath, Mr Noonan said the litigation against the Quinns would now be run by the special liquidator "until that litigation is sold or transferred to a third party".

"The special liquidator will be in a position to bring further proceedings, including contempt proceedings, if the circumstances so merit it," Mr Noonan said. He confirmed the proceedings brought by the Quinns against IBRC would be stayed as an automatic consequence of the appointment of liquidators.

His spokesman said: "The DPP had already issued an application for a stay of those proceedings on the grounds that a hearing might prejudice the criminal prosecutions issued by the DPP against former officers of IBRC, which application was due to be heard on February 11."

Irish Independent

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