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Archive for March 10th, 2011

Last week in an Athens suburb, two young policemen were shot dead by an armed gang that was fleeing the robbery of a simple street kiosk. The armed gang used AK-47s against the lightly-armed Greek policemen. The murders came less than a month after the murder of another Greek policeman, again at the hands of a gang using assault rifles. In last month’s protests in Greece against austerity measures, policemen were again pelted with Molotov cocktails and in the past year the country has experienced bombings, riots and the assassination of a journalist. Certainly some of the violence and unrest can be placed at the door of government policies aimed at tackling the country’s economic woes. But for the rest, that’s just the way Greece is and it is different to Ireland – although there have been a small number of police deaths here in vehicle collisions in recent years and there was the accidental shooting of a policeman by a colleague in 2002, and in 1999 a sergeant in Dublin died trying to save the life of a man who had set himself alight, you would have to go back to the IRA killing of Jerry McCabe in 1996 to find similarity with what happens in Greece today. And the last large protest march here last November 2010 passed without a single arrest – a couple of empty bottles were thrown at Gardai at Leinster House but they missed.

But in recent times we have been cemented together with our European neighbour, Greece through the economic crisis and latterly by being recipients of bailout funding from the IMF and EU. In many ways Greece has been Ireland’s pathfinder suffering rating agency downgrades, outrage towards the ratings agencies with the government even urged to sue Moody’s, a change of government, rocketing interest rates demanded on the bond markets to the point of being locked out of those markets, an IMF/EU intervention, austerity measures and politically-united domestic demands that the bailout be renegotiated. The experiences of our southern neighbours are all too familiar to us. The prime minister of Greece today is George Papandreou who is also a member of Eamon Gilmore’s political grouping in Europe, the European Socialists. Against a background of increasing unrest at home and demands that the bailout agreement be renegotiated, Mr Papandreou is meeting in Brussels today with President of the European Council, Belgian Herman Van Rumpuy. Enda Kenny is meeting with Manuel Barroso today in Brussels also.

Increasingly it is looking like Portugal is the next train on this track that has seen Greece first and then Ireland seek a bailout. With it’s 10-year bond rate at 7.5%, that’s where Ireland was last 3rd November 2010 as rumours swirled of the IMF being on the doorstep and remember that Ireland removed itself from the bond- markets on 30th September, 2010 when our 10-year bond was only at an “unsustainable” 6.75%. Like Greece’s prime minister, Portugal’s prime minister who has held power since 2005, Jose Socrates is a member of the European Socialists. Portugal has yet to experience riots or a change of government but austerity measures announced last September 2010 are deeply unpopular and although the next elections are due in Portugal in 2013, it might be that the coalition government drawn from leftwing parties mightn’t last until then.

And lastly our Spanish friends who are probably in a better economic condition than the other PIGS but with 20% unemployment, a stagnant economy, a nasty deficit and a far from healthy banking sector together with some meaty funding requirements, it might be that Spain  is the straw that breaks the camel’s back. Prime Minister Luis Zapatero is also in Eamon Gilmore’s European Socialists. Spain is smarting from the downgrade of its ratings by Moody’s to Aa2 today with a negative outlook – just like Greece a couple of days ago and who will forget the angry dismissal by Minister Lenihan and NTMA chief John Corrigan of Standard and Poor’s assessment here last August.

As our new Taoiseach engages with our neighbours in Europe in the next day or two, let us hope that Enda is capable of building alliances with our European neighbours, in particular those that are in our shoes or are likely to be quite soon.

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I know it’s only €34m and in the context of the billions that have gone before, it is small beer. But INBS, that zombie building society now stripped of its deposit book and NAMA loans, is still proposing to pay subordinated bondholders, who control €170m of subordinated bonds at face value, 20c in the euro for their bonds which are otherwise due to mature between 2016-2018. INBS is the 100% state-owned financial institution which, to date, has swallowed up €5,400m of state funds. These €170m of subordinated bonds represent all but €5m of the bonds identified by the Central Bank of Ireland in their statement two weeks ago.

We need be clear that the bonds in question are (1) subordinated and cannot rely on any parity with depositors or senior bondholders to claim full repayment and (2) the subordinated bondholders are not due to be repaid until 2016-2018 by which time the residual INBS lending will have been transferred elsewhere (NAMA 3 or some such) and INBS will presumably be well and truly buried and (3) not subject to a guarantee

So why is INBS paying anything whatsoever to these subordinated bondholders? Again it is small bear but in case you hadn’t noticed it, there is a cloud gathering over the Irish economy and in the near future a few million here and there will be significant to the State’s coffers. Our benefactors in the ECB/IMF have insisted that we deleverage our domestic banking system so that it is more appropriate to the nation’s economy and doesn’t have liabilities over three times the size of our GDP. Once the banking mess is dealt with, we will very quickly get used to national decisions being in terms of millions again and not billions.

So what is INBS playing at, with our money?

UPDATE: 24th March, 2011. It seems that INBS has had 99% acceptance of its offer which now appears to relate to €146,770,000 of subordinated bonds at par value and the 20c in the euro buy-back offer will see the State (which 100% owns INBS) pay out €29,354,000 for unguaranteed subordinated bonds which were only due for redemption in 2016 and 2018). “Settlement” according to INBS will take place tomorrow. Is it not scandalous that the State is now spending €29,354,000 on redeeming bonds in a zombie financial institution that benefits from some €5,400,000,000 of State-funding, on bonds that would only be redeemable in 5-7 years time.

UPDATE: 26th May, 2011. Anglo will tomorrow redeem some €200m of senior unsecured bonds at par. According to the Irish Independent these bonds were trading at 87c in the euro last December 2010 so some investors may see 30% annualised returns (13c / 87c for 6 months = 30% for one year). Apparently Minister Noonan is powerless to stop the redemption because (1) the stress tests for Anglo and INBS have not been completed and (2) IMF and EU approval would be required which would take some time.

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“This case arises out of bungling and ineptitude of a high order on the part of the defendant (the County Council). Such shortcomings resulted in legal wrongs being done to the plaintiff (Darlington) for which it is entitled to redress. This is the tale.” Introduction to the judgment in the case of Darlington Properties Limited (in receivership) and Meath County Council

Plain-speaking and a bit of a maverick, Mr Justice Peter Kelly must surely give us all hope for the future of the country as he continues to expertly and expeditiously dispense justice in the commercial courts in a no-nonsense manner. Yesterday Judge Kelly delivered his judgment in a case involving the sale of two acres of land by Meath County Council (“the Council”) to a property developer, Darlington Property Limited. It makes for a sobering, yet entertaining read.

In 2006 the Council sold the land by private tender, making use of a sales brochure which advertised the existence of an as-yet unconstructed new road which would connect the site to the centre of Ashbourne. The land was bought by Darlington for €4.51m but the road was never built and indeed could never have been built because planning permission granted by the Council in 2005 made the new road an impossibility. The site was worth €4.51m in 2006 with the new road, €2.3m in 2006 without the new road and is worth €0.45m today without the new road. There is existing road access but the road in question was a new road which offered a direct connection to Ashbourne town centre.

Having discovered the construction of the road was an impossibility after the purchase, Darlington bent over backwards to try to make the development feasible but the Council doggedly refused to accept changes to the planned development to allow more residential and less commercial use. The Council also wouldn’t communicate with Darlington about the problem with the access road. In the end Darlington sought redress in the courts.

The case is interesting for a number of legal reasons. The damages (excluding costs of course) were calculated by reference to the value of the lands today, rather than in 2006. And the judge refused to allow the contract to be rescinded as he did not feel such a remedy was available for non-fraudulent property purchases.

But it is for the criticism of Meath County Council that this judgment might be best remembered – “unattractive”, “not impressive”, “so coy”, “blundering”, “the indefensible was sought to be defended”, “ostrich-like” No doubt the good people of Meath will be asking how its Council could behave in such a manner that cost the people of Meath not just €2.2m by not advertising the property correctly in 2006, but by not displaying any flexibility towards the subsequent proposed solutions offered by Darlington, cost the people of Meath the full judgment in this case of €4.06m plus costs which are likely to be substantial. All in all, a case  “which, if dealt with honourably by the County Council, might not have resulted in litigation at all” as Judge Kelly concluded yesterday.

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Yesterday was Enda Kenny’s day and personally, I think the man deserved to bask in the glow of his achievement having rebuilt a political party over the past decade, survived last year’s bid to oust him as party leader and delivered what appears on the surface at least, a cohesive government for the country with a  large majority which will not need pander to high-maintenance Independents or dissidents within their own parties (that is Labour and FG). That said, the cohesion of this new government will depend on the successful navigation between centre-left Labour and centre-right FG policies – whether we will still regard our new government as strong in six months when the practical details of policy commitments are hammered out, remains to be seen but perhaps we should wait a few days more before we allow cynical pessimism to seep into the foundations.

After the initial formalities in the Dail yesterday where Enda was feted by party colleagues and Opposition politicians alike and after an emotional maiden speech watched by his wife and family from the gallery, the Taoiseach-elect went through the choreography of greeting supporters outside the Dail and was driven a few kilometres down to the road to Aras an Uachtarain (offices of the president) to formally receive his seal of office from President Mary McAleese.

And as the formalities unfolded, we were reminded that we might have a new administration but some things remain the same. There was a black Mercedes (an E-class yesterday but will be replaced by the traditional S-Class today) on hand to chauffeur Enda from government buildings to his appointment with the President. And as the Taoiseach, the new Tanaiste – Labour party leader Eamon Gilmore – and President McAleese posed for photographs, I could not help but notice that this troika represented one of the best paid leaderships in the world ruling one of the most indebted and economically distressed countries in the world. President McAleese is paid €292,500 per annum for what is a largely ceremonial role. This morning the Taoiseach’s salary was reduced, at the behest of the Taoiseach it should be said, from €214,187 to €200,000. The Tanaiste’s salary was reduced from €197,486 to €184,405. It might seem churlish to criticise this act of sacrifice on the Taoiseach’s part but consider how these levels of remuneration are considered by those looking in at our economically troubled state.

The best that can be said about the Taoiseach’s new salary is that is in line with the prime minister of Belgium’s (remembering that Belgium hasn’t had a government for 260 days but that is the theoretical salary level) and that of New Zealand’s prime minister, a country with a similar population. But surely the salary which is 25% less than Angela Merkel’s and Nicolas Sarkozy’s but 15% more than David Cameron’s will continue to represent a stick that our creditors will beat us with – how can we claim our debt to be  “unsustainable” or “unmanageable” when we sustain such salaries for our public servants. In truth leaders of countries receive all sorts of expenses and benefits which might not be reflected in headline salary comparisons, and for most prime ministers the salary in office is but a fraction of that which can be earned subsequently as consultants, directors, after-dinner speakers, authors and columnists. But make no mistake, this headline salary will undermine the “poor mouth” that Ireland will seek to make in coming days and weeks as it tries to achieve consensus for a debt restructuring.

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