Asked why his bank wasn't in the courts more often, enforcing its security against defaulting developers, a senior executive of Anglo Irish Bank, Declan Quilligan, told this newspaper recently that such actions were counter-productive, forcing the bank to acquire assets it didn't want, which it then had to sell at "fire sale" prices, booking a loss in its accounts.
Quilligan, who is acting chief executive at the bank pending the appointment of a permanent successor, neatly summed up the problem for all banks operating in the bombed-out Irish property market. The directors of the banks have a fiduciary duty to protect shareholder value, if necessary at the expense of borrowers, but putting developers into liquidation via the courts only leaves the bank holding assets which are depreciating in value and assets which will not cover the value of the original loan.
In some cases the banks also have personal guarantees and/or security on other properties owned by the developer, but often these charges will be shared with other lenders, thereby reducing the recoverability of the loan's value. Either way it's a messy business and Irish banks have yet to move against any of the five largest developers in the country, although individual creditors have sought judgements.
With Nama legislation not due before the Oireachtas until September, there is very little prospect of Irish banks moving against insolvent developers until their loans are transferred into the ownership of the state. But in the meantime, foreign-owned banks have started to adopt a very aggressive stance in relation to forcing repayment.
Irish banks in private express surprise at the hard-nosed attitude being displayed by ACC Bank, owned by giant Dutch lender Rabobank. From appointing a receiver to the Thomas Read group of pubs and restaurants to getting orders to force developer Paddy Kelly and his family to pay €16m arising from guarantees on property and other loans, ACC has been to the fore in enforcing its security on developers.
While the bank said in April it was reviewing its Irish operations, other indications contradict the constant rumours that it is about to depart from Ireland (see panel). Rival bankers believe the bank has written down its loan book more aggressively than its domestic competitors as a prelude to leaving the market, but this is denied.
Last year it put aside €294.9m for bad loans and another €78.2m for other expected losses, most of it related to "loans and advances to customers in the construction and real estate sectors". Rabobank, its parent, had to invest €175m in the Irish operation to ensure it was adequately capitalised last year.
In that context it's probably no wonder the bank is prepared to call it a day in such a large number of cases. But whatever the reason, the bank's visits to the commercial court are becoming more frequent and involving larger and larger amounts of money.
In April the bank called in personal guarantees worth €4.43m related to loans given to a businessman and his wife for a pub redevelopment in Co Wexford.
In March the bank claimed it was owed €15.5m by the Thomas Read group. The pub and restaurant group was in serious financial difficulty, according to High Court evidence, with €26.7m of liabilities over assets. Other banks such as AIB and Ulster were also caught up in the Thomas Read case.
But ACC, as is its legal right, is also quite keen to protect even small amounts of money given to small businesses. The bank in late May found itself chasing down concrete mixers and trucks leased by a company in Cork. The trucks, plant and machinery were part of a €1m leasing package. The bank applied to the court on the basis that the machinery was depreciating by the day, and the sooner it was granted an order the sooner it could recover maximum value from the assets.
In mid-May, two property developers in Galway, James and Tom Considine, were ordered to pay some €6.9m to ACC in connection with unpaid loans provided for a site in the west of Ireland. Legal representatives for the developers attempted to get the court to allow them to sell the development in a recovering market, but the bank said it wanted its money. It also offered a relatively blunt assessment of the two developers, claiming they both had assets running to "hundreds of millions".
Last week the bank was in court again, this time seeking more than €6.2m from developers Larry O'Mahony and Thomas McFeely, the former IRA hunger striker, for loans relating to development land. The bank is claiming the €6.2m, including interest, is now due and owing. The application for admission of the action was adjourned for a week.
The bank's most high-profile move, though, was its claim totalling €16m registered against Paddy Kelly and his family. This case, unlike some of the others where defendants offered no defence, involves competing claims on both sides. The Kellys claim that ACC frustrated attempts by them to reduce their indebtedness.
A property at Pembroke Place, Ballsbridge, is at the heart of the case, with the Kellys claiming the building could have been leased for €500,000 a year, relieving the pressure. They also claim that ACC lent money to Paddy Kelly's three children to buy Solid World bonds in the bank itself. The children received about €1.5m in loans to purchase the securities, but the bonds later plummeted in value and this transaction prompted Justice Peter Kelly to remark that "no wonder the banks are in trouble".
The €16m sum of money is considerable for Kelly and his children, with his counsel claiming it would be "calamitous" for the family. However, since the ACC application was made, other foreign banks, such as Investec Bank UK, have come forward to press claims against Kelly over loans given to secure other properties in Dublin. But it's ACC that has appeared most often in relation to Kelly in court proceedings.
In May, observers got a sense of ACC's determination to secure repayment of its loans and interest. Justice Peter Kelly was told in May that, while Kelly was in Florida on business, solicitors for the bank had tried to serve legal proceedings on him directly at his home at Clonmore, Shrewsbury Road, Dublin.
Solicitors got no reply when they tried twice in April to contact Kelly via the intercom to his home, which is secured by electronic gates. When the gates opened on 23 April, the documents were served on his housekeeper who confirmed Kelly lived there.
The bank has even sued one of its former solicitors, claiming he failed to put the necessary securities in place for a land purchase involving a customer of the bank. Loans were given to a man in Co Louth for €12m by ACC and the bank has claimed in court that one of its solicitors did not put sufficient securities in place, leaving the bank exposed.
ACC's determination to secure repayment hasn't been similarly evident among the Irish-owned banks, which have tended to roll up interest for developers as long as possible. Anglo's comments about "fire sale" prices will strike many observers, who are outside the developer-banker nexus, as slightly strange. When does a fire sale price become a market price, many will ask.
Either way, ACC has adopted a very aggressive write-down policy. Based on its 2008 figures it has written down approximately 7% of its €5.6bn loan book, mainly due to the property slump. Compare that to the recent annual results of Bank of Ireland where only 3.9% of loans were impaired.
ACC's aggressive approach to write-downs has also been followed by National Irish Bank, which has a Danish parent. Both institutions have made life uncomfortable for the more restrained Irish banks, many of which have opted instead to advance more funds to developers to finish off projects on the basis that rental income of some kind may then flow in.
Most intriguing will be the strategy of Royal Bank of Scotland (RBS), owner of Ulster Bank and First Active here. Ulster Bank has advanced large sums to developer Seán Dunne to assemble his gargantuan empire in Ballsbridge. It's not clear whether these loans are in default or not, but if they are, Dunne may be able to take some consolation from RBS chief executive Stephen Hester, who laid down the bank's policy on property loans last week.
He said the bank was keen on "supporting" borrowers and had no desire to call in debts and spark a fire sale of assets. While the bank simply had to increase its property write-downs to more realistic levels, Hester said, "we have time to allow customers restructure themselves in an orderly way".
The bank has agreed an asset insurance scheme with the British treasury which does allow it to take losses at a gradual pace over a long period.
However, some of the other foreign banks in this jurisdiction do not seem to be taking things at such an incremental pace. Whether this approach is simply a realistic appraisal of how bad things are in Irish property, or whether it presages an eventual departure from Ireland, only time will tell.