How would Seanie Fitz look at things now?

Former Anglo Irish Bank chairman Sean Fitzpatrick leaves the Dublin Criminal Court on Wednesday after a judge told him he is a free man after directing a jury to find him not guilty of fraud

AMIDST the atrocity in Manchester last week, a piece of important business news slipped out almost unnoticed. After the longest criminal trial in the history of the Irish state, Sean Fitzpatrick, former chairman of Anglo Irish Bank and chief bogeyman of the Irish economic crash, was acquitted.

After 127 days in court, the judge dismissed all of the charges and gave the Office of the Director of Corporate Enforcement (ODCE), the white collar crime body which had put the prosecution together, a proper dressing down for the inadequacies of its work. It was embarrassing stuff and the politicians went to town on the ODCE.

It's fashionable not to like Sean Fitzpatrick (or 'Seanie Fitz' as he was known). The Anglo fiasco cost the Irish people €30 billion and more than any other bank necessitated the calling-in of the troika of international financial institutions to bale out the country. Those were dark days which now seem like a long time ago.

Fitzpatrick played his acquittal well. He thanked the judge, said he was relieved it was over and left. There was no whooping or cries of vindication.

For many successful northern property entrepreneurs, Anglo's model of higher risk security-based lending had provided the route to incredible riches. For the most part, the 'security' had come in the form of personal guarantees and other property assets which Anglo had lent against.

Often, those assets were re-valued at the time of the new borrowing so that some of the additional equity (since the valuations were going up) could be used as part of the new deal. It was an upward spiral and everybody seemed to be making money. Most of the other Irish banks got into it too, and the race was on to pour money out the door in what felt like a frenzied effort to spend. The rest is history.

And if Seanie was to look at things now, what would he see? Well, up here, I don't need to re-tell the story of how the former Anglo debt (transferred to Nama) was sold but what might be interesting is what has happened since.

To describe that, I did something I rarely do for this column - I went to see a finance expert to explain the mechanics to me. I've changed these numbers but have done so proportionately and the percentages are real.

So, say a property developer had an original debt of £650 million which was written down when it was transferred into Nama and was then discounted again in order to be sold as part of a larger portfolio of regional debt, leaving it at £165m. With it now off the books of Nama and in the hands of a private fund, the new owner was able to sell it on.

In most cases, the best placed and most capable entity to extract value from the portfolio was the original debt holder (in this case, the developer from the start of this story). In order for him to acquire the portfolio, he has to borrow, and in doing so, he has to provide a profitable return to the fund which did the purchase from Nama. Let's say £38m in six months, that's 23 per cent or over 40 per cent in annual terms.

The developer pays £203m (£165m + £38m) for his portfolio using finance from two new institutions, one of which is almost wholly owned by the entity which just cleared the £38m in six months. These lads like to keep it in the family after all. These new institutions have high expectations of returns also. After all, they've taken serious risk in re-financing this distressed debt, though of course behind the debt is a series of property assets which are now more realistically valued.

So, less than three years ago, the developer gets moving with his £203m portfolio. In the intervening period, he works the assets very hard by getting planning permissions and new tenants and he buys well and sells well to the tune of £600m of transactions. All of this hard work produces £60m of new equity into the portfolio.

In the meantime, the two lenders are getting paid their interest, origination and exit fees and a series of other fees for new lending and charges for every transaction - about £64m in all. Seriously. Again, it should be said this was high risk lending, the original loan-to-value ratio three years ago was 91 per cent, no European banks were taking those types of risks then. Still, the returns are very attractive.

As is regularly the case, one of those two institutions is the 'senior' lender which has first call on the assets in the portfolio and therefore it carries less risk. The second institution has less of a safety net and carries more risk and therefore charges higher interest rates and fees. The senior lender in this case is estimated to have made £22m and the junior lender's estimated return is £42m, the equivalent of an annual 20 per cent on its money. All of the institutions are US headquartered, though the money is most likely to have come from all over the world.

It's hard to gauge what Seanie might say about it all, though he would probably marvel at the way the US funds have made so much money in less than four years. And it probably sounds like heresy to say it or just plain stupid given the state of many of the Irish banks' balance sheets, appetite for risk and the lessons of the crash.

But it makes me wonder why our own institutions, with proper controls, couldn't get some of this action? Seanie might be thinking that too, but I'll be surprised if he ever does anything about it.

:: Paul McErlean ( is managing director of MCE Public Relations

:: Next week: Claire Aiken

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