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Archive for December 13th, 2012

Following moves by the Barclay brothers last month to call up capital, Paddy McKillen’s spokeswoman has this evening issued a statement confirming that Paddy has already lodged the funds to fully participate in the Coroin rights issue – Coroin is the name of the company which controls the three luxury London hotels, Claridge’s, the Connaught and the Berkeley.  The statement makes clear that Paddy will maintain his shareholding and remain the largest shareholder in the Maybourne Hotel group.  Not only that, but should Derek Quinlan be unable to raise the funds required to participate in the rights issue, then Paddy stands ready with  additional funds in place to take up his pro-rata entitlement to Derek’s shares.

The statement concludes by saying that Paddy is participating in the rights issue to ensure his stake in the group is not diluted but Paddy remains adamant that “the alternative funding opportunity” – presumably this is the Middle Eastern investors, but that isn’t specified in the statement today  – remains the best option for the group, but that this opportunity has been rejected by the Barclay brothers’ representatives on the board.

And that concludes the statement.

In other words, ya-boo to the Barclay brothers, their bid to dilute Paddy’s stake in the group by making a capital call has failed because Paddy has, contrary to the apparent expectation of the Barclays, been able to raise the funds.

There is no reference in the statement this evening to precise figures but the news last month was that the capital call would cost Paddy about GBP 53m (€64m) and if Paddy were to take up his pro-rata share of Derek Quinlan’s shares should Derek be unable to participate, then that would be extra tens of millions more.

So, contrary to the Barclay brothers’ lawyers’ suggestions earlier this year, it does in fact seem that Paddy has a pot to pee in. And a very substantial pot at that.

It remains to be seen in 2013 if Paddy is successful at the Supreme Court with his appeal of last August’s High Court judgment which dismissed Paddy’s bid to have the Barclay brothers’ acquisition of certain interests in the hotel declared unlawful.

But the news today confirms that Paddy is very much in the game.

UPDATE: 15th December, 2012. It is reported in the Irish Times today that Paddy is claiming to have paid €40m down on his personal loans from IBRC in recent months and that his personal exposure to IBRC is now “just” €260m. It is also reported that his corporate exposure to IBRC has also been reduced but there is some uncertainty about figures. Earlier this year, it was understood that Paddy’s companies owed €1.3bn to IBRC but the Irish Times is today saying his corporate loans have been cut from €600m to €550m.  “His spokeswoman said last night this figure now stood at €260 million and his corporate borrowing had been cut from €600 million to €550 million.” says Mark Hennessy reporting in today’s paper. Furthermore it is reported that Paddy intends paying another €200m down on his corporate debt in coming months. Where is all the cash coming from? Not stated, but the betting is from the US.

We also learn today that Derek Quinlan will be taking up his full allocation of additional shares in the rights issue at Coroin which closes on Monday. So at the end of the rights issue, it seems the status quo has remained for the time being, with Paddy and Derek still owning about 70% and the Barclays owning the remainder with dispute over the control of Derek’s shares set to come back to the Supreme Court in London in February 2013.

UPDATE: 16th December 2012. There isn’t much that is new today in the Sunday Independent’s coverage of the latest developments at Coroin, but there are quotes from Paddy who is typically upbeat about his own and the hotel group’s prospects. Followers of the Quinn saga will contrast the treatment of Sean Quinn who says he undertook to repay IBRC 100c in the euro over seven years with the claim by Paddy that he will repay IBRC 100c in the euro by 2014. Paddy says “Luckily for us, we had invested in quality assets that are very saleable and can be refinanced. IBRC are happy too that we have those assets and that they’re going to get 100 per cent of that money” The actual exposure by Paddy to IBRC remains confused, today the Sindo cites Paddy saying “in the space of 12 months we will have our debt with IBRC reduced by €400m at 100c in the euro.”

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This morning, Ireland’s Central Statistics Office (CSO) has released its inflation figures for November 2012. The monthly headline Consumer Price Index (CPI) fell by 0.4% compared to October 2012, and is up just 0.8% year-on-year. November’s results mirror those ofOctober and  September and continue a subdued trend seen in recent months compared with the 2%+ that pertained before January 2011. If this low rate of annual inflation continues and is representative of the components of GDP and if our real GDP does in fact grow by 0.4% as forecast by the European Commission in October 2012, and if the €13bn year-to-date deficit recorded in the November 2012 Exchequer Statement worsens, then Ireland may miss the 8.6% deficit:GDP target as set out in the Memorandum of Understanding with the so-called bailout Troika, which may herald intensified austerity with bigger budget adjustments. The Budget 2013 forecasts indicated Ireland would conclude the year with an 8.2% deficit, but evidence  countering this low figure mounts.

Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 17.1% in the past year, as ECB rate cuts and greater scrutiny of variable mortgage interest rates take effect. Just a few months ago, mortgage interest was rising by 20% per annum, and as mortgage interest costs account for nearly 6% of the basket which measures inflation, the impact on inflation was substantial.

 

Energy costs in homes on the other hand, which account for 5% of the total basket examined by the CSO, have risen by 8% in the past 12 months, mostly driven by the 9% price hikes at the ESB, and in October 2012 at Bord Gais.

Elsewhere, private rents rose by 0.6% in the month of November 2012 – this after a 0.7% monthly increase in October 2012 and a 0.9% increase in September 2012, a flat month in August and three months of declines in April-June followed by a small increase in July – and over the past year, such rents are up by 1.8% according to the CSO – there is some small rounding in the figures above which show 2.1%.

 

It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 6.1% increase (mostly recorded in February and October 2011 and February and September/October/November  2012).

Rent assistance levels have not been affected by the recent Budget 2013, neither the rates nor contribution have changed.

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[CORRECTION: This morning’s release of arrears and repossession data from the Central Bank contained a footnote which referred to changes to previous quarters’ data due to “reclassification”. The footnote was overlooked on here and the figures below have now been updated to reflect the previous quarters’ data published by the CBI. The adjustments extended to overall mortgage numbers, and it would be interesting to see how that “reclassification” came about. The original release for Q2,2012 is here.

The blog has also received the latest figures from the UK’s Council of Mortgage Lenders – arrears are in this Excel spreadsheet and repossessions are in this Excel spreadsheet. The latest annual numbers are little changed to previous numbers.

The reclassified figures from the Central Bank show that the pace of increase in mortgage arrears over 90 days have decreased slightly. In Q2, 2012 the increase from Q1, 2012 was 7.1% whereas the increase from Q2, 2012 to Q3,2012 is slightly less at 6.3%. In Q2,2012 an extra 5,356 mortgage accounts fell into arrears of over 90 days and that reduced very slightly to an extra 5,111 mortgage accounts in arrears in Q3,2012.

The revised figures show that the number of mortgage accounts did fall in Q3,2012 by 3,000. This followed a revised increase in mortgage accounts in Q2,2012 of 1,000 which was the first increase since records began in Q3,2009.

Contrary to what the Irish Bank Federation claims in its press release today, the number of sub-90 days arrears accounts has actually increased from 47,162 in Q2,2012 to 49,482 in Q3,2012. The IBF says there has been an “underlying decline” which is wrong.

Overall, the figures today show that all accounts in arrears are up 7,431 in Q3,2012 compared with an increase of 5,256 in Q2,2012 and on both an absolute and relative basis, the pace of deterioration has increased.

Here are the revised figures – click to ENLARGE

ArrearsQ32012Corrected

Here are the revised Ireland and UK figures

UKIrelandComparisonQ32012ArrearsRepos

]

[NOTICE: The Central Bank has this morning published Q3,2012 data but it has also adjusted previous quarters’ data and this is now being checked with the Bank. For example, the Q2,2012 press release from the Bank is here, but this morning’s data shows significantly different data for Q2,2012]

This morning, the Central Bank of Ireland has published its quarterly series of arrears and repossession statistics for both owner-occupied homes and for the first time, Buy to Let mortgages. The figures are available not available from the Central Bank’s website yet, but the Irish Times seems to have had an advance copy to prepare this report. Below is the historical position on owner-occupier mortgage accounts – click to ENLARGE.

ArrearsQ32012

The above shows that the slowing down in the rate of new arrears has reversed and mortgage arrears are now growing at their fastest rate since the end of 2011. The only positive detail is the number of mortgage accounts has increased for the first time since records began in Q3,2009.

In addition to arrears over 90 days, some 43,742 accounts have been “restructured” – these may be paying interest only or smaller-than-contracted sums or in some cases, may not be repaying anything whatsoever.

Today’s figures show that 17% of owner-occupier mortgage accounts are in arrears over 90 days or have been restructured. Some 17,000 homes in Ireland also receive welfare payments in the form of mortgage interest supplement. It is not clear if any of these payments are to mortgage accounts that are in arrears or restructured. A further 49,482 mortgage accounts were in arrears of less than 90 days at the end of September 2012, but such arrears can oftentimes be cleared. But on the face of it, up to 26% of Irish owner-occupier mortgage accounts are in arrears, have been restructured or are in receipt of Government aid.

The figures today show that 154 properties were repossessed in Q3,2012 which is in line with previous months and means that our repossession level remains at a very low level compared to international standards, for example in the US and the UK.

Figures for Buy to Let mortgages today reveal that one in six mortgages is in arrears of more than 90 days. There are 149,592 BTL mortgages, of which 26,779 or 17.9% are in arrears of more than 90 days. There has been a similar rate of deterioration in these accounts since Q2, 2012 as owner occupier accounts.

IrlUKQ32012

The contrast between the treatment of mortgages in Ireland and our closest neighbour, the UK, is stark. Not only are arrears per 100,000 accounts more than five times the level of our neighbour  but repossessions per 100,000 accounts is one quarter of our neighbour’s rate. You are 24 times more likely to have your home repossessed in the UK if your mortgage falls into arrears than in Ireland.

There has been little progress with dealing with the mortgage crisis, and it remains to be seen if the Personal Insolvency Bill which should be passed into law before Christmas (2012) will benefit home-owners. It has been over a year since An Taoiseach responded to President Clinton’s speech at the Global Irish Forum in Dublin Castle where Bill Clinton identified the mortgage crisis as the greatest economic challenge facing this State.

UPDATE: 13th December, 2012. The Central Bank has finally published the arrears information which was due at 11am and which was circulated or leaked to media before 11am judging by the lengthy report by Pamela Newenham in the Irish Times at 11.01am.

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It is now a year and 9 months since the Moriarty Tribunal report was finally published on 22nd March 2011. And by the looks of it, this Government would just prefer that it go away. Not only has the Government been dragged into what promises to be a spectacular court case in 2013 when two failed bidders for the Esat phone licence in the 1990s will sue the Government and others for their losses, but the Fine Gael component of this Coalition is constantly being prodded about its association with Denis O’Brien, the businessman against whom the Moriarty Tribunal made “adverse findings”, findings rejected by Denis himself but which nonetheless stand in the context of the Moriarty work. An Taoiseach Enda Kenny finally said the words “I accept the findings of the Moriarty Tribunal in its entirety” at the MacGill Summer School in July 2012, but we now have the apparently nonsensical position of An Taoiseach accepting the findings but his Government seemingly set to dispute the findings in the court cases with the unsuccessful bidders. Yes, they would probably wish the whole thing went away.

But it’s not going away.

Yesterday in the Dail, the Sinn Fein finance spokesperson Pearse Doherty sought an update from the Minister for Justice, Equality and Defence Alan Shatter on the adoption of the recommendations of the Moriarty Tribunal, which remember, An Taoiseach accepts “in its entirety” and there is also the small matter of the Garda investigation. It was six months ago, when the Fianna Fail leader Micheal Martin asked for a similar update, and what has changed in six months?

In May 2012, Deputy Martin was told “Insofar as the report of the Moriarty Tribunal made recommendations concerning the future operation of tribunals of inquiry, many of these recommendations are anticipated by the Tribunals of Inquiry Bill 2005 which awaits Report Stage debate in the Dáil. Other recommendations are the subject of consultation with the Attorney General and other relevant Departments. I am informed by the Garda authorities that following their examination of the report of the Moriarty Tribunal, they are consulting with the Director of Public Prosecutions as to whether aspects of it may be pursued from a criminal point of view.”

Fast forward to December 2012, and the response to Deputy Doherty is almost identical, including the status of the Garda investigation – the Gardai are still seeking advice from the Director of Public Prosecutions. No wonder Transparency International last week said “There appears to have been very little action taken on foot of the publication of the final Moriarty Tribunal report” when Ireland’s corruption perceptions index suffered a record deterioration.

Here is the full parliamentary question and response.

Deputy Pearse Doherty: To ask the Minister for Justice and Equality further to Parliamentary Question No. 502 of 1 May 2012, the progress made on the recommendations of the Moriarty Tribunal; and if he will make a statement on the matter.

Minister for Justice and Equality, Alan Shatter: Insofar as the report of the Moriarty Tribunal made recommendations concerning the future operation of tribunals of inquiry, many of these recommendations are anticipated by the Tribunals of Inquiry Bill 2005 which awaits Report Stage debate in the Dáil.  Other recommendations are the subject of consultation with the Attorney General and other relevant Departments.

I am informed by the Garda authorities that, following their examination of the report of the Moriarty Tribunal, the advice of the Director of Public Prosecutions has been sought on the findings of that examination, with a view to determining whether or not a full Garda investigation should now be commenced.

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The Revenue Commissioners – Irish tax authorities – used to have a fearsome reputation, akin to the IRS in the US. Not only that, but the quarterly list of named-and-shamed tax defaulters applied moral pressure on society to conform, all so that the State could collect the taxes due and provide a functioning society in return.

In more recent times, the Revenue is looking like an army of clowns, who imposed a settlement of €2m on Independent TD Mick Wallace after deliberate under-declaration of VAT at his companies, and it turned out Mick wasn’t legally responsible for the settlement and his companies had gone bust, but Mick is, out of his own pocket, paying the Revenue back over the next 90-odd years.

At the start of this year, the Revenue was in the dock or at least before an Oireachtas committee to explain why it was scaring the bejesus out of pensioners after hundreds of thousands of letters had been issued to pensioners demanding tax on past pensions – “We caused confusion and distress to some people and I’m sincerely sorry for that” said the current boss at the Revenue, Josephine Feehily.

And next year, the quarterly defaulters lists will include non-payers of the household charge arrears and the new property tax, so chances are it will be so big that it will lose its moral suasion.

Today, we learn via a parliamentary question from the Labour Party TD, Joanna Tuffy that the Revenue Commissioners paid €90m to a company called Accenture in a four year period 2008-2011. Minister for Finance, Michael Noonan told her that Accenture received €11.69 million in 2011, €25.436 million in 2010, €22.466 million in 2009 and €28.927 million in 2008. I can’t link to the PQ because it doesn’t appear to be on the Oireachtas website yet for this week or under the “member and topic” section of the website, but the Irish Times reports about it here today.

Accenture is the name of the consulting arm of a firm called Arthur Andersen and we might remember the demise of Arthur Andersen in the Enron scandal in the US. Actually Arthur Andersen, the audit company, was resurrected after the charges against it were reversed in the US Supreme Court, but it apparently just employs a few hundred people today, and just in the US.

Accenture though, has blossomed. And we should not be surprised that it has received so much work  from the Revenue Commissioners. We should be surprised though, that Accenture has this year been involved in a – lawful, it should be stressed – transaction, whereby it moved USD 7bn (€5.3bn) of “intellectual property” costs  via Switzerland and Luxembourg to Ireland, where presumably, the costs are being used to offset against revenue generated in Ireland, so we are unlikely, it would seem, to see much, if any, tax paid on the €90m fees paid to Accenture by the Revenue Commissioners – you couldn’t make this stuff up.

The Accenture scheme was reported in the UK satirical magazine, Private Eye in October 2012, and it subsequently gave rise to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty (shown below *). Minister Noonan refused to comment on the matter but said that companies generally can only use such allowances up to a maximum of 80% of income at any one time. So if Accenture were to earn €100m in revenue, then it could only deduct allowances for intellectual property and suchlike up to €80m, though presumably it could claim normal operating costs against the other €20m. We don’t know precisely what taxes Accenture pay in Ireland, but in Britain recently, the coffee-shop company Starbucks yielded to public pressure and committed to pay some tax in the UK after it transpired it was making losses on selling €4 coffees because of jiggery-pokery with international costs.

When contacted by the Irish Examiner to comment on the matter in October 2012, Accenture said “Accenture moved its incorporation to Ireland and pays full taxes under Irish law on all of our Irish operations”

Away from the realm of procurement, you really have to hand it to the Revenue Commissioners and their IT skills. Not only are they unable to get their computers to talk with those at the Department for Social Protection, so that benefits paid to high earners, like child benefit, can’t be taxed, but in September 2012, when the Property Price Register was launched, it turned out that the Revenue had provided data for a lousy 33 months only, and even that contained significant errors.

Deputy Pearse Doherty:To ask the Minister for Finance further to a report in a British publication which claims that a company (details supplied) has transferred US$7 billion of costs for intellectual property from Switzerland via Luxemburg to this State and is being given tax relief in this State equivalent to US$7 billion overtime, if the Revenue Commissioners are aware of same and have approved any such scheme..

Minister for Finance, Michael Noonan :  I am precluded from commenting on the tax affairs of any taxpayer, as these are confidential between the taxpayer and the Revenue Commissioners.

However, I wish to advise the Deputy that, under section 291A of the Taxes Consolidation Act 1997, a company can claim allowances for capital expenditure incurred on the provision of intangible assets for the purposes of its trade. These allowances apply to expenditure on a broad range of assets (e.g. patents, copyright, trademarks, know-how) that are recognised as intangible assets under generally accepted accounting practice.  The allowances, in providing relief for this expenditure, are intended to encourage companies to manage and develop the intellectual assets of their business.

Allowances for an accounting period are computed by reference to the amount charged to the profit and loss account in respect of amortisation of the intangible asset relative to its cost. Companies can alternatively opt for a write-down of expenditure over 15 years at a rate of 7 per cent per annum and 2 per cent in the final year. As the expenditures concerned – and, accordingly, the allowances – can be for very substantial amounts, the set-off of the allowances against the related income is restricted. In particular, the aggregate amount of allowances and deductible interest on borrowings, if any, in respect of intangible assets may not exceed 80% of trading income (before the set-off of allowances and any such interest) related to those intangible assets. This ensures that at least 20% of the relevant income will continue to be chargeable to corporation tax in an accounting period. Any unused allowances and interest can be carried forward to subsequent accounting periods for offset against trading income related to the intangible assets (subject to the 80% restriction).

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