Will credit really start to flow to Irish SME’s?

Finance Minister Brian Lenihan has published and SME Lending Plan from AIB and Bank of Ireland in which each of them indicate an intention of making €3 billion available to SME’s in 2010/11

Which customers are likely to be in a position to use such additional resources and what impact will the provision of these facilities have on lenders? Borrowers that qualify are supposed to be exporting firms. .

An SME employs fewer than 250 persons; have a turnover of less than €50 million and a balance sheet less than €43 million.

Total lending to SME’s at 31 December 2009 amounted to €32.28 billion

	€ Million
Loans	26,340
Overdrafts	2,833
Finance and Leasing	2,407
Invoice Discounting	700
	€32,280

This proposal indicates a potential 19% increase in credit availability

There were 33,192 applications for credit amounting to €1.854 billion in the fourth quarter of 2009; 131,500 for all of 2009. Credit applications for the fourth quarter of 2008 amounted to €2.892 billion. The approval rate is estimated to be 84%. The utilisation rate for overdrafts is 52%.

Profile of Credit Applications

Sector	Number of Applications Q4 2009	Amount Sought € Million	Total Borrowing
Agriculture and Forestry	9,512	379	4,150
Fishing	128	10	325
Mining and quarrying	89	9	303
Manufacturing	1,742	198	2,630
Electricity, Gas and Water	63	16	279
Construction supply	1,808	61	1,249
Wholesale and repair	4,507	346	6,954
Hotels and restaurants	1,776	125	7,327
Transport, storage and communications	1,442	69	1,512
Financial intermediation	251	15	348
Real estate and business activities	7,783	390	3,816
Health and social work	1,071	99	1,472
Other community and personal services	3,030	137	1,915
TOTAL	33,192	1,854	32,280

Each of these sectors has issues from a banking perspective which I will comment on in the context of the change in their overall borrowing profile between December 2005 and December 2009

Credit Trends 2005 – 2010

Resident non-government credit, excluding personal borrowing, residential mortgages and lending to the educational sector increased by 121% in this five-year period.

The following table summarises the change in each sector and the relationship between the deposits maintained in each sector and how these relate to borrowing by these sectors as a whole:

Sector	Change in borrowing Dec 2005 – 09 € Million	Resident Deposits Dec 2009	Resident Credit Dec 2009
Agriculture and Forestry	1,554	2,496	4,933
Fishing	-70	112	336
Mining and quarrying	177	294	415
Manufacturing	1,628	5,989	7,137
Electricity, Gas and Water	513	898	1,120
Construction	5,495	3,578	15,042
Wholesale and repair	4,867	4,591	12,591
Hotels and restaurants	3.903	655	10,905
Transport, storage and communications	781	3,766	3,005
Financial intermediation	46,540	45,106	82,676
Real estate and business activities	61,598	14,781	93,845
Health and social work	1,845	894	2,679
Other community and personal services	1,034	4,800	2,832
TOTAL	€129,865	€87,960	€237,516

These sectors, in their entirety had credit outstanding of over €237 billion at the end of December 2009, a year in which our GDP reduced by 7% to €176 billion. The SME component of this, €32.2 billion was 13.5% of the overall total.

The level of credit they were responsible for increased by 121% in the previous five years. The deposits of these sectors maintained. €87.9 billion means that the overall ratio of deposits to loans was 2.7.

It is very hard to see much action in the construction sector given the collapse in demand or in the hotel and restaurant sector given the huge overcapacity as a consequence of tax breaks valued at €1 billion. Real estate is dormant and there will not be much international growth in agriculture.

Supply Perspective

The Financial Regulator has insisted that Tier 1 capital at AIB, which in common with its counterparts, is to be 8% means that additional capital of €7.4 billion is necessary by 31 December 2010. It is not yet clear where this is to come from.

AIB is the dominant force in the Irish deposit market laying claim to customer current and deposit accounts worth €52 billion of its total customer account base of €83.9 billion.

Bank of Ireland has a similar customer account total, €85 billion – but only €35 billion of this is derived in Ireland. The remainder is sourced in the UK and capital markets. Additional credit means additional capital.

AIB’s credit commitment to these sectors at 31 December 2009 and its NAMA relationship is as follows:

 

Sector	Change in borrowing Dec 2005 – 09 AIB Resident Loans € Million	Resident Deposits NAMA AIB Bound Loans Dec 2009 €Million
Agriculture and Forestry	2,015	24
Fishing
Mining and quarrying
Manufacturing	3,108	37
Electricity, Gas and Water	844	64
Construction and Property	15,930	18,055
Wholesale and repair
Hotels and restaurants
Transport, storage and communications	2,382	621
Financial intermediation
Real estate and business activities
Health and social work
Other community and personal services
TOTAL LOAN BOOK (IE)	€69,911
TOTAL LOAN BOOK (GROUP)	€103,341

Bank of Ireland had an Irish loan book of €63,450 million, slightly less than that of AIB. The make-up of it was:

 

Residential mortgages	28,350
Property and Construction	9,450
NAMA	8,100
Corporate and SME	14,850
Consumer	2,700
TOTAL LOAN BOOK (IE)	€63,450
TOTAL LOAN BOOK (GROUP)	€119,439

Credit availability crisis for Irish bank customers

Irish retail and business bank customers are continuing to experience a great deal of uncertainty in securing bank financing.  The latest monthly statistics published by the Central Bank illustrate the dependency of the banking system on funding from sources other than the deposits of Irish customers.

Retail clearing banks include AIB, Bank of Ireland, National Irish Bank, Ulster Bank and permanentTSB.  There are about 25 non-clearing banks

April 2010

€ Million	DEPOSITS FROM IRISH RESIDENTS	TOTAL LOANS TO IRISH RESIDENTS	EXTERNALLY FUNDED
Retail Clearing Banks	€113,804	€197,611	€83,807
Non-Clearing Domestic Banks	€50,335	€130,815	€80,480
	€164,139	€328,426	€164,287
Non--Clearing Foreign Banks	€7,901	€18,097	€10,196
	€172,040	€346,523	€174,483

 

May 2010

Retail Clearing Banks	€112,491	€196,674	€84,183
Non-Clearing Domestic Banks	€50,764	€129,517	€78,753
	€163,255	€326,191	€162,936
Non-Clearing Foreign Banks	€8,217	€18,749	€10,532
	€171,472	€344,940	€173,468

 

Total private sector credit amounts to just under €352 billion of which almost 93% is funded by the above sources.

The loans outstanding above include residential mortgage finance of just under €108 billion.  There is also an additional €37 billion in securitised mortgage finance bringing the total owing by the residential mortgage sector to €145 billion.  €57 billion was provided by the retail clearing banks and €51 billion by the non-clearing banks / building societies.

2010 World Heritage Site candidates to be decided in Brazil

The World Heritage Committee of the United Nations Educational, Scientific and Cultural Organisation (UNESCO) is to meet in Brasilia for its 34th from 25 July to 3 August and will decide on new candidates to be listed as world heritage sites.

There are two world heritage sites in Ireland. Newgrange, Knowth and Dowth archaeological sites on the River Boyne was listed in 1993 and the 7^th century monastic complex at Skellig Michael 12 kilometres of the coast of Kerry was listed in 1996.  There is one site listed in Northern Ireland – Giants Causeway and Causeway coast.

Ireland has submitted 7 sites to this year’s convention. These include:

• The glaciated karst landscape of The Burren
• The historic City of Dublin based on the Georgian architecture developed from 1714 to 1830 that was developed speculatively by the owners of the great estates that resulted in the city becoming, after London, the second city of the British Empire.
  The Neolithic landscape and examples of human settlement of the Céide Fields and north Mayo boglands
• Western Stone Forts in Clare, Galway and Kerry to illustrate a class of enclosed drystone circular monument used by maritime communities
• The monastic city of Clonmacnoise which marks a significant stage in the development of early medieval Christianity
• Early medieval monastic sites in Clonmacnoise, Durrow, Glendalough, Inis Cealtra (Clare), Kells and Monasterboice.
• The royal sites at Cashel, Dún Ailinne, Hill of Uinseach, Rathcroghan and Tara

The convention governing world heritage was ratified in 1972. Ireland became one of the State Parties to it in 1991. Three of those State Parties – Marshall Islands, Kiribati and Tajikistan - have no properties inscribed on the World Heritage List to date.  Ireland is represented on UNESCO by Ambassador Paul Murray.

Thirty two new properties in total were submitted for inscription on the World Heritage List this year: 6 natural, 24 cultural and 2 mixed (i.e. both natural and cultural) properties, including four transnational nominations. In addition, 9 extensions to properties already listed have been proposed.

The Committee will also review the state of conservation of the 31 World Heritage properties inscribed on the List of World Heritage in Danger and may decide to add to that list new properties whose preservation requires special attention. The In Danger List features sites which are threatened by a variety of problems such as pollution, urban development, poorly managed mass tourism, wars, and natural disasters, which have a negative impact on the outstanding values for which the sites were inscribed on the World Heritage List.

To date the World Heritage List recognizes 890 properties of “outstanding universal value,” including 689 cultural, 176 natural and 25 mixed properties in 148 States Parties.

The Convention encourages international cooperation to safeguard the common heritage of humanity. With 187 State Parties it is one of the most widely ratified international legal instruments. When signing the Convention, States Parties commit to identifying sites for potential inscription and to preserving sites on the World Heritage List, as well as sites of national and regional importance, notably by providing an appropriate legal and regulatory framework.

The World Heritage Committee, responsible for the implementation of the 1972 Convention, comprises representatives of 21 countries, elected by the States Parties for up to six years. Each year, the Committee adds new sites to the List. The sites are proposed by the States Parties. Applications are then reviewed by two advisory bodies: cultural sites by the International Council on Monuments and Sites (ICOMOS), and natural sites by the International Union for Conservation of Nature (IUCN), which inform the Committee of their recommendations. The International Centre for the Study of the Preservation and Conservation of Cultural Heritage (ICCROM) provides expert advice on conservation and training in restoration techniques.

The World Heritage Committee also examines reports on the state of conservation of inscribed sites and asks States Parties to take appropriate conservation and preservation measures when necessary. The Committee supervises the disbursement of over $4 million annually from the World Heritage Fund aimed, among other purposes, at emergency action, training of experts and encouraging technical cooperation. UNESCO’s World Heritage Centre  is the Secretariat of the World Heritage Committee.

Exorbitant judicial salaries in Ireland

The publication of the Report on Senior Salaries for 2010 in the United Kingdom provides interesting evidence of how the Irish taxpayer is once again screwed.

The following is a comparison of judicial salaries in the Republic of Ireland, the United Kingdom as a whole and in Northern Ireland, where special allowance is made in the case of county court judges who carry out significantly different work than their counterparts elsewhere in Great Britain – presiding over non-jury trials under the ‘Diplock’ system for dealing with terrorist cases, even though the number of such trials is lower than in the past.  But the provisions which were due to expire in July 2009 are to continue until at least July 2011.

 

	Ireland	United Kingdom	Northern Ireland
Chief Justice / Lord Chief Justice	€295,916	€290,212	€259,140
President of the Supreme Court		€250,297
President of the High Court / Chancellor of the High Court	€274,779	€250,297
High Court Judge	€243,080	€209,031	€209,031
President of the Circuit Court / Recorder (of Belfast)	€249,418	€167,640	€167,640
Circuit Court Judge / County Court Judge	€177,554	€155,238	€167,643
President of the District Court / Senior District Judge	€183,894	€146,150
District Court Justice	€147,961	€124,534	€124,534

 

Ireland has 147 judges – 7 in the Supreme Court; 36 in The High Court; 37 in the Circuit Court and 63 in the District Court.  The United Kingdom has 2,151 judges.  That works out as one judge for every 28,550 citizens in the UK and one judge for every 30,000 citizens in the Republic of Ireland.  The Chief Justice of Ireland was paid €295,916 last year.  The Lord Chief Justice of the United Kingdom is paid €290,000 and his counterpart in Northern Ireland is paid €259,000 while the Chief Justice of the US Supreme Court is paid €173,000 - 60% less than his Irish counterpart.

Irish judges were not charged the pension levy applicable to all public servants in Ireland in 2009.  However, by October 2009 72 Irish judges made voluntary payments that amounted to €698,000 and standing order commitments amount to €45,200 per month in addition.  There is no specific ‘due date’ for these voluntary payments.

Members of the judiciary are unique insofar as they receive no incremental salary increases, nor performance related pay. 

The prevailing economic climate in the UK and Ireland has led to a healthy situation as far as the recruitment and retention of judges is concerned.

Research carried out in Britain suggests that salaries are not the most important factor in encouraging or discouraging applications.  The most unattractive feature of being a judge is the isolated nature of the role, loss of flexibility, the requirement for travel or relocation.

Judicial pensions are an attractive element in the total reward package of the judiciary and the terms of their pensions were enhanced following a High Court case in 1994.

Excesses of greedy Irish lawyers curbed

The gallop of a posse of greedy Irish barristers and solicitors has been halted by the Taxing Master, a court official who adjudicates on their costs.  He imposed an 82% reduction on fees of €2,143,546 arising in a personal injury case involving  meat factory worker who was injured by a falling carcass.

Should readers conclude that the leadership of the Department of Justice and Law Reform is as weak and as ineffectual in defending the public interest as that in the Department of Finance  over the past decade?

The Taxing Master described these charges as “revolting in the extreme”. They are a direct and unmitigated consequence of a profession shielded from the realities of a genuinely competitive marketplace, cosseted by self-regulation and indifferent to the interests of consumers and the public at large.

The Competition Authority reported on competition in the legal profession in 2006 and issued 29 recommendations, over half of which were directed at the Department of Justice and Law Reform and several of which relate to fees. This Report stressed the urgent need for radical reform, independent regulation a far higher standard of transparency with the public. The Department acted on only one of fifteen recommendations directed at it – relating to the use of the first official language.

Last year The World Bank reported that legal fees in Ireland were among the highest in the world as The Competition Authority’s recommendations. Is this to be the pivotal catalyst to spur an export-led economic recovery by multinational corporations in Ireland?

The Department of Justice and Law Reform is probably the largest purchaser of legal services in the State. It is high time that the recommendations of The Competition Authority no longer gathered dust and cobwebs and that our country had a legal profession that is grounded like its counterparts in other common law jurisdictions

Catholic Church opposed to Irish Civil Partnership Bill

The Catholic bishops have raised their periscope to mobilise a letter-writing campaign to force TD’s to revolt against the Civil Partnership Bill.  Their views were echoed by Fr Vincent Twomey, in The Irish Times on June 29th.  Twomey is a former professor of moral theology at NUI Maynooth. He argues that the Bill should include a conscience clause so that registrars, photographers and those responsible for parish halls can opt out of duties that make their conscience skittish.

This Bill was published a year ago, in June 2009 and it is intended to allow couples in same-sex relationships, whether a relationship is sexual, or non-sexual, register that partnership and, for the first time, to have rights and privileges recognised by statute for the first time.

A stranger perusing Twomey’s article could be forgiven for presuming that Ireland is in the thrall of an immutable, secular dictatorship that is indifferent to the wishes of citizens and which disregards the primacy of the Constitution. The article would suggest that help is at hand in the form of an alternative ecclesiastical, but sacrosanct, dictatorship that is seeking to rescue the citizens from the consequences of their own whims, thoughtlessness and random impulses.

No legislation is capable of forcing any Irish citizen to collude in anything that they believe to be morally wrong. But ‘belief’ and 'conscience' are not one-size-fits-all concepts and they are influenced and characterised by moral authority as well as personal experience.

The ‘outrage’ directed at the Civil Partnership Bill is based on a misleading presumption that it will confer on same-sex relationships a standing which will be as similar as possible to marriage and that apart from a right to adopt children, that same-sex, civil partnerships will be regarded as being equal to marriage. This equality argument is false. The features contained in the Bill maybe equivalent to those attaching to marriage - but that does not make a civil partnership equal to marriage. A marriage between a man and a woman is a fundamentally exclusive institution whose uniqueness will always prevail, despite any legislative changes in any jurisdiction. To suggest that both are equal is to imply that a delivery van is equal to a family car on the grounds that each has some common features, equal standing on the highway and total integrity among users.

The bishops' makes much of significance in changes in terminology - that 'marital status' will be replaced by 'civil status'. So what? Those who hitherto formally witnessed the exchange of marriage vows at are now known as solemnisers, rather than celebrants – and happy, stable, enduring, fulfilled marriages continue to be consummated.

Legislators are elected to conduct the people's business and to represent all the people with fidelity.   That alone is what ought to define he primacy of conscience in Leinster House.

Funding the Irish community and voluntary sector

The report that the HSE is to cut €80 million in direct State support from community and voluntary organisations is disturbing because it potentially impacts those who are most economically vulnerable and threatens employment in those entities threatened with cutbacks. The State spends a lot of money in the community and voluntary sector but how adequate is the value obtained for this money?

The HSE provided a total of €3.91 billion in revenue grants to approximately 630 community-based entities in 2009. These had a combination of very far-reaching objectives, some of which seem similar to each other. The sum provided in 2009 is €1 billion more than was provided in 2005 – a 33% increase during a period when the population of the country increased by 8%. The current health budget of the country accounts for a quarter of the national budget and almost half of all taxation so the argument to achieve greater economies and reassessed priorities is urgent, compelling and unavoidable.

Are the vulnerable or needy genuinely best served by all of the organisations that receive HSE grants? Does the proposal to cut back overall funding not present an important opportunity to begin to streamline the community and voluntary sector; to eliminate the provision of State funds where there is avoidable duplication of effort; to weed out support of organisations that are wasteful, ineffective, or who fail to account adequately for funds provided?

Should more resources not be provided to those entities that really make the greatest credible impact on alleviating distress throughout the country, if it can be clearly demonstrated that effective use could be made of incremental resources?  If so, are they not the most deserving of State support and ought they not have an unchallenged priority above the half billion euro that is now spent annually, but funded by costly national debt, on development aid across the globe? That expenditure delivers no direct local benefit to Ireland.  Charity begins at home and when the national income of the country starts to grow wider priorities can be considered. But in the meantime the funding of the economy is not sustainable on dollops of enormous national debt that will crucify future generations of modestly paid Irish taxpayers, if they are lucky enough to be in employment, or to operate a business or a farm that is not starved of bank credit.

€1 million slashed from the cost of operating the Government jet

The Irish Government jet comprises two aircraft and is operated by Ministerial Air Transport Squadron, part of the the 850-string Air Corps.  The cost of operating these dropped from €3.42 million in 2005 to €2.44 million in 2009.

The original aircraft, a Gulfstream IV, was acquired in 1991.  It can accommodate up to 14 passengers and requires a crew of two pilots, an engineer and a flight attendant.  The G IV has a range of 3,800 nautical miles, offering intercontinental transportation.

The cost of operating it since 2005 are as follows:

 

	Operating Hours	Overall Cost €
2005	395.75	2,809,825
2006	411.52	2,921,792
2007	281.33	1,997,443
2008	344.92	2,448,932
2009	220.42	1,739,114
Gulfstream IV TOTAL COST		€11,917,106

 

The second jet, a Bombardier Lear Jet 45, was acquired in 2004 prior to Ireland assuming the presidency of the EU.  It can accommodate up to 7 passengers and requires a crew of two pilots and a flight attendant.  It has a range of up to 2,000 nautical miles and serves as an air ambulance from time to time.

 

	Operating Hours	Overall Cost €
2005	293.83	617,043
2006	232.67	488,607
2007	170.25	357,525
2008	234.33	492,093
2009	239.17	705,552
Lear Jet 45  TOTAL COST		€2,660,820

€1.25 million to pay for secretarial support for former Taoisigh

Former Taoisigh have, since August 2001, been entitled to the services of a dedicated secretary paid for by the State.  These are paid up to the maximum of the scale for Higher Executive Officers.

A former Taoiseach, in the first five years since leaving office can avail of the services of two support staff.

The breakdown of the cost is:

 

	C Haughey	G FitzGerald	A Reynolds
Aug 2001	7,806	2,602	6,824
2002	32,475	32,475	21,737
2003	32,475	32,475	35,034
2004	35,538	35,538	42,275
2005	36,984	36,984	52,051
2006	54,609	38,514	14,794
2007	-	41,857	19,145
2008	-	44,965	49,575
2009	-	38,055	44,890
2010	-	-	12,365
TOTAL	€199,887	€303,465	€298,730
	J Bruton	B Ahern
Aug 2001	26,020
2002	32,475
2003	18,943
2004	35,538
2005	36,984
2006	38,514
2007	40,635
2008	11,032	74,983
2009	0	114,369
2010	1,766	41,307
TOTAL	€218,560	€230,659

Over 80 individuals in Irish public sector paid more than the Taoiseach

Brian Cowen is paid a salary of €228,446.  His counterpart, David Cameron, is paid €237,475, including his MP’s salary of €77,700.

The following are paid more than the Taoiseach

Sector	Function	Number of persons
JUDICIARY	Chief Justice	1
	Supreme Court Justice	7
	President of the Circuit Court	1
	Judge of the High Court	35
EDUCATION	President of UCC	1
COMMERCIAL STATE BODIES	CEO of Coillte, ESB, Bord na Móna, Bord Gáis, An Post, RTE, VHI. Dublin Bus, CIE, Dublin Airport Authority, Iarnród Éiresann, Irish Aviation Authority	12
NON-COMMERCIAL STATE BODIES	CEO National Roads Authority, Director General, Science Foundation Ireland	2
FINANCE	EBS, Executive Directors Anglo Irish Bank Irish Nationwide, Executive Directors Irish Nationwide, Management	2 17 2 2
HEALTH	CEO, HSE Master Consultant Academic Consultant Clinical Directors	1 ? ? ?

The HSE are unable to provide details of how many are paid more than €228,446.

Remuneration at the Central Bank and Financial Regulator are not included in the foregoing.  Remuneration at NAMA and NTMA are also excluded from this list.

A total of 39 individuals in the entire British public sector are paid more than €228,446.

Senator Callely’s defence of expenses lacks substance

Senator Ivor Callely, (Ivor the Driver) must think the public are a gullible posse of morons, as illiterate as himself but with a screw loose.  He announced that the trauma of rejection following his defeat in the last general election prompted him to move to West Cork – hence the justification for dipping his hand in the public purse and taking over €81,000 from it.  Callely’s fall fro grace in 2007 was cushioned by severance payments of €31,754 in 2007 and €17,465 in 2008.  These were based on 75% of his ministerial salary.  He also received a pension of €677 in 2007 and €8,986 in 2008.

Callely’s flaccid statement to Seanad Éireann on 2 June, indicated that the politicians’ expense regime is complex and there are anomalies in the system. If an expenses regime is so lacking in transparency how can the public have a scintilla of confidence in it?  If it is difficult to explain an expenses regime, designed by politicians for the benefit of themselves, in terms that the general public would regard as fair, reasonable and appropriate, that alone is a powerful argument against such a system.

Voters expect politicians to be personally responsible and accountable for the expenses they claim. They expect claims to be based only on the reimbursement of costs which are wholly, exclusively and unavoidably necessary in the performance of parliamentary duties. They also expect a level of integrity and verification that is characterised by high a standard of honesty and probity.

Voters will not tolerate politicians being personally enriched at public expense. Why, for example, should politicians be able to claim travel expenses in respect of journeys when they do not use their own vehicles, or are eligible for free travel on public transport? The concept of claiming travel expenses from a variety of widely dispersed personal addresses is indefensible and unacceptable.

If the Select Committee on Members’ Interests investigation determines that payments have been made on foot of expense claims which ought not to have been admissible they must  insist on the immediate reimbursement of such monies, plus interest, before considering other sanctions. By the end of May the cost of interest on the national debt was equivalent to 44% of all income tax revenues collected to date in 2010. If the Government intend to further penalise taxpayers is it not reasonable that issues, such as inadmissible politicians expenses, are fully and promptly resolved at no burden to the taxpayer?

Update on the Irish economy

Economic forecasts are emerging that suggest that Ireland has moved slightly from recession.  The number on the Live Register, 437,922, is at a record high as is the national debt.  Interest payments are eating up a much greater proportion of income taxes.

Current Revenue and Expenditure

Exchequer revenue for the first five months of 2010, at €12,293,887, is 10.4% les than for the first five months of 2009

Current expenditure for the first five months of 2010, at €19,535,867, is 3.1% less than for the first five months of 2009.

The current account deficit at the end of May 2010 equated to 59.8% of tax revenue and in the corresponding period it was 47.6% of tax revenue.

Current spending is reducing but tax revenue is reducing even more.

Capital Revenue and Expenditure

The deficit on capital account, at the end of May 2010, €624,759, compares to a deficit of €4,141,336 in May 2009.

Some €3 billion of this change is accounted for by the front loading of a payment of this sum to the National Pension Reserve Fund in 2009.  Job creation is dependent on a combination of advanced technology, reliable infrastructure backed by the investment to sustain its reliability as well as adequate flows of investment capital over a prolonged period.

Exchequer Deficit

The exchequer deficit at the end of May 2010 was €7,866,739, representing an improvement on May 2009 when it was €10,587,645.

National Debt

Our national debt has doubled from €44 billion at the beginning of 2009 to approximately €90 billion at the end of May 2010.

Year	National Debt € Million	Interest €Million	% Income Taxes
2005	38,182	1,720.39	15.2%
2006	35,917	1,859.88	15.0%
2007	37,560	1,618.28	11.9%
2008	50,398	1,543.88	11.7%
2009	75,152	2,547.16	21.5%
2010/5	82,000	1,856.03	43.9%

Interest on National Debt

The interest on our national debt for the first five months of 2010 was €1,856,063 – 15.3% of tax revenue and 23.6% of the exchequer deficit.

Interest on the national debt for all of 2008 was €1,543,383. That represented 3.8% of 2008 tax revenue and 12.1% of the 2008 exchequer deficit.

Conclusions

There is some evidence that we are treading water insofar as some expenditure cuts are taking effect. Tax revenues are still declining compared to the prior comparable period but the rate of decline has moderated from 19% when 2009 as a whole is compared to 2008 to 10.4%.

Welfare spending is 13% higher and the social insurance fund is reportedly seriously insolvent.

EBS @ 75 facing extinction as a mutual society

If Alec McCabe, the founder of the EBS Building Society what would he make of it as it celebrates the 75^th anniversary of its foundation with the threat of State control pending?

There had been over 20 building societies in the country when McCabe embarked on his venture which was intended to enable civil servants and teachers buy houses because there were no other sources of finance available to them in the early 1930’s. The EBS was to grow its membership to the current level of approximately 440,000.

Merriman and Moran Legacy

While close to 89% of its lending has been in the form of residential mortgages for owner-occupiers, EBS had a €2.4 billion commercial loan book that is a lending catastrophe. Its commercial lending activity began in 1991 but when it recruited a Alan Merriman, a 38-year old former partner and 17-year veteran at PricewaterhouseCoopers, in July 2005, its commercial lending activity intensified and included €500 million lent for land development.

Merriman had executive responsibility for commercial lending. Commercial lending and this was focused on 500 high net-worth individuals and was based on what they describe as ‘property relationship banking’ with many of the transactions in United Kingdom and continental Europe, especially Germany.

The EBS was also burnt badly by the shenanigans of some of Ireland’s many, many rogue solicitors.

By 2008 EBS lending to the commercial sector ceased. The €500 million development land loan book had incurred a loss of €38 million after impairment charges of €110 million. There was also a €95 million bad debt, of which €69 million related to development finance. Furthermore, there was a €15 million impairment charge in respect of a €16 million loan to the then recently nationalised Icelandic bank, Kaupthing.

By 2009, EBS lost a further €78.8 million. It set aside €913 million of its loans for sale to NAMA. The first €144 million tranche of these attracted a 37% discount implying that the discount on the total shipped to NAMA could be €340 million.  The cumulative profit earned by the Society during the tenure of Moran as Chairman and Merriman as Financial Director was €35.7 million.  The cumulative profit in the preceding four years, 2001-05, was €196.7 million.

The Financial Regulator also mandated that Tier 1 Capital was to be 8% and the impact of this is that EBS needs €875 million in additional capital before the end of 2010. Private sources have been unwilling to provide this which means the State is once again the purse of last resort and the State will control the building society.

Alan Merriman and Mark Moran, resigned in 2009. While Moran pocketed €45,400 for his five months service to 29 May 2009, Merriman scooped the jackpot.

Merriman resigned on 10 March 2009. The Department of Finance published the recommendations of the Covered Institutions Remuneration Oversight Committee on 27 February. The CIROC was set up after the Government guaranteed bank deposits and began providing massive public resources to shore up their inadequate capital bases.

The CIROC recommendation for EBS was the chairman would be paid €144,000; the chief executive would be paid €360,000; an ordinary board member would be paid €29,000 and a board member chairing a major sub-committee of the board would be paid €36,000. The salaries of individuals’ reporting to the chief executive were to have been adjusted downwards to reflect these changes.

Merriman, on his departure in March 2009, was paid €629,700 that included an additional a contractual 12-month notice period payment and he was also paid €851,400 as a contractual termination payment. His base annual salary in 2008 was €479.700. Merriman’s pension was also adjusted to include additional service for pension purposes. The foregoing would seem to completely and totally ignore the CIROC recommendations on executive salaries mandated by the Department of Finance.

Fergus Murphy

Fergus Murphy has been the chief executive of EBS since early 2008. Despite the calamitous debacle that he inherited, Murphy was paid €505,800 including a base salary of €465,000 in 2009 – not the €360,000 recommended by CIROC. The Annual Report states that he took a 22% voluntary reduction in base pay effective 1 October 2009. Like the speed limit on Burlington Road, where EBS headquarters is located, the CIROC recommendations are supposedly mandatory, not voluntary!

Cathal Magee

Cathal Magee, the person nominated to be the next chief executive of the HSE has been a director of EBS since 2002. He became a member of the Risk Committee in 2003 and has been chairman of that Committee since 2003 and Chairman since 2005. His cumulative fees amount to €314,500 and, significantly, were €10,500 in excess of Department of Finance guidelines in the case of his 2009 fee.

Alec McCabe would see little to celebrate on the 75^th anniversary of the founding of EBS. He would see its slogan ‘where family counts’ certainly find expression when it comes to the executives of EBS taking care of themselves, notwithstanding the carnage their decisions caused to hundreds of thousands of others.

Senator Callely: Repay exorbitant expenses

The report that Senator Ivor Callely has been paid over €80,000 since 2007 in respect of travel expenses from an address in West Cork to Leinster House is extraordinary, bizarre and one more example of the self-serving, greedy, behaviour that vexes voters' so intensely that it cost Peter Robinson and many other outgoing MP's their parliamentary seat in the recent British general election.

This Oireachtas web site lists Callely's home address as being on St Lawrence Rd, Clontarf, Dublin. The public telephone directory lists his telephone number at this address. His name is also listed on the current Register of Electors at this address, which is within walking distance of Leinster House.  Callely’s political web site states that he maintains constituency office address on Howth Road and he confirms that he lives in the Dáil constituency of Dublin North-Central.  Cork is not mentioned in any context. His role as a Taoiseach's nominee to Seanad Éireann has no connection whatsoever with any town in Ireland.

An individual can only have one domicile, or recognised permanent residence, at a time and the evidence in the public domain indicates that Senator Callely’s chosen domicile is not and has never been in Co. Cork.  How could taxpayers' possibly accept these expenses as being reasonable?  The system of politicians' expenses must not be exploited for personal financial advantage and there ought to be effective and proportionate sanctions for breaches of rules robustly enforced and administered independently of politicians.  It should also provide value for taxpayers' that is not necessarily judged by reference to financial costs alone.

Senator Callely needs to understand that the Celtic Tiger party ended in 2007 as unemployment soared towards half a million, negative equity tore the heart and soul out of tens of thousands of Irish households while the bulk of those in employment coped with swingeing pay and expense cuts.  Will Senator Callely promptly and voluntarily repay this €80,000 which, it would seem, should never have been paid had the controls of the Oireachtas Commission been sufficiently robust and vigilant, or will the Oireachtas Commission be obliged to engage in an adversarial protracted process to extract repayment from him?

Is it also not time for all politicians' expenses to be routinely published each quarter by the Oireachtas Commission to demonstrate some modicum of transparency, equity and good practice, especially with respect to compliance?  It should not be necessary to rely on the Freedom of Information Act to obtain such basic data.  Publication would fulfil a core component of the Commission's mission, the promotion of public understanding of the work of parliament and the cost of providing what it describes as "a world-class parliament".  The operating cost of our 226-member Dáil and Seanad was almost €153 million in 2008.  The salaries and expenses of 650 members' of the Westminster Parliament for the same period was slightly over €197 million. 

If the Oireachtas Commission fails to rectify this matter then, presumably, a precedent is set whereby each member of the Oireachtas and every public sector worker can acquire an accommodation address as remote from Dublin, or the location of their employment, as possible for the purpose of maximising the amount of money that can be gouged from the public purse. This might have the effect of repopulating the islands from Tory to Cape Clear but it would also leave the bond holders who pay the day-to-day expenses of running the country incandescent, perplexed and likely to confuse Ireland with Greece.

Pattern of redundancies spreads across sectors

There were 23,593 redundancies reported in Ireland in the first four months of 2010.  This is comparable to the average annual number of redundancies that occurred in the five years between 2004 and 2008. The level of redundancies increased from 40,607 in 2008 (1.93% of the number at work) to 77,001 last year (3.97% of the number at work).

Some may take heart in the trend of reported redundancies in 2010.  The year-to-year figures for February, March and April show an improvement of 3.7%, 12.9% and 14.6% when compared to the corresponding month in 2009.  But these trends don’t conceal a widening of the sector base, from construction,  in which redundancies are occurring.

Sector spread

 

	TOTAL	% ALL REDUNDANCIES
Agriculture, forestry and fisheries	378	1.6%
Energy and water	134	0.6%
Extraction industry (chemical products)	126	0.5%
Metal, manufacturing and engineering	608	2.6%
Other manufacturing	4,801	20.3%
Building and civil engineering	5,230	22.2%
Transport and communications	1,075	4.6%
Other services	8,723	37.0%
Banking, finance and insurance	1,460	6.2%
TOTAL	23,593

 

Location spread, Jan – Apr 2010

 

	NUMBER	% NATIONAL TOTAL
Carlow	244	0.7%
Cavan	189	0.6%
Clare	524	1.6%
Cork	3,000	9.1%
Donegal	438	1.3%
Dublin, city and county	9,422	29.0%
Galway	719	2.2%
Kerry	572	1.7%
Kildare	1,328	4.0%
Kilkenny	409	1.2%
Laois	206	0.6%
Leitrim	56	0.2%
Limerick	1,614	4.9%
Longford	151	0.5%
Louth	423	1.4%
Mayo	316	1.0%
Meath	674	2.0%
Monaghan	278	0.8%
Offaly	331	1.0%
Roscommon	129	0.4%
Sligo	165	0.5%
Tipperary	592	1.8%
Waterford	303	0.9%
Westmeath	538	1.6%
Wexford	538	1.6%
Wicklow	420	1.3%
	23,593

Inflated, bloated executive salaries at Irish Nationwide Building Society, despite CIROC recommendations

The response by Brian Lenihan to a question posed by Deputy Seán Barrett TD about the level of executive remuneration at Irish Nationwide Building Society was curious.  The question was put on May 12 – asking Lenihan ‘what steps he will take to ensure the Irish Nationwide Building Society complies with the recommendations made by the covered institutions remuneration oversight committee; and if he will make a statement on the matter’.  The response was “I am advised by Irish Nationwide Building Society that the remuneration of Directors and senior staff at the Society is in compliance with the recommendations of the Covered Institutions Remuneration Oversight Committee.”

This wretched building society has already reported a loss of €2.48 billion in 2009.  It devoured €2.7 billion of public money.  Ninety six percent of its €2.7 billion impaired loans relates to speculative commercial property transaction, much of it not even in this country,

The six years of delinquent financial regulation was characterised by what appears to have been a very passive relationship to this Society.  It is astonishing that the Brian Lenihan’s advisers chose to rely on information from Irish Nationwide about the issue of executive remuneration because a casual perusal of the 2009 Annual Report would suggest otherwise.

Rather light-touch, I would have thought, on the part of the Minister's advisers. The debacle that Ireland is now in is attributable to excessive reliance on the representations of this entity and its counterparts rather than vigilance, understanding and verification; an attitude more Greek than German.  The two directors representing the public interest, for example, were paid €38,000 more that CIROC recommended they be paid. 

The Covered Institutions Remuneration Oversight Committee (CIROC) report was published by Minister Lenihan on 27 February 2009 and given the crisis that prevailed then and the sense of urgency and caveats which the report  reflects, one presumes that its recommendations were to be promptly effective from 2009 financial year.

The CIROC report recognised that reduced salaries for some executives may require the revision of existing contractual arrangements; that there must be sufficient headroom between the recommended remuneration of a chief executive and the salaries of those reporting to the chief executive, such as the chief financial officer. Any departure had to be justified on case-by-case basis. It also noted that top-level individuals in financial institutions did not generally contribute to their pension funds and recommended that a review should reflect an appropriate balance between the personal contribution of all employees and that of the employer.

The CIROC report recommended the following levels of base annual remuneration in the case of Irish Nationwide Building Society:

• Chairman €144,000 (40% of chief executive's base salary)

• Chief Executive €360,000

• Ordinary board member €29,000 (20% of chairman’s fee)

• Board member chairing major committee €36,000 (25% chairman’s fee)

The Annual Report reveals:

• The role of chairman of Irish Nationwide was remunerated in 2009 within CIROC guidelines.

• The role of chief executive was paid €494,000, that is €134,000 in excess of what CIROC recommended. Mr Fingleton, as chief executive from 1 Jan – 30 April, was paid €221,000 for that period - €101,000 more than CIROC recommended.  The current chief executive, Mr McGinn, received, on a pro rata basis, €22,000 more than CIROC recommended. Mr McGinn apparently has the use of a residence leased by the Society towards which he paid a personal contribution of €6,050 from 15 Jul to 31 Dec. It is not clear if there is an undisclosed subsidy amounting to the difference between this sum and the actual rental for this period.

• Each of the current non-executive directors is a chairman of a major sub-committee of the board of the Society but the remuneration of each of them exceeds CIROC recommendation by a cumulative sum of over €68,000 - details attached.

• The role of chief financial officer which ought to attract a remuneration ‘with sufficient headroom below the remuneration of the chief executive, €360,000’ was paid a total of €539,000. This includes the remuneration of the former executive director and Secretary, Mr Purcell, who was paid €385,000 in 2009. I would question in this instance, that apart from breaching CIROC recommendations, there is information in the public domain that the records of this Society are in such a state that the current chief executive severely criticised the impact of the lending policies and practices of the previous management and that the determination of the final losses of the asset portfolio remain highly uncertain. Does this not raise fundamental questions relating to the corporate governance of this entity as the Government rushed headlong into committing €2.7 billion to it, only to realise that billions more in State funding are needed if it is to be kept on life-support.  Under what circumstances could Minister Lenihan have entertained a derogation from CIROC recommendations in the case of Mr Purcell, if one was sought, against the background of the information now in the public domain?

Readers may not be realise that in addition to the €28 million personal pension fund paid for by Irish Nationwide and received by Mr Fingleton in 2007 that he also remunerated himself in the sum of €10 million from the period our property bubble began inflating, 1 January 2003 until he departed on 30 April 2009.  This puts the €1 million pre-contractual bonus that he paid himself in 2008 in a wider context. 

Incidentally, the pension fund for the 399 staff of the Society, whose average annual pay is approximately €41,000, is €4.4 million - one seventh of the sum Mr Fingleton personally obtained.  The employees pension fund  bore a deficit of €700,000 on 31 Dec 2009.

Is the reformation of our financial system not in some ways comparable to the reform process that Mayor Giuliani deployed in cleaning up New York – where discipline started with the seemingly inconsequential issues, like removing graffiti from the subway system?  But in this instance, is compliance with top-level remuneration CIROC not a most obvious example of a similar discipline?

Ireland – Burdened with the highest level of external indebtedness in the world

Ireland now leads the Top-20 nations with the highest level of external debt expressed as a percentage of GDP and that status is unsustainable. 

External debt is a measure of foreign liabilities and in this context includes outstanding and actual current liabilities (not contingent liabilities), including principal and interest, owing by Irish residents to non-residents.

External debt generally falls into four categories:

• Public and publicly guaranteed debt
• Private non-guaranteed credits
• Central Bank deposits
• Loans due to IMF (if there are any)

The Irish banking sector accounts for $976 billion of external debt and even if this figure was wholly discounted, Ireland would still have the highest debt to GDP ratio in the world – 746%.

External debt has much graver implications that government debt because it is a reflection of how much is borrowed to sustain current living standards. 

Ireland’s GDP has been shrinking while our external debt has been rising.

		External debt % GDP	Gross External Debt $ Billion	GDP $ Billion
1	Ireland	1,312%	2,320	176.9
2	United Kingdom	425.9%	9,130	2,140
3	Switzerland	382.2%	1,210	317
4	Netherlands	376.6%	2,460	654.9
5	Belgium	328.7%	1,250	381
6	Denmark	316%	627.6	198.6
7	Sweden	264.3%	881.5	333.5
8	Austria	256.2%	827.9	323.1
9	France	248%	5,230	2,110
10	Portugal	235.9%	548.45	232.4
11	Hong Kong	223.1%	627.9	301.6
12	Finland	220.2	402.24	182.6
13	Norway	202.6	553.4	273.1
14	Spain	186.1	2,550	1,370
15	Germany	182.5%	5,130	2,810
16	Greece	170.5%	581.68	341
17	Italy	147.4%	2,594	1,760
18	Australia	124.3%	1,025	824.3
19	Hungary	121.9	225.56	184.9
20	USA	96.5%	13,770	14,260
	Source: CNBC + World Bank

Greece set to take a long cold bath

Public sector pay accounts and pensions account for 34% of public expenditure in Ireland – which in 2010 will reach €61.1 billion.  These items account for 75% of public expenditure in Greece (excluding interest on public debt).

The EU and the IMF are to provide Greece with a €110 billion bailout.  The price of this is a combination of spending cuts and tax increases equivalent to 11% of Greek GDP, on top of measures already taken this year.  These measures are intended to bring about a turnaround in the Greek public debt to GDP ratio beginning in 2013 and to reduce the fiscal deficit to below 3% of GDP by 2014.

The Greek Government will also strengthen income and labour market policies; improve the management of State enterprises and improve the overall business environment.  This includes measures to eliminate corruption and make procurement procedures more transparent.  Greece ranks 71st in the Corruption Perception Index of Transparency International with a score of 3.8.  Ireland ranks 14th with a score of 8. 

The capitalisation of Greek banks is to be strengthened by the establishment of a Financial Stability Fund.

A progressive tax scale will apply to all sources of income and measures are to be taken to eliminate tax evasion and prosecute evaders.

Reductions in wages and pensions are to be structured so as to protect the most vulnerable and those living on the minimum wage.  The minimum wage in Greece for an 8-hour day is €30.40; in Ireland it is €69.20.

There is also to be a significant reduction in Greek military expenditure.

The Mannion era at Aer Lingus

Dermot Mannion succeeded Willie Walsh as chief executive of Aer Lingus on 8 August 2005.  he departed the company on 6 April 2009.  Mannion’s tenure was marked by the privatisation of the company.  The former chief financial officer, Seán Coyle was recruited on 22 August 2008 and departed on 31 December 2009

Ryanair owns 29.82% of the equity; the State owns 25.11% and 12.47% of the equity is owned by employee share ownership participation.  This leaves 32.6% of the equity in more dispersed ownership

Year	Group Profit / (Loss) €	Mannion’s Remuneration €	Coyle’s Remuneration €
2005	100,047,000	206,000
2006	-79,368,000	982,000
2007	105,265,000	1,115,000
2008	-109,882,000	652,000	187,000
2009	-130,081,000	764,000	875,000
TOTAL	€-114,019,000	€3,719,000	€1,062,000
Days’ Service	1,337	496

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