Tuesday, October 27, 2009

Banks create confidence by telling good but convincing stories!

Stefan IngvesDR  STEFAN INGVES (56), Governor of the The Riksbank, Sweden’s Central Bank came to Dublin today.  The Riksbank is the oldest central bank in the world; it was founded in 1668.  It has a very focused mission – to ensure that inflation in Sweden is low and stable2% per annum is the golden target.  Sweden voted by referendum in September not to introduce the €.

The importance of confidence and trust

The scale and the trans-national scope of the current financial crisis, according to Ingves,  define its unique character. All crises share similar causes and common remedies but they also have many differences. When confidence is lost the taxpayer becomes the lender of last resort and the government becomes the owner of last resort!

The remedy involves regaining confidence to resolve a crisis and preserving confidence to avert further problems. The international dimension of the current crisis requires the establishment of trust across national borders trust and between authorities to strengthen cross-border crisis management.

Banks are both central to all economic activity, due to their role in the payment system, but they are also inherently unstable, due to the maturity mismatch from borrowing short and lending long. Their relatively low capital base is another potentially destabilising feature of the fractional reserve banking system.

To avoid a run, a bank must maintain the confidence of depositors and market participants. If a bank loses the confidence of its customers, it faces problems. If confidence for the entire banking sector disappears, a financial crisis is a fact.  That occurs when people are unable to make solid judgements; when they fail to understand the true quality or location of assets.

Confidence is the core ingredient of a sound bank. Confidence is essential to prevent and to resolve financial crises.

When a crisis occurs the first step is to acknowledge its implications.  Losses will not disappear and bad assets must be dealt with.

Liquidity and capital regulation need to be reformed to avert a recurrence of a banking crisis and restore trust.   However, other commentators argue convincingly that regulation alone will not prevent bank failures and Dr Ingves counterpart, the Governor of the Bank of England is one of those.   Good business succeed; bad businesses fail.  Many of the current crop of failures arose as a consequences of losses in activities that were not core to the business.  Irish Nationwide Building Society and EBS in Ireland, for example, was set up to provide residential mortgages but lost the plot when it funded speculative, commercial developments.

Get the Lemons!

Ingves advocate that to regain confidence in the short term it is vital to  get the lemons!

Banks create confidence by telling good and credible stories about the future, stories about why stakeholders will get your money back. When these stories fail to create confidence, the markets will dry up. This is basically an example of the well-known lemon problem.

The US subprime market was the catalyst of the international dimension of the current crisis although it was only coincidental to the self-inflicted fatal wounds the Irish banks inflicted on the country. The repackaging and sale of assets backed by subprime loans meant that the crisis, at its outset, had already started to impact banks internationally. Bankers exposed to subprime assets began to find it increasingly difficult to tell convincing stories. Banks and market agents became less willing to trade and to lend to each other. Rating downgrades and more bad news kept arriving and the crisis started to spread geographically and to affect more markets. Banks experienced serious funding problems.

Confidence simply disappeared and liquidity evaporated.  A melt-down of the financial system was prevented by a massive intervention by central banks and governments worldwide.
A loss of confidence is the driver of a liquidity crunch, but the lemon problem  explains the mechanics of a market breakdown. A lemon is an asset of bad quality, originally referring to poor quality cars. In short, the lemon problem arises when sellers know whether or not their asset is a lemon, but potential buyers cannot tell the difference. The risk of purchasing a lemon will lower the price buyers are willing to pay for any asset and, because market prices are depressed, owners of non-lemon assets will be unwilling to put them up for sale.

In normal times, banks can obtain short-term finance by borrowing on the interbank market and by selling assets. When it became apparent that some assets had turned sour – that they were lemons – confidence in the strength of individual banks’ balance sheets evaporates. Confidence in the banking sector as a whole was eroded, because people were uncertain as to where the bad assets were actually located and the fear one bank could adversely impact another bank.   Such uncertainty over the extent and location of lemons, coupled with a fear of contagion, are normal features of any crisis. However, the opacity of some of the new financial products and the increased interconnectedness of the financial system inflated the degree of uncertainty.

Weakened confidence between the banks led to the breakdown of interbank markets. At the same time, previously liquid asset markets completely dried up, due to the lemon problem. As a consequence, banks found it costly – or even impossible – to obtain liquidity by selling assets.

When there are lemons out and about, bankers cannot tell credible stories that inspire confidence in the future.

A precondition for the return to normal conditions, that is, to a situation where banks do not depend on central banks for liquidity, is that confidence is restored.

Central banks have been injecting liquidity for two years , but still the underlying problem – the lack of confidence – has not been fully solved. Normality and stability will not return until the impaired assets are dealt with.

To do that is both messy and costly. A difference to previous crises is the new financial products that have turned sour. It will be difficult to deal with these opaque and complicated new breeds of lemon. However, this does not make it less important to get the lemons – rather the contrary. There are no shortcuts in dealing with bad assets. The losses must be recognised. A loss is a loss. The costs involved may make it tempting to sugar-coat the lemons by letting the bad assets be valued above market value, but this will only postpone the recovery.

It is crucial for investors to realise that the bottom has been reached if confidence is to return The catalyst for this can only be achieved by a realistic and transparent valuation of assets. If the bottom is in fact reached, people will start to listen to good stories about the future again. Risk appetite will return and market activity will recover.

A lack of confidence in the banks’ balance sheets cannot be improved by creating opaque accounting rules. The book value of a bank will increase if they assign book values above market value, but will it restore confidence?  The balance sheets of banks should reflect realistic values if confidence is to be inspired.

Accounting rules should force banks to disclose what their assets are worth and not allow problems to be hidden. Lack of confidence arises over concerns about a bank’s actual financial situation. If market participants have to recalculate reported valuations, then the return of confidence will be more difficult to achieve. It is therefore important that accounting is transparent and internationally harmonised. Accounting rules are not only about preserving financial stability in the short run. Changing the accounting rules could make communication more uncertain and less transparent.

Another tool for telling stories about the future is stress testing. Stress testing can thus be a very valuable and effective tool in restoring confidence.  A track record of reasonable stress tests, will enhance the credibility of the methodology and the results has continued to increase during the crisis.

Liquidity and Capital Regulation

The financial crisis of the past two years has been very costly and must not recur.  Lawmakers, central banks and financial regulators have a daunting task ahead of them. Regulatory and supervisory reform is needed.

Liquidity or, rather, illiquidity has been in the centre of this crisis. Banks will always be exposed to liquidity risk due to the maturity mismatch, as this is a central feature of banking. However, in the run up to the crisis, this maturity mismatch increased too much. Banks relied on the misguided perception that short-term financing would be available from liquid markets. A key lesson from the crisis is that a liquid market can very quickly become illiquid.

The conclusion is that liquidity must be regulated more appropriately. Banks need to hold a buffer of liquid assets large enough to allow them to weather a liquidity shock. However, the definition of this liquidity buffer, as well as what type of assets should be viewed as liquid, requires careful thought. We should keep in mind the lesson that market liquidity can vanish quickly and be extremely cautious about what securities we consider to be liquid. Furthermore, the power to dictate the type of assets a bank must hold will have an impact on asset markets. We must ensure that this power is not misused.

From a central banker’s perspective, Ingves argues that the content of the liquidity buffer has a bearing on the central bank’s policy on what assets to accept as collateral. In a crisis, it is the central bank’s decision on which securities to accept that defines liquid and illiquid assets – at least in the local currency. Therefore, the interplay of liquidity regulation and the central banks’ collateral requirements also warrants considerable reflection.

Finally, liquidity regulation will make maturity transformation more costly.  More regulation is needed today but, in casting additional regulation, costs have also to be considered. Too strict regulation would stifle competition, make financial services more expensive and, in the long run, hamper economic growth. On the other hand, too loose regulation would inspire speculation with taxpayers’ money and also reduce economic growth. Thus, the extent of financial regulation is – at least partly – a question of society’s risk tolerance.

Liquidity buffers will create a cushion. However, the root of a liquidity crunch is a lack of confidence. A major aim of regulatory reform should thus be to ensure that trust does not dissipate so rapidly and completely again. In order to do this capital requirements need to be increased, both in terms of the quality of capital and the amount of capital.

Increasing the quality and amount of capital will increase the resilience of individual banks. In addition, strengthening the ability of banks to absorb losses – therefore more and better capital will also strengthen the resilience of the system.

In Ingves view, the important part of capital is loss-absorbing common equity. In addition, other forms of capital are needed to protect the state. If a bank defaults, capital typically evaporates very quickly. I have seen many examples of banks that have defaulted because they did not meet the capital adequacy rules. I

Building trust to enhance
cross-border crisis management

A financial crisis is costly to resolve. The crisis in Indonesia cost the equivalent of 50% of its GDP.  Growth is stymied for years.

The potential costs are so large that only the nation state, through its power to tax, can shoulder the costs. This makes the state the only ultimate and credible guarantor of financial stability.

Option #1
Today, there is a mismatch between the geographical reach of the only party that can guarantee financial stability – the state – and the international financial system. The logical solutions to this geographical mismatch are either to shrink the financial system back to within national borders or to create an international institution with a right to tax or a system of burden-sharing, so that confidence in an ultimate guarantor can be established on an international level.
The first solution would be too costly. Basically, it would imply rolling back decades of globalisation and financial integration. It would also mean a serious blow to the European single market. In a way, I find it puzzling that we are discussing the possibility of a single market for all kinds of goods and services except for the commodity most suited for free trade: money.

Option #2

The second solution would involve a possible European wide tax to pay when a major SNAFU occurs.  But since taxes are determined at a national level there is no scope for pan-European taxes determined at an EU level.

Consequently, the geographical mismatch continues and, as a consequence, cross-border banks pose a real challenge to crisis management. To accommodate this mismatch, national authorities must cooperate more effectively. This is the only feasible option. In order to achieve efficient cooperation, it is vital to build trust between authorities, which explains my third ingredient.

Option #3

The third and only practical option is based on cross-border cooperation.  But cooperation is required in good times as well as bad.

In the EU, there can be  the home country principle as a fix for the geographical mismatch.  But this involves a partial loss of sovereignty at national level to achieve this compromise.

However, the home country principle does not solve the dilemma of international banks and national authorities. Tension arises because the home country is responsible for the supervision of branches but the host country is responsible for the financial stability of the country. This tension also persists if the foreign bank operates through subsidiaries. Many cross-border banks centralise different parts of management. There are good economic reasons for such centralisation. However, the implication is that the home supervisor, as the consolidating supervisor, has the overall picture, while the host country has the responsibility.

The capacity to respond to cross-border crisis management is impeded by a lack of mutual trust. In bad times, trust is essential for sharing information. Reaching a joint assessment and making efficient decisions often require frank and open-hearted discussions. Such discussions will not take place if the parties do not trust each other.


Nordic approach to trust building

The Governors of the Nordic countries have built trust for a long time. This building of trust dates back to the 19th century. Although it is not very widely known, in 1873, Sweden, Denmark and Norway formed a monetary union based on the gold standard. This union was eventually dissolved in 1924. However, I believe that one legacy of the union has been that the Governors of the Nordic Central Banks – adding Iceland and Finland to the group – have continued to meet regularly since then. This tradition of regular meetings has built trust. It has taken some time, but today the trust is there.

The Nordic example shows that trust between authorities can be achieved, but that trust takes time to build – so patience is warranted. At the same time, we need to start getting this process going immediately.

Financial stability ultimately depends on taxpayers.  Bank defaults are rare but there is still a low frequency of them arising and these are uninsurable events.  The costs arise in direct support and the lost opportunity to achieve economic growth.

Inges 6-year term as Governor began in January 2006. Dr Ingves is a member of the ECB General Council and a member of the Board of Directors of the Bank for International Settlements (BIS). He is also Sweden’s governor in the International Monetary Fund.

Sunday, October 25, 2009

Candidates for top positions in Irish banks must be independently vetted

AIB HQ ALL candidates for top positions in systemically important Irish banks and building societies’ must be independently vetted before being offered the job.  Responsibility for this ought to rest with the Governor of the Central Bank or the Director of Corporate Enforcement.

The competence of incumbents also needs to be routinely scrutinised against known criteria and severe sanctions put in place if breaches of competence are identified.

The resignation of the chief executive, Eugene Sheehy  and chairman, Dermot Gleeson of AIB was announced on 1 May to avert a revolt at the AGM.  The position of chief executive has still not been filled although AIB seem to be attempting to manoeuvre an insider into it.  That is an appalling vista for a company that has sucked €3.5 billion for taxpayers to compensate for its grotesque incompetence and inadequacy.  The current financial crisis is merely the latest in a series of monumental blunders at this bank including the loss of $691 million in its US affiliate, Allfirst, by the rogue trader, John Rusnak; systemically overcharging its own customers and tax evasion of epidemic proportions through the allowing Irish customers maintain offshore bank accounts.  AIB and Bank of Ireland seem to embrace the arrogant posture as an entity ‘too big to fail’ with a management untouchable by Government that was too big for its hobnail, country and western boots.

An  article by business columnist, John McManus in The Irish Times on October 19th describing AIB as being ‘arrogant’ in attempting to appoint an insider to the position of chief executive was followed by a letter to the paper from former AIB director, Padraic Fallon on October 21st endorsing the candidacy of the imputed candidate – and signalling to the Irish public how the cosy cartels and golden circles are alive and kicking, crisis, or no crisis. This prompted me to have my say on this matter which was published in The Irish Times on October 19th and in the Irish Examiner the following day.

I contended that given the scale of taxpayer support of the banks and building societies, it is simply not credible to appoint insiders to significant positions of influence banks and building societies’ being bailed out by the State and that the view of the Minister for Finance must prevail, if public confidence is not to evaporate.

There doesn’t appear to be any processes currently in place in Ireland where candidates for significant positions of influence are vetted thoroughly by the Central Bank or the Financial Regulator. A consequence of this is that an insider was chosen by the Court of the Bank of Ireland to be its incumbent chief executive. This person, having been previously in charge or retail operations in Ireland at Bank of Ireland and those reporting to him are directly responsible for the SNAFU that Bank of Ireland is now in which the taxpayer is bailing out.  British banks no longer have a free hand to make senior appointments.

The British Financial Services Authority (FSA) is the counterpart of the Irish Financial Regulator. Its mandate is to regulate the 5,000 firms in the British financial services industry and it has four objectives:

  1. maintaining market confidence
  2. promoting public understanding of the financial system
  3. securing the appropriate degree of protection for consumers
  4. fighting financial crime.

It has independently vetted candidates for positions that perform ‘significant influencing functions’ (SIF) since October 2008 and it announced an even tougher approach to this issue two weeks ago. These positions in practice are chairman, chief executive and senior independent director of systemically important financial institutions.

During the past year 15 of the 224 candidates who applied for top jobs, including chairman or chief executive, have pulled out before a formal decision was made. Twelve of them dropped out after an initial interview with the FSA during which they were questioned about the adequacy of their ‘skills, experience and integrity’ for the job. Companies are unlikely to challenge FSA decisions because appeals and their results are public and if an appeal is unsuccessful the FSA could make a public statement identifying the applicant and the firm involved. The FSA blocked 16 appointments from a total of 224 it has reviewed. Another 156 were accepted and 52 are pending.

The FSA wrote to all regulated firms two weeks ago, in the light of what it saw as shortcomings exposed by the financial crisis, to reinforce its regulatory philosophy and more intrusive approach in placing a great deal of emphasis on governance and the responsibility of senior management. New procedures have been introduced to interview, at its discretion, candidates applying to perform SIF roles in particular firms and it is to place greater emphasis on monitoring the performance of persons already performing SIF roles. This includes reviewing more critically the competence of such persons. The FSA assessment of competence of persons performing SIF roles is based on expectations set out in a handbook titled Supervision Manual

One of the key questions the FSA expect relevant senior management of a firm to be able to answer is: What are the circumstances under which the firm will fail?

In assessing competence, the FSA will expect senior management to be able to demonstrate their understanding of the inherent risks in the business/markets and to articulate what plans are in place to mitigate the risk of failure.

The FSA will take tough enforcement action against approved persons where it finds evidence of culpable misconduct or a breach due to competence failures (as well as cases of dishonesty and lack of integrity).

The principal purpose of the interview is to help assess the candidate’s fitness and propriety, including his or her competence and capability, to perform the role in question.

The interview (which takes place at FSA offices and normally lasts about 90 minutes), explores a range of issues that are relevant to our approval decision, including, but not limited to the:

  • responsibilities of a person approved by the FSA to perform a controlled function
  • knowledge, skills and experience that the person will bring to the role
  • person’s view of the main risks facing the firm and the role they play in managing them; and
  • FSA expectations of the individual in performing the SIF role.

The FSA would not expect the candidate to be accompanied by a representative of the firm at the interview. In certain cases, the FSA may decide to meet separately with appropriate representatives from the firm to gain additional insight into the firm’s due diligence undertaken on the candidate. Where the firm wishes to send a representative to accompany the candidate, this should be discussed and agreed between the firm and the FSA prior to the interview taking place.

In circumstances where the FSA decide to grant an application, it will provide written notice to the firm, who in turn, should notify the person concerned. In addition, the FSA will normally write to the candidate setting out the key points of the discussion, which will include its understanding of the person’s priorities during their first few months in post, and any action points agreed, which the FSA will follow up as part of its normal supervisory activity. A copy of this letter will also be sent to the firm.

Contrast that with what has been happening here!  The only apparent change in approach is that Gillian Bowler, chairman of Irish Life & Permanent Plc has abandoned her sunglasses indoors so that she can observer venality without ‘rose tints’. The Committee Stage of the NAMA legislation ought to provide an imminent opportunity to press this important matter into the statute books.

Saturday, October 24, 2009

When a Financial Regulator becomes a director of a bank strange consequences seem to occur

Central Bank_edited-1 WHEN the time arrives to review the history of the current economic crisis some scholar will have to analyse the consequences of regulators’ subsequently becoming directors of companies they once regulated when they leave office.  What contribution is expected of them in a board room?  What impact can and do they make?  Are these appointments even appropriate for a quasi-judicial office holder? 

When a judge retires he doesn’t subsequently become a prosecutor.  If a financial regulator becomes a director of regulated banks is there a danger that an incumbent regulator spends too much effort courting favour with those that are supposedly regulated? Will the anticipated reshaping of the Irish financial regulatory system outlaw this practice to continue or is it only a matter of time before Matthew Elderfield, the newly appointed Head of Financial Supervision at the Central Bank, becomes a director of a plethora Irish banks?

The first chief executive of the Irish Financial Regulator, Liam O’Reilly is a director of two financial institutions that have been heavily fined for compliance failure.

Last month, Irish Life and Permanent Plc was fined €600,000 last month by the Financial Regulator for unspecified breaches in relation to reporting requirements.  Its internal controls were deemed incapable of ensuring the necessary accuracy causing asset values to be overstated.  This outfit has a loan book of approximately of approximately €40 billion of which only 33% is funded by customer deposits – the remainder by a combination of long (29%) and short term (38%) debt, with access to debt curtailed.

O’Reilly became a director of this firm on 12 October 2008 – just weeks before €7.5 billion walked out the door to illicitly prop up the balance sheet of Anglo Irish Bank Plc

Merrill Lynch has been fined €2.75 million by the Financial Regulator.  Two incidents, one in December 2008 and the second in February 2009 led to losses of $456 million in Merrill Lynch International Bank Limited.  A second incident between May and August 2009 caused a loss of $5.3 million.   O’Reilly became a director of this company in March 2007.

The Financial Regulator indicated that the breaches were a consequence of a failure to have in place well defined and sufficiently transparent lines of supervisory responsibility and a failure to oversee a traders activity because the month-end price verification process was inadequate.

Wednesday, October 21, 2009

Russia: – an optimistic market for car sales again

St Basil's VOLKSWAGEN is predicting a 30% growth in the Russian car market by 2018 to become one of the top five global markets with sales of 3.6 million volumes.  A recovery in oil prices has helped boost confidence in Russia following the trauma of the past 12 months since my last visit.  Imported cars must contend with 30% import tariffs.

This optimism is against the background of Russia’s largest car plant being threatened with bankruptcy.  It is operated by Avtovaz in Toylatti, a city with a population of 700,000 to the south of Russia.  It is a legacy of the Soviet era  and employs 102,000 persons making the Lada.  Up to 27,500 workers are threatened with redundancy despite €570 million having been provided in State bailout money.  The decline is a consequence of mismanagement.

Toylatti is a monogorod – a city dependent on single industry and there are as many as 400 such cities of varying population sizes scattered across the country.

Russian car sales halved in 2009 having reached a record 3.2 million in 2008 – when oil was trading at $140 per barrel.

Volkswagen is setting up a new assembly plant about 170 KM to the west of Moscow which will produce 150,000 cars next year and use complete knockdown kits to produce 5 models, including one model specially designed for the Russian market, based on the VW Polo and will sell for €10,000.

Volkswagen is to sponsor the 2014 Winter Olympics at Sochi.  It will provide 3,000 vehicles before and during the event.  The value of the sponsorship is €68 million.

Volkswagen sold 72,000 cars in the first 9 months of 2009 in Russia representing a 6.6% share of the Russian market – up from 3.3% in 2008.

The St Petersburg area has become an important centre for car manufacturing investment in Russia.  Suzuki ($120 million in 2009), Hyundai ($400 million in 2007), Nissan ($200 million in 2006), Ford ($200 million in 2002) and Toyota ($150 million in 2005) have plants there.  Most of these were closed for a period earlier in the year responding to a collapse in demand.

AvtoVAZ is the largest Russian maker of cars. The company features models such as the LADA-ELFI (a miniature city car), the VAZ-1111E (a four-seat electric car), the VAZ-2115 (sedan), and the Niva 2131(an all-wheel drive SUV). As the largest passenger car maker in Russia and Eastern Europe, AvtoVAZ controls around 70% of domestic car production. The company has a $330 million joint venture with General Motors -- GM-AvtoVAZ -- to manufacture the Chevy-Niva SUV and Chevy Viva cars. AvtoVZ and GM each hold a 41.5% share in the venture, while the European Bank for Reconstruction and Development owns the remaining 17%.

AvtoVAZ cars sell under the Lada brand name outside.

Corruption is a factor that creeps into various facets of Russian life and has now emerged in online State tenders  A State university recently sought tenders for a new car and described the measurements as to be 44.27 metres long and 18.09 metres wide.  No car fits these measurements but if the measurements are divided by 10 the precise measurements of a the VW Tiguan. Suppliers would typically not be able to link the measurements with the Tiguan so it is speculated that the university had a particular supplier in mind. 

Cars are a popular item on tender lists.  The Office of the President announced a tender for 90 BMW cars last month and the marque was chosen because it was “considered best efficiency of use and economic advantage.  We are not rich enough to buy cheap things – cheaper cars would break down more often and end up costing more than the BMW’s”.

Sunday, October 18, 2009

Are Irish banking predators about to become scavengers in the ‘cash for thrash’ market?

2009 10 10_0716The former chief executive of Bank of Scotland (Ireland) Limited, Mark Duffy and a business partner, Kevin Warren, intend to pirouette, like an obscure phoenix in the autumnal sky, to buy property loans in Ireland and elsewhere from Ulster Bank and other foreign banks operating in Ireland, but not covered by the proposed National Asset Management Agency.  These two have apparently raised €3 billion but it is not clear from whom this money is raised or what the expectations are of those who own it. 

Duffy had been employed at Bank of Scotland (Ireland) Limited until February 2009.  When he left BOSI his Chairman, Maurice Pratt, the former supermarket chief and soft drinks bottler,  indicated that Duffy had been in discussion about his departure since the end of 2008 and that BOSI “fully understood and respected his decision”  to go and his chairman wished him “well in whatever future challenges he decides to pursue”.

A predecessor of Pratt, as Chairman of BOSI, was Phil Flynn.  Flynn was cited in the money laundering case involving Cork based financial adviser Ted Cunningham. Cunningham was convicted of laundering €3 million of the proceeds of the £26.5 million robbery from the Northern Bank branch in Belfast in December 2004 and he described Flynn in court as “the boss behind everything”.

Many observers point the finger very firmly and directly at Duffy and Bank of Scotland (Ireland) Limited for the toxic over-lending that was the precursor to the current crisis in residential mortgage lending in Ireland.  Residential mortgages now stands at €148 billion, a product of banking practices that were neither provident, prudent and was passively overseen by a ‘mom and pop’ regulatory system that had as much impact as a police riot squad wearing pink bedroom slippers – but it did secure some post-tenure banking directorships for those in control of it.  BOSI has 34,000 mortgage customers in Ireland.

When Duffy spoke a meeting of Dublin Chamber of Commerce in September 2004 he said The dynamics of the Irish banking market are undergoing a sea change at the moment.  BOSI has already shown the benefits of competition to the customer, and a real challenge to the cosy club of the traditional banks is underway".   The flea was going to tickle the elephant.  The entire herd stampeded and became chronically dysfunctional, unable to sustain an appropriate capital base without crawling to the State.

Duffy stated at the time he left BOSI in 2009 that “it was a natural point at which to leave” coinciding with the sale of HBOS to Lloyds and what he described as the “success of the Halifax retail project in Ireland”. 

Is there clear and compelling evidence that the Halifax retail project in Ireland is a success? Lloyds, which is 43% owned by the British Government, has invested €1.45 billion to augment the capital of Bank of Scotland (Ireland), owner of the Halifax operation in Ireland.  It does not intend to sell any distressed assets to the Duffy-Warren outfit.

The Irish public will take a close and detailed interest the challenges Duffy and his friend now intend to pursue and they will be interesting to ascertain if what they observe will be predators who have become scavengers.

The sooner the Central Bank of Ireland takes all of these pathetic banks by the scruff of their scrawny necks and puts manners on them the better.

Thursday, October 15, 2009

Europe’s Fight Against Organised Crime

THE Institute of International and European Affairs hosted a seminar under the above title today that included The Attorney General and The Director of Public Prosecution as attendees.  Speakers included the Head of the Criminal Assets Bureau, Patrick G. Byrne, the Director of Europol, Welsh born Ron Wainright and the Deputy Head of Britain’s Serious Fraud Office, Gary Leong.  Former Minister for Justice, Equality and Law Reform chaired the seminar.  An objective of the fight against organised crime is to strip to holders of ill-gotten gains of those assets.



wainright Ron Wainright, a Welsh-born history and literature buff, became Director of The Hague-based Europol last April.  Europol is the EU Law Enforcement Agency that deals with police intelligence.  Its function is to support the police forces of Member States.  Wainright described how the scale of organised crime is growing exponentially with open borders, ease of travel, and advances in the capacity of the internet combining to enable gangsters and criminals to blend a range of innovative and long established approaches to their mercurial enterprises.  These circumstances have enabled criminals to operate in smaller cellular structures and to diversify their activities as a camouflage.  Various forms of violence and corruption are used to dominate their own ethic communities.  New type of e-tools, methods of computer hacking, and data mining have facilitated large-scale identity theft and online fraud and online money laundering.

The majority of the organised crime groups operate between those domiciled within the EU and others domiciled outside the EU.   Many supplying groups, or non-EU-based groups, typically want to better safeguard their business interests in the EU and maybe also get more involved in the final phases of the supply chain, such as distribution and money laundering. They may even wish to expand their business into other criminal markets located in the EU. Originally non indigenous organised crime gangs may also regard the borderless.

The EU is considered by crooks to be a good location to invest some of their criminal proceeds and to get involved in legal businesses that are apparently profitable,  especially if the risk of involvement is dispersed and some parts of the overall interests of the criminal organisation are maintained outside the EU in the origin.

Europol considers that the organised crime  environment in the EU is evolving and dynamic.

Some groups in intermediary situations are increasingly featuring members from a mixed ethnic background so that several ethnicities and nationalities, including that of the countries of activity, are represented. Their leaders, in a guise  to safeguard their overall strategic interests, often reside both in the countries of activity and origin.

They are also prepared to use influence and corruption in the EU both in the public and private contexts and they display  an increasing awareness of the functions of the EU and readiness to control any aspect possibly affecting the criminal business.




The large scale importation of cocaine into the EU is dominated by Colombian organised crime cartels. They profit from the historic and linguistic links with Spain but also Portugal, as well as from the long coastline of the Iberian Peninsula and well established Colombian communities there. Colombians and Spanish nationals are used to co-operate within this drug market and recently also cooperation with Nigerian groups is frequently reported.

Drug transportation to Europe can be via the Caribbean or recently via West Africa. West Africa is increasingly gaining in importance as a trans-shipment zone. Recently, Colombian gangs  have developed relationships with their Moroccan counterparts in order to make use of the traditional cannabis smuggling routes, thereby enabling the onward transport of cocaine to the EU.

Most of the heroin circulating in the EU is originating from Afghanistan.  Heroin trafficking towards and within the EU
continues to be dominated by Turkish criminal groups. Turkey has ties with Afghanistan and with countries such as The Netherlands,
Belgium, France, Germany and the UK.

The majority of heroin is still transported via different branches of the Balkan routes, but a considerable amount is trafficked via the Northern Black Sea route which is gaining in importance. Dutch and to a lesser extent Belgian organised crime groups still dominate the major production of synthetic drugs in the EU, profiting from their
knowledge and experience and with trafficking facilitated by major ports such as Antwerp and Rotterdam which also act as important
trans-shipment points, for instance for cocaine trafficking. However, large scale MDMA (ecstasy) production continues to spread, in particular in Indonesia, Canada and Australia. In some
cases the use or support of criminal expertise from the EU has been observed. Within the EU, an increase of large scale production
sites outside the Dutch-Belgian region can also be noticed.

Europol consider that the accession of Bulgaria and Romania will influence the EU market in synthetic drugs. Bulgarian organised crime  groups are producing amphetamine tablets currently trafficked to the Middle East. In this context, there are indications that laboratories are moving towards destination countries in the Middle East. The large transport possibilities (Black Sea harbours and important Pan-European corridors) can further facilitate the production and trafficking of synthetic drugs and possibly also the trafficking of precursors, from principal source countries such as China and Russia, towards Western Europe – according to Europol.

All these developments might indicate that regions of the world will become self-sufficient in synthetic drug production and distribution.
With this in mind, the global dominance of Dutch and Belgian organised crime groups in relation may diminish over time. The cannabis market is the largest illicit drug market so far. Cannabis originating from Morocco enters the European continent via Spain and is often transported to The Netherlands for further distribution. Spanish and Moroccan nationalities are predominant within this activity and cooperation with other nationalities allow successful results. The Netherlands is an important producer of cannabis herb when focussing on the European market. Indoor cultivation
of cannabis is also increasing in the Czech Republic by making use of technological skills and equipment originating in The Netherlands.  The actual growing of cannabis is sometimes outsourced either to other people who have financial problems and set up a nursery in their own home or to labourers from Eastern Europe who are forced to employ their skills to grow Nederweed.


Fraud can range from from VAT, investment and social security fraud into fraud on EU funds and public tenders.  Intellectual property rights (IPR) issues and cigarettes, alcohol and gasoline smuggling are regarded as fraud due to their direct and indirect financial and tax implications (theft or evasion of revenue).

Fraud features more sophisticated and complicated schemes crossing the globe and involving various bogus and real companies, such as trade fraud, but also more straightforward scams orchestrated simply to lure gullible individuals into parting with their monies, such as some forms of advance-fee fraud. Fraud can be typified and discussed according to its main objective: fraud with direct financial benefits, and fraud with further interests to influence
the society and economy (penetration into society, acquiring a legal appearance, strengthening the control over territory through the control of local administrations, establishment of new criminal business, laundering criminal proceeds, etc.). It can be argued
that in the end all fraud purports to financially benefit its perpetrator but this is not the sole purpose of fraud; criminals  can use it in a more functional way to attach itself into various legal structures and either exploit or penetrate them. In some cases the blatant money-making aspect of fraud actually misleads both law enforcement and society in general into overlooking it as nothing but.

Fraud financially supports many threatening forms of organised crime. It is in many cases the latch that criminal activity can use to penetrate society and economy almost unnoticed. This penetration can have far-reaching implications especially when it is combined with the use of corruption to influence important political and economic decision-making locally, regionally and nationally.  The most threatening aspect of fraud is that it can be used by gangs to gain a strong foothold in various sectors from construction to transport aided by cumulative fraudulent practices and subsequent lower prices offered by OC-related businesses.  Thus, fraud has a far-reaching impact on society as a whole that surpasses its direct financial implications.

This applies specifically to venture and trade fraud, where fraud on EU funds (public tenders and procurement) is an example
of the former, and trade fraud is a main heading for different types of crimes and fraudulent practises that exploit, in various ways, the borders between the buyer, the seller, and the possible intermediaries. These expose certain key vulnerabilities in society
and the economy that can be exploited by OC with grave destabilising consequences. Concerning payment card fraud, Gangs have the capacity to exploit the readily available technological expertise and equipment (skimming devices, hackers, phishing kits, etc.) to engage in credit card fraud.  Payment fraud using credit cards is a global problem but that the relevant tools against it are mainly national, and the growing use of the Internet providing new vulnerabilities to be exploited for stealing and abusing data.  The main threat in relation to payment card fraud is that gangs supported by external experts increasingly gets involved in payment card fraud and, aided by its resources, develops more and more efficient means of stealing high volumes of data.


Counterfeiting is an illegal activity encompassing a wide range of criminal fields. It can  be a crime in itself, a specialisation and a facilitating factor for other crimes.

Counterfeiting can be divided in three main categories:

  • Currency counterfeiting (banknotes and coins), especially the €;
  • Documents counterfeiting (ID, freight, vehicle, excise, etc.);
  • Commodity counterfeiting (intellectual property rights infringements).

The countries most affected during the first ten months of 2007 were France, Italy and Spain, followed by Germany, Austria, The Netherlands and Belgium. The smallest number of euro
counterfeits was seized in Denmark, Latvia and

Currency counterfeiting is characterised by a strict distribution of tasks between producers, middle-men and distributors, in some cases controlled or, more often than not, tolerated by Mafia-type Italian Criminal groups from Lithuania, Bulgaria and Poland. Criminals from the itinerant community are among the main distributors in France and Spain. Most of the involved crime gangs have a multi-crime profile, and exploit their international dimension and all available trafficking routes to provide to other criminals and to the public a wide range of illegal products and services.

Currency counterfeiting in the EU remains a threat that, for the time being, is under control, Documents counterfeiting is a major crime facilitator. Counterfeit documents facilitate crimes such as drug trafficking, THB, facilitating illegal immigration, stolen vehicles trafficking, commodity smuggling (including cigarettes and spirits), identity theft and many types of fraud.The transnational nature of modern OC is reflected in the utmost care spent by OC groups
in carefully counterfeiting all documents to be used to cross several borders in apparent legitimacy.

Forged accompanying documents also facilitate the infiltration of illegal products into the legitimate retail sector, releasing distribution
from the clandestine enclosure of black markets, thus increasing the profits of OC groups.

The variety of official or semi-official documents existing throughout the world, combined with the ever-increasing movement
of people and goods across real and virtual borders, hampers efficient controls and facilitates illegal operations. The threat deriving
from document counterfeiting is therefore to be considered as very serious. Commodity counterfeiting is a crime which requires special attention. All Member States are affected by it, and an emerging threat is the infiltration of counterfeit goods into the legitimate retail sector. 

Thorough exploitation of the transport sector and of state-of-the-art technology, globalisation and borders are the main facilitating factors for commodity counterfeiting, making it a crime in perfect line with the modern nature and structure of international crime gangs.  The threat posed by commodity counterfeiting and IPR fraud is multiple and potentially devastating.  The sectors most threatened by it are  health and safety, economy, innovation (scientific and technological) and employment.  A side-effect of commodity counterfeiting is its  impact on innovation and research, the core  product and added value of intellectual property.  Decreasing profits due to unfair competition  by counterfeiters negatively affect innovation and research, slowing progress down.

Moreover, falling profits and shrinking markets  unavoidably lead to a necessary reduction of  working personnel, with consequent loss of

Euopol have identified five nexus points for the activities of organised crime ~ Holland for drug distribution in North-Western Europe, the Baltics for activities and the North-East, especially of Russian origin; the Balkans, especially Turkey and Spain / Portugal has become a nexus for a plethora of criminal activity originating in Africa.

Europol is integrating intelligence and shares this on a bilateral basis with national police authorities.  Public confidence is based on the transparency of its role, layers of accountability and strong data protection regimes.

A new legal framework for Europol will be introduced next January when Europol is set to become an official agency of the EU


Criminal Assets Bureau

2009-10-15 cops Detective  Chief Superintendant Patrick Byrne worked in the CAB for the first 10 years of its existence and returned to take the helm at the beginning of October.  The CAB was established on a statutory basis on 15 October 1996 following the killing the previous June of Detective Garda Jerry McCabe and Sunday Independent crime reporter, Veronica Guerin.  Today, CAB became a teenager! 

The CAB is not an independent asset confiscation body but it does gather ad present evidence of asset tracing to the courts which decides on cases that are subject to appeal.  Apart from Gardai, the CAB human resource cohort includes representatives of The customs and tax inspectors, Department of Social and Family Affairs inspectors , and professional forensic experts.

In the course of 2008, €6,069,049 was paid over to the Minister for Finance. A further €2,539,709 was confiscated as a result of three Section 4 and nine Section 4A Orders made at the end of 2007 and during 2008.  CAB collected €5,891,498 in relation to income from criminal conduct. Under Social Welfare legislation, CAB made savings of €712,615 for all schemes and a total of €182,198 was recovered from overpayments made. During 2008, CAB trained an additional 57 Gardaí as Divisional Assets Profilers, which brought
the number of Garda Profilers to 82.  During the first ten years of its existence CAB chased down 114 defendents and obtained 77 orders relating to assets worth €20.74 million and £160,000.

The future direction of CAB will include a focus on non-conviction based forfeiture of assets as well as criminal confiscation.


Serious Fraud Office

SFO Britain’s Serious Fraud Office pursues frauds typically involving more than £1 million.  Each case is approached on the basis of its pertinent details.  Good intelligence is the cornerstone of its efforts.  This involves making full use of relevant information to inform decision-making at every level in the fight against serious and complex fraud and corruption.

Intelligence often begins life as raw information provided by members of the public, commercial institutions and public bodies.  Once received, it is recorded, analysed, developed and evaluated  before the SFO Intelligence team ultimately uses it for a variety of purposes.

This process may involve comparing the raw information with other material that the SFO already hold or applying different analytical tools and techniques.  They will often use additional information collected from a variety of sources to develop a particular piece of intelligence.

Within the SFO, intelligence may be used to support an on-going investigation or to better inform strategic decisions.  It may also be used as the basis for beginning a criminal investigation.  We also share intelligence from time to time with other law enforcement or regulatory bodies such as the police or the Financial Services Authority.

As part of the intelligence gathering process, the SFO encourages reports from potential victims, members of the public, employees in organisations who may have relevant information on serious or complex fraud or corruption.  We may also receive referrals from other agencies, the police, or other organisations.

In assessing these referrals they first measure the details against any relevant intelligence that already held . Together with any additional, relevant details that are found , they assess the report against their acceptance criteria.  There are several factors which can make the difference in the seriousness or complexity of a fraud.

Generally, the take on around 30-40 new cases each year.  They consider the information they hold very carefully before they decide whether, or not, to take on a case.

Saturday, October 10, 2009

Are the authorities asleep as far as Dublin Dockland Development Authority is concerned?


2009 10 10_0711_edited-1 WHEN UCD Professor  Niamh Brennan was appointed Chairman of Dublin Docklands Development Authority (DDDA) to effectively replace Donal O’Connor, last March, the taxpayer looked forward to observing an icon of excellence in corporate governance emerge under her leadership.  O’Connor had become Chairman of Anglo Irish Bank on 18 December 2008 having been Chairman of DDDA since June 2007

One of the basic fundamentals of excellence in corporate governance is the timely presentation of an annual report and audited accounts.  The annual report and audited accounts for the year ended 31 December 2008 have yet to emerge from DDDA.  An Oireachtas Committee was advised on 10th February that draft accounts were ready and that audited accounts for 2008 would be available by early March. 

The 2008 audited accounts of Becbay Limited which is the vehicle through which the 26.4 acre Irish Glass Bottle site was acquired, have not been filed.  An annual return due on 31 July 2009 is long overdue and liable to penalties.  DDDA has a 26% stake in this entity. Is Brennan asleep at the helm and is anybody capable of rousing her?

The DDDA, to an outside observer seems to reflect the cosy, intimate  neighbourhood culture of Dublin’s docklands before the era containerisation.  Everybody knows everybody else.  Nobody is remotely embarrassed to borrow a cup of sugar or a couple of hundred million € for speculative purposes.  That quaint intimacy of The Rovers Return and a bubbly pint of bitter radiates among all of those doing their ‘level best’ to alleviate the depressing despondency of the ‘the vulnerable’. Behind the glitter and the graphics the bulk of DDDA resources appear to have been committed to fattening well upholstered arses of affluent developers and discredited bankers, who have proven themselves untrustworthy.


Irish Glass Bottle Site 2009 Valuation

It has been recently reported in the media that the value of the former Irish Glass Bottle site at Poolbeg has written been down by 85% from €412 million to €62 million.  This leaves DDDA with a potential liability of over €90 million in respect of its 26% share of this asset. One arm of the State owes another (nationalised Anglo)  €90 million.  How can a State body with an income (excluding property trading, grants and levies) of €820,000?  DDDA recorded a deficit of expenditure over income of €15.64 million over the four years between 2002 and 2005, so its viability depends on its capacity to sell its development assets.  Where is the banana plantation?

The primary income of DDDA was in dealing in ‘Development Assets’, some of which it sold, while others were retained as ‘Investment Properties’ with the potential of achieving a rental income and their investment potential.  The consequences of large unanticipated liabilities must raise real doubts about the solvency and viability of DDDA.


DDDA 2007 Audited Accounts

DDDA has four major assets ~ at Grand Canal Harbour, the former Readymix site which was purchased in 2006, the CHQ Building, a retail centre at the IFSC and its 26% interest in the Irish Glass Bottle site at Poolbeg held through Becbay Limited.

The net assets of DDDA at 31 December 2007 stood at €177.2 million, a figure that included investment properties, the value of which had been increased by €25.66 million. Development properties held for investment are reflected at open market value.  These valuations, which are supposedly to reflect ‘open market values’ must now be greatly overstated on the basis of the 2007 accounts.

2009 10 10_0749

The Executive Board comprises 8 members, of which one is a civil servant from the Department of the Environment, Heritage and Local Government.  Businesses directly connected with three of the remaining seven members earned revenue of €592,843 from DDDA in 2007.

Consultancy services were provided by O’Donnell Tuomey. Sheila O’Donnell, who with her close family has a controlling interest in O’Donnell Tuomey, was appointed a member of the Executive Board during 2007. Amounts payable to O’Donnell Tuomey for services during 2007 were €132,438.  

Consultancy services were provided by Ove Arup and Partners Ireland (trading as Arup Consulting Engineers). Niamh O’Sullivan, a director of Arup Consulting Engineers, is also a member of the Executive Board. Amounts payable to Arup Consulting Engineers for services in 2007 amounted to €310,750 (2006: €372,555). Not bad pickings really for being in the right place at the right time.

The total expended on consulting fees in 2007 was €913,889 – so 0ver 48% was spent at firms connected to the Executive Board.  I can’t wait to see how much they were paid for services rendered in 2008! The engineering under way a the Irish Glass Bottle site is effluent disposal by seagulls!

Internal audit and consultancy services continued to be provided by PricewaterhouseCoopers during 2007, amounting to €149,655. Donal O’Connor, a former managing partner at PricewaterhouseCoopers, was, of course, Chairman of the Executive Board of DDDA for a substantial part of 2007.

A pension liability of €7.33 million arises in respect of the DDDA unfunded pension scheme for its 46 employees.  Pension payments in 2007 were €81,419 while contributions were €68,311. An actuarial gain was recorded in 2006 (€271,000) and 2007 (€290,000).  An actuarial loss of €447,000 was recorded in 2005. 

The pension interest of the remaining 45 employees will be ‘protected’  by the Pensions Board, whose Chairman is Tiernan O’Mahony, former  Chief Operating Officer of Anglo Irish Bank from whom he parted company in 2004 when The Drummer Boy, complete with the optimism of The Pied Piper,  was made CEO. 

O'Mahony joined Anglo Irish Bank at its inception in 1985.  He became of a member of its board in 1993 and served as Chief Operating Officer and Chairman of the Executive Board from 2002 until his departure in December 2004. He subsequently founded International Securities & Trading Corporation (ISTC) on the premise that "it would be lending to the highest quality borrower that there is".  ISTC, in its early days, could apparently borrow and make a healthy margin on its loans until the cost of borrowing rose and the value of bank capital fell.

Moodys Investment Services, in November 2007, reviewed and downgraded several structured investment vehicles in which ISTC had invested €210 million, 7% of its portfolio.  Its assets continued to fall in value and its capital began to run low before ISTC ceased paying creditors. 

as iopmThe consequences were to cause the business to collapse in early 2008 and enter examinership.  When ISTC collapsed, with a loss of €870 million, it was, I believe, the largest corporate collapse in Irish history, although it didn’t hold that record for long when the malignancy of his former boss at Anglo was disclosed.  It had 18 creditors, including many of the world's largest banks.  125 unsubordinated bond holders in Friends First lost €43 million.  Last month 154 of the 540 jobs in Friends First were lost as a result of the closure of its asset finance division, Firends First Finance.

There is also a sum of €11.03 million listed in creditors which does not accrue to DDDA.  It relates to levies invoiced on behalf of the Railway Procurement Agency and Iarnród Éireann.

Tax Privileges and Planning Procedures

DDDA is exempted from Corporation Tax under S220 and Capital Gains Tax under S610 of the Taxes Consolidation Act 1997.

Planning permission for developments within the DDDA mandate are granted under what is known as a ‘Section 25 certificate’, except in the case of land dedicated to public amenity use, for which planning permission is sought in the conventional manner.  Planning proposals are submitted by DDDA to the Minister for the Environment, Heritage and Local Government for approval.  Section  25 refers to the Dublin Docklands Development Authority Act 1997 and a planning scheme should be consistent with the DDDA Master Plan.


Arrival and Departure
of Paul Moloney and Lar Bradshaw

Mr Moloney resigned, seemingly abruptly, from the DDDA on 30 July 2009, 11 months before his contract expired.

It was reported that he was paid €150,000 to cover the salary he would have received had he remained in the employment of DDDA until the end of June 2010 when his 5-year contract was due to expire. No mention of the company rickshaw or an Audi A6

When Mr Moloney joined DDDA from Dublin City Council in 2005, the then chairman of DDDA, Lar Bradshaw, replete with all the superlatives he could muster said then: “We are delighted to confirm the appointment of Paul Maloney as the new Chief Executive. He has all the attributes we were looking for in terms of urban regeneration experience and, throughout his career, has demonstrated that he is a highly effective leader with vast experience in project implementation”. 

The remuneration for the position of chief executive of DDDA was reaffirmed, (but not increased) at €151,261 in 2007 by the Review Body on Higher Remuneration in the Public Sector, whose Chairman, Tony O’Brien, coincidentally is a former chairman of Anglo Irish Bank and former chair of the Remuneration Committee at Anglo where he would have become acquainted with large numbers.

Mr Bradshaw had completed a decade as Chairman of DDDA when he stepped down in 2007. It was reported last June in the media that he had a stake, along with Derek Quinlan, in a €70 million car park and office scheme constructed in Commons Street by Liffey Partnership during his tenure as Chairman of DDDA and that DDDA approved major changes to that project to facilitate a major office complex to be located above the car park. Quinlan is also  joint venture partner with Bernard McNamara and DDDA  in the Poolbeg site

Bradshaw (aged 49), was, of course, also director of Anglo Irish Bank from October 2004 until he ‘voluntarily’ resigned that position along with his friend and confidant, Seán FitzPatrick on 18 December 2008.  He had been managing director in Ireland of McKinsey from 1995 until his stint at Anglo Irish Bank.  He had been a member of the Anglo audit committee in 2005.  He became a member of the Nomination and Succession Committee in 2006 and of the Risk and Compliance Committee at Anglo, alongside Greencore boss Ned Sullivan and Fintan Drury,  while Chairman of DDDA and overseeing the Irish Glass Bottle Poolbeg deal.  Anglo reported in 2007 that it was “delivering excellent performance across all divisions with organically driven growth in earnings per share of 44%” and it anticipated “underlying earnings per share growth in excess of 15% in 2008”.

After all it had secured a big fat arrangement fee on the €296 million loan to buy the Poolbeg site.  This deal had been approved by DDDA under Bradshaw’s chairmanship and risk evaluated at Anglo by himself Sullivan and Drury.  “As always, Anglo’s risk appetite remains conservative”. (former CEO The Drummer Boy in 2007 ~ at his most perspicacious).

FitzPatrick was also a member of the Executive Board of DDDA in 2006 and Chairman of its Finance Committee. 

Who appointed FitzPatrick and Bradshaw to the Executive Board of DDDA?  I’m sure the Oireachtas Committee on Environment, Heritage and Local Government, will advise and explain before too long. 


Becbay Limited ~
Issued capital €100; Debt €300 million+

2009 10 10_0717Becbay Limited was established on 11 August 2006 and acquired the shares of South Wharf Plc.  DDDA provided irrevocable guarantees to Becbay which owned the 24.9 acre Irish Glass Bottle site at Poolbeg (photographed 10 Oct) . Becbay has an issued capital of €100, of which €26 of which is owned by DDDA, which had been represented on the Becbay board by Paul Moloney. The other directors include Bernard McNamara of Ailesbury Road (neighbour of vendor Paul Coulsen)  and Derek Quinlan of Shrewsbury Road.

The site was acquired for €412 million and the overall   investment in this site is stated to be €428 million financed by a loan of €296 million owing to Anglo Irish Bank, loan stock of €138 million, a directors loan from Bernard McNamara of €101,869, loans from parties related to Becbay of €11.6 million and the issued equity of €100. The deferred arrangement fees due to Anglo Irish Bank in respect of the bank loan is €2,572,917 but this is being amortised over the period of the loan. Interest rate swaps were in place at 31 December 2007 which meant that €91.4 million of the loan bore a floating interest rate while the balance bore a fixed rate. The Anglo Irish Bank loan was a 2-year facility that was to be repaid in last February.

No annual accounts have been filed for 2008 and the latest Annual Return due on 31 July 2009 is seriously overdue at this stage.

Oireachtas Committee ~ 10 Feb 2009

Mr Moloney reported to the Oireachtas Committee on Environment, Heritage and Local Government on 10 February 2009, that DDDA contacted those who were tendering for the Irish Glass Bottle site.  The other partners,  Quinlan (33%) and McNamara (41%) said “they were happy to form a consortium”. DDDA took the minimum stake possible.

The reason DDDA took 26% was to secure voting rights in the Becbay.   The site was not sold as a discrete asset, but as a company, as the former owners had directed. No doubt there were tax savings at stake in this approach. 

The prospective buyers were apparently advised that the market value of the site was between €250 million and €370 million. The actual sale price was €411 million but the DDDA stake is 26% of €375 million at an entry cost to DDDA of €32.6 million. Why would someone pay over €30 million above the maximum estimated value of this site?  What implications would have arisen among the various parties to this exceptionally high price.  Is it all about emulating the transaction in Ballsbridge (Soweto on the Dodder) that made the Doyle and Beatty families even wealthier that their wildest dreams could have envisioned?

Did the Ministers for Environment, Heritage and Local Government and Finance sanction this, or was it all left to Bradshaw and Moloney with the connivance of the Chairman of the Finance Committee, FitzPatrick?  Was this what Bradshaw had in mind when he uttered the superlatives welcoming Moloney’s appointment to DDDA in 2005?

Interest accrued and working capital to last February brought the DDDA outlay to €37.6 million. But in 2007 it also has a liability of €26 million in respect of Bebcay liabilities.  Today,  DDDA, carries the can for 26% of the€300 million debt due to have been discharged last February.

When the proposal for DDDA to become involved in the site was approved by its board in 2006, Bradshaw was a party at the DDDA board meeting that sanctioned approval ~ even though Anglo was a banker of the project and Anglo was the recipient of a substantial arrangement fee. Bradshaw was also a client of Quinlan Private, a business founded by Derek Quinlan, one of the other joint venture partners. He did not recuse himself from these decisions.

Bradshaw also had a business relationship with the vendor of the site, Paul Coulson, through a company called Balcuik, a property rental business with profits in the year to 30 May 2008 of €873,174 (€3,506,751 in 2007), ~ but this interest was not disclosed to the board of DDDA.  The other directors of Balcuik include former Anglo director, Gary McGann, and Denis O’Brien.  Anglo Irish Bank provided company secretarial services to Balcuik.  There is a fixed and floating charge over the assets of Balcuik in favour of Anglo Irish Bank, its principal banker.

The site was to have been revalued last March and this was to have been reflected in the 2008 accounts. The cost of revaluation was to have been borne by Anglo (is that now the taxpayer?).

Despite the promises the site remains dormant and the taxpayer remains in the dark about the nature and implications of this transaction and the viability of Dublin Docklands Development Authority. 

It is time for the Joint Oireachtas Committee on Environment, Heritage and Local Government to grab this hiatus by the scruff.  Deputy Fleming – step forward and call order.

Thursday, October 8, 2009

SIPTU planning lucky-dip strikes and disruption by whoever wants to muck in

2009 09 10_0441_edited-1 SIPTU are planning strikes, a pre-Budget showdown, so that 34,000 members in the HSE can obtain the first 3.5% increase agreed under Towards 2016.  The David Begg enterprise at ICTU is planning a parallel campaign, to solicit a ‘fairer’ and ‘better’ way to economic recovery.  Fairy tales for the disillusioned, the disappointed and the gullible.

That partnership agreement was nodded through in radically different circumstances than those prevailing and, worse, threatening.  The Social Partnership process has become a meaningless puppet theatre populated by stakeholders with shrinking memberships and no evident national mandate

The total number PAYE taxpayers in 2006 was 2,050,897.  The number claiming tax relief on trade union subscriptions in 2006 was 294,300 – 14.3% of the total labour force. The public service  organisation component of the labour force in 2006 was 26.6%.

There are currently 186,026 active companies registered in Ireland. I cannot say how many of these employ people or how many are represented by employer lobby groups but if they had a strong mandate the public would hear about it. The average number of companies formed each year between 2003 and 2008 was 17,164.  The number of companies formed so far in 2009 is 10,294 ~ 60% of the average annual rate, reflecting leaner times.

The impact of the recession, the rise in unemployment and the number on the Live Register has adversely impacted trade unions and lobbyists

The purported purpose of Social Partnership was to create conditions of fiscal stability, improved living standards and a framework from which to respond to the challenges society faces.  It has had its day because it has evolved into a charade where there is no apparent potential capacity for stakeholders to achieve anything of mutual value that enhances the common good. The restoration of competitiveness is challenge #1 and trade unions and lobbyists need explicitly articulate how their various shenanigans advance that objective.  Welfare funding is a by-product of a competitive economy, not an imploding one.

Jack O’Connor advises that the strikes will not be focused on any particular sector and he expects support from trade union members generally.  Given the precarious predicament that those hanging on to their jobs are in, it will be most interesting to see how extensive, passionate and sustainable the ground-swell of support for this action is. How many days pay are people prepared to forego in the run up to Christmas to secure a pay increase for somebody else?  The Saturday march last Spring against the tax levy, I suspect, was the highpoint of mass protest allowing people to respond to their sense of trauma and distress that an abrupt contraction in living standards brings about.

Tax revenues to the end of September was €4.772 million less than the first nine months of 2008 and they €965 million short of the target set when the supplementary Budget was presented on 7 April.  Jack, the cupboards are bare.  I suspect that other trade union members are in no mood to pay additional taxes to fund this ego trip of self-justification.  Furthermore, how many of the potential recipients of this increase would have to be made redundant to fund these increases?

The evening news featured a computer-generated image of the proposed replacement for Liberty Hall.  The bargaining power and public stature of all lobbyists in Ireland is greatly diminished and marginalised.  The public are growing weary of their one-dimensional siren call ‘feed my infinitely self-indulged, cosseted and bloated pigs with more of your taxes’, me, me, me’  If SIPTU don’t get their act together they will be as viable as Aer Lingus by the time this proposed structure is built and the credibility of their leadership will be as comparable.

Having listened to the David & Jack charade over recent days, I can’t help thinking that the trade union movement are responding to this crisis as if it were the property collapse that occurred in Ireland in the 1870’s, directly after the disestablishment of the Anglican Church.  There were many similarities,  not least being the evaporation of credit and no property transactions.  At that time the dreaded landlords controlled estates that cumulatively were equivalent in size to the land mass of five Leinster counties!  There are no such deep pockets of obvious wealth now. 

The FÁS debacle is the granite tomb-stone of social partnership complete with a photograph of Rody Molloy, Christy Cooney, Danny McCoy and Peter McLoone.  That IBEC/trade union playground frittered €1 billion every year on dubious  ‘social partnership’ objectives and whatever else randomly came into their ever-entitled, manipulative, imaginations laced, as became clear, with a strong veneer of peasant-cunning.

The public of this country will no longer be stampeded into more cul-de-sacs either by ‘social partners’ or that other pariah,  the Construction Industry Federation – who would like nothing more than millions of € in subsidies to compensate for the unsalable, unwanted and extortionately priced mud-huts that are scattered across the length and breadth of the country.  CIF need to descend a steep learning curve to understand some basic economic lessons about demand, supply, integrity and value.

Tuesday, October 6, 2009

The chances of encountering a rogue Irish solicitor are increasing

2009 09 10_0439THE Master of the High Court, Edmund Honahan, has once again drawn attention to the issue of solicitors’ costs when he indicated that they are not entitled to ‘windfall’ costs on the basis of a litigant securing a substantial settlement – because there is not an additional work burden involved. He also highlighted various reports on legal costs that had not been implemented thus causing the Courts to set clear guidelines on the issue of costs. He reminded solicitors’ of an obligation to advise clients being sued over debts who have no defence to the claim against them that each summons contains an ‘easy-pay option’ capping the creditor’s costs at €167, irrespective of the amount of the claim. 

If solicitors’ do not take take these admonishments on board and are clearly seen to do so – why should the public trust the advertisements of the Law Society of Ireland on the theme ‘talk to your solicitor’?  Where is the potential for basic trust in this profession if the issue of cost is shrouded in such ambiguity?

The latest Irish solicitor to have his practicing certificate suspended by the High Court is Padraig Butler, who practiced as Butlers Solicitors, in Kilkenny.  He admitted taking more than €1 million from the estate of a deceased client ~ the estate itself was valued at €4 million.  This is the most recent in what seems like an increasing number of malpractice episodes by Irish solicitors.  Some of these have been especially high profile ~ the Lynn and Byrne cases come to mind in this respect. 

Those cited for misconduct are not confined to any age group, gender, career stage of geographic location.  It seems that the likelihood of a client encountering a rogue solicitor seems evocative of the likelihood of becoming infected with a virus.  The rogue you see in the mirror maybe closer than you realise, whether you are alive, or dead. 

The Solicitors Disciplinary Tribunal has a membership of 20 solicitors and 10 lay members who are appointed by the President of the High Court.  The Tribunal’s statutory powers are mainly confined to receiving and hearing complaints of professional misconduct against members of the solicitors’ profession.

The 2008 Annual Report indicates that there has been an increase in the number of complaints against solicitors’ has been reflected in an increased number of sittings of the Tribunal.  Applications to the Tribunal are made by the Law Society of Ireland.

Yr Ending 31 Dec Number of Sittings Number of Complaints
2003 38 70
2004 57 51
2005 55 83
2006 59 104
2007 84 94
2008 110 121

Eighty one per cent of the 2008 sittings found evidence of misconduct.  It was a first complaint for 41 respondents.  But there was one prior finding of misconduct in respect of 14 solicitors; two findings of misconduct in respect of 8 solicitors; three prior findings of misconduct in respect of 9 solicitors; 4 prior findings of misconduct in respect of 3 solicitors and 5 prior findings of misconduct in respect of 5 solicitors.

The Tribunal’s analysis of complaints out of which findings of misconduct arose revealed:


Category of Complaint %
Conveyance 42%
Accounts regulations 31%
Litigation 16%
Probate 8%
Criminal 3%


The Chairman of the Tribunal described 2008 as “challenging” due to the nature of the complaints made.  The findings of misconduct and referrals to the High Court have increased at an alarming rate:


Year Findings of Misconduct Referrals to the High Court
2005 24 5
2006 33 3
2007 35 12
2008 80 35


Public Perception

There have been a series of radio advertisements promoting the engagement of a solicitor.  These are to promote the engagement of a solicitor -  perhaps in a context where the potential client had no prior experience of a particular issue, or at individuals who could become a solicitor’s client for the first time.  But how much trust can an inexperienced client of a legal professional place in the chances of not being ripped off by a rogue solicitor?

What expectation can a wronged solicitor’s client have of adequate compensation?

If a client is ripped off what is the position with respect to compensation?

The adverse trend in complaints and findings of misconduct must raise concerns among clients and potential clients about the issue of professional indemnity.   There clearly has to be an increase in claims on the professional indemnity fund.  The fund itself, apart from being depleted by claims on it, could also be undermined by the losses in the financial sector in Ireland.  The consequence would be that there is less protection for clients.

Solicitors’ are obliged to carry professional indemnity insurance but do rogues’ follow rules? 

The cost of indemnity premiums must be increasing but are they affordable by the solicitors and can the clients afford the extra costs?

If the Law Society do not provide some reassurance and clarity the legal profession could end up like a posse of uninsured casual window cleaners who can potentially sue their customers for hefty compensation in the event of an accident on a customer’s premises. That will require more than bland radio advertisements broadcast at daybreak.

The President of the Law Society of Ireland, John Shaw, joined other luminaries in paying tribute to the retiring President of the High Court, Richard Johnson, at the Four Courts on 23 October.  Shaw’s tribute was to compliment Johnson for his handling of cases involving rogue solicitors. 

Monday, October 5, 2009

€795,631 paid in pensions to currently serving TD’s and MEP’s in 2008

oireachtas THE audited Financial Accounts for the Exchequer for the year ended 31 December 2008 have been published by the Department of Finance.

Our judiciary was paid €27,748,576 ~ 8 justices of the Supreme Court, 37 justices of the High Court, 37 judges of the Circuit Court and 59 district justices.

One of the bugbears of citizens is the payment of pensions to former Ministers and other office holders while they continue to hold elected office.  A total of €4,467,657 was paid in respect of politicians’ pensions last year, including those currently in office and those no longer active in politics. 

The list includes former Attorney General and subsequently AIB Chairman Dermot Gleeson SC (€49,841) and tribunal witnesses Liam T Cosgrave (€18,736) and Ray Burke (€56,260).

Current office holders paid severance payments include Bertie Ahern (€68,337) and Tom Kitt (€23,641).  Kitt is Chairman of the Joint Committee on Arts, Sport, Tourism, Community, Rural and Gaeltacht Affairs.

Four MEP’s, 25 TD’s and one senator are among the following current office holders received pension payments in 2008:

Recipient Current Office Party
Bertie Ahern TD FF 14,923
Bernard Allen TD and Chair PAC FG 6,021
Liam Aylward MEP FF 13,348
Sean Barrett TD and Chair FG 54,033
Richard Bruton TD FG 14,534
Paul Connaughton TD FG 17,662
Joan Burton TD Lab 8,475
Jimmy Deenihan TD FG 6,020
Proinsias de Rossa MEP Lab 13,833
Bernard Durkan TD and Chair FG 6,020
Frank Fahey TD and Chair FF 47,874
Pat the Cope Gallagher MEP FF 16,372
Eamonn Gilmore TD Lab 6,016
Jim Higgins MEP FG 5,829
Michael D Higgins TD Lab 19,469
Enda Kenny TD FG 15,468
Seamus Kirk TD FF 19,499
Terry Leyden Senator FF 21,309
Jim McDaid TD FF 24,681
Liz McManus TD Lab 6,020
Gay Mitchell MEP FG 6,021
Michael J. Noonan TD FG 43,842
Rory O’Hanlon TD FF 44,136
Jim O’Keeffe TD FG 19,504
Ned O’Keeffe TD FF 7,475
Mary O’Rourke TD and Chair FF 55,504
Brian O’Shea TD Lab 8,469
Ruari Quinn TD Lab 50,449
Pat Rabbitte TD Lab 6,036
Emmet Stagg TD Lab 8,469
Noel Tracey TD and Chair FF 40,212
Michael Woods TD and Chair FF 109,190