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Archive for March 15th, 2013

Professor Gregory Connor, the Irish-American finance and economics lecturer at Maynooth has taken a stab at the level of so-called “strategically defaulting mortgages” in Ireland today. It is a very thorny subject because “strategic defaulters” can afford to repay their mortgage but they choose not to, because they think a distressed mortgage will give them a better bargaining position in the future, for example, in negotiating a debt writedown. So, there’s something sneaky and malicious about “strategic defaulters” as compared to the common-or-garden mortgage defaulters who simply can’t afford to repay their mortgages.

A month ago, Professor Connor produced a blogpost for irisheconomy.ie in which he suggested that at least 35% of Irish mortgage arrears were driven by “strategic defaulters”. The 35% was lifted from US studies, and because the decline in Irish property prices has now been more severe than in the US, the Professor believes the true level of “strategic defaulters” in Ireland is more than 35%, however the Professor acknowledged the severe difficulties with collating data on this thorny subject and his blogpost really acted as a basis for debate.

In the Dail this week, Minister for Finance Michael Noonan dismissed the 35% claim saying it was “wholly anecdotal and not based on any robust, structured, or in-depth analysis of the situation.” Mind you, there was no proposal to study the issue, which is relevant to the ultimate cost of sorting out the mortgage crisis. The Minister was responding to a series of questions from the Fianna Fail finance spokesperson, Michael McGrath.

The full parliamentary questions and response are here.

Deputy Michael McGrath: To ask the Minister for Finance his views on whether information supplied to banks by customers through the standard financial statement contradicts suggestions that up to one third of mortgage arrears cases are strategic defaults; and if he will make a statement on the matter.

Deputy Michael McGrath:  To ask the Minister for Finance his views on the fact that approximately half of restructured mortgages fall back into arrears; the way this information will influence the design of solutions to mortgage arrears difficulties; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: I propose answering Questions 46 and 47 together.

The recently published Central Bank data on mortgage arrears for the end December 2012 shows that at end-December 2012 out of a total stock of 79,852 private dwelling houses, just over 37,000 restructured mortgage accounts were in arrears. The data shows that the accounts in arrears include accounts that were in arrears prior to restructuring where the arrears balance has not yet been eliminated, as well as accounts that are in arrears on the current restructuring arrangement.

The Deputy will be aware that the Central Bank yesterday announced new specific time-bound targets for the six main banks to ensure early and measurable progress by banks in resolving mortgage arrears cases in a durable manner. The Central Bank will also in the months ahead, set demanding quarterly targets for the conclusion of sustainable solutions and for the subsequent performance of those solutions. Progress will be monitored closely and the Central Bank will take any further action which will be deemed necessary.

The suggestion that the rising number of mortgage arrears is in part being driven by increased levels of strategic default, that is individuals deliberately withholding payments when they are in a position to service their debt in hope of gaining concessions from lenders, is wholly anecdotal and not based on any robust, structured, or in-depth analysis of the situation.

In the context of the engagement between banks and borrowers on the provision of long term and durable solutions, the Central Bank has indicated that it expects that banks will have more challenging and in-depth conversations with borrowers on the reasonable priority that should be afforded to mortgage repayments, having regard to other commitments and payments by a household.

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IN&MLOgo

Between the frothing-at-the-mouth Fionnan Sheahan and the dessicated Terry Prone, the Independent is leaving no stone unturned in its personal and professional excoriation of Deputy Luke “Ming” Flanagan who has this week admitted to benefitting from the quashing of not one, but two sets of penalty points. Deputy Flanagan had a little dig of his own back at the publishers of the Indo, Independent News and Media, when, after his withering interrogation by Vincent Browne on Tuesday, Ming pointed out that although debt forgiveness was still a taboo subject for mortgage borrowers, that there was seemingly no problem in IN&M getting a debt write-down of €100m in its €400m+ debt pile, with the €100m being spread across eight banks including AIB which we 99.8% own.

IN&M’s full year results for 2012 are expected imminently, but they are unlikely to show a much improved state from that recorded for H1,2012 when the group was balance sheet insolvent to the tune of €200m, with bank debt of over €400m, and after it turned in a fully recognized loss of €177m for the first six months of 2012. The €400m is owed to eight banks, and it is understood from reporting in the Sunday Business Post that Bank of Ireland is owed around €80m and AIB around €70m. We own 15% of Bank of Ireland and 99.8% of AIB.

With IN&M shares languishing at just over 3.5c a share, giving the group a stock market valuation of €19.3m, you might have thought that the shareholders including Denis O’Brien (29.9%), Tony O’Reilly (13.3%) and Dermot Desmond (6.4%) would be wiped out before the banks were called on for any debt write-down.

Seems not.

In the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael if AIB would allow a debt writedown on a commercial loan whilst leaving the shareholders untouched. Minister Noonan said there was no “blanket policy applied in respect of capital hierarchy” so we may now see a situation at IN&M where AIB does agree a €20m debt write-down whilst leaving the €19.3m of shareholders intact. A year ago, the Government managed to get away with Anglo writing off €100m in Siteserv as part of a deal which allowed the shareholders in that company to walk away with €5m.

No doubt it will be a transaction that will be keenly watched. And not just by Deputy Flanagan.

The full parliamentary question and response are here.

Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm the policy of Allied Irish Banks in which he is the shareholder of 99.8% of the shares in writing down debt owed on commercial loans and if ordinary shareholders in companies where debt write-offs will be agreed by AIB, will be 100% wiped out before any debt write-off is agreed by AIB..

Minister for Finance, Michael Noonan: I have been informed by AIB that the bank is committed to operating its business activities on a commercial basis as it seeks to return to profitability. The bank assesses each customer in detail on a case by case basis to ensure the appropriate commercial outcome for the bank is achieved. As each case is dealt with on an individual basis, there is no blanket policy applied in respect of capital hierarchy.

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ChicagoSpire

It was Garrett Kelleher’s dream for the Chicago Lake Michigan shoreline, a 150-storey, 2,000 feet high corkscrew-shaped condo on a 2.2 acre site. Launched by Liam Neeson and Liam’s late wife Natasha Richardson, it is said that Garrett’s Shelbourne group has spent USD 200m on the project and there is little to show for all the money today apart from a large hole in the group intended to house the foundations of the giant tower.

But the site bought for USD 64m in 2006 never got past the planning and breaking the ground stages. NAMA took over the loans, and this week, it is being reported in the Chicago press that NAMA has confirmed that it has appointed Jones Lang LaSalle USA to sell the loan underpinning the site, which today has a par value of USD 93m after taking into account rolled up interest and penalties.

The betting locally is that the condo market is robust enough to generate demand for the loan.

There is an interesting background article here on the architect Santiago Calatrava’s vision for the tower.

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“The big question of course is who knew about the trade in Irish horses on false passports, and when” BBC Spotlight on the horse meat scandal broadcast 5th March 2013

On 5th March 2013, the BBC in Northern Ireland broadcast a Spotlight special on the horse meat scandal in which the horse meat trade in (the Republic of) Ireland was scrutinized. You can watch the 40-minute special in three parts on YouTube here. This edition of Spotlight reminded me of the special last year on the Sean Quinn international property dealings – crisp, information-rich, simply and engagingly presented; it is the best TV coverage so far on the horse meat scandal in the (Republic of) Ireland that I have seen.

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The programme reported that 24,637 horses had been slaughtered in Ireland in 2012, and that this was far more than in the 9,405 in the entire UK. It reported the mark-ups, that traders were buying a lorryload of horses for GBP 1,000 and selling it for GBP 5,000.

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“In the Republic, we also know of one approach to the Department of Agriculture which had hard evidence of wrong-doing, in fact that approach was made by our insider” BBC Spotlight

It also uncovered allegations that our own Department of Agriculture had been told about concerns about Irish horses with false passports, and the “insider” on which the programme relied, alleged he was told by the Department to “let the mess clean itself up”, presumably meaning that eventually the supply of horses would dry up, and meanwhile no-one would be any the wiser having already consumed horse meat. A separate Irish whistleblower had written to the UK authorities last year with allegations about false passports and Ossory Meats, and the UK authorities say that it is standard practice for such allegations to be shared with the Irish authorities.

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The programme uncovered evidence of passports being switched, with a risk being that medicine-contaminated or unhealthy horses were being presented at slaughterhouses with bogus passports, as if they were fit for human consumption. Ossory Meats in Banagher, county Offaly threatened a Midlands horse sanctuary with libel proceedings for suggesting that a horse was switched by their company for one which is still alive today.

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Jennifer O’Leary who presented the special, reported that our own agriculture minister, Simon Coveney was contacted for comment, as was his Department, but none was forthcoming with the Minister too busy and his Department unable to comment on ongoing investigations. The Department did claim that it was not informed about the second whistleblowing about Ossory Meats to the UK authorities.

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The programme reported that in the instance of their informer, it was four years ago that the horse meat scandal started.  That criminals were forging passports and inserting microchips on an “industrial scale”. PhenylButazone or “Bute” and another steroid Cortizone were routinely given to the horses.

How did the BBC verify the claims? They visited a site where the insider said horses died if they were too sick for export or transports, the BBC found horse remains.  The Ulster Society for the Prevention of Cruelty to Animals reporting that one horsetrader named by the insider had been found with 40 forged Irish horse transports and box of microchips. One horsetrader, against whom the insider made allegations, was arrested transporting horses and also cannabis.

In the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked Minister Coveney about the programme, and the parliamentary questions are shown below. Yesterday, the Department published a report in which it said that it was two months ago, 14th January 2013 that it learned of the horse DNA scandal. The press release is here and the report is here.

So, on the face of it, we have a scandal that is at least four years old, we have criminals making huge sums of money from the trade in horses on false passports, with chipping and false passports used on an “industrial scale”, we have the horses routinely provided with bute and Cortizone and evidence of passport switching. We have allegations that the Department of Agriculture knew about the issues some time ago, but the Department refuses to comment.  According to the Department of Agriculture report yesterday “On Friday 8 th March, the Department carried out identification checks on horses presented for slaughter at Ossory Meats. In respect of the horses presented, 25 of them had irregularities, these irregularities related to passport and microchip identifiers. In some cases, while the microchip in the equine matched the passport, the marking on the horse and the passports were very different. In other cases horses presented as yearlings were in fact much older. These animals were humanely slaughtered and destroyed. The company has since been suspended from operations.”

The BBC programme looked at just one angle to the horse meat scandal – the initial slaughtering of horses – it didn’t examine how horses then got into the human food chain. But its examination of how loose the systems are at the horse slaughter end of the chain will only exacerbate the worry that things were just as bad at the food-labelling and beef processing plant part of the chain later on. And perhaps now, that the Department of Agriculture has concluded its investigation, it might find time to comment on what it knew and when.

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Stills above are screengrabs from the BBC Spotlight programme.

Deputy Pearse Doherty: To ask the Minister for Agriculture, Food and the Marine further to the broadcast of a BBC Spotlight programme on 5 March 2013 on the horse meat scandal, if he will confirm that his Department responded to an approach two years ago which raised concerns about Irish horses and the food chain; and if the approach was responded to by his Department with a statement “the mess will clean itself”

Deputy Pearse Doherty: To ask the Minister for Agriculture, Food and the Marine further to the broadcast of a BBC Spotlight programme on 5 March 2013 on the horse meat scandal, if he can confirm that he was requested to provide a comment to the programme makers but responded that he was too busy; and if he will make a statement on the matter.

Deputy Pearse Doherty: To ask the Minister for Agriculture, Food and the Marine further to the broadcast of a BBC Spotlight programme on 5March 2013 on the horse meat scandal, if he will confirm that information was provided to his Department two years ago which raised concerns about Irish horses and the food chain; and if so, the way in which his Department responded to those concerns.

Deputy Pearse Doherty: To ask the Minister for Agriculture, Food and the Marine further to the broadcast of a BBC Spotlight programme on 5 March 2013 on the horse meat scandal, if he proposes to investigate the claims made in the programme regarding passports for low weight and less valuable horses to the meat trade being switched for higher weight and more valuable horses to the meat trade.

Deputy Pearse Doherty: To ask the Minister for Agriculture, Food and the Marine further to the broadcast of a BBC Spotlight programme on 5th March 2013 on the horse meat scandal, if he will confirm the number of horses slaughtered in the State in 2012, and if he will quantify the way the slaughtered animals were subsequently processed.

Deputy Pearse Doherty: To ask the Minister for Agriculture, Food and the Marine further to the broadcast of a BBC Spotlight programme on 5 March 2013 on the horse meat scandal, if he will confirm that he is satisfied with the operation of Ossory Meats in Banagher County Offaly; and if any of the concerns raised in the programme will be investigated by his Department.

Minister for Agriculture, Food and the Marine, Simon Coveney: I propose to take questions 13081/13, 13082/13, 13083/13, 13084/13, 13085/13 and 13086/13 together.

11,402 horses were slaughtered in slaughter plants approved by my Department in 2012. The Food Safety Authority of Ireland has advised that 12,960 horses were slaughtered in local authority approved slaughter plants in 2012. I understand that the bulk of the meat from these animals was exported for human consumption, some following further processing in approved cutting plants in Ireland. The remainder was exported as full carcasses. The main export markets are Belgium, France and Italy.

Under EU law, responsibility for compliance with food safety and traceability requirements rests in the first instance with food business operators (FBOs). This is augmented by official controls, applied at different stages in the food supply chain. My Department implements official controls in relation to horse identification at marts and other sales venues, in abattoirs under its supervision and at points of entry to the country.

All equines (which include horses, ponies and donkeys) are required to be identified in accordance with EU and national legislation.  Equines issued with a passport after 1 July 2009 must have a corresponding microchip implanted by a veterinarian, which is recorded in the passport and creates a link between the passport and the animal. The passport includes information on any veterinary medicines administered to equines.  An equine for slaughter for human consumption must be accompanied to the slaughterhouse by its passport and the information on the passport determines whether the animal can be slaughtered for human consumption. Horses treated with certain veterinary medicines such as phenylbutazone, known in the industry as ‘bute’, are permanently excluded from the human food chain in order to protect public health and the passport of the horse in question is endorsed by the prescribing veterinary practitioner to this effect.

My Department has detailed procedures for the slaughter of horses in abattoirs under its supervision and has communicated these and the checks required both to its staff and the business operators. It has liaised with passport issuing agencies in Ireland and has developed protocols to allow abattoir operators to check the details of passports with these agencies to seek to ensure that they are valid and that only those horses eligible for slaughter are slaughtered. Where forged or tampered passports accompanying horses to slaughter are detected, it is the policy that such animals are destroyed and removed from the food chain.

Ongoing vigilance is maintained in relation to official controls in this area. In that connection, the European Communities (Equine) (Amendment) Regulations, S.I. No. 371/2012, introduced recently, provide for the updating of S.I. No. 357/2011 (European Communities (Equine) Regulations 2011) to strengthen the powers of the Minister in relation to approval of an issuing body for equine passports, authorised officers and prosecutions in relation to equine identification.

My Department is establishing a centralized equine database. The intention is that this database will be used at abattoirs to assist in verifying the authenticity of horse passports for the equine presented and to record its date of slaughter.

I can confirm that my Department has received a number of complaints in this area, some of which have been non-specific in nature. Information received in relation to alleged illegal activities in this State is taken seriously and investigated as appropriate by my Department and in certain cases by the Gardai. There is ongoing contact in this regard between the Department and the authorities in Northern Ireland and Britain. It must also be noted however that some claims have been made in the public domain in relation to this issue which, when examined by my Department, did not stand up to close scrutiny or warrant further investigation.

While my Department does not comment on ongoing investigations, appropriate corrective action is taken if non-compliances are detected. I can advise that during 2011-2012 the Department issued Compliance Notices to two horse slaughter plants under its supervision. This led to temporary suspension of activities while corrective measures were put in place. In addition the approvals of one organisation to maintain a stud book and issue horse passports were revoked during 2012.

With regard specifically to the BBC Spotlight programme on 5th March, it would not be appropriate for me to comment publicly on allegations made. I was not available for interview for this particular programme because of other commitments but I can advise that my Department did comment on queries received from the programme makers. I understand that some of the allegations made in this programme relate to activities outside the State, in which case appropriate checks would be a matter for authorities in the jurisdictions concerned. I understand issues were also raised in relation to an equine slaughter plant in this jurisdiction, which at the time concerned was under the supervision of a local authority. At present there are two local authority supervised equine slaughter plants in operation – one in Co. Offaly and one in Co. Limerick. I have decided to take both these plants under the supervision of my Department.

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