How the State got screwed on Dublin Docks

It beggars belief that the State owned the entire controversial Irish Glass Bottle site at Poolbeg, through Dublin Port Company, in 2005. But the following year, after the freehold title was acquired by a subsidiary of the tenant under a loophole in the provisions of the Landlord and Tenant (Ground Rents) No 2 Act 1978, the site was offered for sale by public tender with the State having a 33.3% share of the sale proceeds, not the more typical 50:50 share that had been the custom in instances where long-term commercial leases were being disposed of in a similar context.

The site was sold to a consortium that included Dublin Docklands Development Authority (DDDA) as a 26% shareholder, developers Bernard McNamara and Derek Quinlan in late 2006 for a consideration of €411 million. The State stood to recoup one-third of this (€140 million) but ought to have recouped a further €65.5 million had the customary landlord/tenant 50:50 split applied.

DDDA sought the permission of its supervising minister, Dick Roche to enter the joint venture and to increase its borrowing capacity to €127 million, the maximum allowable under governing legislation; permission to enter a joint venture and indicated on 12 October 2006 that the cost of the proposed transaction in respect of which the loan powers were sought would be €220 million.

Mary Moylan, an Assistant Secretary from the Environment Department, with line responsibility for DDDA, was an Executive Board member who participated in 12 of the 15 board meetings that took place in 2006. Ministerial approval was received on 24 October 2006. Ten days later, on 3 November, the Executive Board of DDDA agreed a tender bid of €411 million but Moylan’s Minister and Secretary-General was not informed of the massive and fundamental change in the terms of engagement.

The assessment of the site value was left to Bernard McNamara, in recognition ‘of his expertise and experience and if he had some additional information which convinced him that the bid should be increased then the Executive Board of DDDA agreed that McNamara could be allowed to increase the bid as he saw fit to a maximum of €437 million’.

A professional valuation of the site was not obtained in advance of determining this bid although one was obtained the day after the decision to submit with an application for loan finance to Anglo Irish Bank, two of whose directors, Lar Bradshaw and Seán FitzPatrick, were members of the 8-person Executive Board of DDDA, Bradshaw was chair of the Executive Board and FitzPatrick was his predecessor in that role.

The stated objectives for the involvement of DDDA in this joint venture was to (1) ensure that the site would be developed imminently (2) expedite the planning process (3) advance its social amenity and less commercially desirable agenda and (4) input to the architectural design and tone of the development.

DDDA operated on the basis of creating a Master Plan for parcels of the 500+ hectares within its jurisdiction. The 2003 iteration of this for the Poolbeg Peninsula had not been completed when this deal was executed in 2006 but they had broad stroke ambitions to have facilities in place for research and development and industrial and commercial usage. The promoters of the joint venture envisaged a return of 15% on their investment. A substantial portion of this would have comprised 1-bedroom apartments overlooking an incinerator and selling for prices up to €1 million each. But no detailed analysis was carried out by the Executive Board or management of DDDA for a proposition that was supposed to have a ceiling of €35 million for DDDA.

The negotiation of funding for this splurge took place with Anglo Irish Bank and Bank of Ireland. Bradshaw and FitzPatrick were both directors of each organisation while another member of the esteemed executive Board, Declan McCourt was a director of Bank of Ireland, as well as being a director of the vehicle importer and distributor, OHM Group. While these three absented themselves from the actual discussion of the funding issue at the board meetings it was Bradshaw who signed the loan guarantees with Anglo Irish Bank.

By 2010 DDDA had a potential exposure of €81.9 million but after a settlement was reached with NAMA, which acquired the lending banks’ loan assets, its actual exposure was €52.1 million.

Some €36.3 million was allocated to site remediation. The value of this 10 hectare site, on which €431 million was spent before taking account of remediation costs, was put at €45 million at the end of 2010.

There has been never been evidence that the scale of this splurge was ever made known to the Minister for the Environment, Community and Local Government and in May 2012 the current Minister, Phil Hogan, announced the shuttering of DDDA. Moylan remains an Assistant Secretary in charge of finance and central services. The five other member of the Executive Board in 2006 were Angela Cavendish from Raglan Road Ballsbridge, a director of Alexsam Limited, Donall Curtin a director of Byrne, Curtin Kelly an accountancy practice, Niamh O’Sullivan from Ranelagh, a director of Arup Consulting Engineers and Joan O’Connor formerly a director of Interactive Project Managers Limited.

When Cowen played golf with FitzPatrick in 2008

TThe response of Taoiseach Brian Cowen to the recent disclosure that the affairs of Anglo Irish Bank were apparently not discussed during a golf outing to Druid’s Glen GC in July 2008 he had with Seán FitzPatrick, at the invitation of Cowen’s friend, Fintan Drury defies credibility and beggars belief. It is tone like the response one might anticipate from a shifty, tribal African chief with vulnerable democratic credentials and more to hide than reveal.

But Cowen’s reaction also provides an interesting insight into where his own centre of gravity is; what his default position is with respect to the entire banking debacle.

Cowen issued a statement on 10 January in which he “refutes any suggestions of impropriety” and that the outing was arranged by “a friend Fintan Drury which Mr FitzPatrick also attended”.

No one had made any suggestions of impropriety! But when precious time is spent by the Taoiseach with the Chairman of a Bank that is about the nobble the Irish nation and the invitation is extended by a friend who is a six-year veteran of the Anglo’s Risk & Compliance Committee and Chairman of that Committee for the prior four years -  until day’s prior to this golf outing – would this not be a wasted opportunity to ask some searching and penetrating questions? Who could possibly better informed about the intricacies of Anglo Irish Bank than this combination of experience, genius and insight?

Cowen’s friend, Drury, was co-opted to the board of Anglo Irish Bank on 30 May 2002 and remained on the board until 27 June 2008. He became a member of the Risk and Compliance Committee immediately and succeeded by former Anglo director Michael Jacob, who is a former President of the Royal Dublin Society, as Chairman of the Risk & Compliance Committee from 2004 until he departed from the board. This was a small committee whose membership included Lar Bradshaw who was entrusted to lead Dublin Dockland Development Authority.

The function of the Committee was to review key risks and compliance issues inherent in the Anglo business and the system of internal control necessary to manage them and present its findings to the board of Anglo Irish Bank. Did these findings, for example, include the history of FitzPatrick’s loans from Anglo and his annual year-end transactions with Irish Nationwide Building Society which came into public awareness in December of that year?

Drury, a former journalist at RTE was appointed Chairman of the State-owned television service during his tenure at Anglo, an appointment likely to have been strongly advocated by Cowen. His non-executive role at Anglo was handsomely paid. His cumulative fees his six years service amounted to €462,000. He also accumulated shares in Anglo – starting in mid 2002 with 15,000 shares and finishing with 53,796. This portfolio was worth €90,000 on 30 September 2002 and €713,335 on 20 September 2007.

Drury became a member of the board of Paddy Power Plc on 29 August 2002 and held the post of Chairman of that company from 26 May 2003 to 31 December 2008 for which he received cumulative emoluments of €818,000.  His shareholding in Paddy Power Plc increased in value from €58,420 to €448,362 when he concluded his term was Chairman.  Group revenue increased from €673.7 million in 2002 to €2,751 million in 2008.

Cowen’s statement also refers to a phone call he received from FitzPatrick on St Patrick’s Day about issues connected to the shares of Anglo Irish Bank when he was Minister for Finance. Cowen says that he informed the then Governor of the Central Bank, John Hurley, ‘that a situation was developing in regard to the contracts for difference issue in Anglo Irish Bank – the exact scale and detail of the difficulty was not apparently known as that point.’ A meeting between FitzPatrick and the Central Bank Governor and Financial Regulator (Patrick Neary) took place on 21 March 2008.

It is also noteworthy that Drury Communications have been retained by the current regime to promote the Anglo Irish Bank annual report in the post nationalisation phase. Fintan Drury founded this company in 1988 and retired from the business in 1999 when he sold his controlling interest in the company. One of the directors of Drury Communications, until September 2009, was 72-year old David M Kennedy, former boss of Aer Lingus and, incidentally, father of Patrick Kennedy the chief executive of Paddy Power Plc.

DDDA spend €600,000 on junkets

Today’s edition of the Irish Independent blew the gasket on executive expenses at the chronically loss making Dublin Docklands Development Authority (DDDA) with vivid accounts of self-indulgent expenditure of over €600,000, some of which is apparently not receipted.  The purpose of these excursions, some involving up to 13 participants, was to look at port developments in various locations.  But the ‘looking’ didn’t enable these delusionary eunuchs avoid losses accruing at DDDA of €213 million.

It was interesting that this culture of excess and extravagance by the Dublin Docklands Development Authority described in the Irish Independent on 8 March was materially mitigated by the perk of free flights available to Seán FitzPatrick when he was the senior independent director of Aer Lingus from March 2004, when he was appointed by the Government,  until his abrupt departure from that board in December 2008. 

This culture of excess and extravagance was also abundantly evident when DDDA became a party to the acquisition of the site of the former Dublin city dump at Ringsend for €412 million in August 2006.  Professional valuations of this property, prior to this transaction, were apparently in the €250 - €375 million range .  Sixty per cent of the 25-acre site was to have been developed for residential units, a substantial proportion of which were to have been 1-bedroom apartments seemingly intended to sell for €500,000 each.  An income of €150,000 per annum would have been necessary to afford an apartment at this price, but less than 15,000 of the 483,636 taxpayers who claimed mortgage interest tax relief in 2006 earned €150,000, or more.

The median income of Irish mortgage holders in 2006 was less than €50,000 per annum .  The recognised indicator of housing affordability is that median property prices should not exceed 3-4 times the median income level of the owner - occupier, or that mortgage repayments should not be greater than 30% of family income.  This would imply that the maximum price that typical buyers' could afford, and sustain, in 2006 would have been be closer to €200,000, notwithstanding that the vacant housing stock in Dublin city that year was over 26,000 units, according to the 2006 Census.  Who benefited from the extortionate price paid for this site and what advice did the Minister obtain from the board to warrant the DDDA being a party to such an outrageously over-priced transaction?

The sooner the Minister for the Environment, Heritage and Local Government publishes the two reports into the governance of the DDDA the better.  The public have a right to understand why the State became a party to a transaction to provide homes for the super-rich; why this culture of self-indulgent excess and wanton, imperious extravagance was tolerated and if the ethical standards of their political appointees' to this board were met to the satisfaction of the Government.

The consequences of these feckless decisions is the waging of economic terrorism for many years to come on every citizen who must bear the huge additional costs relating to NAMA, higher mortgage interest rates to compensate for the cost of banks' borrowing huge sums on international money markets greatly in excess of their customer deposits', as well additional banking costs, fees and other onerous burdens.

Begging bowl out at Dublin Docklands

IS it necessary for the taxpayer to invoke the Doctrine of Mental Reservation when reading the recently published 2008 annual report of Dublin Docklands Development Authority (DDDA), evaluating the opaque character of its corporate governance since its inception in 1997 and its overall viability? Its annual report lacks candour. It fails to inspire confidence in its board and taxpayers’ should be alert lest they be plundered to compensate for a disgraceful episode of buccaneering speculation.

DDDA lost €212.9 million in 2008 and its net assets withered from €177 million in 2007 to €26 million in 2008. This did not arise through the diligent prosecution of its corporate mission - to be a paragon of sustainable development in the inner city that would offer a major contribution to the social and economic prosperity of Dublin and the whole of Ireland. But it did occur as a consequence of harum-scarum commercial and residential property speculation that could only have succeeded if potential customers had become submerged with overwhelming and unsustainable debt.

The former city dump at Ringsend was purchased for €412 million in 2006, a price well in excess of what it was professionally valued at that time. This property was valued at €50 million on 31 December 2008, a write-down of 87%. The former chief executive informed an Oireachtas committee in February 2009 the revaluation would be 30% lower than the purchase price – a clear inconsistency within a matter of weeks. He has departed from DDDA but there is no explanation in the annual report of either the circumstances, or the terms, of his departure.

Sixty percent of the Ringsend development was to have been residential with the most basic unit, a one bedroom apartment adjacent to an incinerator and the city water purification facility, purportedly intended to sell for €500,000. The average gross household income of a person(s) with a mortgage in 2006 was €58,190 so a prospective purchaser with a 92% mortgage would be borrowing €460,000, or 8 times income. The 2008 annual report bemoans ‘the huge problems caused to DDDA by the collapse of the property market’. Perhaps it would be more candid and honest to recognise that the final episode of the economic terrorism of the Celtic Tiger had been averted from a consumer perspective.

The 2008 audited accounts for this state agency include a charge of €5.43 million for legal fees. The Master of the High Court consistently criticises lawyers’ costs but there is no indication as to who the recipients of this money are; what the basis for the costs are, or any rational foundation for the taxpayer to see a basis of value for money. Given that there are reputedly 800 unemployed solicitors and presumably a proportionate number of under-employed barristers, this is a very large unexplained cost incurred by an agency that has never winced when it comes to throwing money around.

The board of this agency has failed its stakeholders, gambled its resources and lost. The chances of DDDA ever accomplishing its original mission are as probable as me becoming the Mayor of Monte Carlo. Does the Minister for the Environment, Heritage & Local Government intend to declare this a failed agency and close it, or is this to become another example where speculative profits are the trophy of speculators’ but uninsurable risks and the flotsam and jetsam associated with these, are the burden of taxpayers' while they distract themselves planting bluebells?

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

 

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.

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+

Becbay 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.

Time for The Public Accounts Committee to make its mark

THE Chairman of FÁS has resigned and the rest of the board is set to resign. When the Public Accounts Committee considered the examination of the Comptroller & Auditor General into FÁS affairs last week, Bernard Allen, the Chairman of the Committee rebuked Niall Saul, the Chairman of the Audit Committee and non-executive Director of FÁS, who was contemporaneously giving a radio interview while the Committee proceedings were under way, - for doing so. He would have preferred to hear Saul’s views directly at the Committee.

I listened to a recording of this interview this evening. Saul was at pains to point out that the Audit Committee conducted its role vigorously but were impeded and frustrated by the leadership of the agency, as was the Public Accounts Committee. The Audit Committee were presented with 22 complaints against the Internal Audit team, none of which were upheld. The Audit Committee may have conducted its affairs with textbook perfection but the hidden hand of vested interests lurked persistently in the twilight until the C&AG shone a penetrating light into the murkiness the debacle in April 2008 and, again, in June 2009.

The FÁS controversy was exposed by the Sunday Independent and that publicity was the catalyst for the urgency of resolution. The preliminary comments made by Rody Molloy, on this day twelve months ago, are interesting to revisit in the light of what is now known. Molloy stated then that “FÁS is not a perfect organisation” and “unfortunately, the internal audit reports released by us under the Freedom of Information Act have been sensationalised by the media and used by some with a destructive agenda towards FÁS”. While Molloy stated that he recognised the efficacy of the audit function he also expressed concern “that anything written will be used by persons outside the organization with a negative agenda” and that “if these reports were released into the public domain they could be damaging to the organization”.

Did he not consider that the media would have no credibility if damaging insinuations had no real substance? These were surely the comments of a person whose own organisation was imploding under him and who had isolated himself to the point of downfall. The C&AG Report has borne this out, not the use of the word ‘entitled’ in place of ‘eligible’.

But these comments also offered a rich insight into the culture of FÁS – an agency whose scope and budget had grown so much that a great many more snouts were feeding at its trough than was ever envisaged. The Prime Time investigation into meals-on-wheels in Castlebar did not inspire optimism that all the effort and expenditure was wise, prudent and appropriate. The importance of an organisations culture should never be underestimated. It is culture that facilitates change; guidelines incur inertia.

The persistent use of the legal fig leaf by other FÁS contributors to The Public Accounts Committee was another symptom of a death rattle and reminded me of the defenders of the ‘B’ Specials police reserve in Northern Ireland decades ago.

Mirror, mirror on the wall,
Who is the fairest of them all?

It was the same newspaper that blew the gasket of the DIRT controversy, submerged since 1991, with a headline on 5 April 1998 ‘AIB Had £600 million in “Bogus” Accounts’. The role played by the Public Accounts Committee in the 1999 – 2000 Parliamentary Inquiry into DIRT was pivotal in charting a new direction with respect to this particular issue.

Impact of DIRT Inquiry

The economic, social and political impact of the DIRT Inquiry was comparable in scale and importance to a grand slam rugby victory.

One constituency embraced radical change because they felt they had no other choice – their survival was at stake. The game changers were The Revenue Commissioners. Not alone did they eventually collect hundreds of millions of euro due in taxes, interest and penalties, but a new generation of competent leadership successfully reformed their own organisation. Reform did not come easily, nor did it come quickly. It came with painstaking effort - but it came and it endured.

The other constituency – the banks did not fundamentally change because those in charge believed that change and reform was beneath them. They knew they were systemically important. They also knew their influence could prevail against all comers in most circumstances. Why else would they have overcharged customers with impunity?
They, of course, paid whatever they were obliged to pay and complied, in certain respects, with other mandatory matters.

But the fundamental self-serving, obscenely remunerated culture prevailed because nothing impacted on them personally to make change happen or threaten their personal status or income until they scuttled the economy last year. Four of them were so nonchalant that they were cited for personal income tax evasion by The Revenue Commissioners on 28 March 2006. Reform, it seems, was only for the ‘little people’. Their legacy is now overwhelming.

Taxes and penalties amounting to hundreds of millions of euro were recovered by the Revenue Commissioners, whose own organisation was radically overhauled and invigorated to make it fit for purpose and recognised as such across the world. The DIRT Inquiry did not, unfortunately, lead to a a similar cultural renaissance in the banking system, where rampant overcharging of customers and shoddy standards became endemic and some of whose senior executives were cited for personal tax evasion by the Revenue Commissioners in March 2006.

Department of Finance Guidelines

Much has been made of the Department of Finance Guidelines with respect to the retirement terms of Rody Molloy. These Guidelines were created in 1998 by John Hurley, the retiring Governor of the Central Bank. They were intended primarily to deal with circumstances in State bodies where chief executives were recruited on fixed-term contracts. Their purpose was to establish clear and consistent maximum limits on the pension and lump sum payments that could be provided to a CEO who was either retiring at the natural conclusion of a contract or was retiring prior to that at the request of his board for relatively benign reason – such as a desire for a change of leadership, or direction at the agency concerned.

The Guidelines provide for the payment of a pension and a lump sum to a retiring chief executive aged 55, having acted in that role for at least 6 years, with 15 years pensionable service in the public sector based on actual reckonable pensionable service. A retiree could possibly be granted one added year of pensionable service for each year in excess of 15 years overall actual service in the public sector, subject to a maximum of 5 years.

A person who voluntarily retires does not qualify for these arrangements. Alternative arrangements are in place for younger retirees.

The Guidelines particularly stress that the board of a State body is free to apply lesser benefits or not to apply early retirement benefits at all. Bearing in mind the Guidelines were created to deal with benign circumstances the example of a board desiring to reappoint a chief executive to another fixed term as an instance where such additional benefits would not be offered, is cited. There is no reference in the Guidelines to retirements in controversial circumstances, which is not surprising.

Public Accounts Committee
a potential game-changer

Where does this leave the Public Accounts Committee in its deliberations with respect to FÁS? The side issue of the company Audi has surfaced but this matter, which is now to make its fifth appearance before The Public Accounts Committee since 2 October 2008, has ramifications that transcend FÁS. Their deliberations will have a profound impact on the entire State sector.

The implications of the recent retirement of Paul Moloney as Chief Executive of Dublin Docklands Development Authority have similar, but unascertainable and potentially serious implications, when the details of the transactions involving Anglo Irish Banks and the Irish Glass Bottle Co site are disclosed. Moloney held this position since 2005 having worked previously with Dublin City Council. His appointment to the Authority was blessed with superlative tributes by then Chairman, Lar Bradshaw, who was to resign from the board of Anglo Irish Bank last December, along with his close friend Sean FitzPatrick.

The entire State sector is observing unfolding developments closely to glean what the consequences of the C&AG examination are. They are also closely watching how Sean FitzPatrick deals with his debts due to Anglo Irish Bank and whether the Minister for Finance is kept appropriately abreast of developments by those acting in the public interest.

If there are no apparent consequences, apart from the thrashed reputations of the institutions connected FÁS and the burden that is borne by those who represented these institutions together with the personal distress that Molloy must inevitably endure, then a damaging vacuum is established. How is it possible to clearly identify the boundaries of what is acceptable and what is not acceptable when standards fall well short of acceptability and serious damage ensues? If the boundaries are unclear, or there are no boundaries, the State sector will convulse itself to avoid ignominy - but will probably do so in a manner that is ineffective and at a cost to its own productivity, agility, sense of integrity and effectiveness.

If there are no consequences, how can the characteristics of stable governance with integrity and commitment flourish in any State agency? Mr Saul confirmed that the procedures and protocols in FÁS. That is the case in most public bodies. Paper doesn’t refuse ink ~ but it is the culture , dynamism, passion and energy of an entity that makes things happen –for better, or worse.

The deliberations of The Public Accounts Committee could therefore result in another ‘grand slam victory’ and have a profoundly positive impact as a consequence of this crisis if the outcome successfully redefines and refocuses FÁS and individuals emerge of the calibre and ambition of those that emerged in The Revenue Commissioners a decade ago. FÁS has been a major by-product of social partnership. Social partnership could also get new life and sense of purpose but the fuel to ignite that will not be found in damp deadwood hidden behind legal fig leafs.

It would, on the other hand, be most disappointing if the enduring outcome of The Public Accounts Committee was merely to record the frustrations, impediments and difficulties in conducting its examination of this matter the only practical outcome is one of Plus sa change, plus c'est la meme chose.

The peril of NAMA and the blind faith of the taxpayer

Scope and role of NAMA

IRELAND’s National Assets Management Agency (NAMA) is being set up to buy the most dodgy loans to property developers’ on the balance sheets of Irish banks. The existence of these loans is said to be preventing the banks from lending to the authentic, productive segment of the economy and enabling that segment to stimulate economic recovery.  They lent too much to too few property developers and speculators but it acted as steroids would for bankers’ bonus enhancement.  Many a good Sunday afternoon in the corporate boxes at Croke Park, Punchestown and the Curragh was enjoyed on the strength of it!

These loans are to be valued on the basis of a prescribed methodology, as defined in the Bill. Their valuation will be lower than that recorded in the balance sheet of the lending bank. Valuation is not to be determined by the inflated assumptions and price structure on which they loans were first approved. The assets which were provided as security for the loans will be valued on the basis of a price is realistically achievable in the medium to longer term in term. NAMA will be the largest property owner in the country and will have the bargaining power that goes with this status. This means that it should be able to choose when to put property on the market without depressing market prices unduly.

It is intended that the elimination of uncertainty and the cleaning up of bank balance sheets to more truly reflect the genuine underlying values of their assets and liabilities will revive our financial system and provide credit to businesses that need it and the interests of depositors will also be more secure. 

The recent court case involving ACC Bank could put a spanner in works of NAMA if emulated.  Not all banks will entertain the NAMA agenda as evidenced by the approach of its parent since 2002, the Dutch AAA rated Rabobank,

 

Can Irish banks be trusted?

All of the foregoing is predicated on the Government having no role in the commercial conduct of Irish banks.

The Government has rejected, at least for now, the option of nationalisation, arguing that it is better that the banks’ maintain a presence on the stock market and conduct themselves within the constraints and disciplines of that marketplace. But is this great act of faith not a bridge too far for the Irish banks? It sends a shiver through my spine that almost frightens the living daylights out of me to see these morons’ self-policing.  Some of them are not fit to be the janitors removing cigarette butts from the latrines in the staff toilets, even with the protection of plastic gloves and goggles!

Were these banks not supposedly operating within the constraints and disciplines of the investment market for decades only to end up as the basket cases that they now are? The same disciplines that allowed them foster a nationwide culture of tax evasion (including personal tax evasion by themselves), offshore accounts for indigenous residents, scam charges on customer accounts and the cute-whore approach did not seem to conflict with their notion of discipline.

When one peruses the annual and interim reports of these awful banks it is abundantly clear that their all-consuming love affair with the property sector was intense, passionate, titivating and, of premier importance,  bonus yielding. But have these dysfunctional gobshites any understanding of the needs and dynamics of authentic economy?

I frankly fear they do not and are incapable of learning and the more I see of their Windsor Tie Knots, their grimaces of injured innocence and the ugly oversized cuff-links perched on their starched white shirts, the less convinced I become.

As the nation awaits the debate of the NAMA Bill in the Oireachtas next month many of us are utterly mesmerised by the complexity and scale of the proposed NAMA project and the level of risk that it involves is beyond the comprehension of the average person. The value of the assets concerned, around €90 billion, is equivalent to the total personal expenditure of all the citizens of the State in an entire year in good times. It is three times the amount of tax the Revenue Commissioners will collect in 2009 and it is over 50% of the likely GDP in 2009. 

 

Impact of lower credit ratings’

Many are being hurt by mortgage interest rate and cost increases.  But the Government see these as reflecting commercial marker realities.  They are careful not to spell out what these realities are.  But could they have anything to do with degraded ratings and subversive transactions for which no one has been held accountable in a court of law?

The investigation by the Chartered Accountants Regulatory Board was being overseen until recently by the board Chairman who is also a director a bank being investigated.  Can you imagine the bean-counters even allowing such a juxtaposition to materialise for the sake of their own credibility in society?

Apart from being clueless about the authentic economy our friends with the golden cuff links had no difficulty ramping up credit until it surpassed 200% of gross domestic product as though it were competing with Iceland in the financial services Olympics.  The could do this because the vey same Government “had no role in the day-today commercial operation of the Irish Banks” – so they could do what they liked and to hell with the consequences, as long as it did not impair their personal remuneration.

NAMA does not have a mandate now to deal with dodgy residential loans.  The individual mortgage bearer is not as  ‘systemically important’ enough to matter as Anglo Irish Bank, a bank where no fewer than five chartered accountant ran they show.

 

The Alan Greenspan influence on Irish banking

Capitalism in the United States and elsewhere was energised by an approach proselytised by Alan Greenspan the Former Chairman of the US Federal Reserve Board (the Fed) to the effect that the enlightened self-interest of owners and managers of financial institutions would lead them to maintain a sufficient buffer against insolvency by actively monitoring and managing their firms’ capital and risk positions. It was against this background that a plethora of so-called financial instruments, derivatives, sub-prime mortgages and securitised assets.

Greenspan was a passionate advocate of the free market. He was appointed to the chairmanship of the Fed by Ronald Reagan in August 1987 and held this position throughout the presidencies of George H Bush, Bill Clinton and George H W Bush until he was replaced by Ben Bernanke in 2006. The 1987 stock market crash coincidentally occurred the following October. Greenspan used the tools of monetary policy to guide the US economy.

This means controlling the availability and cost of money – so varying the interest rate was a central feature of the Fed’s tool kit throughout his tenure to particularly control the threat of inflation and maintain the value of the US $ at a satisfactory level on foreign exchange markets. The Republican Party, starting with Reagan, was a very strong advocate of reducing government influence and this meant that the Fed avoided the toolkit of fiscal stimulus – government borrowing, spending and taxation, to guide the economy. Their approach was to allow the market determine virtually everything.

The crucial difference between these newer financial products and traditional financial assets, such as stocks and shares, is that cash is directly exchanged for an asset concurrently in the case of a share purchase. Credit problems do not fester like rats in a sewer.  The incidence of risk is minimised so the calculus of a bookmaker are not as necessary. Auditors can audit share transactions.

Derivatives and similar financial products are based on underlying contracts that can remain unsettled for very long periods. Some of the more complex derivatives can involve thousands of contracts and hundreds of contracting parties. Values are determined by an independent index – such as FX rates, interest rates, share prices etc.  If there is an adverse movement in a relevant index of indices there may, or may not be a guarantee in place to trigger a payment.If there is no guarantee, or collateral underpinning a derivative their value is a function of the credit worthiness of the various connected parties but the apparent profits are recorded as earnings before money changes hands. 

What happens in practice is that banks involved with derivatives and similar assets accumulate large quantities of ‘paper assets’, liabilities and counterclaims – an opaque cobweb of mutual dependence and dependence on third parties that are often unidentifiable. This minefield has yet to raise its head in the context of the assets and liabilities of Irish banks and building societies.

This meant that investors are not in a position to understand and analyse banks and financial institutions because these instruments can be underpinned by thousands of contracts and hundreds of counterparties. Their value and the value of their underlying financial assets can therefore be over or understated by a crippling variation, as was demonstrated by the collapse of Bear Sterns.

 

Limitations of transparency

Transparency is a much bandied word especially when it comes to averting future problems. Bu there is no reporting mechanism that can either define the risk of measure the value of a complex set of derivatives. They are not audited and they are not regulated.

I will be interested to observe the level of transparency that applied to NAMA.  The nationalised Anglo Irish Bank has billions of € in impaired loans, including loans to directors and managers,  but it is not possible to ascertain if these include the loans approved for the purchase of the Irish Glass Bottle site at Ringsend, Dublin to which the State’s Dublin Dockland Authority is a joint venture partner, notwithstanding that the current Government appointed Executive Chairman of Anglo Irish Bank was also the Government appointed Chairman of Dublin Docklands Development Authority in succession to Lar Bradshaw, formerly a director of Anglo Irish Bank. The current Chairman of Dublin Docklands Development Authority, Niamh Brennan, is an accomplished UCD professor and the leading academic advocate in Ireland of transparent, credible corporate governance!  Will our patience ever be rewarded?