October 5, 2010 / 3:28 PM / 9 years ago

Property tycoon challenges Ireland's "bad bank"

* Legal challenge could cut NAMA’s income, risk profit goal

* First case against NAMA

By Padraic Halpin

DUBLIN, Oct 5 (Reuters) - One of Ireland’s top property tycoons launched a legal challenge to the country’s “bad bank” on Tuesday in a case that could cripple government efforts to make a profit on its multi-billion euro gamble on commercial property.

Paddy McKillen, who co-owns Dublin’s Clarence Hotel with Bono and The Edge of rock group U2, wants to stop Ireland’s National Asset Mangement Agency (NAMA) from acquiring some 2.1 billion euros in property loans secured on his assets because he argues the transfer will undermine his business.

“(Transfer of loans would be) the cause of significant adverse effect on him and his companies and particularly on their financial well-being,” Michael Cush, McKillen’s lawyer, told Ireland’s High Court.

It is the first legal challenge againsts NAMA.

Cush said that all repayments on McKillen’s loans were being met and the 150 million euro annual income from the properties, which include shopping centres, offices and five star hotels such as London’s Claridges, covered interest repayments on the loans nearly two times over.

McKillen has about a quarter of his property portfolio in Ireland with most of the remainder in the UK, France and the United States.

The publicity-shy Belfast man has hired Nobel prize-winning economist Joseph Stiglitz as an expert witness in the case.

Ireland’s deeply unpopular government said last week it could cost up to 50 billion euros to unravel years of reckless lending during the go-go years of the “Celtic Tiger” economy and NAMA is the centrepiece of official efforts to purge banks of commercial property assets.

Calls for quick sales to pump cash back into Ireland’s empty government coffers has thrust NAMA’s unhurried sales strategy into the spotlight. [ID:nLDE6901VC]

NAMA is acquiring loans with a nominal value of 73 billion euros and the agency said in July it expected about a quarter of them would be income-producing.

NAMA needs performing loans to generate income and if McKillen wins his case the agency fears other developers will launch similar actions potentially cutting its cashflow. A lengthy legal battle could also slow down planned asset sales.

The agency said in July it was eyeing a profit of 1 billion euros over a 10-year lifespan but warned it could also make a 800 million euros loss in a more “stressed” scenario. [ID:nLDE66522B]

The hefty discounts, in some cases nearly three quarters of the original loan value, that NAMA is demanding on the assets it has acquired has upped Ireland’s overall bill for cleaning up the banks and triggered fears Dublin will need external assistance to meet the cost. (Writing by Carmel Crimmins; Editing by David Cowell)

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