Monday 24 April 2017

Tycoon behind bid to stop NAMA transfer owes €2bn

Sam Smyth, Dearbhail McDonald and Emmet Oliver

THE property tycoon taking a landmark legal action against the State's toxic loan agency owes €2bn to two Irish banks.

The Irish Independent has learnt that Paddy McKillen, the Belfast-born investor, owes €2bn to Anglo Irish Bank and Bank of Ireland.

The Government claims his debts pose a systemic risk to the Irish economy and the banking system if he encounters difficulties repaying his loans.

The lenders say Mr McKillen is repaying his loans and interest at present.

Mr McKillen has hired some of the world's leading economic and banking experts, including Nobel Laureate Dr Joseph Stiglitz, to support his case.

When asked by the Irish Independent, Mr McKillen's representatives would not disclose what professional fees have been paid to expert witnesses who have provided sworn statements in support of his action.

He is challenging an attempt to transfer an €80m tranche of "unimpaired" loans held with Bank of Ireland to the National Assets Management Agency (NAMA).

But the full extent of the reclusive developer's debts is set to be revealed in his legal action which opens before the Commercial Court early next month.

Mr McKillen's borrowings represent 4pc of the €50bn owed by the top 100 developers whose loans are being taken over by NAMA.

Although the legal action will centre on whether his "good" loans are eligible or should be transferred to NAMA, experts retained by him and 15 of his companies have raised doubts about the asset recovery agency.

Concerns, which are expected to be rebutted by experts hired by NAMA, have been expressed about its expertise, resources, knowledge, ability to extend credit and its "political positioning".

When asked by the Irish Independent, Mr McKillen's representatives would not disclose what professional fees have been paid to expert witnesses who have provided sworn statements in support of his action.

The Irish Independent has learnt that Dr Stiglitz, a professor of economics at Columbia University in New York and former World Bank president, will tell the Commercial Court that there is no benefit to the taxpayer in NAMA taking over good or performing loans.

He will say the taxpayer "may be worse off" if NAMA underpays for performing loans because of the likely increase in public costs of recapitalising the banks.

Dr Stiglitz will also argue that the Government should only inject new money into the banks after all investors are forced to carry their share of the losses on the loans they gave the lenders.

"NAMA is structured with incentives that go against the purported public interest in reviving the economy," said Dr Stiglitz.

Insolvency

He also warned that the agency would not be able to "meaningfully" extend credit for long periods of time because it did not have a bank licence or charter. In the week that the Government partially extended the bank guarantee and rushed through a new structure for Anglo Irish Bank, Dr Stiglitz said that if the guarantee was removed, the twin problems of illiquidity and insolvency will "immediately emerge".

NAMA will only have a modest role in Ireland's bank recovery, according to another expert retained by Mr McKillen. Internationally renowned economist Dr Michael Cragg has said there is no bank in Ireland "that could unambiguously be considered sound".

Dr Cragg will say that NAMA is more concerned about avoiding problems with the EU than engaging in a constructive dialogue with borrowers.

Dr Stiglitz and Dr Cragg are expected to provide expert evidence to the Commercial Court early next month.

It is understood that the experts have expressed concern that NAMA, which does not have a bank licence or charter, will not be able to meaningfully extend credit or manage long-term commercial relationships with borrowers.

The experts have also questioned the experience and expertise of NAMA's decision-makers.

"It is a complete mystery to me as to why the NAMA officials and the experts they have hired would not recognise either the information value of long-term banking relationships or the destructive effects of severing such relationships, given their central importance" said Dr Cragg.

Irish Independent

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