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George Osborne's blushes were spared when a vote on bankers' bonuses was deferred
By Sean Whelan, Economics Correspondent
In the usual way of Brussels stories, a local political win has hogged the headlines, obscuring another story of great consequence.
Yesterday’s nod of approval by the ECOFIN council for the Troika to look at an optimal way for Ireland and Portugal to re-profile some of their official lending was not the main item on the agenda.
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Ulster Bank CEO Jim Brown said the Government is not doing its bit on mortgage arrears
By David Murphy, Business Editor
The nightmare of mortgage arrears is perhaps the most urgent problem facing Ireland.
Central Bank Governor Patrick Honohan has accused banks of making slow progress on the issue and has, in particular, told the financial institutions to begin repossessing buy-to-let properties from delinquent borrowers.
Ministers too, are happy to wag their fingers at the bankers.
However Jim Brown, the Chief Executive of Ulster Bank, has pointed out that both the Central Bank and the Government have yet to live up to their commitments on the issue.
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By David Murphy, Business Editor in Madrid
Spanish protesters at a recent rally in Madrid
The Spanish crash has parallels with Ireland’s economic collapse. Banks in both countries funded a misguided building boom, the lenders were bailed out and the construction sector imploded. Now unemployment is a huge problem and the deficit is being addressed with unpopular austerity measures in both countries.
But for those who find themselves out of work there some significant differences between the two states. Ireland’s social welfare system affords significantly better protection to those who become unemployed than Spain’s does.
Over the past few days I interviewed a number of people who are unemployed in Spain. Surprisingly, some people received nothing at all from the state, while others received nothing when their social security contributions ran out.
Ernesto Torrico (31) is a presentable, articulate graduate. On paper, he is eminently employable, with two degrees: one in international commerce and the other in marketing, But Ernesto has been looking for full time work for two and a half years. He lives in a modest one-bedroom apartment in Madrid city centre with his girlfriend who has a job. Ernesto receives no support from the state. His only income is €75 a week from coaching under 12s soccer (one of the boys is the son of Real Madrid boss Jose Mourinho). Like many young unemployed people, Ernesto receives financial support from his parents. Without it he couldn’t survive.
A sign out side Spain's central bank reads: ''Your haul is my crisis'' and ''Without bread there is no peace''
Carlos Gomez (43) is a man who has been living under continual stress for months. He is an unemployed truck driver from a village outside Madrid called Torres de la Alameda. He lives with his wife and seven-year-old daughter in a small house. The family receives a total of €105 in state benefits every week. The Gomez family is €13,000 in arrears on mortgage payments and it is due to be evicted by Banco Popular on April 15th. This is another notable difference between Ireland and Spain: already Spanish banks have repossessed 200,000 homes during the crisis whereas Irish banks have evicted relatively few families.
A sign from a recent austerity protest in Spain
The country’s crisis is at an earlier stage than Ireland’s collapse and property prices may fall by another 15- 20%. Already they are down 35%, partly because some banks own estate agents which kept prices artificially high.
While the Spanish economy is expected to show modest growth this year, people searching for work will continue to look in vain. Growth in employment usually lags an expansion in output so experts predict Spain’s unemployment level could reach 27% this year.
The light at the end of the tunnel will continue to look dim for many.
Former IBRC CEO Mike Aynsley keeps a momento from Anglo Irish Bank
By David Murphy, Business Editor
During Mike Aynsley’s tenure as boss of IBRC, formerly Anglo Irish Bank, he pulled off a few feats.
One was to shrink the bank’s loan book from €100 billion to €15 billion, another was to sell off its US assets for €10 billion.
But the Australian banker made enemies within Government. Ministers piled pressure on the IBRC boss to reduce his remuneration and that of his top team, with six executives earning more than €500,000. When salary levels remained unchanged, they commissioned consultants Mercer to review the pay of bank executives. The report, which has yet to be published, was expected to be a useful tool for the Coalition to push for pay cuts.
But the abrupt liquidation of the bank makes the row about pay levels there an academic question. Mr Aynsley has now left, and most of the top tier of management is also standing down.
The decision to tip the bank into NAMA raises a host of questions.
Despite the Fine Gael-Labour administration’s initial misgivings, the team at NAMA led by chief executive Brendan McDonagh and chairman Frank Daly has won the Cabinet’s trust.
However, the agency is now entering new territory. Until now it had only dealt with relatively large land and development loans. But a patchwork quilt of assets which liquidators KPMG won’t be able to sell will be transferred to NAMA. Among them will be mortgages once held by the former Irish Nationwide – reportedly the most distressed home loans in the country.
Ireland had two bad banks – NAMA and IBRC. Now it has one.
While the team at the former Anglo may not have made friends in Government Buildings, many in regulatory and financial circles regarded them as able and tenacious.
Running IBRC was no easy task. It was made up of the former Nationwide and Anglo, which will cost the taxpayer somewhere between €30 billion and €34 billion. That’s roughly as much money as was spent on NAMA.
IBRC was engaged in complex and controversial legal cases against the Quinns across the globe, in an effort to secure repayment of €2.8 billion which the bank said it was owed. The bank also took actions which resulted in Seán FitzPatrick and Seán Quinn being declared bankrupt in the Republic of Ireland.
The step to liquidate the bank came as a bolt from the blue. It was required so that Finance Minister Michael Noonan could replace the onerous promissory notes – a deal which significantly improves Ireland’s situation. While critics rightly point out there has been no debt write-off, it replaces a near-impossible interest and capital payments schedule with a more manageable timeframe.
However, the decision to liquidate IBRC was rushed through the Oireachtas. It happened in just seven hours, to ensure nobody blocked the measure in the courts, but it meant the move did not receive the political scrutiny it deserved.
A lot of public money is riding on the plan – dubbed Project Red by those in the know in the Department of Finance. And the lack of either oversight or public debate prior to the Oireachtas approving the legislation to liquidate Anglo must surely set some warning lights flashing.
Peer Steinbruck has a reputation as a blunt speaking political bruiser
by Seán Whelan, Economics Correspondent
Back in the early part of the last decade, Peer Steinbruck was prime minister of NorthRhein-Westphalia. He visited Dublin in an official capacity, as part of a roadshow, touting NRW state bonds to investors among the various companies based in the IFSC.
A few years later he was federal finance minister, and had to pick up the pieces when one of those IFSC companies, DEPFA bank, went into meltdown, costing the German taxpayer billions. Mr Steinbruck was not too impressed with Irish financial regulation.
I once tried – and failed – to get him to say something unpleasant about the Irish regulatory system. This was back in September 2007, on the very day that Northern Rock went bust. We were in the Portuguese city of Porto for an informal meeting of ECOFIN, and every finance minster and central bank chief in Europe was fortuitously gathered in the one place when Europe’s financial crisis officially began.
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Cayman Islands & Ireland are used by multinationals to aggressively manage their tax bills.
by Business Editor David Murphy
Question: what do Bermuda, the Cayman Islands and Ireland have in common?
Answer: they are all countries used by multinationals to aggressively manage their tax bills.
The Irish are slipping into bad company. Tax on profits is 12.5% in Ireland. There are limited write-offs which allow companies to reduce their tax bills to an average effective tax rate of 11.9%, says Enterprise Minister Richard Bruton.
But some US multinationals are paying far lower rates. The reason these companies can build such aggressive tax avoidance strategies is because they exploit agreements between Ireland and other countries.
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New Insolvency Service of Ireland will hinge on deal-makers
By David Murphy, Business Editor
This week came an insight into how the new Insolvency Service of Ireland will operate: it hinges on deal-makers.
When Ireland’s financial crisis first began to detonate, the then Government quickly established Nama to filter out the large property and development loans from the banks.
That was in 2009. In 2013, attention is finally turning to ordinary borrowers.
This week the director-designate of the new Insolvency Service of Ireland, Lorcan O’Connor, made his first public appearance to a gathering of accountants and other professionals. Mr O’Connor is a former director of restructuring at accountancy group Deloitte.
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2013 is being defined by economic signals which indicate that the worst could be over
By David Murphy, Business Editor
There is a definite change in the air. The beginning of 2013 is defined by economic signals which indicate, at least, that the worst could be over.
Unemployment remains extremely high, although steady, at just below 15%; house prices show signs of stabilisation after an enormous 50% collapse; and the economy is no longer shrinking.
The relentless demise of recent years would appear to be coming to a halt. In a sense, it is like somebody who has fallen down a well – just because they have stopped falling does not mean it’s time to start celebrating.
Taoiseach Enda Kenny rightly describes the situation as “fragile” when he seeks concessions from European politicians. There are still a host of factors that could go wrong.
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An artist's impression of the Square Kilometre Array's low frequency aperture arrays
by Economics Correspondent Seán Whelan @seanwhelanRTE
No doubt we could all think of better things to do with €3.1 billion than paying off the promissory notes used to bail out Anglo Irish Bank and Irish Nationwide Building Society.
My suggestion is we pay for the Square Kilometre Array.
The SKA, as its known, is a project to build the world’s biggest radio telescope, with a receiving area of – yes, you guessed – one square kilometre. Not that it’s going to be one humongous version of a sky dish. The idea is to scatter several thousand antennae over a very large area. By spreading your one square kilometre of receivers over a radius of 3,000 kilometres, you get the ability to collect vast quantities of very accurate data.
Among other things, you could produce the first 3-D map of the observable universe, taking in an estimated one billion galaxies. And apparently you could get all that for just one year’s instalment payment of the promissory note.
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Thousands of people are in mortgage arrears
By David Murphy, Business Editor @davidmurphyRTE
For many families next year will be defined by what is perhaps one of the most frightening chapters of the crisis as Ireland grapples with mortgage arrears.
Thousands remain in limbo while the personal insolvency bill is making its way slowly through the Oireachtas. At the same time the Troika has secured agreement from the Government to plug a legal loophole which has blocked banks from repossessing properties.
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