The National Assets Management Agency (Nama) was not entitled to decide to acquire some €2.1 billion loans of property investor Paddy McKillen and his companies simply because it believed their size alone represented a “systemic risk” to the banks involved in Nama, it was argued before the Supreme Court today.
Had Nama informed Mr McKillen it considered the size of the loan portfolio such a systemic risk, he could have taken steps to address that, Michael Cush SC, for Mr McKillen, also said.
Mr McKillen had rejected an offer of €1 billion for his hotel group in London because he did not believe it represented good value, but he may have sold had he been aware of Nama’s intention, counsel said.
Mr Cush said it was his case Nama was required, but had failed, to carry out a qualitative assessment as to whether the loans did represent a systemic risk.
The McKillen loans, he argued, did not represent such a risk and Nama failed to address a range of issues to determine if they did, including the solvency of Mr McKillen and his companies, whether any of the loans were impaired or were likely to be impaired, and the quality and diversification of the property portfolio involved, with most of it outside Ireland.
Counsel was continuing his submissions in the appeal by Mr McKillen and 15 of his companies against the rejection by a three judge High Court last month of their challenge to the transfer to Nama of their loans with Bank of Ireland.
The appeal, being heard by a seven judge Supreme Court, has implications for other loans held by the applicants with other participating financial institutions in Nama.
A central issue in the appeal is whether the High Court was correct in finding, under the Nama Act 2009, Mr McKillen had no right to be heard prior to the decision by Nama to acquire the loans at issue.
Yesterday, Mr Cush said the Nama Act 2009 provides the agency has a discretion whether or not to acquire bank loans and sets out a list of matters Nama may take into account in deciding whether or not to acquire those. This suggested there should
be some form of qualitative assessment by Nama in exercising its discretion but, in Mr McKillen’s case, there was no such assessment, the court was told.
Nama had clearly said it decided to acquire the McKillen loans because of its belief the extent of the exposure of the relevant participating financial institutions in Nama - Anglo Irish Bank and Bank of Ireland - to Mr McKillen and his companes,
some €2 billion, was such as “to create a systemic risk”.
Experts for Mr McKillen, including Nobel prize winning economist Dr Joseph Stiglitz, had given evidence that, before deciding whether the loan exposure created a systemic risk, Nama had to consider factors relevant to Mr McKillen and his companies.
One expert for Nama also appeared to accept that a decision whether the loans posed such a risk did require a consideration of the issues identified, counsel said.
Despite such evidence, the High Court concluded that Nama, when considering whether or not to exercise its discretion to acquire the loans, had not considered whether the McKillen loans in themseklves represented a systemic risk, Mr Cush said.
Instead, the High Court had found Nama had decided the McKillen loans “contributed” to a systemic risk to Irish financial institutions by reason of those institutions’ exposure to property and development loans in the first place.
The High Court finding that the criteria applied by Nama was that the loans “contributed” to, rather than “created”, a systemic risk was inconsistent with the unequivocal statements of Nama itself as to the reasons for its decision, counsel argued.
Also yesterday, the court heard arguments from John Gleeson SC, also for Mr McKillen, that the decision of the European Commission approving the Nama scheme imposed an obligation on Nama to only acquire loans from impaired borrowers.
Submissions for Mr McKillen are expected to conclude today after which the Attorney General, Mr Paul Gallagher, will begin his submissions for Nama and the State opposing the appeal, which is not now expected to conclude before Monday.
