Fingers

by Richard Curran

  The Kilternan Hotel needed another €10 million or so to be completed. By the end of 2006 the company behind the development, Dashaven Ltd, had borrowings of €122 million but a turnover of only €15,236. It was also losing €2 million per year. In 2006 Dashaven’s cash outflow was €85 million. That year about €85 million of new Irish Nationwide loans flowed in and was spent. At the end of 2006 the company had cash in hand of €2.

  The jig was up for Dashaven and O’Regan, and for Irish Nationwide. An application to appoint an examiner to Dashaven was made in July 2009. The following month a receiver was appointed, and then a liquidator. The receiver began trying to find a buyer for the unfinished hotel. In 2010 there were reports that two American companies were interested, but no announcement of a sale was made.

  A statement of affairs for the company showed that it was generating rental income of €30,000 per year from the outdoor centre but the building was costing €270,000 a year to insure and had €80,000 in ESB bills, €85,000 in gas bills, and €155,000 for security. These bills and others, including consultants, legal fees and receiver’s fees, were being met by Irish Nationwide, which provided more than €1 million to the company between February 2010 and February 2011.

  The extent of the loss to Irish Nationwide, NAMA and the taxpayer will be significant. The hotel has extensive land around it, but industry sources estimate that it will not make more than €25 million in a sale. This would be a loss of well over €100 million to the state.

  ELYSIAN DREAMS: O’FLYNN CONSTRUCTION

  O’Flynn Construction is owned by Michael and John O’Flynn. It has been involved in building and development projects in Ireland and Britain for decades. Highly regarded for the quality of its building, the company nevertheless went on a borrowing binge during the boom years of the property market. When the property crash came, it had debts of about €1 billion.

  Michael O’Flynn began doing business with Irish Nationwide in 1998. The company was growing and profitable. In 2002 it was not quite big enough to make it into the Sunday Tribune ‘Richlist’ but was included as one of those companies ‘bubbling under’. In 2000 it was a €50 million business and had made a profit of €10 million. Much of its work at that time was in Munster; but even at that stage it had a stake in Tiger Developments, which had a London investment portfolio of €200 million.

  O’Flynn ended up with five major loan facilities from Irish Nationwide. These were a €75 million facility for the purchase and development of the former army barracks in Ballincollig, Co. Cork. Irish Nationwide expected to make substantial supplemental arrangement fees from this project; in total it expected to make €36 million in such fees from O’Flynn Construction projects.

  Another loan of €71 million had been granted to develop a site in Edinburgh, to include three hotels and office space. Another loan facility amounted to €65 million for a 65-acre development site in Celbridge, Co. Kildare. This was being developed in partnership with Seán Dunne. Irish Nationwide granted another loan of €17 million for a business park in Leeds and €2 million for a development in Rochestown, Co. Cork. Irish Nationwide had already received €10 million in arrangement fees when it approved the final €2 million loan.

  O’Flynn is best known for the development of the Elysian Tower in Cork. Named with aesthetics in mind (Elysian means delightful, glorious or blissful), at 81 metres (266 feet) it is Ireland’s tallest building. It consists of a number of connected six to eight-storey buildings, with a seventeen-storey tower on one corner of the site. Its 211 apartments came on the market at exactly the wrong time, in 2008. Prices tumbled, and a year later four-fifths of the apartments and half the commercial units were empty.

  O’Flynn Construction owed Irish Nationwide €88 million in 2005, but this rocketed to €230 million at the end of 2006. O’Flynn is now a major client of NAMA and is working with the agency.

  FROM WILD NORTH TO WILD WEST: LARRY O’MAHONY AND TOM McFEELY

  ‘You couldn’t build a snowman!’ shouted one of the angry residents of Priory Hall at the property developer Tom McFeely. The developer had been summoned to the High Court to answer questions about how the 187-apartment development his company had built in Donaghmede, Dublin, was a completely unsafe fire hazard that had to be abandoned. About 250 residents were forced to leave the complex just before Christmas, 2009.

  McFeely was a typical boom-time builder turned developer, except in one major respect: he was a convicted IRA man who had been sentenced to twenty-six years in prison in the 1970s and had gone for fifty-three days without food on hunger strike.

  A native of Co. Derry, McFeely emigrated to England for a while to do labouring jobs, then returned to his native county at the height of the Northern conflict. After carrying out an armed robbery on a post office, he and another IRA man took over a small country house, which was put under siege by the police and army. ‘It was a bit Wild West, to be honest,’ he later told the Guardian. ‘The idea was to go out and take as many of them out as possible.’ He shot a policeman, who survived.

  After coming off hunger strike McFeely was later released and left the IRA to join the so-called ‘League of Communist Republicans’. After a fairly lucrative period labouring on Dublin building sites he bought a pub in Dungiven, Co. Derry.

  After that McFeely’s business simply took off. His building company, Coalport, built houses around Ireland and in Britain. He tended to employ ex-prisoners and later said that during the boom ‘everything was done in a rush. The attitude was, Get it up, get it off, get on to the next job. Come back and finish it later.’

  Following an investigation by the Criminal Assets Bureau in 2006, McFeely had to pay more than €8 million in unpaid tax, dating back to his arrival in the Republic. The following year Coalport was the subject of eight High Court actions. McFeely took out a loan of €10 million from Irish Nationwide for his house, the former German embassy in Ailesbury Road, Dublin, but stopped paying the mortgage. In 2009 he was ordered to repay €6.2 million to a bank, as well as a further payment to the Revenue Commissioners of €580,000. McFeely was so annoyed at the CAB pay-out that he went out and bought a €50,000 Bentley, just to ‘give them the two fingers,’ he later said.

  McFeely’s partner on many of these projects was the Dubliner Larry O’Mahony. Eventually both men applied for bankruptcy in Britain. During the former IRA man’s bankruptcy application he said, ‘As a British citizen I have always objected to being forced into bankruptcy in a foreign jurisdiction. I maintain this is a breach of my human rights.’ His British bankruptcy was overturned, and he was made bankrupt in Ireland.

  Larry O’Mahony had an address in Manchester when he went into British bankruptcy in 2011 and then emerged from it a year later. He and related companies had debts totalling £197 million.

  McFeely and O’Mahony were major borrowers from Irish Nationwide. Together they owed the society €186 million in 2006. The biggest portion of this related to an eighteen-acre site adjacent to the Square, the large shopping centre in Tallaght. Irish Nationwide also bankrolled their development at Priory Hall. Irish Nationwide agreed a ‘supplemental arrangement fee’ with the two developers whereby the society would be paid €2 million from the sale of the 194 apartments. It was indicative of its carelessness that it funded the construction of a fire-trap. Residents who spent hundreds of thousands buying property there had to leave. The High Court later found that McFeely had failed to comply with orders to deal with fire safety risks in the apartments. He was fined €1 million and given a three-month prison sentence. This sentence was later overturned on appeal.

  The poor and hazardous state of the Priory Hall building meant that even NAMA refused to buy it from Irish Nationwide—at any price. McFeely was later evicted from his Ailesbury Road mansion by NAMA and complained bitterly that he and his wife had been ‘thrown out on the side of the road.’

  FROM PROPERTY TO PHILANTHROPY: NIALL MELLON

  Niall Mellon was never the best-known property developer
in Ireland. He quietly built up a successful financial consultancy and investment business; he then began to dabble in property development.

  Mellon became something of a national figure by setting up a South African township trust to build houses for impoverished families. Over a period of ten years the foundation built twenty thousand houses, which provided a roof over the heads of 100,000 people. He got people from all over Ireland to go over and chip in with labour or other help. A close friend of the property developers Paddy Kelly and Seán Dunne, Mellon was also a big investor in South Africa.

  Among the purchases made by his company, Knockrabo Developments, was the Bank of Ireland playing fields in Goatstown, Co. Dublin, in 2003 for €50 million. By the end of 2006 Mellon owed Irish Nationwide €145 million. His total borrowings from other lenders is not known, and he tended not to submit single group accounts for his business operations. His biggest Irish Nationwide loan was €52 million, relating to a development of 291 apartments at Swansea docks. He had other loans relating to a development site in Bristol, apartments in Nottingham, and a raft of other apartments in Glasgow and in Ireland.

  Mellon was granted the loans on the basis of a moratorium on capital and interest for the full term of the loans. This meant he didn’t have to pay back anything until the projects were completed and he had got his cash in. The properties were given as security, and he also gave a personal guarantee.

  In 2001 Mellon hired Joseph Murphy, an eleven-year banking veteran with Irish Nationwide, to advise him as a financial accountant. Mellon considered his borrowings to be relatively low-geared before the bust.

  In 2010 Mellon hit the headlines when, after having loans transferred to NAMA, he said he was moving out of his mansion, which sat on five acres in the exclusive Mount Merrion area. He said the move was part of an effort to cut costs. He also sold his 242-acre estate in Co. Kilkenny for €3¾ million, with the proceeds going towards his NAMA debt. Mellon told the Irish Times in November 2012 that he left his Dublin home with just €1 in his pocket.

  THE MAN IN THE HAT: GERRY GANNON

  A native of Co. Roscommon, Gerry Gannon began working in construction in London in the 1970s. Like so many other boom-time property developers, he built close relationships with two banks: Anglo Irish and Irish Nationwide. Michael Fingleton appears to have backed Gannon in various ventures as far back as the late 1980s.

  As well as being a developer of housing projects Gannon also simply bought and sold sites, or entire buildings, as the property market was going up. Once he had access to finance he could turn a very rapid profit by ‘flipping’ land or office blocks, or anything else.

  Gannon’s closeness to Anglo Irish Bank is reflected in the fact that he was chosen as one of the ‘Maple 10’ borrowers who were financed by Anglo Irish to buy shares in the bank as part of a take-up of Seán Quinn’s shareholding, which had been accumulated through ‘contracts for difference’. These loans were not fully recourse-to-borrower and were largely secured on the Anglo Irish shares themselves.

  Gannon’s close relationship with Fingleton is reflected in the fact that the latter was a secret investor with him in the purchase of lands at Clongriffin, Co. Dublin, in the late 1990s. Details of Fingleton’s personal investment in the project came to light only when he sued Gannon for a share of the profits. Gannon had originally bought an option to acquire the Clongriffin site in the late 1990s. Fingleton claims that he personally invested £75,000 of the £300,000 used to acquire the option, and that he is entitled to a quarter of the profit from the enormous Clongriffin development of houses, apartments and retail space.

  Gannon was part not only of Anglo Irish’s golden circle but also of Fingleton’s elite core of favoured borrowers. He was introduced to the Co. Kildare estate agent turned developer Arthur French by Noel Smyth, the solicitor who had also become a property developer. French in turn was friendly with Fingleton and with Michael Smurfit. When Smurfit was trying to buy the K Club from the owners of the former Jefferson Smurfit Group in 2005 he knew he needed a developer as a joint-venture partner. The development potential of the site was seen as one of its main attractions. French knew both Gannon and Smurfit. Fingleton was in the mix and agreed to bankroll the purchase.

  By the end of 2006 Gannon had done quite a lot of business with Irish Nationwide. He had set up a joint venture with the society whereby a subsidiary, Vernia Ltd, bought land from Gannon, and he in turn helped put together a sizeable site at Drinan, near Swords, Co. Dublin.

  At the end of 2006, the peak of the property boom, Gannon was listed as the eighteenth-largest exposure to Irish Nationwide, with loans totalling €137 million. The society had provided a €55 million facility for a 115-apartment development in Malahide. His loans also included a €27 million facility for the joint purchase of the K Club with Michael Smurfit and a €22 million facility for a residential and commercial development in Dundrum, Co. Dublin, comprising 400 apartments and 130,000 square feet of commercial, office and retail space. The society also provided him with a €22 million facility to purchase and develop retail units, a pub and offices at the Plaza shopping centre in Swords. There were other loans for land purchases and a €5 million loan for Gannon to buy a luxury villa in Portugal.

  The KPMG report compiled in 2007 as a prospectus for the sale of Irish Nationwide makes no reference to personal guarantees as security on these loans. It refers only to mortgage debentures and charges over land and property. Yet Gannon was in the habit of giving substantial personal guarantees on his borrowings, especially those with Anglo Irish. He even gave personal guarantees on separate loans in his wife’s name.

  As the property market began to collapse, Gannon was in trouble. His main trading company, Gannon Homes, lost €50 million in 2008. He had to sell his private jet and helicopter. He had transferred eighteen properties to his wife over a two-year period, and by the time his loans were bought by NAMA he had approximately 700 acres of land and borrowings of about €1 billion. He has agreed a business plan with NAMA that includes a personal salary of more than €150,000 a year.

  Gannon and his wife were filmed in 2010 by RTE’s ‘Prime Time’ loading bags of Brown Thomas shopping into their €110,000 Mercedes, as part of a programme on how heavily indebted developers were coping with the crash. The car belonged to his wife, and she sold it shortly afterwards, with a price tag of €69,000.

  But Gannon was ultimately a beneficiary of the lax controls and personal style of lending dished out by his friend Michael Fingleton. Forensic accountants hired by the board in 2009 had a lot to say about the poor controls the society operated on some of Gannon’s loans.

  FINGERS’S FRIEND: LOUIS SCULLY

  Louis Scully was an estate agent with an office in Merrion Square, Dublin. He was a long-time personal friend of Fingleton, and the two holidayed abroad together with their wives. Scully had done quite a lot of valuation work over the years with house-builders such as the Abbey Group. Fingleton hired him to assess property deals that he was going to invest in himself. He clearly trusted his judgement.

  Scully was also an old friend of the Dublin businessman Louis Maguire. When Maguire’s son, also Louis, identified a potential multi-million property investment in the former Yugoslav state of Montenegro, Scully was able to introduce the young Maguire to Michael Fingleton.

  But Scully became something of a property developer himself. He borrowed heavily from Irish Nationwide during the boom years, mainly for the purchase of land in Co. Meath. By 2009 loans connected to this little-known estate agent totalled €130 million.

  NORTHERN LIGHTS GO OUT: ALASTAIR JACKSON

  One of the borrowers who illustrates some of the madness of Fingleton’s boom-time lending is Alastair Jackson. A native of Co. Antrim living at Templepatrick, Co. Down, Jackson had set up a successful property business even before the big boom. His Eassda group was profitable and diversifying into more types of property investment. His investment foray south of the border proved to be disastrous and ultimat
ely very costly for the Irish taxpayer.

  Jackson had been a borrower from Irish Nationwide since the late 1990s. He appeared in the KPMG list of exposures at number 23, owing €130 million. This included a €49 million loan facility for a 58-acre development site outside Wicklow, which Jackson had bought in December 2005. It had planning permission for 650 residential units.

  He had an outstanding loan of €32 million in December 2006 for the purchase of a nineteenth-century house and golf course on 512 acres in Moyvalley, Co. Kildare. The Moyvalley Hotel and Golf Resort opened its doors in April 2007. The €60 million development included a 54-bedroom boutique hotel, a country residence with ten rooms, and fifteen original luxury courtyard cottages. It was built on the Balyna estate, ancient home of the O’Mores and later the O’Farrells, going back over four hundred years. In 1961 it was bought by the Bewley family, and in the early 2000s it was purchased by Alastair Jackson. The estate house was converted into meeting-rooms and an exclusive corporate centre. Jackson then set about building a hotel and a golf course, with the intention of building and selling houses around the course.

  Irish Nationwide seized possession of the resort in July 2010, three years after it opened. The idea behind the golf club was that it would be exclusively for members, and no societies or day-trippers would be allowed use it.

  The resort opened at exactly the wrong time in relation to the downturn; when it began selling membership it sold precisely two at the full price. It was in the wrong place—too far from Dublin, not particularly scenic—and opened too late. Everything went wrong. The whole financial proposition behind the golf course was the construction and sale of houses. The resort opened in April 2007, and house prices began to fall about two months later; but prices had already been static for about six months before opening. The sale of only two golf-club memberships at full price prompted a sharp reduction in membership fees and a rethink.