McKillen 'not entitled' to loan review

The Attorney General has told the High Court property investor Paddy McKillen is not entitled to any “special” treatment to prevent his €2.1 billion loans being transferred to the National Assets Management Agency (Nama).

The Nama Act 2009 was brought in as part of the State’s “unprecedented intervention” via the bank guarantee of October 2008 to support the financial system and economy but Mr McKillen’s legal challenge failed to recognise this context, AG Paul Gallagher said.

The State was seeking to deal with the problem at “a macro level” but Mr McKillen and his experts did not recognise the banks could not have financed his loans without the State support provdied to them since 2008, he argued.

The “writing was on the wall” when the draft Nama Bill of summer 2009 indicated what loans would be acquired but Mr McKillen had not moved to refinance then, he added.

The banks were the conduit through which the Irish economy was preserved and Nama was established to remove “troublesome” assets from the banks balance sheets. Speed was of the essence and Nama aimed to achieve all transfers by February 2011.

Mr Gallagher was opening the State’s arguments opposing Mr McKillen’s challenge to the procedures under which Nama decided to acquire his loans.

Nama decided to acquire the loans on grounds the €2.1 billion size of Mr McKillen’s exposure to the five participating institutions in NAMA represented a “systemic risk” to the Irish banking system.

Mr McKillen is challenging the transfer on various grounds, including that the procedure by which Nama decided to acquire the loans breached his constitutional right to fair procedures as he could not make representations against transfer.

Today, the Attorney General argued Mr McKillen has established no substantial grounds to permit judicial review of Nama’s decision. Mr McKillen now accepted the loans were eligible for transfer under the Nama Act but argued they should not be acquired, he noted.

Mr McKillen had a method of financing that suited him, taking out short term loans to finance long-term investments and having those loans then rolled over, but it was “unsustainable” to suggest the State could not intervene on a macro basis because of his personal financing structure, the Mr Gallagher argued. There was a risk involved in that method of financing.

Mr McKillen’s loan portfolio includes some non-performing loans, some loans secured on properties of “declining or uncertain values” and other loans which had expired, he said. The expired loans include an Anglo Irish Bank share loan of €41 million but Mr McKillen has argued this is a “non-recourse” loan so there was no default involved.

While Mr McKillen was putting his need to preserve his relationship with his banks at the centre of his case, that relationship was only made possible by State intervention, the Attorney said. Mr McKillen had “totally ignored” the nationalisation of Anglo and effective State ownership of Irish Nationwide Building Society.

Mr McKillen’s case was premised on the need to maintain long-standing banking relationships with “all sorts of udnestandings”, Mr Gallagher said. While Mr McKillen had put his relationship with Anglo to the fore in his affidavits, there were a range of breaches of loan-to-value and other covenants in some loans which he did not dispute, while some of his other loans had expired and not been renewed.

The Nama Act porovided any covenant breaches rendered loans non-performing.

While Mr McKillen argued these were “technical breaches” and he is making interest repayments, an email from Anglo complaining he had not engaged in refiancing of some loans painted a “totally different picture” of this banking relationship.

Mr McKillen could have avoided transfer of his loans had he refinanced since 2008 but he had not done so and no explanation as offered. He was now saying he was entitled to make representations to Nama to allow him refinance and this was just for him as he has performing loans but he had established no basis for the carving out of “a separate status” for him.

Contrary to the “touching belief” of Mr McKillen’s experts, including Dr Jsopeh Stiglitz, the Novel prize winning economist that only “good borrowers” would seek to make representaitons to avoid transfer of their loans, that could not confine the rights of all affected if Mr McKillen succeeded, Mr Gallagher said. The Nama Act has to deal with a macro, not micro, problem.

Earlier, in closing submissions for Mr McKillen, Michael Cush SC said his client’s “real objective” in this case was “to get the rights he is entitled to within the Nama model”.

Mr McKillen was not seeking to strike down Nama but believed he “should not be dealing with it”. There was also a dispute between Nama and Mr McKillen whether there was default on certain loans.

Counsel said experts for Mr McKillen supported his claim Nama is regarded internationally as a “bad bank” and that the acquisition of Mr McKilen’s loans would adversely affect his economic interests. Mr McKillen’s experts disputed the views of experts for Nama, including Professor Dermot McAleese of Trinity College, Dublin, that, in the absence of Nama, the property business would be in even worse shape.

Mr Cush also read emails of discussions of Nama board members which, counsel argued, supported his claim NAMA has a natural incentive to maximise profits not just for the public but also its private shareholders.

The case continues tomorrow before a three judge court comprising High Court President, Mr Justice Nicholas Kearns, Mr Justice Peter Kelly and Mr Justice Frank Clarke.