Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source

Mr. Daly, in his testimony to this inquiry last week, gave a testimony as to what he saw the banking model actually was, and, as has been stated here this morning, when the whole thing came crashing ... the debt for AIB, regardless of any other bank's behaviour, was approximately €20 billion. And I'm asking you to comment upon Mr Daly's testimony when he says:

While internal bank lending documentation may indicate that the loan-to-value ratios were, typically, less than 100% when the loan was drawn, the reality, in many cases, was that a developer's equity contribution was in the form of a rolling-up of unrealised, paper profit from other developments. This was presented as an equity position. Rarely, if ever, was it in the form of cash.

So basically what Mr Daly is implying there ... that as a development was under way, its equity was growing probably beyond the original valuation of the purchase or development at the site; therefore, the equity then could be offset against a new development. He then goes on to say:

In effect, therefore, the banks were providing all of the real cash funding for both acquisitions and development. It's safe to say that quite often the borrower's paper equity position never paid for an acre of land or concrete or scaffolding or a worker's wage at the end of the week. The safety zone of borrower equity usually existed only on paper. The result is that the borrower was typically not the first to lose. In the event of a crash the banks stood to take 100% of the losses, and that's what happened.

Is that what happened in AIB?