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Archive for January, 2013

This will really rub salt into the wounds.

It has emerged that Anglo, or the Irish Bank Resolution Corporation is in breach of the terms of its banking licence. It’s not a secret, IBRC stated as much in its last financial report for the first six months of 2012 but the statement on page 18 of that report seems to have gone unnoticed until now. It says

“At 30 June 2012, the Bank is not in full compliance with all Irish regulatory requirements. While the Bank ensures that the relevant Authorities are kept fullyinformed in this regard, non-compliance may result in the Group being subject to regulatory sanctions, material financial loss and/or loss of reputation”

However, it emerged yesterday that IBRC is still in breach of the terms of its banking licence. This was confirmed by Minister for Finance, Michael Noonan who was responding to a series of questions from the Sinn Fein finance spokesperson Pearse Doherty.

So let’s get this clear. We have poured €34bn into IBRC including €30bn of promissory notes on which we are scheduled to pay a further €17bn in interest between now and 2031. IBRC has closed it branches, sold most of its deposits and doesn’t take new deposits, doesn’t advance new loans and is simply running down its loan book. It’s dead.

It is supposed to keep its banking licence to continue to obtain loans from the Central Bank secured on its promissory notes. No banking licence means no Central Bank loans. And of course without Central Bank loans, IBRC would collapse tomorrow, its creditors would get paid by whatever assets remained in the bank.

You might have thought that the €663,000-a-year chief executive officer of IBRC and his €500,000-plus a year juniors might have at least have been able to ensure IBRC complied with the terms of its banking licence.

Somewhere up in Cavan this morning, and perhaps in a court room in Dublin 1, there may be eyebrows raised at a bank in breach of its banking licence terms, attempting to hold to account the probity of others. And what on earth is governor of the Central Bank of Ireland, Patrick Honohan doing about breaches that appear to be permitted for at least seven months and are still ongoing.

The full parliamentary questions and responses are shown below (there is an error in the responses and it is page 18 of the H1,2012 IBRC report – and not page 14 as stated by Min Noonan – that contains the statement referred to):

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 215 of 22 January 2013, the name of the licensed institution on the banking licence used by Irish Bank Resolution Corporation, in which he is the sole shareholder of 100% of the shares..

Minister for Finance, Michael Noonan: I have been advised that Anglo Irish Bank Corporation plc is the name of the licensed institution on the banking licence used by IBRC.

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 215 of 22 January 2013, if Irish Bank Resolution Corporation, in which he is the sole shareholder of 100% of the shares, can meet Central Bank of Ireland banking licence criteria as set out in the Licensing and Supervision Requirements and Standards for Credit Institutions..

Minister for Finance, Michael Noonan: IBRC currently has a banking licence and is regulated by the Central Bank of Ireland. However, I have been advised that as disclosed previously in the Bank’s published accounts, as it is an organisation in wind down, IBRC is not in full compliance with Irish regulatory requirements. Page 14 of the 2012 Interim Report clearly discloses the following under ‘Regulatory Compliance Risk’:

“Regulatory compliance risk primarily arises from a failure or inability to comply fully with the laws, regulations, standards or codes applicable specifically to regulated entities in the financial services industry. The Bank continues to operate as a regulated entity and, as such, is therefore subject to certain minimum prudential and other regulatory requirements. At 30 June 2012, the Bank is not in full compliance with all Irish regulatory requirements. While the Bank ensures that the relevant Authorities are kept fully informed in this regard, noncompliance may result in the Group being subject to regulatory sanctions, material financial loss and/or loss of reputation.”

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 215 of 22 January 2013, if Irish Bank Resolution Corporation, in which he is the sole shareholder of 100% of the shares, has been assessed by the Central Bank of Ireland for authorisation requirements as detailed in the instructions paper entitled Checklist for Completing and Submitting Bank Licence Applications..

Minister for Finance, Michael Noonan: I have been advised that IBRC was subject to the relevant Central Bank of Ireland approval process at the time of the granting of its licence.

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Maybe it’s the doing-away with the annual bonuses (or most of them!), maybe it’s the 15% forced waivers of salaries over €200,000, maybe it’s the stream of criticism for lackluster performance or maybe it’s because Ireland is in a bailout programme and doesn’t need to be issuing large amounts of debt, but for whatever reason, 9 staff or 2% of the 500 total staff at the National Treasury Management Agency, have quit or left the NTMA so far in January 2013. In 2012, just 5% of the NTMA staff quit in the entire year and back in 2009 the quitters came to a mere 1%.

The figures were revealed in the Dail yesterday by Minister for Finance Michael Noonan in response to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty.

Remember that NTMA staff are not covered by the same cooling-off period that applies to civil servants. So an NTMAer can quit the NTMA one day and go work for a supplier or customer of the NTMA the next day. No questions asked. And conflicts of interest are avoided because of the honour system whereby staff at the NTMA are covered by a range of legislation that compels them to cross their hearts and hope to die that they will forget all the confidential information they’ve gleaned during their NTMA tenure, and they must pinky swear not to use, or even remember that information in their new employment.

Deputy Pearse Doherty: To ask the Minister for Finance if members of staff at the National Treasury Management Agency are exempt from the standard practice of a cooling off period for senior civil servants moving from public sector into private sector employment; if this is true, the reason such an exemption applies; the number of staff that have transferred from the NTMA to the private sector in the past four years, by year; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan:  The Civil Service Code of Standards and Behaviour contains provisions regarding acceptance of outside appointments and of consultancy engagement following resignation or retirement.  This code does not apply to directors or employees in State bodies in the wider public service.

I am informed by the National Treasury Management Agency (NTMA) that the number of employees who have resigned from the NTMA since 2009 is as set out in the table below

NTMAquitters

*Includes staff who have submitted their resignation and are serving their notice period.

I am also informed by the NTMA that its employees have notice periods of one or three months and six months in the case of the Chief Executive.  All NTMA employees are subject to section 14 of the National Treasury Management Agency Act, 1990 which prohibits an employee from disclosing any information obtained while carrying out their duties as employees of the NTMA. NTMA employees are also subject to the Official Secrets Act. I am informed by the NTMA that contravention of the NTMA Act and the Official Secrets Act is a criminal offence and that the prohibition on disclosing confidential information applies indefinitely and extends to former employees.

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The trial of the counterparty in the Fred Forsey corruption case is set to commence tomorrow in Waterford Circuit Court. In the dock tomorrow is NAMA developer Michael Ryan (60) who is charged with corruptly giving €80,000 to Fine Gael councilor Fred Forsey in 2006 in return for rezoning of land outside Dungarvan, county Waterford – coincidentally the NAMA chairman, Frank Daly’s home town.

Last June 2012, Fred Forsey was jailed for six years after a colourful trial which heard of bribes, pubs, nods and winks, the wrathful wife, the “other woman” , a car and the holidays in Rome. There was nothing complicated about it – a councilor was judged to have received corrupt payments.

The counterparty – the person now accused of making the corrupt payments – in the case tomorrow is Michael Ryan, against whose company, Dauphin 2 Aviation, NAMA took foreclosure action in March 2012 and had receivers appointed. It was also believed that it was NAMA which was behind the sale of foals of Horse of the Year “Sea the Stars” in November 2011, at least one of which was owned by Michael Ryan, who is himself a former Fine Gael councillor and hails from Dungarvan in Waterford and is credited with developing the Al Eile stud farm.

Conor Kane reporting in the Irish Independent this afternoon says that the trial which starts tomorrow is expected to last a week and a half and will be before a jury of 12 who were selected today.

It is the view on here that one of the greatest failures by this Government was the decision in 2012 not to investigate planning practices across the State, particularly during the construction boom of the early to mid-2000s. The trial tomorrow is a reminder of, at the very least, the suspicions of wrong-doing – wrong-doing which was established in the case of the Mahon Tribunal. Do we really think planning shenanigans were limited to parts of Dublin and in the case of Fred Forsey, Dungarvan?

The decision by Labour’s Jan O’Sullivan acting under the auspices of Minister for the Environment, Community and Local Government, Phil Hogan, to shelve the investigations went largely unchallenged. You will rarely see an attack such as the following, which still appears on a Government website, on democratic life in this State

“The furore over planning investigations is a smokescreen created by the unholy alliance of a thoroughly discredited Fianna Fail party and the man mercifully released by the Irish electorate from his “asylum” into the political wilderness – John Gormley. So said Jan O’Sullivan, Minister for Housing & Planning  today (29 March, 2012)  as she  set the record straight on the matter.”

UPDATE: 5th February, 2013. Drama this morning in Waterford when the jury was discharged by the judge who has ordered a new trial which should take place on 9th April 2013 onwards. We don’t know why the trial was halted on day 5 of what was expected to be an 8-day hearing, but this morning the jury was turfed out of the room whilst lawyers for both sides debated some issue or issues which resulted in the judge calling a new trial. Michael has been remanded on continuing bail pending the hearing. There is additional reporting from the Irish Times but we remain none the wiser about the reason or reasons for the judge’s actions.

UPDATE: 9th April, 2013. There was a hearing this morning, and RTE reports that the judge adjourned the matter for hearing from 2nd July 2013 with a hearing estimate of 5-6 days.

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LordGoldsmith

Next Monday, 4th February 2013, in the Court of Appeal in the Royal Courts of Justice in London, the appeal by Paddy McKillen against the curious judgment by the British High Court last August 2012 will commence. There will be a scene-setting blogpost later in the week, but this morning, it has been announced by Paddy Killen’s spokesperson that Lord Goldsmith QC has joined Paddy’s team. Peter Goldsmith served as the UK’s Attorney General between 2002 and 2007 and his engagement indicates the seriousness of the huge stakes in the case, which at its heart is about control of the Maybourne group of luxury London hotels – Claridge’s, the Connaught and the Berkeley – and the battle between the billionaire Barclay twins and the scrappy developer and businessman, Paddy McKillen.

Paddy’s spokesperson this morning also stated that the current representation includes Philip Marshall QC, Richard Hill QC – QC, or “Queens Counsel” is roughly equivalent to our SC or senior counsel – and barrister Gregory Denton-Cox.

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“Sometimes those advices fall short of what they should be and therefore there may not be the courage needed to bring the case more strongly” Fine Gael TD, Peter Mathews speaking in Charleville on 26th January, 2013

YoureInTrouble

On Saturday night last, the Ballyhea/Charleville bank-bailout protesters held an evening event where a number of well-known economists, activists and politicians delivered speeches about the single greatest economic challenge facing the State – dealing with the burden of saving our banks. There speakers were Declan Ganley, Michael Taft, Luke “Ming” Flanagan, Senator Sean Barrett, some pressure groups and the Fine Gael TD for Dublin South, Peter Mathews. You can hear the 100-minute recording of the evening here. The running order is

Declan Ganley 0-7 mins
Peter Mathews 8-25 mins
Luke “Ming” Flanagan 26-38 mins
Michael Taft 39-48 mins
Pressure groups  49-64 mins

People’s Convention
Awaken Ireland
Direct Democracy Ireland
Debt Options
The Enterprise Party

Senator Sean Barrett 65-72 mins
Group discussion and questions & answers 73-100 mins

The Fine Gael deputy’s presence at the event has drawn praise from many quarters, and Deputy Mathews prefaced his comments with a statement that “I want to give 400% to the efforts of the Taoiseach and Minister for Finance” in getting a debt deal, but that Peter would be more forceful.

It is always fascinating to see a politician that is at heart a conservative, advocating, what is dismissed as a radical solution to our debts.

On last night’s Tonight with Vincent Brown (with Sam Smyth in the chair), it was stated from about 25:00 onwards that the Fine Gael chief whip Paul Kehoe has said he “had not been able to confirm if you [Peter Mathews] had attended the meeting but they keep a tenacious argument going [sic] but that they would be speaking [to Peter Mathews], in that threatening tone”

You can listen to Deputy Mathews’s speech here from 8 minutes in for about 17 minutes. No-one will be surprised to hear the Deputy for Dublin South (a) supporting his colleagues in their efforts and (b) demanding more attention-grabbing efforts to secure a debt write-down.

His attendance has been deeply praised by the organizers and attendees on Saturday. Last night on Vincent Browne, the Fianna Fail senator gave his support which could be a bit of a poison chalice but the support from Mick Clifford of the Sunday Times would be more neutrally intentioned.

Deputy Mathews’s attendance might have garnered national headlines, but the other speakers delivered worthwhile speeches, Declan Ganley donned an unashamedly capitalist approach in stating the simple fact that investors in failed enterprises make losses, Luke “Ming” Flanagan the Independent TD from Roscommon roused the room in a  language that deeply resonated with people, Michael Taft the union economist talked about his recent research based on figures supplied by Eurostat, which show that Irish people are shouldering a bank debt which is many magnitudes greater than our partners in Europe, the pressure groups had two minutes apiece and the commonsense spoken was astounding with calls to organize and Awake Ireland referred to their case to have the debt declared odious and non-payable under international law,  and Independent senator Sean Barrett advocated learning from a history of Irish bailouts and provided an overview of the cost and effects of the banking collapse. Worth a listen.

So maybe Paul Kehoe will “give a talking” to Deputy Mathews but the talking might be along the lines of thanking the Deputy. The speakers weren’t insulting the Government, they were shoulder to shoulder with the Government in supporting efforts to deal with the bank debt, but want a more forceful approach that delivers results from negotiations that have been ongoing for at least 18 months. And all Deputy Mathews did, was to bring to a local community, the admirable message that the Government isn’t aloof and that the Government is engaged in dealing with the problem, just it could do with a bit more steel in its rod. Deputy Mathews took some flak from the people present during the Q&A, for sticking by the Government, and in response why he didn’t cross the floor, he responded that he crossed Europe to bring the message to the Bundestag.

The lead organizer of the event on Saturday is Diarmuid O’Flynn, and indeed he is the man behind the 100 marches, the bread-and-water fast, taking the protest to the ECB headquarters in Frankfurt, the appearances on Vincent Browne, the cycle/run/walk/crawl to Leinster House, taking the marches through Munster, Leinster, Connacht and Ulster. He was also on the Claire Byrne show on RTE Radio One on Saturday showing a rare display of anger on traditional media towards the scandal of shoveling billions out the door to bondholders in the banks whilst imposing draconian cuts at home today and into the future. He is by no means alone, with support and leadership from others in Ballyhea and Charleville. But he lost his brother, Jack, in America last week, and is spending this week bringing the body home just a month after the protestors highlighted their cause with the a song and video, poignantly showing the destructive effect of the scourge of emigration stemming from the failure to deal with economic collapse.  Ar dheis De go raibh a anam dilis

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This coming Friday 1st February, 2013, there will be an important meeting in Belfast where it is expected that developers and borrowers generally will congregate to discuss what to do about the mis-selling of interest rate insurance products called swaps. There is a meeting/conference taking place on 1st February 2012 at the Belvoir Golf Club, Belfast (tickets £30). Register at mailto:membership@bully-banks.co.ukmembership@bully-banks.co.uk. See website bully-banks.co.uk.

On this side of the Border, you might have expected Property Industry Ireland or even the Construction Industry Federation to show some initiative and organize a similar meeting here, but to date, zilch. If developers or borrowers are waiting for the Central Bank of Ireland to do anything, they might be in for a long wait, as the evidence points to the Central Bank being petrified of further losses in any of our banks.

Meanwhile there is now a trickle of court cases where borrowers are taking the initiative themselves and suing the banks directly. Two weeks ago, we learned of 10 individual applicants suing First Active/Ulster Bank. This comes after the out of court settlement last summer when Cortina-averse developer David Agar reportedly won a €30m settlement against Ulster Bank. And remember in the UK, they believe the mis-selling of interest rate swaps may cost the banks north of €2bn.

Today, we learn via the Irish Examiner that Komady Limited, a company controlled by the Flynn family and Michael O’Reilly, together owners of the Belgard Retail Park in Tallaght, west Dublin are suing Ulster Bank over the alleged mis-selling of swaps, reported by the Examiner at €54m. The application makes clear that the Belgard Retail Park continues to be operated successfully and is not affected by the application.

The case was initiated in Dublin’s High Court last November 2012 – reference 2012/11888 P – and both applicants are represented by Downes solicitors, the same solicitors representing the applicants in the previous two swap mis-selling cases. Ulster Bank is represented by Arthur Cox. Yesterday, the redoubtable Mr Justice Peter Kelly agreed to transfer the case to the Commercial Court division of the High Court which should lead to a fast-tracked hearing, with the case next set for motions on 20th May 2013.

At the heart of the case is the very nature of interest rate swaps – swaps are explained in some detail here. It appears that in this new case, Ulster Bank was in 2005 and 2006 selling insurance against interest rates exceeding 5%, and as we know, EuroZone interest rates have reduced sharply to a record low of 0.75% as the EZ combats the financial crisis and recession. So, the borrowers don’t get any benefit from the swap. But because interest rates have plummeted, the borrowers are on the hook for tens of millions of additional interest payments, because the nature of a swap is that it pays out if rates exceed a certain level but requires YOU to pay out if rates dip below a certain level.

According to Ann O’Loughlin in the Examiner, the borrowers are claiming Ulster Bank didn’t comply with its obligations under Ireland’s investment regulatory rules, and that the swaps were not in the best interest of the borrowers or explained sufficiently to them and that the bank induced the borrowers to buy the swaps.

UPDATE: 29th January, 2013. The case is also reported by the Irish Times – and if you’re reading this folks, above is an example of “the story of why” – and Independent  – which appears to have pooled its reporting with the Irish Examiner – today. It might be worth noting that with the Agar, the Ryan/Colgan/Monaghan/McDonnell and today’s case relate to nearly €150m of swaps. How long before the Central Ban

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Not content with receiving a bailout of €21bn – without which, the bank would be utterly bust – not content with shoveling €1.1bn into its pension fund last August 2012 – without which, AIB would be in the same position as myriad pension schemes around the country and have to renege on pension benefits – and not content with giving redundant staff five weeks pay per year of service  – when staff at Vita Cortex had to fight tooth and nail to get 2.9 weeks, this afternoon we learn via the BBC in Northern Ireland that several AIB staff are to receive GBP 2m (€2.3m) of bonuses and contract-increment payments.

In Northern Ireland’s Court of Appeal, three judges decided that AIB’s defence of economic hardship did not warrant reneging on the performance-related bonuses and contracted-increments. The case is said to involve up to 600 staff at the AIB Northern Ireland unit, First Trust Bank. The bonuses are reported to range from GBP 2,000 to GBP 10,000 per employee. So we’re not talking mega-bucks, but for staff in companies that have gone bust across the State, in some cases not even receiving outstanding pay, these additional payments will stick in the craw.

AIB had lost the original case in Northern Ireland’s employment tribunal and had appealed to the Court of Appeal. The bank official’s union had supported the case taken by the staff.

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It’s a bit of a shame that the Left end of the Irish political spectrum is in such turmoil with the Socialist Party withdrawing its TD, Joe Higgins from the United Left Alliance grouping, which following Seamus Healy’s withdrawal last October 2012 just leaves three in the ULA – Clare Daly, formerly of the Socialist Party until it accused her of forming the Mick Wallace Fan Club, and there’s Richard Boyd Barrett who seems to have feet in the Socialist Workers Party and the People Before Profit Party and finally there’s Joan Collins. It’s a pity because – to quote an old socialist mantra – “united we stand, divided we fall”. If there was a strong ULA, then they could pool their resources to avoid duplication and to beef up their research and produce better though-out policies overall.

Because the evidence from the past week is that they were doing their research and beginning to get to the point of formulating policy.

Twice in the past week have ULA members demolished the Government refrain that we’re borrowing huge sums – €1bn per month – to pay the salaries of nurses and Gardai. “No!”, the Left said (correctly), we are now mainly borrowing to pay interest on the burgeoning national debt. Richard Boyd Barrett and Paul Murphy MEP have both corrected the Government and pointed out that we have now moved to a financial position where the deficit is primarily caused by interest on our massive debt burden.

Take a look at a summary of the latest projections, courtesy of the latest Department of Finance Medium Term Fiscal Outlook published in November 2012 – the 2008-2011 figures are extracted from Seamus Coffey’s blogpost here. The “underlying deficits” exclude distorting bailouts of the banks.

PrimaryBalanceJan13

 

Our deficit consists of a primary balance – what we collect in taxes versus what we pay out for services, capital projects and welfare. As you can see, the results of five years of austerity are that the primary deficit will be just €3,250m in 2013 and should actually be a surplus of €930m in 2014. So, we are practically there in terms of paying nurses and Gardai, not to mention pensions and social welfare payments.

What is now pummeling us is the still-rising €190bn of national debt, and the interest thereon.

Where the Left is weak is in blaming the €190bn of national debt entirely on the banks. The reality is our national debt of €190bn at the end of 2012 has mostly come about because of the slow pace of the adjustment after the banking and property crash in 2008.

In 2009, we allowed – or if you want to be party political, Fianna Fail and the Greens allowed – a primary deficit of €15.5bn. Yes in 2009, we were really borrowing €300m per week to pay the salaries of nurses and Gardai. And sadly for us, when we add up all those deficits we allowed between 2008 and now and add in the debt we started out with in 2008, it seems that 65% of our national debt has been to meet boring old daily expenditure and another 10% of the debt has been used to built up a cash balance buffer or reserve.

It mightn’t have felt like it, but the reality is we have all been partying since 2008 to date or at least we were spending far, far more on services and welfare than we were collecting in taxes.

But the Left has four strong, or at least debatable, arguments

(1) €41bn of the €190bn debt is directly attributable to the bank bailout. Whilst we will have been paying interest on some of this, it should still be the case that less than 25% of our debt was used for the bank bailout. Of course we also raided the pension reserve for an additional €20bn-plus.

(2) €1.8bn of the deficit in 2013, is interest on the infernal promissory notes given to Anglo, INBS and EBS.

3) The interest rate on our national debt is understood to be 3-4%. It is almost certain the interest rate would be lower, perhaps far lower, if we hadn’t loaded the burden of the bank bailout on our shoulders.

(4) The banks have been recapitalized to pay existing bondholders and if there were to be default on these payments, it is arguable that the capital “saved” could be returned to the State and passed on to our sovereign lenders to pay down national debt and reduce the interest charged.

So a pity that the United Left Alliance is no longer “united” or really an “alliance” because pooling resources to research the facts, develop policy alternatives and to promote certain policies might be just what the State needs.

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Although there is divided opinion amongst this blog’s audience on the performance of NAMA’s most senior property man, John Mulcahy, the view on here, for what it is worth, of John’s performance is positive. John may be approaching normal retirement age, but in a country where the Minister for Finance is touching 70 and one of the Public Interest Directors at Permanent TSB is touching 75, NAMA’s Head of Asset Management and Board member might be considered a mere spring chicken. He has a whole lifetime of property experience under his belt, and his performance in a London court last year in the Paddy McKillen case was nothing short of sublime – he knows his job.

On the other hand, he may well be criticized for failing to anticipate the continuing decline in Irish property prices from 2009 onwards. Remember then-finance minister, the late Brian Lenihan’s assertion we were close to the bottom? That was widely believed to be based on conversations with, and input from, our friend John. And although it wouldn’t have helped the overall cost of the bank bailout to the State, if NAMA had changed its valuation date from 30th November 2009 when it became clear prices were still declining, then NAMA wouldn’t be starting its asset management life with a massive handicap in having overpaid for its loans.

There is one other specific position adopted by John which is baffling on here. John says that the maximum you can recover on any loan is the par value of the loan. The position on here is that is rubbish.

Take the Maybourne loans which NAMA sold to the Barclay brothers’ Maybourne Finance Limited in September 2011. It is believed that NAMA received the par value of the loans, about €800m and that NAMA made a small profit on the transaction because NAMA had bought the loans at a small discount from the banks. NAMA was happy and claimed that €800m was the maximum it could have achieved – that may be correct given the publicized alternative offers but the principle that no-one would pay more than the par-value of the loans is not sound. A special purchaser like the Barclay brothers who are using the loans as a plank in their not-so-secret plans to take control of the Maybourne hotels, might have paid a premium for the loans on top of their par-value. NAMA has never convincingly addressed that argument.

And today, we pose a related question to NAMA. Derek Quinlan is a NAMA Top 10 developer who is understood to owe the Agency more than his assets are worth, and in the McKillen court case last year, it emerged the Barclay brothers were providing substantial sums to fund Derek. We don’t know Derek Quinlan’s precise financial position, so the proposition that he is insolvent is based on sources such as this issue of the British satirical magazine, Private Eye – not available online without subscription – which the Sunday Independent reviews today.

Why not bankrupt Derek Quinlan who nominally owns 36% of Maybourne?

If that were to happen, it would trigger the disposal of Derek’s shares and the most likely buyers would be Paddy McKillen or the Barclay brothers – both special purchasers. Paddy says he stands ready to buy any Maybourne shares that become available and given Paddy already owns 36% of the group, if he obtained his pro-rata share of Derek’s 36% then Paddy would end up with 56% of the group with the Barclays owning the remaining 44%, on the likely assumption that they too, would take up any shares that became available. Paddy would have de facto control, or would at least be in the driving seat.

So how much would the Barclays pay NAMA not to bankrupt Derek today? Given the enterprise value of the Maybourne group of well over €1bn, would Derek’s non-bankruptcy be worth €50m? €100m? The question might be flipped and posed in a different way, how much would it be worth to Paddy McKillen for NAMA to bankrupt Derek.

This is all very cut-throat stuff, and it is questionable if NAMA has the steel in its soul to pursue such a  plan. NAMA itself has come under intense pressure from the Barclays in the past, and the revelation last year by a Barclays’ man of the message from a NAMA employee to the Barclays about another offer certainly embarrassed the Agency. But NAMA has also clashed with Paddy McKillen in Ireland’s courts and came off with a draw that was really a win for the Belfast developer and businessman. But NAMA should remember that bankrupting Derek Quinlan might only have time-limited benefits and the Barclays may dream up other machinations which might render moot, Derek’s bankruptcy.

[The next round in the marathon legal battle between Paddy McKillen and the Barclay brothers kicks off in London’s appeal court on Monday week, 4th February 2013. Paddy comprehensively lost his case at the London High Court last year when he tried to get a declaration that NAMA’s sale of loans to the Barclays was unlawful, as were the actions of the Barclay brothers. Paddy faces a €25m legal bill from that failed action, but is understood to have paid some of that bill. If Paddy were to win at the appeal court, then some of those costs could disappear. Paddy has recently met his full allocation of a rights issue forced on the Maybourne group by the Barclays, and just on Friday last, the scrappy Paddy launched legal action against Maybourne Finance Limited in Dublin’s High Court – it is believed to be a libel action]

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Tonight at 8pm in Charleville there will be an event to mark the 100th week of bank bailout protests by the communities of Ballyhea and Charleville – it’s free and promises to be an entertaining and enlightening evening. And after the Reuters exclusive this afternoon, it promises to be electrifying particularly if the Fine Gael TD, Deputy Peter Mathews speaks, as was announced by lead-organiser Diarmuid O’Flynn on the Claire Byrne show on RTE Radio 1 today.

One of the original demands by the Ballyhea and Charleville protesters was that there be a complete stop to the repayment of bonds in our bust banks. There are a number of reasons for taking that aggressive stance but “possession being nine tenths of the law” was one. If the cash wasn’t transferred from our banks, then we would have a stronger position in one sense, even if it would generate legal action by burned bondholders,

This Government’s policy has been to try to work consensually with the ECB in alleviating the burden of the bank bailout, and burning the senior bondholders was certainly on the agenda; after all, that’s precisely what Minister Noonan announced when he was on a visit to the IMF in Washington in the summer of 2011. But the ECB rejected this approach and so we have 100% repaid unguaranteed and unsecured bonds in our banks, including about €4bn in Anglo and Irish Nationwide Building Society, since the start of 2011.

The consensual approach has taken a knock this afternoon with Reuters exclusively reporting that the ECB has rejected the Irish government’s proposal to alleviate the burden of repaying the €31bn of promissory notes in Anglo, INBS and EBS. Reuters reports “sources familiar with the talks” saying today that the Irish preferred solution has been rejected. We don’t know what the preferred solution was, and if there were alternative solutions and what those are and if they are still “alive”. However, on 16th January 2013, the governor of the Central Bank of Ireland appeared before the Oireachtas finance committee and alluded to “an initiative” – in the singular – which would be “novel…, while not taking other decision makers too far out of their comfort zone”. The Governor said

“Taking into account both the statutory position and wider policy stance of the ECB, an initiative of this type will be novel and, as such, challenging. Using our knowledge of central banking law and practice, we have been working carefully to build understanding and confidence around a set of proposed transactions designed to deliver for Ireland, while not taking other decision makers too far out of their comfort zone. The ECB is an organisation that seeks to proceed as far as possible by consensus, and it is not surprising that this work has been taking quite a while. In fact, what we have designed from our side is, I believe, largely in the interests of the euro system as a whole. On work in progress, I have nothing to add today to what has already been said by the Minister for Finance about the prospects and timing of the conclusion to these discussions.”

Despite the general mood music of there being “no doubt “ about a debt deal, and the “confidence” which has been promoted at parliamentary party meetings, the view on here remains skeptical. Remember, Ireland is not unique and there are other countries who want to alleviate their own bank bailout burden also, and the ECB risks opening the floodgates if it approves an individual way-forward for Ireland. After all, other countries might legitimately point to the EU communiqué last June which said “similar cases will be treated equally” – always remember that any proposal that comes our way might have a cost to Ireland because we are not alone in our problems despite the scale and severity.

What now for the promissory note deal which needs to happen in the next nine weeks if the 31st March 2013 payment is to be avoided? We don’t know, the Irish Department of Finance is not commenting this afternoon.

UPDATE: 26th January, 2013. Sean Whelan at RTE is reporting that he has obtained a comment from the ECB, though it remains the case that Irish “interlocutors” are not commenting. The ECB has said that no deal has been rejected, and it seems from sources that there might be a prospect of “tweaking” the preferred Irish option. It’s all very muddy.

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