Northern Ireland court case sheds light on Irish banks lending practices during the boom

“About this time Mr McDonald [Bank of Scotland (Ireland)] told Mr Walsh that he was coming under considerable pressure to lend more money due to increased lending targets imposed by the bank and the bank was keen to expand the loan book to key customers and Mr Walsh was identified as a key customer or a preferred customer.  Mr McDonald advised that the bank had received particulars of Direct Line House in Leeds and it was proposed that Mr Walsh should acquire this property.” Extract from Northern Ireland High Court judgment Chris Walsh v Bank of Scotland (Ireland).

Will this nation ever forgive developers for having racked up colossal lending, which, when the State decided to guarantee the banks and use NAMA to acquire the lending, fell on our shoulders in circumstances where the loans will never be fully repaid because of the collapse in property prices? Maybe we will, but in a judgment delivered in Belfast’s High Court in April this year which has just now been published, we get an insight into lending practices at banks which seemingly show that there are two sides to the lender-borrower relationship.

We have heard before from developers who claimed that banks were foisting money on them. Remember Simon Kelly and his account of banks during the boom in his book “Breakfast with Anglo”? Thanks to this Bank of Scotland (Ireland) case, we get for the first time that I have seen, in a court judgment, a formal picture of life during the boom at Irish banks.

The case involves Northern Ireland developer, Chris Walsh who has a portfolio of commercial property in Northern Ireland and Britain. He has loans from Bank of Scotland (Ireland) in Belfast and this present court case centres on the terms of this lending, there being a variance between the accounts of the developer and the bank. Chris was seeking an injunction to stop BoS(I) from taking enforcement action against him and his companies, pending the disposal of the court case where his dispute with the bank is to be fully dealt with. Belfast’s High Court granted Chris his requested injunction and the case is set to dealt with next year.

So for now, we hear from Chris’s side that BoS(I) was verbally offering terms which were less harsh than those specified in writing in loan agreements, with implications that BoS(I) would support the borrower if, after the specified loan term, the property could not be sold at a satisfactory price. We also hear allegations that bankers were given lending targets, and in at least one case, brought a project to the borrower.

BoS(I) and their asset management company, Certus, have disputed much of what Chris says, but the judge is satisfied there is an arguable case for when the hearing finally takes place next year.  There appears to be internal documentation within BoS(I) which supports the developer’s claims, as well corroboration by the developer’s solicitor. It is set to be an interesting case, which might have ramifications for other developers who feel aggrieved at the sudden change in banks’ attitudes in 2007/8.

The BBC has a report on the case here.