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Archive for April 3rd, 2013

A theme examined on here before – here and here for example – is the unprecedented benefit to the well-being of this State from oversight by the bailout troika. It mightn’t feel like it to us now, with austerity budget after austerity budget, a collapse in living standards, high unemployment, emigration and scary debts, but really this misses the bigger picture as regards governance – the mistakes were made in the 2000s and the present period is about dealing with the mess from that legacy. When future historians look back at the big-picture history of Ireland, they are likely to conclude that Ireland in 2010-2015 enjoyed a Golden Age of enlightened governance. I say “2015” because, although we will receive the last of the bailout funds at the end of 2013, the Troika will still continue to visit but their reviews and conclusions were become increasingly less significant to the powers that be.

There is still no sign of the new commercial leases register today on the Property Services Regulatory Authority’s website, but no doubt it will be here shortly. Because if it’s not, the Troika will demand answers when it pays us a visit in a couple of weeks for its 10th review mission. The new register is designed to promote competition and transparency in an important area of business. Unless this Government was being frog-marched into delivering it, you can bet that it would never see the light of day outside a soon-forgotten election commitment.

We’re about to get reformed bankruptcy laws, and if you think any Irish government would have scratched its ass and developed reforms, unless forced to by the Troika, then think about the history of the residential property price register. Called for in the Kenny Report in 1974, every single government subsequently praised the concept of a register and promised to implement one, but somehow none managed to do it. Michael Finneran (who? Housing minister in Fianna Fail/Green government 2008-2011) repeatedly promised working groups, progress and delivery and he was closely observed on here, still publicly proclaiming his support for what was then called a “House Price Database” but in private, nada was happening.

We’ll soon have credit registers showing what people owe so that new borrowers can make more informed decisions. We have a version of an independent fiscal advisory council. We have a legal services reform bill and we are supposed to have competition reform in the medical sector. We have the best stress-tested banks in the world, though that is not saying much. We’re meeting deficit reduction targets. Yes, we’re paying back all the bondholders but that was our decision, even if one member of the Troika was pushing it.

And today, we learn that the health minister is being sidelined by the Troika which has had enough of his guff about reforms, cutting the costs of consultants and medicines and the like, and the Troika will now be overseeing the health budget on a monthly basis. Minister Reilly might downplay the indignity of the Troika’s vote of no confidence in his ability to manage the €13bn budget, but if you just take a look at the parliamentary questions and answer below from 26th March 2013, about the outrageous price of medicines in this State, you have everything to know that, without Troika oversight, nothing will change. I, for one, will be sad when we see the back of the Troika.

Deputy Pearse Doherty: To ask the Minister for Health further to Parliamentary Questions Nos 612 and 570 of 12 March 2013, the reason the medicine olanzapine costs consumers €166 in this State compared with €9 in Northern Ireland.

Deputy Pearse Doherty: To ask the Minister for Health further to Parliamentary Questions Nos 612 and 570 of 12 March 2013, the reason the medicine atorvastatin costs consumers €33.77 in this State compared with €2.87 in Northern Ireland.

Minister for Health, James Reilly: The prices of drugs vary between countries for a number of reasons, including different prices set by manufacturers, different wholesale and pharmacy mark-ups, different dispensing fees and different rates of VAT. In recent years, a number of changes to the pricing and reimbursement system have been successfully introduced in Ireland. These have resulted in reductions in the prices of thousands of medicines.

Following intensive negotiations involving the Irish Pharmaceutical Healthcare Association (IPHA), the HSE and the Department of Health, a major new deal on the cost of drugs in the State was concluded in October last.  It will deliver a number of important benefits, including

·        significant reductions for patients in the cost of drugs,

·        a lowering of the drugs bill to the State,

·        timely access for patients to new cutting-edge drugs for certain conditions, and

·        reducing the cost base of the health system into the future.

The gross savings arising from this deal will be in excess of €400m over 3 years. €210 million from the gross savings will make available new drugs to patients over 3 years. Thus, the deal will result in a net reduction in the HSE expenditure on drugs of about €190m.

The Department and the HSE have successfully finalised discussions with the Association of Pharmaceutical Manufacturers in Ireland (APMI), which represents the generic industry, on a new agreement to deliver further savings in the cost of generic drugs. Under this Agreement, from 1 November 2012, the HSE will only reimburse generic products which have been priced at 50% or less of the initial price of an originator medicine. In the event that an originator medicine is priced at less than 50% of its initial price the HSE will require a generic price to be priced below the originator price. This represents a significant structural change in generic drug pricing and should lead to an increase in the generic prescribing rate.

It is estimated that the combined gross savings from the IPHA and APMI deals will be in excess of €120 million in 2013.

The IPHA agreement provides that prices are referenced to the currency adjusted average price to wholesaler in the nominated EU member states in which the medicine is then available.  The prices of a range of medicines were reduced on 1 January 2013 in accordance with the agreement.

The Health (Pricing and Supply of Medical Goods) Bill 2012, which was passed at Committee Stage on the 19th of March, provides for the introduction of a system of generic substitution and reference pricing. The Bill provides that when the HSE is setting a reference price for, or reviewing a reference price set for, a relevant group of interchangeable medicinal products it shall take into account the following criteria:

·        the ability of suppliers to meet patient demand for the relevant item;

·        the value for money afforded by the relevant item;

·        the equivalent prices of the relevant item in all other Member States where the product is marketed;

·        the prices of therapeutically similar items; and

·        the resources available to the HSE.

It is important to balance achieving best value for money for the taxpayer with assuring continuity of supply for critical medical products, particularly in a small market like Ireland. Consequently, the Bill aims to achieve value for money while avoiding disruption in the availability of medicines on the Irish market. This legislation will promote price competition among suppliers and ensure that lower prices are paid for these medicines resulting in further savings for both taxpayers and patients.

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And just to keep the “five” theme going, some of the estimated €5bn in debt owed by NAMA developers just to NAMA will be written off in less than 5 months if Sean Dunne’s Good Friday filing in Connecticut plays out as Sean plans.

I really don’t see how justice minister Alan Shatter’s new bankruptcy law will ever be accepted, when it is finally commenced. If Irish people have to endure a “reformed” set of rules that will impose North Korean-style intrusion into their personal lives as well as reducing people to counting the euros and cents for every single purchase, be it for a jar of coffee or a roll of toilet paper, whilst NAMA developers up sticks, move to another jurisdiction, file for bankruptcy with multi €100m debts, and see themselves emerge financially reborn in a matter of months; surely all of this will spark widespread outrage.

There is a leaked 60-page guide doing the rounds which sets out in some detail how debtors will need curtail their lives if they opt for the new insolvency arrangements which are expected to be launched shortly; the Personal Insolvency Act 2012 was signed into law by President Higgins on 26th December 2012 but Minister Shatter needs to “commence” the Act so that its provisions apply, and because of delays with establishing the personal insolvency service, the infrastructure to deal with the anticipated flood of insolvency applications isn’t up and running yet. But the leaked guidelines indicate that when the arrangements are finally commenced some time this year, a family of four will be “allowed” a food allowance of €560 per month which equates to €5 per person per day, in fact €4.60 if the €560 relates to a calendar month. Personal insolvency is a new process for Irish people and is designed to allow you to pay off some of your debts over a period, 60 months or five years in the case of the Debt Settlement Arrangement, longer and shorter periods apply for other arrangements, as long as you agree to certain actions including living within a budget and selling assets, and at the end, you might see some of your debt written off.

Meanwhile, the tally of NAMA developers filing for bankruptcy outside the Republic of Ireland continues to grow, with Sean Dunne just the latest in the following list.

BankruptciesApr2013

So, how much has NAMA seen written off as a result of these foreign bankruptcies? It is impossible to tell for a number of reasons but we can have a stab at it. Firstly, we don’t generally know how much is owing to NAMA. Developer A may have had a €2bn loan from Anglo, but NAMA might have acquired that loan for just €1bn. We know that overall, NAMA paid 43c in the euro for the €74bn of loans it acquired from the banks for which it paid just €32bn. Secondly, we generally don’t have access to the bankruptcy papers in other jurisdictions. An exception is the case of John Fleming who filed for bankruptcy in the UK in 2010, and the papers were obtained by the Sunday Times and are available from Gavin Sheridan’s thestory.ie here. The bankruptcy period in the UK, including Northern Ireland, is generally 12 months. John owed nearly €1.1bn.We don’t know how much his assets were worth.

We do know that NAMA obtained €300m judgments against each of the two Grehan brothers, Danny and Ray. They will have had some assets to offset against these judgments, but with Irish commercial property down 70% from peak, development land down 90% and residential down 50%, the chances are that any recovery by NAMA will be minor. NAMA has pursued the Grehans in Canada, the US and Britain to reverse asset transfers, but even these are unlikely to make much of a dent in the €600m judgments in favour of NAMA, and remember they may have debts owing to non-NAMA creditors as well.

Bernard McNamara was regarded as a NAMA Top 10 developer which would mean that he owed an average of €1.8bn to the Agency – NAMA says that the Top 12 owed it €22bn. Again, Bernard will have had some assets to which NAMA had receivers appointed, or which will have been handed over by Bernard as part of the bankruptcy. But we know that Bernard’s €412m Irish Glass Bottle site in Ringsend is worth less than €50m today, so there may be massive losses there also.

Paddy Shovlin was understood to be in the table of Top 20 NAMA developers, and NAMA says the developers occupying positions 13-30 in its league table owed an average of €674m when the loans were acquired by NAMA.

We know that Sean Dunne has, on his initial bankruptcy filing, indicated debts of €400-800m and assets of less than €7m. I can tell you now, that there is huge anticipation amongst an army of observers waiting for Sean Dunne’s statement of financial affairs in the US.

In most other cases, we just have snippets about loans outstanding, and we generally don’t have records of the assets that developers may have had to give up as part of the bankruptcy process. But if the loss is somewhere between 57%, the NAMA evaluation in November 2009, and 98%, Sean Dunne’s claimed position in 2013, then even if the 17 developers had NAMA debts of €100m and if there is a 75% write-off then we are looking at a total to date of over €5bn*. Yes, six of the 24 on the list might be natives of Northern Ireland, and Tom Kane is an American, but the majority are Irish who, for all intents and purposes, have lived and worked in Ireland during the boom when the debts were rung up.

So, on one hand, if you owe €300,000 in Ireland mostly secured on a home that is worth €150,000, the best you might expect from Minister Shatter’s new laws is a five year term of basic rations, after which you might see €50-100,000 written off. Meanwhile, at least 20 NAMA developers have seen an estimated €5bn+ written off, and in Sean Dunne’s case he may be discharged in as little as 120 days. The pat response from ministers in Ireland to suggestions of reducing the burden of the insolvency process is that it will encourage more people to seek debt writedowns from banks which we mostly own. But if it is acceptable to allow 20 people write off €5bn, what is the problem with allowing 30,000 people write off €150,000 each or a total of €4.5bn? And these are just the NAMA developers, we have pop stars, betting shop proprietors cum broadcasters and the less well-known upping sticks and filing for bankruptcy elsewhere leaving colossal debts behind in Ireland.

* John Fleming gross debts €1.1bn, Bernard McNamara estimated gross NAMA debts €1.8bn, Paddy Shovlin estimated gross debts €670m, Grehans gross €600m NAMA debts. Assume 75% write-off of gross debts ie 75% of (1.1bn+1.8bn+.67bn+.6bn)=€3.1bn plus Sean Dunne net debts €600m (mid point of liabilities range less €7m of assets), plus 17 developers at estimated average of €100m gross NAMA debt with 75% writeoff = €1.3bn.

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The sale of 16-18 Lower Pembroke Street in central Dublin for “about €3m” was reported in the Sunday Business Post and by Jack Fagan in the Irish Times in March 2013. This blogpost just adds some more detail. The buyer of the property, which was originally earmarked for office/residential development, but which is now set to become a new hotel, is a company called Plaza on the Square Limited. The directors of this company are Conor O’Donnell who gives his address as Ively Road in Clapham from where he also runs his consulting company, COD Consulting Limited. The other director is Brian Clingen from Boca Grande in Florida but whose businesses appear anchored in Illinois. 52-year old Brian T Clingen confirms in company filings that he is the manager of a range of Illinois businesses including BP Capital Management LLC, American Access Group LLC, Lonestar Finance and Leasing LLC, MTH Enterprise Holdings LLC, MTH Enterprises LLC, Northwest Partners LLC, Northwest Indiana Properties LLC, Oak Lawn Partners LLC, Service Holdings LLC, Transport and Towing Holdings LLC, Transport Holdings LLC, National Transport LLC, CF3 Holdings LLC, DB Partners LLC and he is a director of KAR Holdings II LLC, KAR Auction Services Inc, Automotive Finance Corporation and AFC Funding Corporation. Forbes.com shows his 2009 remuneration from one company, KAR Auction Services Inc at $2m (€1.6m).

Plaza on the Square Limited has a registered address at 19 Raglan Hall, Clyde Road in Ballsbridge, an apartment that GVA were offering for sale at €400,000. This is a different apartment in the same block.

The €3m purchase price of the run-down block is a far cry from its price tag when last sold for €26m in 2006 when Gerry Deane and Paddy Fitzgerald of the Pembroke Partnership bought it from the Commissioners for Irish Lights.

The new owners are reported to be planning to refurbish the building and convert it into a boutique hotel, which might have up to 120 rooms. Existing planning permission appears to allow a hotel development in place of the originally-planned office/residential project.

Brian Clingen spoke with RTE’s George Lee last September 2012 about investing in Ireland, and he appears to  be one of an army of foreign investors seeking out opportunities in Ireland at present.

For your information, this is the Land Registry record for 16-18 Lower Pembroke Road and this is the Company Registration Office record for Plaza on the Square Limited.

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