A positive judgment for Treasury was never going to magic away loans of a hopelessly insolvent firm

AT ABOUT 10.40am yesterday, Treasury Holdings Ireland’s managing director John Bruder received the bad news via a text message from the Four Courts.

Treasury’s claim against the National Asset Management Agency’s decision to call in its loans in January had been rejected by Ms Justice Mary Finlay Geoghegan.

Bruder called together Treasury’s 35 staff at its head office on Burlington Road and imparted the bad news.

In many respects, yesterday’s court judgment changes little for Treasury.

A positive judgement for Treasury was never going to magic away the loans. And the company remains hopelessly insolvent.

Even if Treasury had won the judicial review, KBC Bank, a 25 per cent syndicate partner with Nama on loans relating to the Spencer Dock site in Dublin’s docklands, had submitted a petition to the High Court to have the developer wound up.

It was a fall-back position for the Belgian lender in the event of yesterday’s judgement going against Nama, in which KBC was a notice party.

The amount due from the Spencer Dock development at the time of Nama’s enforcement action in January was €272 million.

KBC’s case is due to be heard on August 8th but might now be shelved in light of yesterday’s ruling.

As has been the case for the past six months, Treasury Holdings Ireland will continue to manage the €1-plus billion portfolio of assets for the receivers – Ernst Young and PwC – appointed by Nama earlier this year.

Separately, it continues to manage other assets where Nama has not enforced loans – the Conference Centre Dublin and the Ritz Carlton hotel in Powerscourt are among them.

There is also a portfolio of properties that it manages separately for other investors, including the Stillorgan Shopping Centre, KPMG’s offices in St Stephen’s Green and the Bank of Ireland headquarters on Mespil Road.

These are outside of Nama’s scope.

There is also a listed business in China, where it continues to have some success.

The judgment, for now at least, ends any hope that Treasury’s founders, Richard Barrett and Johnny Ronan, had of retaining direct control of the Irish portfolio.

Treasury wasted no time in announcing that it would appeal Justice Finlay Geoghegan’s ruling.

The matter is due back in court for mention on October 4th when the issue of costs will be considered along with any appeal.

It remains to be seen if Treasury will be given leave for an appeal. Even if it is, it will take months to process, and that’s probably being optimistic, and few in the law library would bet on its chances of success.

In the meantime, Treasury appears to be pinning its hopes on this mystery international investor – described by the developer as a “major prestigious international entity” – that has come forward recently with a view to acquiring the portfolio lock, stock and barrel.

It seems this investor wants to retain the Treasury team for their expertise and have them manage the portfolio going forward.

This would be the fourth such approach by a potential investor for the Treasury loans since they were transferred to Nama between March and May of 2010.

The loans transferred had a par value of €1.76 billion.

The first three – CIM, Hines and Macquarie – ultimately came to nought, in spite of Treasury’s best efforts to persuade Nama that they represented the best return for taxpayers.

Those loans were also highly conditional, requiring significant vendor financing from Nama.

The mood music yesterday suggested that no formal approach has been made to Nama by this new investor and that a long road remains to be travelled before any deal is signed, sealed and delivered.

Treasury yesterday also expressed the hope that a third-party negotiator would be appointed to secure the best bid for its loans.

Don’t hold your breath on that one. It is understood that Nama has no intention of engaging with a third-party mediator. Why should it?

For Nama, yesterday’s judgment is ultimately a vindication of its decision to move on Treasury’s loans, albeit with a slap on the wrist from the judge.

Justice Finlay Geoghegan found that Treasury had a right to be heard in advance of receivers being appointed by Nama. There was a breakdown somewhere along the way in the handling of the enforcement process.

She also found that Nama had breached its obligation to hear Treasury, particularly in relation to the Hines and Macquarie investment proposals that the developer wanted to advance with the State agency.

This was the biggest enforcement action to date by Nama and this legal action has highlighted some deficiencies in the way it went about its business.

These issues need to be addressed by the State loans agency, which has a powerful mandate to deal with delinquent loanees.

What now of Treasury’s separate damages action against Nama? It is likely to remain in place.

Treasury is seeking hundreds of millions of euro in compensation from Nama for lost potential earnings and reputational damage, particularly in China where Barrett and Ronan have significant interests.

Meanwhile, the judge’s verdict yesterday has closed another chapter in the fraught story of Treasury and Nama. While the ending might still have to be written, it’s suddenly not so difficult to predict.