How BoSi paid a heavy price for its Irish property gambles
20 February 2011With so much attention on the struggle to deal with the consequences of excessive lending in the Irish state-guaranteed banks, it is easy to forget just how badly a lender such as Bank of Scotland (Ireland) (BoSi) did in the Irish market.
As a newly-established company called Certus takes up the job of managing BoSi’s commercial loan portfolio, a fuller picture of the extent of property lending during the boom years is emerging.
BoSi received capital injections from its parent bank, Lloyds, totalling €8 billion during the meltdown of the last two years.
Having arrived in the Irish market with a bang, its really big year was 2000.
That year, the bank, led by then chief executive Mark Duffy, bought the state-owned ICC bank for €340 million.
A solidly run business lender, ICC had been part of the early industrial policy of the first Fianna Fáil administration in the 1930s.
Also in 2000 BoSi began aggressively going after the home loan market, by offering cut price mortgages.
The competition was wonderful for consumers, but may in the long run have contributed to the race to the bottom in terms of shovelling outmoneyto first-time buyers.
Earlier this month the bank, which has now closed its retail and commercial banking operations here, acknowledged that it is prepared to do deals in certain circumstances with buy-to-let mortgage holders stuck in negative equity.
Having acquired a solid business lender, within five years BoSi had become immersed in the booming Irish property market. Profit peaked in 2007 at €272 million. By 2008, loans of nearly €20 billion were owed on around 6,700 loans.
The biggest borrowers were household names in property and other businesses, but property dominated.
A lot will have changed for many of the bank’s biggest borrowers since 2008.F or some they will have paid down some debt, and the amounts currently outstanding may be a lot less.
In other cases, where there have been receivers appointed, the situation for the bank will have got worse.
Multiple loans to property developers owed in late 2008 show the biggest single borrower was property developer Liam Carroll’s group of companies.
The bank’s gross exposure to Carroll was €750 million. Like other borrowers the net exposure to the bank was reduced by exemptions, such as cash deposits the borrower may have held with the bank.
Next was Bernard McNamara’s businesses, which carried a gross exposure for the bank of €610 million.
At that stage the bank was taking stakes in joint ventures with its biggest borrowers, on the pretext that it would create more profit upside for the bank when things went well.
However, it also meant a greater exposure and potential loss for the bank if it all went wrong.
In McNamara’s case, the company behind the Burlington Hotel, Soltura, had borrowed €285 million. McNamara himself had borrowed €168 million.
Towards the end of 2008 the bank took a specific bad debt provision on McNamara loans of €58 million.
But much worse was to come. Of its top 30 borrowers, the bank took bad debt provisions on two of its clients in the last quarter of 2008.
Impairment charges that year were over €500 million.
After McNamara was Derek Quinlan, to whom the bank’s gross exposure was €330 million in 2008.
Next came David Kennedy, of the Formation Group, who was heavily involved in property plays in Ireland and Britain. At the end of 2008, gross exposure here was €240million.The Rhatigan group was next with €220 million.
The Alken group, backed by Anthony Alken, is a major wine importer. Alken also became heavily involved in property development with BoSi. The bank took a 40 per cent stake in a property company associated with Anthony and Greg Alken.
Alken bought the former SDS site on the Naas road in west Dublin for €110 million. The bank had a gross exposure to the company set up to develop the site, Gateway MultiModal, of €128million at the end of 2008.
The bank’s gross exposure to Alken Group at the end of 2008 was just under €200 million.
Another big borrower was Jim Mansfield’s HSS group, which borrowed €180 million. Elliot Construction group was next with €175million.Hotelier and property developer Gerry Barrett’s Kitty Hall group was in there to the tune of €165million.
Sean Quinn’s Quinn Group had borrowed €150million, including a loan of €48 million owed by Bouverie No 2 Ltd, one of the company’s behind the Belfry hotel and golf course in Britain.
Other major borrowers in the bank’s top 20 included Brendan Hickey’s Brambleberry group (€130 million), Galway developers Walter King and Peter Gilhooley (€136 million), O’Flynn group (€120million), the county Monaghan based Tuskar Group (€95 million), Tom Moran’s T&S Taverns (€132 million), Terry Devey’s Grand Canal Square Developments (€100 million), and Pat Doherty’s Harcourt Developments group (€90 million).
Having acquired a lender to small and medium-sized businesses, by 2008 just three of the bank’s biggest borrowers had a core business outside property.
Taking exemptions and other factors into account, the largest net exposure of the bank was to McNamara. It amounted to 16 per cent of the bank’s own funds or capital.
This was within regulatory limits, but a hefty exposure none the less. Its top 10 borrowers accounted for 58 per cent of the bank’s own funds.
This concentration, particularly in property, led to massive losses when the economic crisis hit.
Within two months of this snapshot of the bank’s loan book, its chief executive Mark Duffy signalled in February 2009 that he was stepping down.
The bank reported a pre-tax loss of €2.9 billion in 2009. Impairments in the first half of 2010 were a further €1.5billion.
The management of the loan book now falls to Cetrus, a new company with a seven-year contract to manage BoSi’s outstanding loans.
Having just tied up an agreement last month with the main trade unions representing staff, that work can now begin in earnest
Monday, February 21, 2011
How BoSi paid a heavy price for its Irish property gambles | The Post