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Archive for May 11th, 2013

EddieHobbs

It should be said upfront that Eddie Hobbs’s Brendan Investments Property Management has issued a statement here in which it states that it is aware of legal action against a Michigan USA company called “Metro Property Group” but stresses that there is no claim or alleged impropriety being made against Brendan Investments. Brendan Investments is jointly owned by Eddie Hobbs, Dermot Flanagan, Hugh O’Neill and Vincent Regan, with each being a director. The company in its statement expresses confidence in the US company now being sued.

This week in a Michigan District Court, a group of investors represented by celebrity lawyer Deborah Schlussel has filed a case alleging serious misconduct by a Michigan property company, Metro Property Group and associated companies and individuals. The 116-page complaint is here and it makes for fascinating reading. In brief, a group of UK, Australian and Yemeni investors are claiming shenanigans on the part of Metro and others and want their investment back. Finance and economics pundit and TV personality Eddie Hobbs (50) is dragged into it because his company Brendan Investments has apparently teamed up – “partnered” according to the lawsuit claim – with Metro for property investment, though again, to stress, there is no allegation of any impropriety on the part of Eddie or his company.

The lawsuit does however refer to Brendan Investments and claims it has “recently partnered” with Metro with Brendan Investments “reportedly” providing what is called “an infusion of €15m”. A request for comment from Brendan Investments was made before 5pm today, but was not responded to at time of writing. There is comment reported in the old media from Hugh O’Neill, a director of Brendan,  who says “there are a number of inaccurate references to Brendan Investments in the filing.” Ms Schlussel, the lawyer representing the plaintiffs, was asked for information relating to the alleged €15m infusion by Eddie’s firm, and again, there has not been any comment at time of writing.

So, what’s the beef? It is alleged that Metro buy extremely run-down houses in Detroit for between USD 500-5,000 and that they sell them to investors for USD 40,000-50,000 promising impressive returns of, for example, 16.9% per annum from rent alone, that the buildings aren’t habitable, that Metro manage the properties and after a few months, a tenant who may be a fake stops paying rent and the investors are left with dud property and no income. It is also alleged the buildings aren’t “up to code” and that investors have been fined by state authorities because of the condition of the properties.  The complaint is written in colourful language and paints the Metro Property Group as a bunch of villains, accusing it of operating a Ponzi scheme “reaching mini-Madoff proportions”. It even suggests that profits from the alleged scam may have ended up with Iranian-backed Lebanese political and military group, Hezbollah, a group regarded as terrorists in the US.

There is no filing in the case, on Metro’s part yet but newspaper reporting carries comment from Metro that it says the action is unfounded and that Metro is confident the case will be thrown out of court. One of the defendants is a lawyer, Tarek Baydoun who has provided comment to the media and says “allegations of any wrongdoing are completely ludicrous” and “I’m firmly denying any wrongdoing whatsoever” The colourful language in the lawsuit probably won’t do much for its credibility over here where we’re used to more sober allegations, but having said that, there are very specific – and presumably easy to prove or disprove – allegations in the lawsuit which paint a worrisome picture, and although there is no allegation of impropriety whatsoever against Eddie’s Brendan Investments, he may find himself fielding questions about the safety of investments with this US company.

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Tomorrow will see the 115th weekly bank bailout protest in Ballyhea, the parish just south of Charleville in county Cork. At 11.30am after mass, they’ll again march the 15 minute route up and down a stretch of the main Cork-Charleville road to signify in a modest way their opposition to the bailout of the Irish banking system at the expense of its citizens. The group has achieved national recognition and has inspired groups in other towns and villages to hold their own weekly bank bailout protest.

What has been happening over the past five years is actually quite simple if you follow the money. Creditors of banks, known as bondholders have seen their loans bonds repaid 100% in the case of senior bondholders, and the money has come from the Government who poured that money in as “recapitalization”, the money came from the State and its citizens and from loans from the Troika and the international bond market. There are still bonds outstanding at Irish banks, but all of the bonds have now been repaid at Anglo and Irish Nationwide save for less than €200m which are at risk after the special liquidation of IBRC in February 2013.  Some bonds remain at Permanent TSB and AIB which are still weak banks. Bank of Ireland is now the healthiest of the Irish banks. But the bulk of the bonds have now been repaid. That money is gone and what we have left are depleted State coffers and huge international debts.

So, this week, the Ballyhea protesters have launched a set of proposals around which they hope to galvanise support. You can read the proposals here and on Thursday this week, the protesters visited Leinster House where they met with several TDs whom they have asked for support – at time of writing Clare Daly is the only TD to have provided a written endorsement but other TDs said they would take the proposals away to consider, some with their Parties. The proposals attempt to deal with the reality that much of the cash has now been handed over by Ireland – we can point to where some of the cash came from, the National Pension Reserve Fund and where some of the loans came from, in February 2013 we created €25bn of sovereign bonds to swap with the infernal Anglo and Irish Nationwide promissory notes. But to a large extent, at this point the money is gone.

The group wants the €28bn of sovereign bonds issued to settle the Anglo and Irish Nationwide promissory notes, cancelled. The counterparty to these bonds at present is not the open market but the ECB, and the group wants these cancelled because they relate to promissory notes which are an abuse of the ECB’s own rules, possibly illegal under Irish law and were created by the Irish state under duress by the ECB who otherwise threatened a withdrawal of liquidity to Irish banks.

The second proposal seeks reimbursement of the cash costs of the bailout – some €35bn. Minister for Finance, Michael Noonan has not dismissed the possibility that the ESM may pay these costs in the €20bn-plus range, and Minister Noonan has taken issue with statements by the Dutch finance minister that the ESM will not be used to refund legacy bank bailout costs,

The protesters are back on the road in Ballyhea tomorrow, but with are now seeking support for their proposals so as to build a position which can be brought to the ECB and our partners in Europe.

What is the gross cost of the bank bailout?

It comprises the famous €64.1bn – comprising €20.7bn to AIB/EBS, €4.7bn to Bank of Ireland, €34.7bn to IBRC and €4bn to, what was, Irish Life and Permanent once you take into account the €1.3bn paid for the assurance business – plus an additional €933.775m shoveled into IBRC in March 2013 plus the €5.6bn state-aid which NAMA paid the banks for the loans it acquired – the “state-aid” was mostly the long term economic value premium that NAMA paid the banks on top of what the loans were actually worth. Because the State didn’t have €71bn to give the banks, it has borrowed some of that money and the loans carries interest; we have also practically depleted the National Pension Reserve Fund which means we no longer earn interest on that money. The jury is still out on NAMA and one senior minister has stated that it might make a loss of up to €15bn though you would need deduct the state-aid in the context of the calculation here, and banks might need further capital to deal with the mortgage crisis.

What is the net cost of the bank bailout?

We have received some money back from the banks. They have paid us approximately €4.5bn in fees in return for providing guarantees though with the withdrawal of the guarantee at the end of March 2013, that income has now dried up. In addition, we have sold part of our stake in Bank of Ireland to a group of North American investors for €1.05bn and we have sold €1bn of so-called contingency convertible notes for €1.01bn at the start of this year. We have also received dividends of €0.5bn in Bank of Ireland. We have received €1.3bn on the sale of the insurance part of Irish Life to Canadian company. We have also received enhanced surpluses of approximately €4bn from the Central Bank of Ireland since Irish banks needed to borrow very large amounts from the Central Bank after the inter-bank market froze in 2008.  So the net is closer to €59-60bn and we still notionally have valuable stakes in AIB, Bank of Ireland and Permanent TSB, though at this point it is really just the Bank of Ireland stake worth €2.5bn including €18bn of preference shares that looks sound.

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PTSBLogo

Minister for Finance Michael Noonan refuses to tell us the book value of IBRC’s loans at the end of 2012 and he also refuses to tell us if any borrowers have yet refinanced their loans out of IBRC since that “bank” was placed in special liquidation on 6th February 2013. We DO know that the independent valuation of IBRC’s loanbook by PwC and UBS should be completed shortly and that loans with par values of over €10m will be offered to the market, and if the highest bid is in excess of the independent valuation, then the loan is sold and if not, it will go to NAMA. The transfer to NAMA was to have taken place in August 2013, but that date is likely to slip and may even be the start of 2014. In June 2012, IBRC had loans with a written-down book value of €16bn, so NAMA will be taking over up to €16bn of loans; that may have a significant impact on NAMA which itself had €22bn of book value loans at the end of 2012.

But NAMA might shortly be receiving a wodge of loans from another source: Permanent TSB.

Permanent TSB has created an internal business unit called the “Asset Management Unit” into which €14bn* of nominal value loans have been shoveled. “Nominal value” means par value, for example if PTSB loaned John €100,000 for his house and he currently owes €90,000 then the nominal value or par value is €90,000. John might have fallen into arrears and his house might be worth only €60,000 so PTSB might have made a provision of, say €20,000 as an estimate of the value which it won’t recover on the loan. So the written-down or book value of the loan might only be €70,000 – the par value of €90,000 less the provision for a loss of €20,000. We don’t know the written-down or book values of the €14bn of nominal value loans in PTSB’s AMU.

PTSBLendingDec12

At the end of 2012, PTSB had an overall total of €35bn of nominal value loans – see extract from the notes to the accounts above – so the AMU represents just under half of the PTSB loanbook. It is understood to mostly comprise commercial property loans (€2.2bn in total in PTSB, most of that is probably in the AMU) and loss-making tracker mortgages. We don’t know the impairment provision attaching to the AMU loans but the overall total provision in PTSB at the end of 2012 was only €3bn so the book value of the AMU will be €11bn-plus.

PTSB wants rid of its AMU because the uncertainty of what lies within, is dragging down the rest of the operation and preventing the bank from getting back on its own two feet. However, if the AMU is transferred to NAMA, then NAMA will only pay the current market value of the loans, and PTSB is likely to see a colossal additional loss, probably in the billions. NAMA will also end up managing problem mortgages, which is not what was originally envisaged for the agency.

We are likely to soon hear what is to happen to PTSB’s AMU.

*The €14bn was confirmed in a PQ this week here.

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It has been relatively quiet this week with Sean Dunne’s bankruptcy in the Connecticut bankruptcy court – the creditors meeting that was scheduled for Wednesday has been moved to 29th May 2013 apparently at NAMA’s request, though given it had one working day to review Sean’s statement of affairs filed at 10pm last Friday, perhaps that request was understandable even if they had seen practically all of the information before when Sean presented NAMA with his business plan and accompanying documentation. The bankruptcy trustee was also scheduled to have quizzed Credit Suisse, People’s United Bank and a Bruce Shaw employee, Andy Smyth, this week.

Last night, Sean did file a “means-test calculation statement” which is intended to set out in detail the income and expenses of the bankrupt. However, in Sean’s case, he unsurprisingly states that his debts are not primarily consumer debts, and is therefore exempted from providing the minutiae of his financial income and outgoings. For your information though, the statement is here.

Also yesterday, NAMA’s lawyers, New Jersey firm, McCarter and English filed a statement – available here – with the Connecticut bankruptcy court showing that NAMA’s lawyer Thomas Goodwin is a lawyer is “good standing” and should therefore be accepted as NAMA’s legal representative in the Connecticut bankruptcy.

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Secret of the Week

ThatsAnotherFineSecretMess

You might recall the commitment given by This Lot when they came to power to make public administration more transparent? Here is a selection – from the past seven days alone – of matters involving your money that This Lot weren’t referring to when they promised more transparency:

The Black Book which is the Central Bank’s disaster planning manual, first published in 2001, it was updated in 2007 after the run on Northern Rock in the UK. Minister Noonan said “The question of releasing the document is therefore a matter for the Central Bank of Ireland in the first instance. The document was shared with the Department of Finance on the understanding it would be treated in strictest confidence given the nature of the matters treated in the document. I do not therefore propose to provide a copy of the document”

The Collateral Posting Agreement which forces NAMA to hand over €1.15bn of cash to the NTMA as security against derivative contracts. Minister Noonan said it “contains commercially sensitive information and is therefore not suitable for publication”

NAMA & NABCO: The terms under which NAMA is providing social housing – which we have paid for through funding NAMA – to NABCO. Minister Noonan said “I am advised by NAMA that the particulars of the lease agreement, including term length and rental fee, have been negotiated in confidence with NABCO as a commercial counterparty and it would not be appropriate for the Agency to publish such details as it could prejudice the conduct or outcome of NAMA’s negotiations with other commercial counterparties”

AIB debt forgiveness: The debt forgiveness given to two large Irish media groups, Thomas Crosbie Holdings and Independent News and Media by state-owed AIB and 15% state-owned Bank of Ireland. Minister Noonan said due to “data protection rules and customer confidentiality the banks are not in a position to discuss details of individual customer circumstances”

Index of the Week

KBCESRI

Yesterday, the consumer sentiment index jointly produced by KBC bank and the ESRI was published. This has to be one of the most volatile monthly indices you’ll ever see – you’ll see its history as far back as 1996, here; its peak was reached in 2000 at 130-odd, and throughout the downturn since 2007, it has been all over the place. It stands at 58.9 in April 2013, down from 60.0 in March but it was as low as 49.8 in December 2012 and 70.0 in August 2012.

Quote of the Week

“As I explained to the cardinal and members of the church, my book is the Constitution and the Constitution is determined by the people. That’s the people’s book and we live in a republic and I have a duty and responsibility, as head of government, to legislate in respect of what the people’s wishes are. Those wishes have been determined and set out by the Supreme Court, which determines what the Constitution actually means” An Taoiseach Enda Kenny responding to further rumblings in the Catholic hierarchy which has set itself in fierce opposition to proposals to introduce legislation clarifying the position on abortion

“Catholics understand therefore, that a vote for Sinn Fein is a vote for the weakening of the institution of marriage and the right to life for all the unborn” Fermanagh priest and columnist, Fr Owen Gorman writing in the monthly Catholic “Alive” magazine. Aghadrumsee priest Father Owen Gorman was writing in his column in the April 2013 issue of the magazine and suggesting that Catholics have started to support the traditionally-Protestant DUP, on religious grounds.

Yes, the abortion debate still hogs the headlines, and this was the week we found out that anyone involved in procuring or effecting an abortion was automatically excommunicated from the Catholic Church under Canon law 1398. Actually, we didn’t find this out at all because the old media couldn’t be bothered to develop the excommunication threat – that was mooted (and then dismissed) – to legislators who would vote in favour of the new Protection of Life during Pregnancy Bill.

Elsewhere, in this week’s noteworthy quotables:

“The traditional barriers of authority and hierarchy are lowered and you need to be able to manage accordingly” Guide issued by Fine Gael to its TDs and senators, helping them deal with the challenges of new media

Scourge of the Week

“When asked what the primary factors would be to motivate them to emigrate, the vast majority of respondents stated that they would emigrate primarily because of a lack of employment opportunities at home or in the expectation that they would have better job prospects abroad” Time to Go? emigration study by National Youth Council

This week, the National Youth Council of Ireland launched what it called a qualitative study of Irish emigrants, focusing on the young up to age 30. The 100-page report is worth a read, it is highly anecdotal in providing original source comments from actual immigrants, but at its launch on Thursday, the NYCI made clear that although there may be pull factors which make emigration attractive, the “determining factor” was lack of employment opportunities here at home. So, emigration may indeed be what finance minister Michael Noonan calls a “lifestyle choice” but this study shows that the “lifestyle choice” hinges on employment, and in a State where there are 430,000 on the Live Register and 295,000 unemployed equating to a standardized unemployment rate of 14.0%, there is really no free choice at all.

Goal-hanging politician of the Week

WhosANaughtyBoyThen

“You never once contacted our school, Griffeen Valley, in relation to our forthcoming school extension..neither did anybody from our board of management or staff contact you or seek your assistance in relation to the extension. You had absolutely nothing to do with this development, and yet you distribute a leaflet in the Lucan area claiming to have ‘initiated, led and delivered’ this extension..This is nothing but gross cynical opportunism on your behalf, which I find objectionable and depressing” Principal of the Grifeen Valley Educate Together national school, Tomas O’Dulaing speaking to the “Lucan Gazettes” 1st May 2013

Dublin Mid West Fine Gael back bench TD, Derek Keating came in for some criticism from a school principal in Lucan who resented credit being claimed on a political leaflet by Deputy Keating, for an extension to the school. The criticism made front page news of the “Lucan Gazettes” newspaper, which is in fact what they call a “free sheet”, in that it is free to readers and it is advertisers that fund it. Perhaps to spare his boss’s blushes, Deputy Keating’s assistant, Tommy Morris, was caught on camera – pictured here – removing copies of the newspaper from local outlets. It is now reported that some 3,000 copies were taken and the matter has been reported to the Gardai.

On their website, “Lucan Gazettes” which is part of the Dublin Gazettes group say they have 169,000 readers a week. Would that be a week when Tommy Morris isn’t active?

ReadersLG

Job interview of the Week

BillHerlihy

Okay, this interview took place on 23rd April 2013, when 74-year old sports commentator and noted Fine Gael supporter, Bill Herlihy was “grilled” by the Oireachtas Joint Committee on Environment, Culture and the Gaeltacht about what he could bring to the role he recently won as chairman of the Irish Film Board. You will find the full transcript of the hearing here from page 19 but it will depress you; the hearing commenced with Bill read out an impressive pre-prepared statement. A Laois-Offaly FG TD asked what the IFB was going to do for Laois-Offaly, ditto for a Laois-Offaly FF TD, a Roscommon Independent TD asked about the decline in cinemas to the point there is only one cinema in county Roscommon, an Independent senator and a Labour TD promoted their own artistic endeavours and who knows, might be asking the IFB for a handout imminently and SF didn’t even ask a single question. After what appears to have been about five minutes of exchanges, the FG deputy chair of the committee concluded by saying “That concludes our consideration of the topic and I thank Mr. O’Herlihy for coming before us and giving us the benefit of his wisdom. I propose we notify the Minister for Arts, Heritage and the Gaeltacht, Deputy Deenihan, that we have completed our discussion with the chairperson designate of the Irish Film Board, Mr. Bill O’Herlihy. Is this agreed? Agreed.I will conclude with the words of a well known-television sports commentator, “Okey do-key””

Dontcha just love this country.

Poem of the Week

Crack

70,000.
Gone.
In a week.
Crack.
Actually.
A crack.
Was selling the gaffe.
Not quite breaking even.
A big improvement.
On borrowing to bail.
Then last week.
A bidding war.
It’s war. Baby.
Suddenly up 70.000.
All dandy.
Hands in air.
Wheeeeeee
Capitalist roller-coaster.
Enter the
ir  surveyor.
A crack.
Crack fluency required.
Enter my surveyor.
We’re looking at 10,000.
Fine.
But crack ‘s now a sobering force,
Sobering.
The purveyor of madness and rage?
So into equity’s duplicity.
Rode my 70,000
Plus 800.
The cost of.
My lesson in crack.

With Nobel laureate Seamus Heaney lying doggo during these historical times, it has fallen to others to chronicle economic challenges through poetry. We’ve had contributions on here before from sf ca writer. This week, the PoliticalWorld blog has launched its first foray into traditional publishing when it published a real-paper-book anthology of poems by Kevin Barrington entitled “I love the Internet” available for download here. Poems deal with the usual agonies of the human spirit but set against the unusual reality of current economic times such as the boom in property prices and then negative equity in the above piece “Crack”. Richly illustrated, worth a look.

Auctioneer marketing tip of the Week

Whatever about prices, there appears to be some consensus amongst estate agents that the commercial property market is humming with a reasonable flow of transactions at present, though residential property transactions have fallen off after the rush to meet the deadline of 31st December last when mortgage relief for first time buyers was curtailed. Corporate advertising by Irish estate agents and property companies seems to have intensified, but can any of them compete with the above Californian estate agent who has adopted a novel approach to self promotion.

What next? Maybe Messrs Hollis, FitzGerald, Nugent, Moran, Potterton, Meagher, O’Reilly and Hillyer might produce a barbershop chorus.

Baby pipeline of the Week

InterCountryAdoptions

We found out this week the countries from which we are adopting children. In 2012, a total of 117 children were adopted from overseas. Russia has replaced Vietnam at the top spot of source countries for children adopted into Ireland, though that position was placed in jeopardy earlier this year when the Oireachtas joint committee on Foreign Affairs and Trade threatened to create a so-called “Magnitsky List” for Russia which would impose sanctions on those people suspected of being involved in the death of Moscow lawyer and accountant, Sergei Magnitsky who died in prison after his arrest when he was investigating state-level tax fraud. The Russians responded with their ambassador to Ireland threatening to close down the Russian baby pipelines if Ireland pressed ahead with sanctions. Just over a week ago, our fearless committee backed down and merely called for an investigation into the horrible death of Sergei. Elsewhere on the list, Ethiopia is number two, but you had better get in quick there before Madonna snaps them all up. On a serious note, adoption in Ireland is just so difficult that only 200 Irish children are adopted a year despite some 6,000 being in care. Last year’s Childrens Referendum may herald an increase by removing obstacles to adopting children of married couples, but for the time being, the foreign baby pipeline just serves to highlight our domestic failure to facilitate adoption.

Graphic of the Week

DontGoChasingWaterfalls

This was the week when the Central Bank of Ireland’s Fiona Muldoon – front-runner to take over Matthew Elderfield’s role following his resignation – unveiled what is a described as a “Pilot Scheme for Consumer Multi-Debt Restructuring”. It seems like a solo-run by the Central Bank, uncoordinated with the new personal insolvency schemes that are supposed to be available from the end of June 2013. And to cynics, it appears like a last-ditch attempt to minimize mortgage impairment losses at the Irish banks to the greatest possible extent. The Central Bank scheme envisages there being an independent “service provider” to manage whatever agreement is sought or entered into by borrowers, and feathers were ruffled when it was suggested the Central Bank might seek to engage a UK company, rather than one of the burgeoning bodies in Ireland providing debt management services.

A feature of the pilot brochure was a decision waterfall which illustrated how the indebted might deal with their debts. Lengthening terms and lowering interest rates are explored to the greatest degree feasible before there is any hint of a debt write-down.

 Book of the Week

BookOfTheWeek

Quite a number of people have asked when we should finally find out the names and dealings of the 60-70 people whose offshore account details were recently leaked, as part of the International Consortium of Investigative Journalists investigation. The 60-70 Irish had companies created in the British Virgin Islands, a jurisdiction which hides company control and dealings from prying eyes. In the UK, the BBC and the Guardian newspaper apparently received the master-file of the leaked details, and the BBC is nudged every so often to see when it will make available the Irish details.

Meanwhile the ICIJ has published an e-book (it’s free!) which brings together reports from various countries showing the impact of the leaked details. It is a fascinating read and although there’s practically no Irish revelation, the compendium of reports show how people have hidden their wealth and dealings, have suddenly become unstuck.

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