Kallakis trial sheds light on workings of AIB during 2008 crisis
BUSINESS OPINION:Announcing that it had a massive problem with a €1 billion UK property portfolio in late 2008 would not have been a good move, writes JOHN McMANUS
LATE IN 2008, in the midst of the credit crisis, AIB did a property deal that, notwithstanding the times that were in it, struck many as odd.
The bank seized the property portfolio of a UK client, repackaged it and sold it on to Green Property on extremely favourable terms. The £740 million (€930 million) portfolio of 16 properties had been assembled by Achilleas Kallakis, a Greek businessman who had borrowed the money from AIB partly on the back of guarantees from a Hong Kong property company.
The guarantees and much else of what Kallakis told the bank tuned out to be untrue and he is currently on trial in London for fraud. The case is being taken by the UK Serious Fraud Office, but AIB employees past and present are key witnesses, including former non-executive chairman Dermot Gleeson, who took the stand last week.
His answers – and those of other AIB staff – shed light on the Green deal and on what was going on in the bank at time – something the bank has been understandably reluctant to talk about publicly despite having subsequently collapsed into the arms of the taxpayer at a cost of €18.4 billion.
The terms of the Green deal were, to put it mildly, highly unusual. The bank moved to take control of the properties when Kallakis turned out to be not all that he seemed. Instead of appointing a receiver or putting the properties on the open market, the bank sold them on to Green without even carrying out a fresh valuation. They were sold for £667 million, leaving AIB nursing a loss of £73 million, or €100 million, on its loans.
In addition, the bank lent Kish – the Green acquisition vehicle – 100 per cent of the purchase price at preferential rates plus another €100 million to cover costs and interest.
From Green’s perspective the deal must have been a no-brainer, because whatever else Kallakis might have been he was no dummy when it came to property and had assembled a decent portfolio.
The only condition seems to have been that Green had to give AIB 35 per cent of any future profit, but it was presumably free to extract whatever management fees and so on it chose. It may not be the deal of the century, but it comes close.
According to Gleeson’s evidence it seems to have been waved through by the bank’s top management in 24 hours. He told Southwark crown court last week that the deal was already in motion when it came before his “chairman’s committee” of five directors, which dealt with issues that arose between board meetings. The terms were “unusually favourable, but the situation the bank was dealing with was very awkward and difficult”, Gleeson explained.