Former chairman of AIB defends unusual loans to buy UK property
THE FORCED sale in 2008 of British properties bought with loans from Allied Irish Banks to Irish firm Green Property on “unusually favourable” terms was necessary to “put them into safe hands”, former AIB chairman Dermot Gleeson has said.
He was giving evidence at the trial of Achilleas Kallakis and Alexander Williams who are facing charges that they conspired to defraud AIB, which lent them £740 million (€930 million) for 16 property purchases on the back of an alleged forged guarantee from a Hong Kong property firm, SHKP.
In 2008, AIB learned “worrying” information about Mr Kallakis, including that his original name was Kollakis, that he and Mr Williams had been convicted for fraud and that the Hong Kong guarantee was not genuine.
Subsequently, it seized the properties and sold them to a subsidiary of Green Property called Kish, though AIB executive Donall O’Shea told Southwark Crown Court yesterday that it had not valued them before the £657 million sale. Besides making a 100 per cent preferentially priced loan to Kish, AIB also lent another £100 million to cover interest payments and working capital. Good terms had to be given because Kish could have taken on “a box of horrors’, Mr Gleeson said.
Under the deal, AIB will get a 35 per cent share of future profits: “[The terms] are unusually favourable, but the situation the bank was dealing with was very awkward and difficult,” said Mr Gleeson, who stood down as AIB chairman in 2009.
Mr Kallakis’s barrister, George Carter-Stephenson QC, alleged repeatedly that AIB had wanted to seize the properties from Mr Kallakis for months beforehand because it believed that substantial profits could be made.
However, Mr Gleeson said AIB had wanted by then to “bring an unhappy relationship” with Mr Kallakis to an end, particularly after the Serious Fraud Office and the City of London police had begun to investigate him.
The decision to sell the properties – rather than the British Virgin Islands-registered companies that owned them – led to AIB accepting a £26 million stamp duty tax bill that it could have avoided, said Mr O’Shea, who was AIB’s second-in-command of commercial lending in Britain in 2008.
The BVI companies “could have had issues”, he said. “The cleanest thing to do was to put them into new [Isle of Man-registered] special purchase vehicles.”
The Isle of Man registrations had taken place before the proposed sale was put to AIB’s “chairman’s committee” – the five-strong group of directors that handles issues that emerge between full board meetings – for approval. The sale went through 24 hours later.
Rejecting Mr Carter-Stephenson’s allegation that the sale “was a sham transaction” where the properties were knowingly sold for less than their value, Mr O’Shea said the bank had not wanted to sell them publicly. “If we had gone straight to the market, we would have taken far bigger losses.”
Facing charges from Mr Carter-Stephenson that some AIB documents on file had been fabricated, Mr O’Shea could not explain how his name appeared on a number concerning Mr Kallakis that purport to have been written before Mr O’Shea took up duty in London.
Questioned about Ireland’s banking collapse, Mr Gleeson accepted Mr Carter-Stephenson’s proposition that Irish banks had taken “a great degree of risk”.
Asked if it was reckless, he said: “I am loath to use the word ‘reckless’.” The risk models used by the banks were constructed to plan for a one-in-25 year crisis when the one that occurred “was a one-in-a-100 year crisis”, he said.
“You can certainly say, in retrospect, that it looks reckless. I would prefer to say that the risk-models were seriously flawed and there is no doubt that there was some careless lending as well,” Mr Gleeson, a former attorney general said.