Archive for December 13th, 2010

It was on a miserably wet night in February this year when I went along to the inaugural meeting of the London Irish Business Society in the BT headquarters next door to St Paul’s in London. The format for the evening was a series of speeches on the subject of NAMA given by, amongst others, Enda Kenny leader of the main Opposition party Fine Gael, followed by a brief Q&A session. The event was held in the bowels of the BT building and there was no mobile phone reception. It was around 8.45pm and I was seated two rows behind where Enda was sitting on the front row (the idea being that once you gave your speech the speaker sat back down in the front row). An aide to Enda rushed in with a Blackberry and showed the party leader a message. I couldn’t make it all out but there was something about Willie O’Dea who we later found out had resigned that evening. A couple of moments after this, Enda had to get back up on the stage along with the other speakers to take some questions. To say the least he was a very distracted man. And you can understand why – it’s a cold, fruitless place in Opposition in Irish politics. Practically every week you are faced across the Chamber with people who are in power, who create laws, who make decisions and enjoy the perks – it’s a difficult station being in Opposition. And here was Enda being presented with a high profile ministerial resignation that could lead to the downfall of the government and which would probably have seen Enda taking the top job. So as distracted as the man was with fielding questions (at least as it seemed to me) on NAMA in the Q&A session, it was  understandable and would probably be no different to the reaction of politicians from Washington to Brussels – politics can be a cynical game played for personal gain. And the same instincts apply on the Government seats to those for whom political self-preservation is paramount.

But sometimes politicians need put their differences aside in times of national emergency. Although they no doubt regret it today, Fine Gael sided with the Government in the debate and vote on the banking guarantee two years ago – they may well say today that they acted on the best advice available and could never have foreseen the losses ballooning to the extent they have, but the fact remains they joined with the Government to enact a piece of legislation in what they saw as the common good.

On Wednesday this week, the Government has decided to allow a 120-minute debate and vote on the IMF/EU bailout. And the IMF has postponed until Thursday this week its meeting to rubberstamp the agreement, “in deference to Ireland’s parliamentary democracy”. A 120-minute debate is very short and may only allow for positional statements from the five party leaders. And then there will be a vote and already the media is trying to ferret out the likely voting intentions of independents and is concluding the Government will just about scrape home. Given our whip system, it is unlikely that a single deputy will vote out of line with their party.

There seems to be two major camps in Irish politics and indeed economics at present, the “bailoutists” and the “defaultists” – the former want to accept the bailout deal and repay the bank debts, which is seen as politically and economically preferable to the position of the defaultists who want to see some measure of default on bank debt. Whether you are a defaultist or bailoutist isn’t a completely fixed allegiance however – it is mostly about your view on the ultimate cost of rescuing the banks.  A defaultist might become a bailoutist if they felt the cost of the banks was manageable because they recognise default will be costly and is something to be avoided if our finances allow it. And the same with the bailoutists – if the costs of rescuing the banks balloon to a certain level then the bailoutists will become defaultists.

So what are the deputies voting for on Wednesday? The fiscal problem – that our day-to-day spending has gotten out of equilibrium with our tax revenues – is well defined and although challenging, I would say that most, if not all, of the deputies understand the scale of the challenge and agree in principle that the gap must be narrowed and eliminated. Although the collapse in revenues has been spectacular and the growth in social security payments (particularly unemployment) on the other side equally remarkable, getting your country’s income and expenditure to balance is understood and accepted by practically all. And the Four Year Plan and Memorandum of Understanding are pretty clear on the direction to be followed and indeed they both allow political and national discretion about the ways and means even if the final result is set in stone. If the Government has been truthful about NTMA funding (funded to middle of 2011) and the NPRF has €15bn unencumbered and Irish banks can swap foreign sovereign debt for domestic debt and we can sell off State companies and assets then I don’t see how we don’t get to 2013 or indeed 2014 by which time our deficit:GDP is down to 5%.

The problem is with the banks. And that is what this deal is principally about. And I cannot see how the parties can meaningfully debate this deal in 120 minutes or indeed 1200 minutes because the information needed to form a considered view is simply not available. In practical terms the default-vs-bailout debate is about the final cost of rescuing our banks. This final cost estimate is a moveable feast because if the economy improves then certain loans that are impaired today might become good again and also some loans that are good today won’t become impaired. So to an extent there must be some level of forecasting and prediction.

What seems inexcusable though at this advanced stage is that we do not know with any confidence the losses that remain to be uncovered with non-NAMA lending. For all of NAMA’s controversy, the agency has valued €27bn of land and development (and associated) lending to a standard which has received the EU’s seal of approval. And these valuations have uncovered atrocious lending practices : non-existent or poor loan documentation, imperfections in security and reckless Loan to Value ratio %s of close to 100%. Although the remaining €63bn-odd loans that are transferring to NAMA will only have estimated valuations pending final valuations in 2011, it must be said that NAMA is bringing certainty to the level of losses in that part of the banks’ loan books. But after NAMA has finished its work, there will still be €250bn+ of residual non-NAMA lending on the five PIs books (very roughly €100bn of mortgages, €70bn of commercial non-land and development property, €70bn of other commercial lending and €10bn of other personal lending).

Our Financial Regulator reminded us three weeks ago that there still hasn’t been a granular examination of non-NAMA loans and the assumptions as regards losses on mortgages (5-6.5%) look low compared with some commentators. On Friday last the Irish Examiner reported that Anglo’s CFO Maarten Van Eden had said “the banks operating in Ireland have a long-term capital need of €75 billion and require €70bn in the medium term to cover bad assets”. Now the context of his estimates was unclear – was he talking about all banks in Ireland or just the six State-guaranteed banks? Were these figures additional to the funding announced on 30th September 2010 plus the €35bn earmarked for the banks in the recently announced EU/IMF bailout? Would the capital have to come entirely from the State or would some be privately provided? But given that the Government had indicated on 30th September 2010 that the cost of rescuing the banking system would be €46-52bn and that up to another €35bn would be channelled to the banks from the IMF/EU, that is €81-87bn in total, this estimate was worrying because at the very least it would mean most of the banking contingency in the IMF/EU bailout would be needed. And yesterday the Chairman of Anglo, Alan Dukes claimed that the €35bn from the EU/IMF would not be enough to absorb losses in the banks. Both Anglo men may be wrong of course and as Alan Dukes says, Anglo didn’t really do mortgages so its expertise with forecasting losses there will be limited. So what is a reliable estimate of the final costs? Independent banking consultant Peter Mathews says €91bn, Professor Constantin Gurdgiev says c€70bn, Professor Morgan Kelly says €70bn for Anglo and INBS alone. And none of these independent professionals is including any allowance for derivative losses. The Financial Regulator and the Central Bank Governor seem to be saying that either the 30th September, 2010 estimates should be adequate (€46-52bn) or that only another €10bn will be needed. You would expect the official estimates to be more reliable but that has not been the experience to date (and Patrick Honohan is now in the job 15 months and has revised his estimates several times, Matthew Elderfield has been in post since 4th January but has revised his Prudential Capital Assessment Review at least once)

There will also be derivative assets and liabilities that have prompted concern and suspicion that there are vast hidden losses in this area still waiting to be uncovered.

So at what point would the bailoutists say the likely cost of rescuing the banks is such that they move into the defaultist camp? Although we may not be at that level yet, what questions can be asked to give the deputies voting on the bailout some reassurance that the costs will be manageable?

The reason all of this is relevant is that the political parties seem to be setting their positions in stone before ascertaining some relevant facts. The FG attitude of being against the deal because they weren’t involved in its negotiation, if correct, seems petty. On the other hand, the position of those in government voting for the deal because of the party whip, without understanding the terms or consequences of the deal, seems equally unattractive. We are back to personal party politics and let the facts go hang. I hoped the debate on Wednesday would have been informed by the following:

(1) At the very least there is still significant disagreement about the level of losses in our banks. Deputies have a right to know the present estimates for rescuing the banks, the margins of error and the underpinning research and intelligence.
(2) The secret side letter to the IMF/EU agreement which apparently deals with plans for the banks
(3) The identities and sums owing to owners of debt by the State-guaranteed banks. Senator David Norris began naming names in a Seanad Committee last week : he only got as far as Aberdeen Asset Management (London Ltd), AGICAM, Aktia Asset Management, Aletti Gestielle SGR and Alliance Bernstein (UK) Ltd before the chairman stopped his revelations. The great suspicion here is that the banks are being bailed out so that foreign financiers can be repaid loans they injudiciously provided during the boom years.
(4) The workings and research used to examine the effects of deleveraging Irish banks of perhaps €90bn of lending in the next three years, in particular the effects on the national economy. A separate issue is ensuring the banks have adequate controls in place to ensure deleveraging doesn’t take place in such a manner that seems to be attracting those to our shores today who expect to “make out like bandits”.
(5) The workings and research used to examine alternatives to the bailout and in particularly default options.
(6) The position of the ECB with respect to short term liquidity assistance.
(7) A business plan for the banks including estimates of losses from existing loans and future operating profits. The current plan might see Ireland having a viable banking sector but banks might need to lend at ECB base rate plus 7% to be profitable. What sort of economy will we have with banks operating thus?
(8) The Bank of Ireland restructuring plan which was approved by the EU on 15th July, 2010 – yes nearly five months ago – which has still not been published.
(9) Any agreement between the ECB and the Central Bank of Ireland with respect to emergency funding.

And without the above, those in favour of the bailout agreement will be voting for a pig in a poke (they will know it’s a pig though, in the same way they know that the State’s NTMA reserves will run out in the middle of next year and other funding will then be required for the day-to-day running of the State, though (a) the €15bn unencumbered in NPRF (b) getting Irish banks to exchange non-Irish sovereign bonds for Irish bonds and (c) the sale of State assets could defer the need for fiscal funding until 2013/4). In a proper democracy the deputies would know the detail of what they were debating and voting for with reliable research detailing the effect of the deal and the alternatives. Absent such basics, will the IMF be surprised if a new administration tears up the deal in 2011 claiming it was accepted under false pretences or at the very least without full disclosure. That won’t be good for the IMF who has potentially created a hostage to destiny by markedly recognising Ireland’s democratic processes. If the good people at the IMF watch the 120-minute debate on Wednesday knowing that significant facts are not available to the Opposition (and indeed many on the Government seats) will the IMF be surprised if the deal is messily unravelled in 2011 when it is likely there will be a new administration?


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“He’s just so out of character with Belle Haven” the Independent reports one of Sean Dunne’s new neighbours in the well-heeled enclave of Belle Haven in Stamford/Greenwich, Connecticut, as saying about the recently arrived Irishman. The former Baron of Ballsbridge who engineered a string of high-profile property deals in that upmarket district of Dublin in the 2000s has decamped from Ireland it seems and taken up residence on the north-east coast of the USA. Aside from renting a landmark mansion which was on the market at USD $17,500 per month, it is reported that Sean is involved in the partial demolition and renovation of another property close-by to their rented pile (it should be said that Sean appears to have strongly denied owning the property at 38 Bush Avenue, Belle Haven, Stamford, Connecticut CT 06830, though there are suggestions that other family members might in fact be the beneficial owners). Sean seems to have fallen out with some of the neighbours by creating a noise nuisance with the renovation of 38 Bush Avenue and indeed it seems that work on the home has been halted as it may have exceeded the permit granted. Sean also seems to have spoken in strong terms with some of the neighbours steadfastly denying that he is the owner of No 38. They are not enamoured with him.

Although there was speculation earlier this year about whether Sean would be absorbed into NAMA, it now seems clear that at least some of his loans are NAMA-bound. And NAMA seems to be taking a tough line with developers and in particular any transfers of assets to family members over the past five years – be they spouses, children or extended family. It seems that NAMA is approaching these transfers from the perspective that they were all intended to deprive the banks and now NAMA of outstanding debts, unless the contrary can be proved – Napoleonic law indeed where you are guilty until proven innocent. Sean’s wife of course is who the US press is describing as a former gossip columnist, Gayle Killilea Dunne. Lawyers acting for Gayle said in a statement seen by Ireland’s Evening Herald last week that Gayle and the Dunne children (including Steven who is reported to be working on the partly-demolished house on 38 Bush Avenue, Gayle has three children with Sean, all under six – Harrison, Ryan Emmet and Bobby Luke) are entitled to a private life and would take action against any media outlet that breached that. The Daily Mail says that 38 Bush Avenue is in fact registered in the name of  “Philip H Teplen, Trustee”, “a prominent New York immigration lawyer”. Meanwhile the local newspaper in Greenwich, Greenwich Time, has been doing its own digging and has some fine photographs of Sean including this one where he is seemingly being doorstepped with his silver Lexus SUV. There is an accompanying article (subscription required) though the Independent report the bones of it today.

Former developers decamping and setting up home in another jurisdiction is  nothing new – Derek Quinlan resides in Epalinges near Lausanne in Switzerland, and Jim Kennedy in the Isle of Man. Famously former Anglo CEO David Drumm settled in Massachusetts having been apparently advised by former Anglo Chairman Donal O’Connor to avoid the “blame culture” in Ireland and Britain. NAMA is taking over performing and non-performing loans and I have not seen any suggestion that Sean Dunne’s loans are not performing. And given the short to medium term outlook for the Irish economy you could hardly blame a high-achieving developer like Sean, now aged 56, seeking opportunities elsewhere though he seems to have been at pains to deny that he owned any property in the US. Still, it’s reassuring to know that if anyone does need formally get in touch with Sean we know where he is – and the neighbours would seem very helpful in providing directions.

UPDATE: 4th January, 2011. It seems the Dunnes are fitting in right at home with America’s litigation culture – the Greenwich Citizen reports that 36-year old Gayle Killilea Dunne is suing New York attorney Philip Teplen for the return of USD $500,000 which was apparently destined for  a specific real estate investment in Chicago. The paper also claims that Sean’s US vehicle, Mountbrook USA, shows 38 Bush Place as his home address, this despite robust denials that Sean owned the property which is being substantially renovated.  The Dunnes could do with a positive news story as they seem to be developing an image as the charmless version of the Beverly Hillbillies.

UPDATE: 6th January, 2011. The court documents in Gayle’s case against her former lawyer have been made available online here (you need enter the security code on the right hand side of the screen to access the documents – the proposed order to show cause – item 5 – is probably the most interesting document as it contains the chain of emails between Gayle and her lawyer)

UPDATE: 26th January, 2011. Reports from Dublin that one of Sean Dunne’s Irish companies faces the prospect of being struck off. According to the Irish Independent,  Mountbrook Homes  which is an unlimited entity may be struck off for either failure to deliver filings to the Companies Registration Office or the Revenue Commissioners (tax) or both. A potential consequence of a striking-off is the disqualification of directors from holding office.

UPDATE: 25th February, 2011. The Irish Times reports that the local planning authority which is dealing with development plans for 38 Bush Avenue has deferred making any decision on the development where work stopped last October amidst concerns over the extent of the works being undertaken. The newspaper also reports that locals are considering suing the Dunnes (Sean Dunne has denied owning the property at 38 Bush Avenue which is now registered in the name of  Thomas Heagney in trust for undisclosed parties) though the grounds for any legal action are not detailed. The Connecticut Post has a photo of 38 Bush Avenue taken in December 2010.

UPDATE: 4th March, 2011. “Flee” is one of the Irish Independent’s favourite verbs – David Drumm “fled” to the US in 2009 for example and now Sean Dunne and family are said to have “fled” their rented home in Belle Haven amidst continuing ructions with the neighbours over the redevelopment of 38 Bush Avenue (recent photo here – the Independent is reporting today that the Dunnes are not allowed weather-proof the house and looking at the photo, that’s not going to help exposed works and wooden frames). The Dunnes’ vacated mansion was on the rental market for USD 17,500 per month and is now for sale at USD 8m indicating a 2.6% yield and more probably a short term rental and it might just be that the Dunnes had taken a short term rental. The Dunnes’ new home is not yet known but there are suggestions they were looking at properties in Stanwich, Connecticut (about 10 miles north of the house at Bush Avenue in Belle Haven,Stamford nr Greenwich)

UPDATE: 14th March, 2011. There is speculation in Ireland’s Sunday Times (not available online but referred to in online Irish news outlet thejournal.ie) that NAMA is about to place Sean Dunne companies into receivership. It is reported that he owes NAMA €350m. It was previously understood that he had large lending exposures to non-NAMA banks including Ulster Bank.

UPDATE: 15th March, 2011. Two AIB divisions,  corporate banking and global treasury services are reporting that Sean Dunne is refuting the claims in the Sunday Times. “In relation to the article in the Irish Edition of The Sunday Times by Tom Lyons headlined ‘Nama to seize Dunne’s assets’, Mr. Dunne said he can confirm, following clarification with Nama, that there is no basis in fact to this story and that the story is completely untrue” his spokesman is reported as saying. With Sean’s main business Mountbrook being silent on the recent news, we can but rely to AIB whose caveats about the accurateness of using external news sources are emphasised.

UPDATE: 11th April, 2011. Although Sean Dunne and family may have moved from their former rental property in Belle Haven, it seems that Sean and wife are keeping a close eye on developments at 38 Bush Avenue and were videoed leaving the site last week by a reporter from “Greenwich Time“, the local newspaper. Sean and wife, Gayle are seen leaving the property where work is plainly in full swing to develop the 6,000 sq ft residence. They are accompanied by an unidentified Irishman who claimed to be “just a worker”. The video seems to show Sean telling the reported that he is trespassing to which the reporter responds that he has permission from neighbours to film. Sean and Gayle are then seen driving away in a silver Lexus. The newspaper reports that work recently commenced on the site at 38 Bush Avenue after the city zoning board lifted a restraint and the building will now be developed according to the approved plans. I must say that the local newspaper seems to be going to some lengths to keep track of a recent arrival and the development of a home which doesn’t seem out of keeping with other homes on the same street. Sean Dunne is reported to have claimed that he is not the owner of 38 Bush Avenue. His wife’s solicitors have issued statements to the media which state that Gayle does not have loans in NAMA and that she would like her privacy respected. The video is presently available with the article in the Greenwich Time, here or you can watch it directly at youtube, here.

UPDATE: 18th April, 2011. The Irish Independent today reports of a possible new property in the Dunne portfolio. The property 42 Bote Road, Stanwich, Connecticut, CT 06830 is said to be registered in the name of a trust operated by Greenwich property lawyer Thomas J Heagney, who is also connected to the ownership in trust of 38 Bush Avenue. The newspaper implies that it is the Dunnes who are behind the purchase and redevelopment of 42 Bote Road, the redevelopment is said to involve tripling the size of the property so as to provide 5.676 sq ft of accommodation. The property was reported purchased for USD $825,000 in January, 2011.

UPDATE: 24th April, 2011. It seems that there is a truce between the Dunnes and most of the neighbours at 38 Bush Avenue and that development of the property will proceed with some modifications to previous plans eg retention of an old tree and softening roof angles.

UPDATE: 18th May, 2011. RTE’s Prime Time current affairs programme last night reported on the lives and times of Sean and fellow Wild Goose, David Drumm. Interestingly the RTE’s Washington correspondent, Richard Downes , referred to  “two properties absolutely 100% confirmed, as far as we know, that they are owned by the Dunnes”. We also heard the claim that Sean owes NAMA €350m and is associated with three US companies, Mountbrook USA, Barclay Beattie and Brown and Molly Blossom. The tenor of the reporting on the Dunnes was quite hostile and merging Sean’s profile with what the newspapers here refer to as “disgraced banker” David Drumm’s was perhaps cynical.

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