Taggart sets banks tough poser and could reveal falling assets

ANALYSIS:The banks' efforts to recover Taggart loans could hit the value of other assets they hold, writes Barry O'Halloran

THE TAGGART group's problems present the Irish banks with a tough dilemma, and could yet provide the rest of us with the answer to a question that a lot of people have been asking since the Government rode to our financial institutions' rescue.

That question is: How much are the properties used by developers to secure bank loans that they cannot repay actually worth now?

Taggart's woes could help answer this, because the companies placed in administration in Northern Ireland, and in receivership in the Republic, are the ultimate owners of development land bought with secured loans from leading Irish banks.

Market analysts agree that a sale of the group's properties, albeit in distressed circumstances, could well put a floor on the value of secured development land on both sides of the Border, and could potentially force banks to write down the value of similar assets on their books, particularly where the developer is having trouble meeting repayments.

That's where their dilemma lies. In an effort to recover loans from one business, they could ultimately hit the value of other assets on their balance sheets. This could have implications for all Irish banks, which loaned €86.7 billion to property developers in the 12 months ended last June. It also has implications for Irish taxpayers, as it is effectively their cash that the Government is using to underwrite its guarantee of bank liabilities valued at €485 billion.

In the Republic, where a sale of Taggart's assets seems probable, PriceWaterhouseCoopers is the receiver of four sites. One in Trim includes a finished housing development, and the units there are selling. The others are in Kinsealy, Co Dublin, Kinnegad, in Co Westmeath and Muff in Co Donegal. If Kinnegad and Kinsealy were sold, the deal could conceivably give a guide as to how the market values two distinct types of development land, the midlands commuter belt and a premier Dublin address.

Analysts do point out that the banks could argue that the values would mark an "artificial low", but they agree that prices paid would be concrete, and the first indication we've had for a while of real values, as there is little or no market for development land anywhere in Ireland at the moment.

The institutions which sought the appointment of a receiver and administrator to Taggart were Bank of Ireland and Ulster Bank, with which the group did a lot of business. They may not be the only ones affected.

In some cases, particularly in the Republic, the banks could have the option of putting the properties in a separate company set up specifically to hold these assets - known as a specific purpose vehicle or SPV.

This would allow them to take the properties off their balance sheets, and hold off on a sale until conditions improve. That could still involve revaluing the assets, or it might just postpone the day when they have to put a firm price on the property.

One analyst yesterday commented that an SPV set up to hold distressed assets could potentially end up with the title to a lot of properties over the course of the next year or two.

Where the properties include houses, they can use the sale price of the units involved to arrive at a fair-value estimate. This does not apply to development where nothing is built, and which could be going through various stages in the planning process.

The failure of a major Irish property developer with an exposure to markets on both sides of the Border, and obligations to some of the country's major financial institutions, did not deter investors from buying bank shares on the Dublin market yesterday, even though most observers believe Taggart will not the be last to find itself in hot water.