Weekend Economists Take a Shot in the Dark, September 28-30, 2012

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12. Former chairman of AIB defends unusual loans to buy UK property

http://www.irishtimes.com/newspaper/finance/2012/0929/1224324601355.html

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.