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Archive for November 22nd, 2012

“It is difficult to be precise as it will very much depend on individual circumstances and the nature and extent of the debts involved. However, for broad planning purposes for the first full year of operation of the new law and systems, our tentative estimate, based on a rough extrapolation from the comparable UK and Northern Ireland circumstances, is as follows – 15,000 applications for the two main non-judicial debt resolution processes – the debt settlement and personal insolvency arrangements; 3,000 to 4,000 applications for debt relief notices; and 3,000 bankruptcy applications. There were approximately 30 bankruptcy adjudications in 2011.” Minister Shatter in the Seanad on 21st November 2012

Minister for Justice, Equality and Defence Alan Shatter was speaking in the Seanad yesterday in advance of the imminent passing into law of the Personal Insolvency Bill. He stated that he expected 3,000 people to  apply to be made bankrupt in the State in 2013 – that equates to an average of 60 per week, or 12 per working day. Yes, there is about to be limited bankruptcy reform in (the Republic of) Ireland.

In Northern Ireland presently, there are about five bankruptcies per working day or a total of 1,321 in 2010. In (the Republic of) Ireland in 2011, there were approximately 30 bankruptcies during the entire year and over the past decade there have typically been 10-20 per year. The stark difference between Northern Ireland/the UK on the one hand, and here, is down to the draconian nature of bankruptcy in (the Republic of) Ireland where the law as it stands today imposes a bankruptcy period of 12 years, is expensive and has a seriously deleterious effect on employment in certain professions.  This is about to change with the Personal Insolvency Bill which is expected to be passed into law within the next five weeks, so by 1st January 2013, we will have a (slightly) reformed bankruptcy process which lasts three years – though eligible debts are capped at €3m, if you owe more than €3m, the old 12-year period will still apply – and banks still have the final say on whether you can obtain bankruptcy on secured lending.

It’s remarkable to think that in one year, 2013, there will be as many bankruptcies as in the previous 92 years of the State’s existence, COMBINED.

In addition to an expected 3,000 bankrupcties next year, there are expected to be 3-4,000 applications for debt relief orders which will be the new mechanism whereby unsecured debts up to €20,000 can be written off in a year – this will typically apply to students and young people to whom credit card companies had incautiously provided credit cards and the debts cannot be paid and the borrowers do not have any assets of any real worth.

The prediction on here is that there is still trouble ahead for politicians trying to fob off a highly indebted society with such limited reforms.

With some 20 NAMA developers being declared bankrupt in the UK – where there is a 12-month discharge period, where there is no €3m cap and where the main criterion for seeking bankruptcy is having debts in excess of the value of assets – and with some very high profile non-NAMA bankruptcies in the UK and elsewhere eg Ivan Yates, Westlife’s Shane Filan, David Drumm and non-NAMA developer s like Fergal O’Mahoney, people might quite rightly ask why those lacking the wherewithal to suffer the dislocation of a temporary or permanent move to the UK, have to make do with a 3-year bankruptcy period and why the banks still act as gatekeeper for bankruptcy where there are secured debts involved; or in other words, if people have a mortgage of €300,000 on a home now worth €150,000 and have little in the way of other assets, why the banks can still stop a bankruptcy bid.

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The regular audience on here will be aware of the prediction that Permanent TSB, the 99.5% state-owned bank, will run out of cash by April 2013 when it needs redeem significant bonds UNLESS the bank can dispose of assets beforehand or it gets an additional bailout. Yesterday, PTSB issued a statement to the stock exchange confirming that it has sold €351m of loans (net of provisions and write-offs at February 2012) for a total of €287m. This means that PTSB will need book a further loss in its books of €64m, and may arouse suspicion that the price is a fire sale price forced on PTSB by its imminent obligations to redeem significant bonds in January and April 2013.

The buyers of the loans are identified in the PTSB release as a SPV called “Consumer Auto Receivables Finance Limited” and a “global bank”. It is understood that Deutsche Bank is behind both, and industry insiders have raised eyebrows at the involvement of Deutsche Bank is these loans, the majority of which are understood to be car finance loans, because car finance is not an area in which Deutsche Bank specializes.

In addition, there has been a management buy-out of a PTSB unit, Permanent TSB Finance Limited. The management set up a new company called “First Citizen Finance Limited” and all staff in the PTSB unit are expected to transfer to the new company. The new company is contracted by the buyer of the loans to service the loans. “Management buy-out”  might be a grandiose term for this transaction as PTSB has said the sale was for “a nominal consideration”.The unit which was bought out by management made a €16m loss in 2011, according to the statement, but it is unclear if that includes loan impairments and the operating profit of the businesses was not disclosed.

So, did a bank into which we have to date shoveled €4bn and which we own 99.5% execute a financially stupid transaction? Was the sale price for the loans of €287m a “fire sale price” forced on the company by the need to repay bonds in January and April 2013. And was selling a unit to management for “a nominal sum” a good deal for PTSB? Davy Corporate Finance again advised PTSB and how much did they get paid on the transaction? How were the portfolios marketed so as to maximize value? Can we expect Deutsche Bank, which doesn’t specialize in car finance, to flip the assets and make a quick windfall profit?

Given that Minister Noonan keeps on telling us the details of these transactions in banks which we practically own are commercially sensitive, who knows, who can tell.

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