How Paul Clarke at efinancialcareers saved the Irish taxpayer a €40m bonus payment at AIB

The AIB bonus story is intriguing, and I think it is worth pointing out the timeline in which the story developed:

1^st December, 2010. Minister for Finance Brian Lenihan responds to a written question in the Oireachtas from Fianna Fail deputy Chris Andrews and says (my emphasis) “€56.3m of the total bonuses of €58.7m paid in 2009 and 2010 relates to performance related bonuses to staff in AIB Capital Markets. These bonuses were awarded for individual and business performance in prior years but deferred and paid in the 2009 and 2010 period.” Literally speaking these AIB bonuses had been paid – that is, past tense. There is no mention whatsoever about the €40m.

4^th December, 2010. Evening Herald reports on Chris Andrews’ question above and Brian Lenihan’s reponse. The Herald does not deal with the €40m and reports in terms that again confirm that the bonuses were in fact paid – again past tense. On 10^th December, 2010 the Herald reported that “the Herald first revealed the scandal of bankers’ bonuses last Saturday and since then bank staff have been under extreme pressure from the public.” However that’s not quite correct – the Herald reported the response to Chris Andrews’ question but it was not the Herald that uncovered the story of the €40m payment.

8^th December, 2010 Paul Clarke at efinancialcareers posted a detailed story on the €40m bonus payout. He subsequently tweeted the story at 12.55pm and six hours later at 7.15pm Jill Treanor at the Guardian reported the story. What a coup for Paul Clarke!

9-13^th December 2010 – furore over €40m of bonuses being paid to staff at a time when social welfare and the minimum wage for new employees were being cut. For the first time the local papers, the Irish Times (from 11^th December), Independent (from 9^th December) and Irish Examiner (from 9^th December) report on the story. RTE (from 9^th December) carries the story on its website and news bulletins. RTE say on 9^th December, 2010 “Earlier, it emerged that AIB is to pay €40m in bonuses next week as a result of a High Court ruling earlier this year. Last year almost €55m was paid to staff in bonuses.”

13^th December, 2010 – Minister Lenihan writes letter to AIB and AIB respond to the letter.

14^th December, 2010 – Minister Lenihan appears on RTE’s Morning Ireland and the following exchange takes place (4 mins 30 secs in approx)

Aine Lawlor – Isn’t it a bit more than galling? Doesn’t it suggest that somebody dropped the ball at the very least in your department that nobody could anticipate that these two side by side [the draconian budget on 7^th Dec and the efinancialcareers revelation on the 8^th] would absolutely infuriate, and legitimately infuriate, the public?

Minister Brian Lenihan – One lesson that my department has learned is that they don’t control the news-flow – someone dropped the ball in the sense that the information was provided at a very sensitive time.

So were it not for Paul Clarke at efinancialcareers, then it is likely that tomorrow €40m would have been paid out by AIB – 18.7% owned by the taxpayer today but likely to be 95%+ owned by the taxpayer in two months, an institution that is massively insolvent and needs some €10bn of support from the State (already invested or committed) just to open its doors this morning.  And were it not for someone “dropping the ball” and alerting the Paul Clarke at efinancialcareers then Minister Lenihan would not have raised a finger to stop the bonus payments. To paraphrase Gandhi – what do you think of a functioning media in this country? I think it would be a great idea.

Well done to Paul Clarke and efinancialcareers! Paul also keeps his audience updated on twitter.

(with thanks to Gerard Sheehy for links to the RTE interview and the record of the written question and answer in the Oireachtas)

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NAMA and developer business plans

Despite positive noises from NAMA itself – at the recent hearing of the Committee of Public Accounts, NAMA said that it expected 12 developer business plans to have been approved by the end of the day on 18^th November, 2010 – word reaching here is that no business plans have yet been agreed. By “agreed” I mean signed by both NAMA and the developer. However it seems clear that there is a hive of activity at NAMA hammering out the plans and I understand that several developers have been given a deadline of today to agree the plans or risk the consequences (liquidation, bankruptcy, no additional funding). This entry examines the issues.

Firstly it seems that what is causing most alarm and outrage amongst developers is that NAMA is allegedly requiring transfers to spouses and family members over the past five years to be reversed and the assets to be set off against the debts owed to NAMA or used to part-fund future development. With sensational reporting of transfers to spouses over the past year, there is an impression that 100% of transfers by developers to their spouses in particular were undertaken so as to deprive creditors of debts. There may well be more than a little truth in that but it is also a fact that in any marriage there will be an intermingling of income and wealth, be that amongst Gardai, nurses or developers – that’s the nature of marriage. And the more you have, the more likely there will be more significant transfers. And although it is true that many developers did transfer assets to protect their wealth, they had as much right to do that as someone taking out a life insurance policy. And if the person taking out a life insurance policy knows they are suffering from a disease and don’t declare it, then they risk the insurance company not paying out on death – so also with developers, if they were insolvent and the transfers were to deprive their creditors then the courts and NAMA can unwind those transactions. But just as there are legitimately obtained life insurance policies so also were there legitimate transfers between spouses. But NAMA wants these transfers unwound regardless of whether they were legitimate or not. And the developers are not happy.

Secondly, developers are angry at the confidentiality clause of the agreement and that NAMA can allegedly repudiate the agreement in future without giving reasons if it feels the clause has been breached. The confidentiality terms seem onerous and whilst I wouldn’t want to compare the treatment of developers with child abuse, there is something of the “don’t tell anyone about our little secret or else” to the NAMA approach. The agency is plainly trying to stop developers coordinating a response and to an extent to play one developer off against another. You would have to ask what the Construction Industry Federation is doing to advise its members on these business plans.

Thirdly, developers are, in many cases, concerned that NAMA requires repayment of the loan within 3-5 years. Of course for loans in default NAMA could legitimately require immediate repayment and NAMA might say that it is being generous in extending the repayment period to 2015. On the other hand for most developers whose assets are under water and with a challenging outlook particularly in Ireland (despite some brave noises coming from those whose career prospects will depend in an increase in transactions, if not in prices), it seems nigh impossible to exit their loans within five years. There are others – Paddy McKillen would be a good publicized example – that relied on short term financing on good quality assets that find themselves perplexed as to why they must now liquidate their assets. Typically the assets are generating enough income to repay interest on loans and potentially some capital on top. For most of the past two decades, developers would have managed with rolling over loans, getting an equity release (if an asset was bought for €5m and increased in value to €10m then banks were prepared to additionally lend some part of the increase in values) to fund new acquisitions and repaying the interest and some capital from rent rolls. Sadly for developers. NAMA has stated that the music must stop in 10 years and indeed is requiring developers to anticipate its stopping in 3-5 years. In normal times, the developers would re-finance with another more obliging bank – these aren’t normal times and banks are just not lending and private equity groups are seeing annual returns of 13% on no-risk mezzanine finance and 30-40% annum returns on loan purchases – practically no developer can afford these terms. So developers feel they are being driven down a cul-de-sac. There’s no easy answer to this struggle between NAMA’s need to have a finite life and developers’ plans which anticipated very long term funding (from a variety of competing sources) secured on good assets yielding rent rolls that repay interest and some capital. But it seems certain that small developers with such assets face being washed away by NAMA’s tsunami which is not sufficiently resourced to fashion customized solutions particularly for smaller-scale developers. But if you’re not Currys or Dunnes Stores and you want to compete you join the Expert Group or Spar. If you’re a smaller-scale developer CIF should be helping you.

It is obvious that NAMA is entering the crucial phase of its existence – having more or less completed the milestone of acquiring the loans, NAMA must manage the loans which will mean disposals/development/demolition or mothballing/renting/management and indeed sale of loans/bankruptcy of developers. We can expect some fireworks for the New Year.

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