State-owned Irish Nationwide Building Society lost €20 million on an unorthodox loan to a French ski resort backed by a company owned by Monaco- based businessman Cyril Dennis.
The loan was given by the society, which was set up to help people buy homes, to fund a company called Ice Mountain, which bought two hotels called Isba and Katine in the Courchevel ski resort in the French Alps on behalf of Mr Dennis.
Irish Nationwide liquidator KPMG claims the loan breached the society's internal rules and policies numerous times and as a result should not have been granted.
There is no suggestion of wrongdoing by Mr Dennis or his company.
KPMG is seeking damages as a result of this loan and other exotic loans from both the board of Irish Nationwide and its executives, managing director Michael Fingleton and former finance director Stan Purcell.
Irish Nationwide's former officers deny any wrongdoing, and plan to argue that the Central Bank and KPMG, as auditors of the society, had a role in the events that led to the society's collapse with a loss to the State of €5.4 billion.
The details of the ski resort loan reveal how the society had transformed itself from a conservative lender to home- owners into the backer of international property speculators. When the National Asset Management Agency (Nama) took over the loan in May 2011 it had reached €31 million.
It is understood Nama bought this loan for only €11 million, because of loan’s unorthodox nature, crystallising a loss for the State of €20 million.
Valuation report
Loan records show a valuation report commissioned by Ice Mountain in July 2007 valued the two properties the company hoped to buy at €32.85 million.
KPMG claims the society did not value the property independently, in breach of its lending policy, brought in five months earlier.
According to KPMG the records show Mr Fingleton granted the loan first, then back- filled the necessary documents and approvals, in breach of his society’s policy.
On December 11th, 2007, Irish Nationwide lent Ice Mountain €26.7 million to buy the French properties.
It was only the following day, according to KPMG, that a formal commercial mortgage offer was signed, and only on January 17th, 2008, that a loan application form was signed off on by Mr Fingleton and a colleague.
In this application it was said the society’s board had agreed to lend €28 million to buy the resort, but this had not yet occurred.
The liquidator claims a fee agreement was agreed between the society and Alpine Resort Properties SA, the parent company of Ice Mountain, as well as Mr Dennis, which would have given the building society 25 per cent of any profits made in the ski resort’s developments.
The board of Irish Nationwide approved the loan only on January 21st, 2008, according to KPMG. Minutes of this board meeting do not show any discussion of the profit-share deal.
Risk profile
No adequate analysis could be found in Irish Nationwide’s files of the borrower’s repayment capacity and risk profile, KPMG claims. The concepts of interest and payment cover requirements were not discussed in documents.
KPMG argues the ski resort loan was a departure from the society’s lending policy but this was not recorded, analysed or sanctioned officially.
In a further alleged breach of the February 2007 guidelines Irish Nationwide did not get a personal guarantee from its borrower, did not get a statement of net worth and did not get historic audited accounts, contrary to the society’s policy, according to KPMG’s claim.
No business plan to develop the run the resorts or forecast cash-flow analysis was on file.
Once the loan was granted there was no adequate monitoring of the loan, according to KPMG.
The former directors are expected to content the claims when the case comes to court in the autumn.
