Thursday 23 November 2017

Builders ‘deceived’ top banks on loans

Concerns that same assets were used to get multiple borrowings

FEARS were growing last night that a number of property developers deceived their banks by using the same assets to secure multiple loans from different lenders.

The concerns came to light as the fledgling National Asset Management Agency (NAMA) began the huge task of trawling through documentation on €90bn of development loans from the two big banks and the EBS building society.

There are fears that more multiple borrowings, like those of fugitive solicitor Michael Lynn, will come to light. NAMA is the only agency that will have seen all the loans.

Staff at some of the banks will be working over the weekend collating the mass of material for presentation to NAMA. They have been asked to submit a detailed questionnaire on the make-up of development loan books by Monday.

Last night several lawyers told the Irish Independent that the collapse of the property market could expose further wrongdoing.

In the wake of the scandals involving disgraced solicitors Michael Lynn and Thomas Byrne, there were demands for a central register of all undertakings connected with property transactions to protect lenders and third parties – and to combat fraud in the market.

But, in the present situation, there is no way lenders can cross check with other banks on what collateral has been used for borrowings. This leaves them open to issuing loans on assets that have already been used as collateral for other borrowings.

Legitimate However, in most cases, borrowers disclose these key facts as part of the legitimate practice of cross collaterisation, where each lender knows the extent of the security. Government sources said they had received no reports from NAMA of any fraudulent statements by borrowers.

Untangling and separating the legitimate from the potentially deceptive will be a major task for NAMA and the bank staff who will work on the project.

The use of bank staff in the gigantic project threatened to create another political row yesterday, after suggestions that the banks could earn up to €9bn in fees for managing risky property loans on behalf of NAMA.

Sources confirmed yesterday that a plan under consideration for NAMA includes paying lenders an incentive fee of up to 10pc of the value of loans the agency can recover over the next decade or so.

Their current value is €90bn, but NAMA will pay considerably less than that figure. Labour finance spokesperson Joan Burton criticised the idea of a potential bonanza for the banks. “The banks could end up taking slightly more of a reduction from (NAMA) for the loans, but end up recouping a large part of this in management fees.”

Finance Minister Brian Lenihan and Michael Somers, head of the National Treasury Management Agency, have already said NAMA would be staffed by a small number of experts, with a lot of work outsourced to banks and other bodies.

The banks will be expected to set up separate companies – or special purpose vehicles (SPVs) – to administer the loans on behalf of NAMA. These would be run at armslength from the other operations of the lenders, according to sources.

Analysts expect the six lenders will have to write down the value of the loans by between 15pc and 20pc before the transfer, resulting in the NAMA loan book being as low as €72bn when it is up and running.

Ciaran Callaghan, an analyst with NCB Stockbrokers, said it made “commercial sense” for the banks to receive an incentive fee. “They have the most knowledge of their own customers and should ultimately be able to extract most value from the toxic loans.”

But Ms Bruton warned of the risks of NAMA outsourcing to the banks. “I’d be very worried if the disastrous loans ended up being run in the banks by the same people who doled them out.”

Government-appointed consultants PricewaterhouseCoopers have dug deep into both Bank of Ireland’s and AIB’s loan books.

BoI has €12.2bn of landbank and property development loans and analysts believe that it could end up transferring up to €20bn to NAMA, when commercial investments used as collateral for these projects is included.

Bank of Ireland has dedicated a team of 100 people over the past six weeks to figure out how it will handle the transfer of loans to NAMA.

Its new chief executive, Richie Boucher, said this week he expected the agency to take over loans on a phased basis, rather than a ‘Big Bang’ handover, and that he did not see any “insurmountable legal obstacles”.

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