NAMA-style bank to buy foreign banks’ ‘toxic’ loans

A NAMA-style private bank has been set up to buy property loans from non-Irish banks operating in the Irish market.

Mark Duffy, the former chief executive of the Irish arm of HBOS, who has set up the company, will have an estimated €3 billion to buy distressed property loans from foreign banks.

The source of funding is understood to be mainly British pension funds that believe the property market in Ireland will deliver in the future.

They are looking for a return on their investment of 15%, Mr Duffy said.

The loans will be purchased through Asset Resolution Corporation (ARC), a new company jointly owned by Mr Duffy and Kevin Warren, who runs the property fund Warren Private Clients.

Banks that sell assets to the new bank can also help part fund the cost of the borrowing as an option. Mr Warren said that made commercial sense because the properties being bought are expected to make a real return within the next five to 10 years.

Mr Duffy added that the experience in Sweden and elsewhere was that distressed properties recovered much faster than originally thought and he was “optimistic this would be the case here also”.

ARC plans to buy loans owned by lenders that can’t sell them to the National Asset Management Agency, as they are protected by the British state. As NAMA cannot provide a solution for foreign banks based in Ireland, ARC has been established to fill this gap, he said.

Those banks account for a third of the €188bn of the property loans in Ireland and include Ulster Bank, Bank of Scotland (Ireland), National Irish Bank and ACC Bank.

Mr Duffy, 48, who left HBOS this year after 16 years, was asked about his credibility given his former track record as a banker.

HBOS was taken over by Lloyds Banking Group in January and had to be bailed out by the new owner after making losses of nearly €290m for 2008.

He replied that “I made a lot of mistakes” but added “I chose to resign. I made a lifestyle choice. I did not expect to be sitting here today.”

He told journalists at a briefing in Dublin that the new bank could buy assets from NAMA in certain circumstances.

NAMA is buying €77bn of real-estate loans from five Irish banks to rid them of toxic debt. The Government is absorbing the loans at a 30% discount, which means it will transfer €54bn of taxpayers’ money to the banks to ease their liquidity crisis.

Mr Duffy says the slump in Irish commercial property from its peak is currently estimated at 47%.

ARC will adopt a long term buy-and-hold strategy, and “hopes to work with NAMA to be part of a full market solution to the Irish distressed-debt problem”.

He said he was optimistic for the future, adding that from May of this year, the “change in sentiment was palpable... it means somebody was doing something right.”

Mr Duffy also said that the NAMA process was a vital factor in his decision to set up ARC.