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Archive for August 10th, 2012

Despite the Treasury judicial review case having the potential to force NAMA to change the way it goes about foreclosures, today’s Iris Oifigiuil demonstrates there has been no let-up in NAMA’s activity with receivers appointed to a staggering 15 companies, mostly associated with Limerick solicitor Paul O’Brien and Robert Butler. NAMA has previously taken extensive foreclosure action against Paul O’Brien. All 15 appointments are dated 3rd August, 2012.

Dough Hotels Limited had David Hughes and Luke Charleton of Ernst and Young appointed as receivers. Its directors are Robert Butler and Paul O’Brien with shares in the company owned by Michael Lynch (Michael B Lynch) and a company called Greenlark Developments Limited.

Hollowfield Developments Limited had David Hughes and Luke Charleton of Ernst and Young appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited.

Millgrove Properties Limited had David Hughes and Luke Charleton of Ernst and Young appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited.

Mount Kennett Developments Limited had David Hughes and Luke Charleton of Ernst and Young appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited and Robert Butler personally.

Sloeberry Developments Limited had David Hughes and Luke Charleton of Ernst and Young appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited.

Dooradoyle B.T. Properties Limited had David Hughes and Luke Charleton of Ernst and Young appointed as share receivers. Michael Miland and Des Lennon of Jones Lang LaSalle were appointed property receivers.  Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited.

Meadowlawn Properties Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited.

Playa Investments Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited and Robert Butler personally.

Robert Butler Realty Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. The directors are John Fortune and Richard Butler and the company is owned by the Robert Butler Group Limited.

Robert Butler Holdings Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited and Robert Butler personally.

Robert Butler (Investments) Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited and Robert Butler personally.

Ballynew Developments Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited.

Golden Dawn Developments Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. Its directors are Paul O’Brien, Kieran Braddish, Robert Butler and Seamus Braddish, who each own a 25% stake in the company.

Bluefort Properties Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. Its sole director is John Fortune and the company is owned by the Robert Butler Group Limited.

Robert Butler Group Limited had Michael Miland and Des Lennon of Jones Lang LaSalle appointed as receivers. Its sole director is John Fortune and the company is owned by Angelika Butler, Robbie Butler and Robert Butler.

Remember you can see a comprehensive list of Irish foreclosure action by NAMA here and in this regularly updated spreadsheet.

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[The full judgment is now available online here]

In reality, NAMA had already won its case with Paddy McKillen – over the sale of €800m of loans associated with the Maybourne group to the Barclay brothers last September 2011 – when the UK’s appeal court ruled in NAMA’s favour in June of this year. However, NAMA is pretty pleased with itself this morning with the handing down of the judgment in the main McKillen v Barclay brothers case which centred on whether Paddy’s rights had been infringed by the billionaire 77-year old British twins, who also control the Daily Telegraph newspaper and the Ritz Hotel in London.

And NAMA has good reason to be pleased today, the UK High Court judge, Mr Justice David Richards, is pretty complimentary in his judgement, about the NAMA witnesses who gave evidence during the hearings and also at the NAMA approach in general. The judge’s impression of the NAMA witnesses – John Mulcahy, head of asset management and NAMA board member, and Paul Hennigan, a NAMA portfolio manager – was already obvious to those that attended the hearing.

There was an extraordinary episode during the hearing when John was on the witness stand, and Paddy McKillen’s barrister was obviously setting out to undermine the evidence given. And like any good barrister, he started out with questions to which he already knew the answer, but it became pretty apparent that this wouldn’t work with the garrulous John, who not only belted out direct answers but accompanied the responses with impressive detail. At one stage John was asked why he had congratulated Paddy for the recent strong performance of the Maybourne hotels and if that signalled that John and NAMA had confidence in Paddy’s business acumen, and the surprising response was no, John was “only having a dig” at Paddy who had previously claimed his business would be damaged by its association with NAMA. The judge suppressed a smile at the candour and at the flummoxed barrister, and John Mulcahy’s time on the stand was over in less than 30 minutes – a record for any of the many witnesses during the two month hearing; John was indeed sublime and his colleague Paul was impressive.

So NAMA exits – and for all intents and purposes had exited on 27th June – the Paddy McKillen saga with its finances intact. It could have been so different, and in February this year when Paddy was victorious in one issue in the case, it seemed as if NAMA might be exposed to an enormous damages bill, perhaps €50m, and it might also have seen its biggest single transaction to date – the €800m sale of Maybourne loans – undermined.

Turning then to Paddy, the successful developer and investor who started out with DC Exhauts but grew a worldwide property empire that includes the Jervis Street shopping centre on Henry Street in Dublin, and at one point Paddy was a joint-owner of the NAMA HQ at Treasury Building. Today, he and his family control a chain of Dublin restaurants, and as was revealed in the UK hearing Paddy owns property in Vietnam, Argentina, California, London, France, Dubai, Germany, Dublin and Kazakhstan. In fact, so globally diversified are Paddy’s property holdings that at one stage during the court hearing Paddy was unable to confirm his country of domicile, prompting the judge to impatiently intervene and ask him directly “where do you call home”. What today’s ruling means for Paddy is that his interests have not yet been unlawfully prejudiced by the Barclays, but should the Barclays now act in such a way as threatens Paddy, then we may have yet another court case.

Paddy of course still has a 36% stake in the Maybourne group, and we may not yet have heard the last of Derek Quinlan’s 36% stake, despite today’s judgment. Paddy’s fear must be that the Barclays who already have a 28% stake, in some way acquire Derek Quinlan’s stake and then decide to use their majority to call up more capital from the shareholders, and if Paddy can’t come up with the readies, then he risks seeing his stake diluted to the point that he loses any control of the group. Remember there is still a pre-emption agreement in place that should Derek Quinlan seek to dispose of his shares, he needs to give Paddy first (joint) dibs. However, it seems on here that Paddy is at risk, even if the Barclays don’t formally acquire Derek Quinlan’s shares.

Paddy’s loss is in many ways a shame, as it was a source of national pride to see the Irish flag unfurled outside Claridge’s, the Berkeley and the Connaught and at one time, the Savoy. And whilst Paddy has his enemies, his business smarts and army of friends were in evidence during the recent hearing. Although today’s judgment doesn’t deprive Paddy of the possibility of ultimately securing control over the hotels – for example if Derek Quinlan were to be bankrupted and was forced to offer his shares to Paddy – it does mark a defeat with the Barclays who have options in how they pursue their stated wish to take control of the hotels.

Paddy may appeal today’s judgment.

UPDATE: 10th August, 2012. It is mentioned in passing in today’s judgment that Paddy McKillen – having been denied leave to appeal the NAMA decision by the appeal court in June 2012, that’s the decision which said NAMA’s sale of the €800m loans to the Barclays last year was lawful – has applied directly to the UK’s Supreme Court for permission to appeal, so that strand of the case, the one which affects NAMA, has still not been put 100% to bed, though you would have to say that NAMA must feel fairly secure in the decision of the appeal court.

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Figures released by the Central Bank of Ireland (CBI) today show that in the month of July 2012, the reliance by Irish banks on central bank funding declined by an impressive €5.4bn or 4% 1% bringing us back to levels last seen in August/September 2010. Lending by central banks to Irish banks comprises lending directly from the ECB and lending from the CBI. In total overall lending has fell by €5.4bn from €127.0bn in June 2012 to €121.6bn in July 2012.

Lending directly from the ECB fell by €4.6bn in the month of July 2012 – from €84.6bn in June 2012 to €80.0bn. Lending from the CBI to Irish banks, which is mostly known as “Emergency Liquidity Assistance” or ELA fell by €0.8bn, from €42.4bn to €41.6bn.

What does this mean for Irish banking and the wider economy? If our banks are to return to some degree of normality, they will rely more on deposits from customers and lending from other banks. So today’s figures indicate – though don’t absolutely prove – that deposits and inter-bank lending are increasing which suggests an improvement in confidence and good news. Against the backdrop of a raging EuroZone banking crisis, the figures are particularly welcome, and it would still appear that the trend overall in Irish banks appears to have been positive for the past 12 months, with deposits stabilising and growing slightly whilst reliance on the ECB has declined. This is positive news, particularly given the jitters in other EuroZone countries, such as Spain, Greece and Italy.

It is worth pointing out that ECB direct lending to Irish banks today stands at €80.0bn. This compares with a €3tn ECB balance sheet, and indicates that Irish financing arrangements are now proportional to our economy, and that the ECB is no longer providing “unprecedented” support to Irish banks.

We will get deposit information on Irish banks for July 2012, at the end of August. Deposit analysis for Irish banks for June 2012 is available here.

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Minister for Finance Michael Noonan may not be Father of the Dail – that’s Enda Kenny’s badge – but Michael is the most politically experienced by reference to the roles he has held over the decades. And back in 1982-1986, Michael was the justice minister during the time when the first two insurance bailouts in the State took place, that of the PMPA in 1984, and that of the Insurance Corporation of Ireland in 1985, so the present scandal unfolding in Quinn Insurance – or Quinn Direct as the public generally know it – shouldn’t be brand new ground for the veteran Minister Noonan.

Unlike insurance company collapses in other jurisdictions which generally seem to be the result of an unexpected event leading to claims exceeding the premiums paid, our insurance company collapses are down to poor regulation. In other words, there hasn’t been an exceptional spate of road traffic accidents, house fires or burglaries or seemingly, claims against professional indemnity insurance.

And given that it is insurance company customers that will be paying for this present mess at Quinn Insurance – which has an upper estimate of €1.65bn but a central forecast of between €1.1-1.3bn – maybe as a nation, we need to start getting litigious.

As a country we guarantee to make good insurance company losses but in return we regulate the hell out of them – or we should – and we get insurance companies to hand over 3% of their premiums in the form of stamp duty. Some of the regulation comes from the State through the Financial Regulator, the Department of Finance and Minister for Finance and some oversight comes from the private sector in the guise of auditors and actuaries.

Why didn’t the canny Michael come before the Oireachtas on 25th June 2012 and make a statement on the burgeoning cost of Quinn Insurance. The letter read out in the High Court on Tuesday this week, makes it clear that he was displeased with the fact that the cost had climbed from zero in 2010 to €738m in 2011 to an upper limit of €1.65bn today. He knew about it, he knew this cost would fall upon most households in the country that are users of non-life cover. And yet, he said nothing. He has also in the recent past waved away suggestions that he should examine the role of auditors and other professionals in the banking collapse, even though NAMA has uncovered nearly €500m of losses at the banks from poor loan documentation, something that you might have expected to have been uncovered in an audit, the Minister seems reluctant to put pressure on those professionals to account for their role in the banking/property crisis.

But if the Minister changes his mind, he might consider examining the potential to make claims against the following:

(1) The auditors – PricewaterhouseCoopers (PwC), are already being sued, apparently for failing to uncover “intercompany guarantees” at Quinn Insurance. Mark Paul at the Sunday Times reported the story in February 2012, though it doesn’t seem to have stayed on the national agenda. The story is behind a paywall.

In addition to PwC’s role in auditing the intercompany guarantees, there is a question as to whether there should be an examination of PwC’s role in validating the value of investments shown in the Quinn accounts, and what role PwC had in validating the actuarial valuations in Quinn. Remember that once upon a time, there was a global audit firm called Arthur Andersen which one day came a cropper in the wake of the Enron collapse, so it is not without precedent that giants are brought to their knees when they cock up. Whilst it is not the role of auditors to forecast the future, it is their role to validate the present, and it seems that in the case of Quinn Insurance, there is at least merit in examining if PwC has a case to answer. Of course PwC is the darling of the Irish public sector, where it provides a wide-ranging array of services, and should it be judged to have failed in respect of Quinn, the Quinn-specific sanctions may be dwarfed by ramifications elsewhere.

(2) The actuaries – Milliman, you mightn’t have heard of them before now, but they’re huge – here’s a little more about them. It was revealed this week that Milliman is indeed in the cross-hairs, presumably for failures over “reserve provisioning” or in everyday language, for failing to forecast the scale of losses on insurance policies at Quinn.

(3) The administrators – they are referred to as “joint administrators” but they’re both from the same company, Grant Thornton. The two administrators are Paul McCann and Michael McAteer, and according to Sean Quinn last week, “the administrators” conceded to him when they took over at Quinn that they didn’t know anything about the insurance business. That claim may seem incredible, but the fact remains that it was under their stewardship of the company that claim losses ballooned particularly in the UK, and there was an apparent failure to insure – or “hedge” – the liabilities in sterling. According to Minister Noonan in a letter on 25th June 2012, these are highly-remunerated professionals and “the Government has been mislead (sic) by incomplete information and under estimation”, something apparently disputed by the administrators. These two individuals and their firm also get A LOT of work from NAMA, and if indeed they have a case to answer at Quinn, then in addition to Quinn-specific legal action, might they be exposed to sanction elsewhere in the public sector?

(4) The directors – surprisingly perhaps, directors can be held personally liable for some activities of the limited liability company they direct, and in fact there is a class of insurance that directors can buy to help protect themselves against such claims. What role, if any, did the directors have in the investments made by Quinn and the creation of “inter-company guarantees” and the strategy of apparently underselling insurance in the UK. Some of these directors, like Liam McCaffrey, have walked away from this mess with enormous payoffs Is it time to examine their role in the scandal? In 2008/9 the Quinn directors and non-executive directors included Liam McCaffrey, Kevin Lunney, Shane Morrisson, Richard Stafford, Colin Morgan, Sean Quinn junior, Brendan Moran and non-executive directors, James Quilgley, Patrick Mullarkey, Vincent Clancy, Tony McCusker.

(5) The Financial Regulator – Patrick Neary held the post between 2006- 9th January, 2009. Mary O’Dea held the role on an acting basis between January 2009 – December 2009 and from January 2010, Matthew Elderfield has held the role. The usual sanction when a state employee cocks up is to dismiss the employee with a termination package, but I think many people will look at the trail of financial destruction that Patrick Neary has apparently left in his wake, and question if there should be -exceptionally – an examination to see if legal action can or should be taken against the former Financial Regulator who enjoys a gold-plated retirement, courtesy of the state and its citizens who are shouldering losses apparently attributable to his time in office.

Two further points, it seems that Sean Quinn himself was at the helm when much of the losses, particularly on investments, occurred but unfortunately Sean Quinn is a bankrupt though he may, ironically, have personal indemnity insurance for his actions which might be pursued. And secondly, wags have this week suggested that if we do sue the auditors or others, we might find that their professional indemnity insurance is underwritten by none other than…. Quinn Insurance, so we would only be suing ourselves. Surely however, there is some bar on obtaining insurance from a company to which you are providing services, in reference to which you might be sued…

It is to be hoped that the upper limit of €1.65bn mentioned in the High Court on Tuesday as the estimate of the final cost of bailing out Quinn Insurance, is just that – “the upper limit” – and doesn’t rise further and that the actual cost turns out to be the central estimate of €1.1-1.3bn, but we do not have to take this loss lying down.

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