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Archive for September 13th, 2012

Luckily we have Dallas Nua to meet our soap-opera needs until the start of October 2012 when the Quinn saga is set to return to the courts. The next instalments will be filled with cliffhangers – will Sean Quinn junior purge his contempt or will he remain in the ‘Joy, will he be joined by Sean Quinn senior, what seasonal fashion will Sean junior’s wife Karen Woods sport -courtesy perhaps of the €320,000 salary she was paid by a Russian company last year – whilst sashaying from the SUV to the gates of Mountjoy on her weekly visits, on the other side of the Border will Peter Darragh Quinn continue to pretend there is not a warrant for his arrest unfulfilled, will there be more demonstrations, will political parties be riven asunder with competing attitudes, might the Quinns win their case against Anglo that loans advanced to them are unenforceable, will there be new covert video recordings. Actually Dallas Nua has nothing on the Quinn saga.

It will be 2nd October when the Quinns are next scheduled to be in court in Dublin, though that doesn’t rule out intervening hearings, should the need arise. However on the other side of the Border today, a judge in Belfast’s High Court has accused a company in the Quinn saga of a “serious misuse” of High Court processes. The case concerns loans secured on the Univermag shopping centre in Kiev, Ukraine, loans which had been owned by a Quinn company but which were transferred to a British Virgin Islands-registered Lyndhurst Developments. Anglo (or IBRC as it is now known after the merger with INBS) has successfully overturned that transfer earlier this year with a view to Anglo taking over the loan.

Lyndhurst had been trying to appeal this decision but today, Judge McCloskey rejected permission to appeal, on the grounds that Lyndhurst had in fact transferred its interest in the loan to two Ukrainian companies, called Zenith and Elegant Invest, last December 2011. In proceedings earlier this year, Lyndhurst did not even disclose the transfer, which if it had, would probably have rendered it ineligible to contest the proceedings.

It remains unclear if IBRC will not need to re-apply to the courts to have the transfer from Lyndhurst to Zenith and Elegant Invest reversed.

In the proceedings this year in Belfast, it was Judge McCloskey (again) who accused the Quinns and others of being involved in a transfers of assets, transfers he said “smacks irresistibly of an orchestrated, elaborate and illicit charade”. Today Judge McCloskey said “with each passing phase of this litigation, the correctness of this finding is vindicated and fortified”

There was criticism by the Quinns and those associated with them during the summer that the judicial system in (the Republic of) Ireland was in some way biased, this despite the fact that it was two judges, Judge Peter Kelly and Judge Elizabeth Dunne who had both used extraordinary language in findings against the Quinns. However it seems that very similar language has been used in judgments by at least two judges in Belfast where Sean Quinn’s bankruptcy was overturned and where IBRC has been seeking to reverse transactions. The criticism by Quinns of the judiciary looks thin set against such a varied base.

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For a man who claims to be a property investor as opposed to a property developer, Paddy McKillen certainly spends a lot of time managing the construction of new buildings (or extensions) and renovation of existing property. Today we learn that the planning authorities in Northern Ireland have given the green-light to Paddy’s company to build a major new extension to the Ards Shopping Centre in Newtownards in countyDown (pictured above).

Belfast Office Properties Limited will develop the site. This company, where 57-year old Paddy is a director along with long-term business associate Padraig Drayne (50) and 91-year old Kevin Drayne. is actually owned by another company, Cashel Developments Limited, which is in turn 50:50 owned by Paddy and Padraig.

The GBP 50m (€62m) extension will provide nearly 250,000 sq ft of gross space and 130,000 sq ft of retail space. According to the statement from Northern Ireland’s environment minister Alex Atwood “the project will also involve the partial demolition and considerable internal re-configuration of the existing centre”. The project will create 500 construction jobs and a further 1,000 retail jobs when the new stores are opened. The press statement doesn’t appear to be on the Department of the Environment website here yet.

NAMA may not be best pleased as a NAMA developer Castlebawn Limited had also attempted to develop a competing 800,000 sq ft retail park in Newtownards. The feasibility of that scheme won’t be helped by the decision today.

With news from London on Tuesday that Paddy (pictured below) is to pay about €25m of legal fees in his failed recent court battle with the Barclay twins – stemming from a judgment that Paddy may appeal – Paddy may need every penny and cent he can lay his hands on…

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This morning the Fiscal Council has issued an important report which comments on the Government’s projections of economic growth and which also recommends accelerated measures to bring our budget back into balance. There is a thread on the report on IrishEconomy.ie. This blogpost just focuses on the overall budget adjustment which is only one aspect of the Fiscal Council’s report. It should be said that the Council believes that there is downside risk to the Government’s projections of GDP growth.

The Fiscal Advisory Council is a new body set up last year and which will be placed on a statutory footing once the Fiscal Responsibility Bill is enacted into law shortly. The role of the Council is to comment on Budget measures in the context of how those measures will return Ireland to fiscal health – “fiscal health” is where the taxes earned by a country are in balance with what that country spends on its public sector and welfare. The Council has five appointed members who don’t draw a wage but the Council has an annual budget of around €600,000 for support.

The table below shows the budget adjustments by year between 2013-2015 as (a) set out in the Memorandum of Understanding with the bailout Troika and (b) as recommended this morning by the Council.

 

Ireland had a deficit of about €13bn in 2011. This year it will be about the same. This is obviously an alarming state of affairs which will result in disaster if nothing is done, and the Government plans to bring the deficit annual deficit down to €5bn in 2015 – in other words we still plan to spend €5bn more in 2015 than we collect in taxes.

Whenever the subject of annual budget adjustments is brought up on here, there is debate about the numbers, and I hope the above table helps explain the three sets of numbers – the first is the additional annual measures and in 2013, for example, we are to have €3.5bn of additional measures which, for sake of argument, might be €500m from a new property tax, €700m from increases to PRSI, €300m from reduction in tax allowances for pension contributions, €500m from means-testing allowances, €500m cut from capital programmes and €1bn cut from the cost of running the public sector. In 2014, using the Government’s plans we will need adjust an ADDITIONAL €3.1bn so property tax might be increased from €500m in 2013 to €1bn in 2014 and we will need find €2.6bn of remaining measures. In 2015, again using the Government’s projections, we need adjust an ADDITIONAL €2bn. So in 2015 compared with today, we will need adjust €8.6bn in that one year alone. That is a HUGE figure but remember our annual deficit is presently an even BIGGER figure of €13bn. And the cumulative total that the Government intends taking out of the economy in 2013-2015 is €18.7bn. Again a colossal number, but that is the reality.

The Council recommendation is the same as the Government’s in 2013 but the Council wants to see a faster balancing of the books and therefore recommends higher adjustments in 2014 and 2015 that are contained in the Memorandum of Understanding. The Council recommendation will see an annual adjustment of €10.5bn in 2015 compared to today and would remove a total of €21bn from the economy in 2013-2015. Again, an absolutely colossal number.

How did it get so bad? The collapse in our economy took place in 2008 with property-related income plummeting whilst welfare and public sector costs were left high and dry. Since then the Government has increased taxes and reduced spending, but five years into the crisis, we still have an annual deficit of €13bn. Some of the deficit is attributable to the cost of bailing out the banks, but most is down to the boring fact that our annual taxes plummeted.

On a political note, the Council’s recommendation this morning will ensure that Budget 2014 and Budget 2015 are just as tough as An Taoiseach’s Enda Kenny’s “toughest budget of this administration” in Budget 2013. At the end of 2015, Ireland is going to be a very different place to the Ireland of today.

As previously opined on here, Ireland doesn’t have natural enemies with whom war is a possibility, so we don’t have a strategic military threat, but we do have a strategic economic threat in that we are spending FAR MORE than we earn, and the sooner that threat can be eliminated or at least minimised to a relatively harmless level the better. On the other hand, if we take too much too soon out of our economy, we can destroy our economy and society. It’s a balancing act and this morning’s report from the Fiscal Advisory Council is a courageous attempt to deal with the biggest threat facing this State.

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This morning, Ireland’s Central Statistics Office (CSO) has released its inflation figures for August 2012. The monthly headline Consumer Price Index (CPI) increased by 0.6% compared to July 2012, but is only up 2.0% year-on-year (which continues a subdued trend seen in recent months compared with the 2%+ that pertained before January 2011). Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 13.3% 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 10.5% in the past 12 months, the same annual increase as pertained in March, April, May and June. Natural gas continues to rocket with prices up 22.5% annually. The Commission for Energy Regulation has recently approved an 8.5% hike in prices at Bord Gais Energy to take effect in October 2012.

Elsewhere, private rents were flat in August 2012 – this after three months of declines in April-June followed by a small increase in July – and over the past year, such rents are up by 1.9% 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 3.9% increase (mostly recorded in February and October 2011 and February 2012).

At the start of January 2012, the Department of Social Protection reduced its rent assistance payments by up to 29% (an average of 13%) and the Department says that some 40% of the rented market in the State is affected by rent assistance payments, which at the end of 2011, was paid to 98,603 households.  The Department’s 40% is derived from information provided to it by the Private Residential Tenancies Board, but the Department seems to have conceded recently that the figure may be lower in the order of 30%.

The Department is projecting it will save €55m in 2012 from its €500m budget for rent assistance, the saving comprising €33m to changes to the minimum contribution and €22m in relation to the new maximum limits. The prospect of further cuts to rent assistance in the forthcoming Budget 2013 to be announced in December 2012, is very real.

In the past, private rents have tended to fall in line with rent allowance even though many landlords will not accept rent allowance tenants. The betting on here is that private rents will come under pressure in the short term. Property commentators including those in NAMA have pointed to a buoyant rental market as one of the bright spots in an otherwise dismal property market, but that buoyancy may deflate in coming months as the artificial supports of State-aided rent assistance dissipates.

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Yesterday’s news management by NAMA has not gone unnoticed, and the small matter of a valuable property owned by a NAMA developer being sold off-market to a NAMA employee has not been “buried” and will be the subject of further scrutiny. The so-called “independent valuation” and NAMA’s reference to the sale of a principal private residence in Lucan when court documents show an address for defendants in Meath all merit further investigation. But the sale of the property in Lucan to former NAMA employee, Enda Farrell was overshadowed yesterday by NAMA’s revelation that it believes there was a breach of its security and that sensitive commercial information has been leaked outside the Agency which may do billions of euro of harm to developers – the pooled reporting of Aodhán Ó Faoláin and Ray Managh refers to damage to “the agency and the public” but strangely omits developers. Perhaps sometimes we need reminding that developers are humans, and love their children too!

The Data Protection Commissioner Billy Hawkes (pictured above) has been notified of the breach, according to NAMA, as have the Gardai. Ireland’s data protection rules suggest that NAMA should now be contacting those whose confidentiality was compromised. As of last night, it appears that developers have not yet been contacted.

The details of loans that NAMA says were leaked apparently included the name of the borrower, the property securing the loan, the sum outstanding on the loan, the status of the loan (impaired, performing) and the price paid by NAMA for the loan. This information would enable any prospective purchaser of NAMA property or loans to know NAMA’s “bottom line” – the amount the Agency paid for the loan. It would also enable buyers to contact the developer directly and negotiate a deal around the price paid by NAMA for the loan, and if the purchaser knows the loan is impaired, they would have extraordinary advantage over a purchaser without such information.

NAMA says it is not commenting on the matter because it is now before the courts. However NAMA may need to start commenting to its debtors to whom it owes a duty to protect their information, particularly information which could harm the interests of debtors if it falls into the wrong hands.

The ex-NAMA employee, Enda Farrell is now working for Forum Partners, the company which featured in the Treasury Holdings saga recently. Treasury said the reason it HAD to sell two Far Eastern companies to Richard Barrett was that a term in a loan from Forum Partners to Treasury China Trust (TCT) stipulated that a change of control at Treasury Holdings would render the loan to TCT payable on demand. It would be interesting to establish when on the timeline below, the term in the Forum Partners loan was created. There is no suggestion of chicanery but the association between Forum and a NAMA debtor inevitably comes under the spotlight after revelations of the type yesterday.

Timeline
January 2012 Apparent date of purchase of property in Lucan by Enda Farrell
7th March 2012 Forum Partners announce the appointment of Enda Farrell
2nd August 2012 NAMA “became aware” of the sale of the property in Lucan to Enda Farrell
3rd August 2012 NAMA initiated investigation by internal auditors, Deloitte
5th August 2012 Sunday Times journalist John Mooney reveals the sale
3rd September 2012 NAMA and NTMA institute High Court proceedings against Enda Farrell and his wife Alice Kramer
12th September 2012 NAMA issues statement

There has not been any apparent comment on the NAMA claims by Enda Farrell or his wife Alice Kramer. At present we are only getting NAMA’s side of the story.

The reaction on here to the alleged leak is one of shock, shock that this type of scandal hasn’t arisen before now. NAMA is nearly three years old and it is testimony to the selection and recruitment process and the management of the Agency by its CEO Brendan McDonagh that, with 214 employees and an army of third party suppliers of services, that breaches of confidentiality haven’t been uncovered before now. But despite the best systems in the world, you cannot absolutely prevent the type of leak alleged by NAMA. But now that a leak might have occurred, it will be a test of NAMA to see how it deals with the matter. The Agency seems to have been in-your-face robust with Enda Farrell and Alice Kramer promptly going to the High Court, seeking and getting an unusual Anton Piller order that allows retrieval of information without prior notification and NAMA is wasting no time in pressing its legal rights. It has also referred the matter to the Gardai and Data Protection Commissioner. The Agency initiated an investigation within 24 hours of becoming aware of the issue.

But NAMA must now quickly address the impact of the alleged leak on all of its stakeholders. NAMA may need to change its sales processes and may need reconsider with its debtors the general publication of certain loan information. NAMA does not have a lot of time to get these responses right.

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