FORMER BANK of Scotland (Ireland) chief executive Mark Duffy and property fund manager Kevin Warren plan to buy distressed property loans from the Irish subsidiaries of foreign banks through a new fund management company to be launched shortly.

Their company, Asset Resolution Corporation (ARC), which was incorporated in May, is lining up large UK institutional investors such as pension and fund management companies to provide substantial equity to fund the venture.

Sources within UK investment circles confirmed that approaches were made by ARC. Mr Duffy had no comment on the firm’s plans, while Mr Warren could not be reached for comment.

The company, which is based in the Dublin offices of Warren Private Clients, Mr Warren’s property fund management firm, is believed to be planning to make formal approaches to the banks with offers to buy loan portfolios.

ARC is planning to create a substantial fund, possibly running to several billion euro, to buy portfolios of property development and investment loans at a large discount from foreign-owned banks.

The lenders, which include UK-owned Ulster Bank, Mr Duffy’s former employer Bank of Scotland (Ireland), which is owned by British bank Lloyds, and Dutch-owned ACCBank, are not expected to participate in the Government’s “bad bank”, the National Asset Management Agency (Nama).

ARC has been selling itself to potential investors as an operation that is not dissimilar from Nama in its nature. It will offer to buy loans at a discount but as a private enterprise making offers to the foreign-owned lenders, which are not likely to qualify for the State plan.

The company intends to create selling opportunities for the lenders as they attempt to shrink their Irish loan books, particularly their exposure to the struggling property sector.

A report published by Bloxham Stockbrokers last month said that the main banks would reduce their Irish loans books by €190 billion, or 36 per cent, over the coming years from €532 billion currently.

Irish subsidiaries of foreign banks will account for €70 billion of the reduction, the firm said.

The five main foreign-owned banks have Irish loans totalling €126 billion, including €39 billion in property loans, said Bloxham.

A shortage of buyers in the property market and fresh credit in the banking sector have reduced loan redemptions forcing them to hold assets and continually take large write-downs on the value of loans.

It’s understood that ARC may seek loan financing from the banks themselves as part of the purchase of the distressed loans.

Structuring the purchase of property loan portfolios in such a way may appeal to the banks as it would convert non-performing loans into cash-generating assets.

As part of any refinancing agreed, the company may offer the banks a share in any profits from the future sale of properties backing the loans or by holding the assets until the loans mature.

As chief executive of Bank of Scotland (Ireland), Mr Duffy oversaw the growth of the bank into a substantial player in property and development lending during the boom. He stepped down as chief executive in April after 16 years with the bank.

Mr Warren has advised Mr Duffy on personal investments for several years. They each hold a 50 per cent shareholding in ARC.

Warren Private Clients, which was set up in 2002, has experience in developing and managing property in Ireland, the UK, Europe and the US. The company’s website says it has €2.3 billion “under active management” for clients.

The firm’s property funds own several blocks in the IFSC, including AIB International House and Guild House, and the Sweepstakes building in Ballsbridge.