AIB trusted £800m loans had backing
NEARLY £800 million worth of loans to two British businessmen would never have been given if AIB had not believed that they were backed by a giant Hong Kong property firm, former attorney general Dermot Gleeson said.
The declaration by the former AIB chairman came yesterday during the trial for conspiracy to defraud against Achilleas Kallakis and Alexander Williams at Southwark Crown Court in London.
The UK Serious Fraud Office alleges that the alleged guarantees by Shanghai Hong Kong Properties (SHKP) to cover lease agreements on properties bought by the duo with AIB loans were forged.
A 2006 deal by the two accused to buy a £100 million (€126 million) office block in Croydon had to go to the full AIB board, chaired by Mr Gleeson, for approval because it exceeded the bank’s own exposure limits.
The deal was first discussed in 2006 by the bank’s “chairman’s committee” – a small group of executive and non-executive directors who dealt with major issues between full board meetings.
AIB’s group credit committee, which had previously examined it, was happy with it, largely on the back of the guarantees offered by SHKP. By then, AIB had had a business relationship with Mr Kallakis for three years, where it had funded the purchase of eight properties. Two of the loans had been fully repaid.
However, the Croydon deal would have brought total lending to Mr Kallakis, who faces multiple fraud charges along with Mr Williams, to £230 million. AIB’s internal rules at the time limited the bank’s exposure to any one individual to €190 million, unless a specific exemption was granted by high authorities in the bank.
Bank officials were confident about the deal because of the guarantees they believed had been made by SHKP; the rent available from the properties bought; and the fact that they could be sold off if problems emerged.
Giving evidence in the trial, the former attorney general told the court he had not been aware of the bank’s ties to Mr Kallakis before the 2006 deal went to the board.
The proposal had been approved by AIB’s group credit committee, including senior executives David Meagher, AIB’s group credit officer and Colm Doherty, head of AIB’s Capital Markets, before it went to the directors.
“The proposal was well-regarded. The experience of lending to this customer was good and, most notably from my point of view, the fact that there was a very significant, highly regarded and large HK company that was, in fact, promising to guarantee repayment,” said the AIB former chairman.
SHKP had £16 billion worth of assets, he said, and was “one of the top four or five companies” in Hong Kong, with high rankings from rating agencies that were equal to the Hong Kong government’s own credit standing.
“When banks loan money, they are very interested in seeing how it will come back, how you will get the money back,” said Mr Gleeson, who stood down as AIB chairman in 2009. If something had gone disastrously wrong with the Croydon building – “say, Legionnaires’ disease” – AIB knew that SHKP would have “to pick up the bill”.
Research conducted by the bank beforehand had shown a 20- strong syndicate of banks, including Citigroup and HSBC, had lent money to the company “for a quarter of 1 per cent”.
“That is a very thin margin. They must have been very sure of getting their money back. That was another piece of reassurance,” Mr Gleeson told the court.
Asked if he had had any reason to doubt any of the assurances that had been offered, he said: “Absolutely not.” If the bank had not been convinced that the rent guarantee from SHKP had been in place, he said, he thought that the Croydon deal “would probably not have happened”.
It would, he said, have been “a completely different proposition” because AIB was being asked to lend for a property which had “a very high loan-to-value ratio”.
SHKP, AIB understood, was to receive a £15 million premium from Mr Kallakis’s company as its fee for offering the rent guarantee. The Croydon office, rented by the Home Office, was subsequently revalued to £128 million.
The “overriding lease” that AIB understood SHKP to be accepting meant that it would have to pay £16.4 million a year, even though only £13.4 million was then paid by the tenants.
The bank’s understanding of events would have been very different, he accepted, if it had understood then that payments from Mr Kallakis to SHKP as fees for a rent guarantee were not being made.