A banking expert told the Commercial Court it was clear to him the €25m loan taken out by businessman Philip Lynch and his family together with property developer Gerry Conlan in 2007 was a recourse loan and he believed that should also have been clear to the average borrower.
Vincent Fennelly, who worked with Bank of Ireland (BoI) for 20 years and was a "core" member of its credit committee said an experienced borrower would know it was highly unlikely a bank would give 100pc funding for a land bank deal such as the purchase of an 86-acre site at Kilbarry, Waterford, he said. Irish banks were reluctant in 2007 to provide non-recourse loans, particularly for highly speculative land bank deals, and non-recourse lending was almost exclusively limited to investment property transactions, he added.
Mr Fennelly said there was no way he would have approved the loan to Mr Conlan alone if Mr Lynch pulled out of the deal and nor did he believe AIB would have approved the loan in such circumstances.
AIB's approach when dealing with the loan facility, including the fact it inserted and then deleted a clause providing for recourse to Mr Lynch and Mr Conlan, "did not help" matters, he added.
Cross-examined by Brian O'Moore SC, for the Lynchs', Mr Fennelly agreed he was aware of emails from solicitors stating the loan was recourse to land only.
When counsel suggested a €45m valuation for the Waterford lands informed AIB's approach to this loan, Mr Fennelly said a credit committee is conservative.
Mr O'Moore said Mr Fennelly had been on BOI's credit committee and BOI had not had the same "disastrous exposure" as AIB, now almost 100pc publicly owned.
Counsel also said Mr Conlan had borrowings of some €287m from AIB in February 2007, well in excess of the bank's recommended limit of €115m for individual borrowers, and suggested that level of exposure was reckless.
In his witness statement, Mr Fennelly noted Mr Conlan was given further funds by AIB after the Waterford deal, bringing his total exposure to €334m by February 2009.
If AIB had adhered to specific advice from its solicitors as to how the loan facility should have been handled, there would have been "no absence of clarity", Mr Fennelly agreed.
There was a very tight time frame within which to consider the final loan terms, he said.
In his view, a non-recourse loan facility was "never on offer", Mr Fennelly said.