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Archive for November 15th, 2012

You can tell Michael O’Flynn is a different class of developer: for a start, he’s announced today he’s donating part of the “substantial contribution” to his legal costs from junior minister Lucinda Creighton, to the Crumlin Hospital Foundation. He was speaking at the conclusion of a court hearing where he claimed the Minister for European Affairs had defamed him, and in court, a statement was read out today which,in part, said “it is appropriate that she has agreed to make a substantial contribution to my legal costs part of which I will donate to Crumlin Hospital Foundation”

You see NAMA won’t normally allow its borrowers to sponsor events or sporting teams or make charitable donations. And given this “substantial contribution” from Minister Creighton would be regarded as unencumbered income, it must mean that Michael is up-to-date on his very significant borrowings – said during the course of the hearing to be north of €1bn – or that the borrowings don’t have recourse to his own personal income or wealth as it is rumoured that he is one developer who didn’t give personal guarantees.

So today in Dublin’s High Court, the case taken by Tiger Developments and O’Flynn Construction chief, Michael O’Flynn against Minister Creighton concluded with a settlement between the two. Michael had claimed that Lucinda had defamed him during a speech at the MacGill Summer School in 2010 followed by a newspaper article and radio broadcast. Following a Fine Gael fund-raising golf tournament in 2010 at the K Club in Kildare, Minister Creighton had criticized the “cancer of cute hoor politics” and said that “Fine Gael cannot condemn Fianna Fáil for entertaing developers in the Galway tent while holding the biscuit tin to high-profile developers beholden to NAMA” and later said she was referring to Michael O’Flynn. Michael said this all amounted to defamation.

On Tuesday this week, it was reported in the Independent “He [Michael O’Flynn] told his counsel, Declan Doyle, that her solicitors put forward proposals that she would issue a press release which she would carry on her website and also issue to the ‘Irish Times’, along with a contribution to Crumlin Children’s Hospital. Mr O’Flynn said he refused to accept these proposals and wanted an apology which would receive the same publicity across the media that the “attack” Ms Creighton had made on him had received.”

Today, the settlement seemingly involved two statements being read to the Court – firstly on behalf of Minister Creighton “I made comments about Michael O’Flynn and his attendance at a fundraising Golf classic for Fine Gael in particular concerning low standards and wrong doing. I am happy to confirm that Michael O’Flynn is an upstanding developer and person who operates his business to the highest standards. He has not done any wrong and any suggestion to the contrary was not intended by me. I apologise to Mr O Flynn and his family for any hurt and distress caused by my comments. I have agreed to pay a contribution towards his legal costs.”

The statement on behalf of Michael O’Flynn was “I am very happy that the damage to my reputation caused by Ms Creighton’s very public comments in her speech at Glenties and her subsequent interviews with RTÉ and the Irish Times has been recognised in these court proceedings. It is regrettable that I was compelled to bring these proceedings and I am delighted to have received an apology in open court from Ms Creighton. From day one, all I was seeking was an appropriate apology from Ms Creighton and a donation to Crumlin in recognition of her inappropriate comments about me, and it is appropriate that she has agreed to make a substantial contribution to my legal costs part of which I will donate to Crumlin Hospital Foundation. I have been in operating in business in Ireland and abroad since the 1970s, and I treasure my good name both in my professional and my private life.”

The hearing took the best part of three days this week, and won’t have been cheap, but we don’t precisely know what costs were incurred by Michael O’Flynn or Lucinda Creighton or what a “contribution” or “substantial  contribution” means.  But neither “contribution” nor “substantial contribution” means “100% reimbursement” so this has cost Michael money. And again, we can see how he is different to other NAMA developers who would be constrained in their freedom to sue people because NAMA generally wants to snaffle their unencumbered income and wealth.

During the hearing some mud was thrown with the claim by Michael that he had contributed to the election campaign of Lucinda’s husband, the current Senator Paul Bradford.

As regards the settlement statement, it more a clarification than an apology. The Minister doesn’t confess to saying or writing anything which was incorrect. She does clarify that in the case of Michael O’Flynn that he is “an upstanding developer and person who operates his business to the highest standards” The apology is for “any hurt and distress” caused by her comments, there is no admission that what was stated was incorrect.  Minister Creighton refers to a simple “contribution” to Michael’s legal costs, whilst Michael refers to a “substantial contribution” but whatever it is, Michael is going to be out of pocket. But that seemingly isn’t NAMA’s concern.

UPDATE: 19th November 2012. The Irish edition of the Sunday Times – not available online without subscription – yesterday refuted a claim made on the Newstalk radio station on Friday last that Lucinda was paying €100,000 towards Michael’s legal costs and a further €50,000 as a donation to the Crumlin Hospital. The Sunday Times journalist Mark Tighe reported that Lucinda paid “at least €50,000 to settle the defamation action” and that this figure was confirmed by “sources from both sides of the dispute”. Furthermore Lucinda is reported to have been annoyed by the report on Newstalk.

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The increasingly Stalinist nature of some aspects of Irish public life were on show in the Dail earlier this week when in response to a parliamentary question, the Minister for Finance Michael Noonan said that disclosure of the legal fees incurred by the Irish Bank Resolution Corporation – “IBRC”, the name of the new company that resulted from the merger of Anglo and Irish Nationwide last year – was “commercially sensitive”. However Minister Noonan kindly told us that legal fees make up part of the €260m of administrative and exceptional costs incurred by IBRC since the start of 2011. So legal fees incurred at an organization in which we own 100% of the shares range between nil and €260m in 18 months. Nice to know.

What makes this response even more bizarre is that one of IBRC’s competitors, NAMA publishes its legal costs every quarter and NAMA even publishes an annual budget for legal costs. And when it comes to legal expenses, you would expect NAMA and IBRC to be similar – both are trying to maximize recoveries on loans, both have gone to court in this country and elsewhere to pursue borrowers for outstanding loans. This year alone, NAMA has made 34 applications in Dublin’s High Court and has been on the receiving end of a further six. By contrast IBRC has made nearly 70 applications at the High Court, many of which have received no publicity, eg it is suing in separate actions top tier lawyers, BCM Hanby Wallace, Gerry Sweeney, Philip Conlon, Michael Fingleton and Ken Drumm – there is a full listing from the Courts Service above, accessible here. Of course there are two very high profile legal cases at IBRC – one against Sean Quinn and the Quinn family and the other against former CEO David Drumm whose bankruptcy in Boston is being vigorously challenged.

But why can’t we find out how much is being shelled out to lawyers? This is 100% our money, and IBRC’s competitor, NAMA readily discloses how much it spends. You might become suspicious that “commercially sensitive” is code for “it’s HUGE!”, in which case, all the more reason that we find out what IBRC is spending.

Remember IBRC is the asset management organization that looked cross-eyed at an Oireachtas committee which asked it if it monitored salaries at it borrower companies, this after it was revealed that hugely insolvent Siteserv was sold to interests associated with Denis O’Brien with a massive €100m writedown by IBRC on its €150m loans, and this as the same time as the CEO of Siteserv, Brian Harvey was being paid €401,000 per annum. But unlike NAMA, where there is strict scrutiny of borrower salaries, IBRC simply shrugged its shoulders and dismissed any concerns.

Minister Noonan’s was responding to a parliamentary question from the Sinn Fein party leader, Gerry Adams who coincidentally asked at the same time for the equivalent figures for NAMA and was told they were being collated and would be forwarded shortly! One rule indeed for NAMA and another entirely for IBRC.

The full parliamentary questions and responses are here:

Deputy Gerry Adams :  asked the Minister for Finance the fees that are paid to companies who provide property valuations for the National Asset Management Agency; the fees for this service that were paid in each of the years since NAMA was established; the persons who were the top ten recipients of these fees in each of the years since NAMA was established.

Deputy Gerry Adams:   asked the Minister for Finance   if he will provide a breakdown of the legal fees paid by the National Asset Management Agency to date in 2012; if he will provide a breakdown of the recipients of those fees including the amount each recipient received from NAMA; and for the total legal fees incurred by NAMA since its establishment.

Minister for Finance , Michael Noonan:  I propose to take Questions Nos. 229 and 230 together.

NAMA informs me that it cannot provide all the details requested by the Deputy in the time available. NAMA has undertaken to provide me with this information within the next week and, accordingly, I will issue a reply to the Deputy at that stage.

Deputy Gerry Adams:   asked the Minister for Finance   if he will provide a breakdown of the legal fees incurred by the Irish Bank Resolution Corporation in each year since its establishment.

Minister for Finance, Michael Noonan:  I have been advised by IBRC that disclosure of this information is commercially sensitive. However, legal fees incurred by IBRC are included as part of Other Administrative Costs, or where applicable Exceptional Costs, as published in the Bank’s Annual Report & Accounts and Interim Report. The 2011 Annual Report & Accounts for IBRC show Other Administrative Costs of €108m and Exceptional Costs of €82m. However, these figures are not exclusively made up of legal fees. The H1 2012 Interim Report reflects Other Administrative Costs of €45m and Exceptional Costs of €25m.

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“The role of the Council is to independently assess, and comment publicly on, whether the Government is meeting its own stated budgetary targets and objectives. It assesses the appropriateness and soundness of the Government’s macroeconomic projections, budgetary projections and fiscal stance. The Council will also examine the extent of compliance with legislated fiscal rules.”  The Irish Fiscal Advisory Council website

Yesterday, the five members of the Irish Fiscal Advisory Council – John McHale, Sebastian Barnes, Alan Barrett, Donal Donovan and Roisin O’Sullivan – should have handed in their notices of resignation. For the second year running, the Government yesterday produced an economic outlook which has again “noted” the advice and recommendations of the Council, and ignored it. We don’t need a special Council to provide economic assessments to Government and then have those assessments ignored – any Tom, Dick and Harry or Brian, Karl and Constantin can do that.

The fundamental principle behind an independent Council is to separate neutral economics from politics. At a detailed level, it’s to stop the Charlie McCreevy “if we have it, we’ll spend it” attitude or eve-of-election giveaway budgets traditionally used in this State to buy votes.

Yesterday, the Department of Finance published its pre-budget economic outlook (see above summary). It’s a week late and whilst forecasts come and go, some of the specific forecasts raised eyebrows. Just a month ago, the Central Bank of Ireland forecast 2012 real GDP at 0.5% and that the domestic economy represented by GNP contracting in 2012 by 0.4% (see forecast summary below).

Last week the European Commission issued its Autumn forecast which included 2012 GDP only and its forecast was identical to the Central Bank’s at 0.4%, the European Commission doesn’t forecast GNP (see extract below). Yesterday, the Department of Finance forecast 2012 GDP at 0.9% and real GNP to increase by 0.4%. The difference between the Central Bank’s and Department’s GNP forecast is striking.

It should be stressed that forecasts do come and go – circumstances change and unforeseen events are commonplace and even educated forecasts can be way off target. But when one forecast is at odds with another, it’s worth asking why and when one forecast is at odds with consensus forecasts, it’s negligent not to ask why.  Why is the Department’s forecast of GDP in 2012 twice that of the consensus, albeit the difference is just 0.4/0.5%. But more starkly, there is little evidence from yesterday’s publication to show why the GNP forecast in particular should be so buoyant – unemployment remains at 14.8% equating to about 310,000 and the seasonally adjusted Live Register remains stubbornly at around 430,000, the last three months Exchequer Statements indicate a deterioration in our financial position which would be far worse were it not for underspending on the capital programme.

So to summarise yesterday’s Departmental forecast, 2012 is going to be better than expected but there is some downgrade to 2013 and 2014 but we are still confident of meeting the annual targets in the Memorandum of Understanding with the so-called bailout Troika. But with respect to the Irish Fiscal Advisory Council which produced its Fiscal Assessment Report in September 2012, the Department yesterday noted the recommendation by the Council to accelerate the budget adjustments from 2014 in the context of noting the risks and history of overly-positive forecasting by the Department.  And the Department has, as it did in 2011, ignored the position of the Council.

The Council doesn’t produce its own estimates of GDP and GNP. It has assessed the “fiscal stance” of the Government and has sought faster budget adjustments.  It has assessed the “soundness” of the Government’s projections and has concluded they are overly-positive. This is the meat of what the Council does, and the Government has ignored its assessment of its “fiscal stance” and has produced a forecast of GDP and particularly GNP growth in 2012 which is higher in the case of the former, and significantly higher in the case of the latter, than most other forecasters .

So what do we want or need a Fiscal Advisory Council for? To claim some fig leaf of politically independent economic oversight at national level?  And then to ignore what the Council says?

Is this what the five members of the Council signed up for?

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