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News : International Last Updated: Jan 11, 2011 - 7:39 AM


Tuesday Newspaper Review - Irish Business News and International Stories - - January 11, 2011
By Finfacts Team
Jan 11, 2011 - 7:09 AM

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The Irish Independent reports that three banks owed €113m by McInerney Homes succeeded in blocking a restructuring plan that would have forced them to share a loss of €88m in the High Court last night.

US investor Oaktree had been prepared to fund the rescue plan if the debt was written off, but is now set to walk away from the deal where banks are poised to take control.

Bank of Ireland, Anglo Irish Bank and KBC are owed €113m between them by the company.

The three banks objected to the company's restructuring plans, saying that they could recover more of what they were owed by taking over McInerney's assets themselves.

The three banks were set to share just €25m under the proposal put forward by the company.

A majority of McInerney's other, unsecured, creditors had voted to back the plan in return for a recovery of just 7pc of what they are owed.

McInerney is one of Ireland's biggest and longest-established housebuilders, with operations and assets in the UK and Spain as well as in Ireland.

It was taken into examinership last August, with total bank debts of €240m and net debt of €113m.

At the time of that development, McInerney blamed NAMA for its inability to continue trading as normal.

The company said that NAMA had insisted that banks whose loans were heading to NAMA should stop providing it with overdraft facilities.

In September, the High Court appointed Billy O'Riordan of PwC as examiner to McInerney to allow the firm time to put together a rescue package.

Examiner's proposal

That opportunity ended last night, when Mr Justice Frank Clarke rejected a proposal from the examiner that would have allowed the company to exit examinership by writing off its debts.

International investor Oaktree had agreed to pump €40m into the company to pay off some loans and recapitalise the business.

That included the €25m to be paid over to the three banks. The banks argued that they could recover as much as €50m by taking over the assets themselves.

Each side is understood to have backed up their claims with expert advice, including valuation reports.

The judge did not back any particular valuation of McInerney's property assets, but ruled that the banks should be allowed the option of trying to recover the higher amount.

A source involved with Oaktree said the decision was "incredibly disappointing".

The source said the fund put a lot of effort into the McInerney situation and was particularly disappointed that the case did not include a cross-examination where their valuations could be defended.

However, it is understood that the US-based fund will lose little by walking away because it did not make any investment ahead of getting the court's blessing for the restructuring plan.

Loans that were originally made by Bank of Ireland and Anglo Irish Bank have transferred to NAMA since the case began last August.

Details of the ruling are not due to be published until Friday, but the scene is now set for the three banks to appoint their own receiver to take over McInerney.

A source involved in the case said the banks would not take any action until they had consulted with NAMA.

The Irish Independent also reports that the Irish banks tried to put €1bn of property loans through NAMA without incurring any discount or "haircut'' after they cited an agreement they had with Central Bank governor John Hurley.

A document seen by the Irish Independent shows that Mr Hurley and the Financial Regulator allowed all loans from April 2009 to escape any discount (or haircut) and NAMA was forced to pay the full value on these loans despite its reservations about the policy.

The key period in question was from April 2009 to November 2009 when NAMA started valuing loans. During this period loans given out were able to avoid any discount, even though the property market was deteriorating rapidly at this time.

Brendan McDonagh, NAMA chief executive, wrote to the Finance Minister Brian Lenihan in June about the issue and said there was a danger large sums might be "irrecoverable'' as a result. The loans in question were loans to finish off projects and "fully realise'' value from various developments.

Reimburse

In May 2009, Mr Hurley and the Financial Regulator wrote to the banks telling them NAMA would fully reimburse such loans once they were given as part of normal banking arrangements.

However, the letter seen by the Irish Independent shows that Mr McDonagh returned to this subject in June 2010.

"There are certain monetary consequences arising from implementation of this direction,'' Mr McDonagh writes to Mr Lenihan.

"In effect NAMA had to follow the money already paid,'' Mr McDonagh writes. He points out that most of the loans in question were made by Anglo Irish Bank, which was nationalised in January 2009.

It is understood the total amount in question was €1bn, although NAMA found a way to halt about 50pc of these applications.

A spokesman for NAMA said the organisation accepted the decision reached in 2009, but was only prepared to accept these loans at full value if backed up by proper paperwork and if the loans were justified on strict commercial grounds.

The Irish Times reports that former Anglo Irish Bank chief executive David Drumm has taken the unusual step of hitting out publicly at the bank’s former chairman Seán FitzPatrick over comments about his role at the bank in the lead-up to its collapse.

Mr Drumm dismissed Mr FitzPatrick’s characterisation of his position as Anglo chairman in 2008 as a kind of back-seat role as “bullshit”. “He was all over it,” he said.

Contacted at his home in Boston by The Irish Times, Mr Drumm rejected Mr FitzPatrick’s comments – contained in a book published last weekend – that he had no day-to-day role in the running of the bank as the financial crisis intensified in 2008.

He also dismissed Mr FitzPatrick’s comments that he did not know about the bank’s funding problems and that Mr FitzPatrick left the running of Anglo to him.

Mr Drumm claimed Mr FitzPatrick began “interfering” in his management of the bank from late 2007 after problems developed over the secret investment, amounting to 28 per cent of the bank, by businessman Seán Quinn.

He also said he would not have applied for the job of chief executive in 2004 had he not been put under pressure to do so by Mr FitzPatrick, who has claimed he had no involvement in the selection.

Mr Drumm has also contradicted Mr FitzPatrick, claiming that he told him in July 2008 the names of 10 Anglo clients whom the bank had asked to buy a 10 per cent stake held by Mr Quinn.

In a series of interviews for the book, The FitzPatrick Tapes, Mr FitzPatrick claimed that he did not discuss with Mr Drumm the names of the 10 Anglo clients. “He absolutely and utterly was told the names – he knew who they were,” Mr Drumm said yesterday.

Another Anglo source with knowledge of the so-called Maple 10 transaction confirmed that Mr FitzPatrick was told some of the names by another executive at the time.

Mr Drumm said that Anglo executives updated the board, which included Mr FitzPatrick as chairman, about the bank’s precarious funding throughout 2008.

“We had our usual scheduled board meetings but Seán FitzPatrick called countless ad hoc meetings and board conference calls, often at short notice, throughout 2008 specifically to deal with the funding crisis,” he said. “If any board member did not understand how banks fund themselves when they joined the Anglo board, they had a PhD in funding by the end of 2008.”

In the book, Mr FitzPatrick says he didn’t know about the bank’s critical funding position until August 2008.

Mr Drumm said Mr FitzPatrick had a “very controlling” role in the appointment of his successor as chief executive in 2004 – contrary to Mr FitzPatrick’s comments that he had no role in the selection process.

He said Mr FitzPatrick’s interference in his management forced him to complain to Anglo’s senior independent director on the board, Ned Sullivan, in April 2008.

“It was damaging to the bank . . . it undermined the management function within the bank as people began to wonder who was in charge,” he said.

The Irish Times also reports that Portugal and Belgium are coming under renewed market pressure as investor anxiety returns to the euro zone and top-level figures line up to deny any new EU-IMF bailouts are in the offing.

With the euro closing yesterday at a four-month low against the dollar, senior European diplomats will take stock of the situation tomorrow at their first meeting since Christmas. The engagement comes five days before euro zone finance ministers gather in Brussels for their first talks of the year.

The European Central Bank (ECB) stepped up its purchases of Portuguese bonds yesterday as Lisbon prepares for a crucial test of investor sentiment with the auction tomorrow of €1.25 billion in five- and 10-year bonds.

The Portuguese government, whose 10-year bond yields have risen to record levels above 7 per cent, has been denying any external intervention is required or imminent. Many market participants believe otherwise, however, with the cost of insuring against any default on the country’s debt also on the rise.

There was similar pressure yesterday on the price of Irish credit default swaps – as this form of insurance is known – and reports of renewed ECB purchases of Irish debt. Such pressure had marginal impact in real terms however as the EU-IMF rescue means the Government has no need to raise money in the private markets for up to two years.

Weekend reports by Reuters and German magazine Der Spiegel which said prime minister José Sócrates was coming under pressure from Berlin and Paris to follow Ireland now to avert the threat of contagion were denied in Lisbon and further afield.

“There is no discussion to this effect, and it is not envisaged at this stage on such a possibility, be it for Portugal or any other member state,” said a Brussels spokesman for EU economics commissioner Olli Rehn.

While German finance minister Wolfgang Schäuble and his Spanish counterpart Elena Salgado also dismissed the reports, official sources acknowledge in private there is acute concern about Portugal’s prospects.

In spite of the public position adopted by Mr Sócrates’s government, some observers believe an external intervention may well be unavoidable.

According to Germany’s Frankfurter Allgemeine Zeitung newspaper, Berlin would prefer Lisbon to seek aid quickly if necessary rather than draw out the process over “three or six months”.

The country’s present situation is seen in some eyes to be similar to Ireland’s in the run-up to the EU-IMF intervention, with well-placed sources saying any failure to reverse the rise in Portuguese bond yields would have grave implications.

Although news that the ECB was again in the market for Portuguese debt provided a measure of confidence, this was seen as nothing other than a temporary balm. After the yield on its 10-year paper rose as high as 7.45 per cent early yesterday, the interest remained stubbornly high at 7.31 per cent even after some of the heat dissipated.

The renewed turmoil is weighing also on Belgium, where worries about the high national debt are compounding tension over the failure of the country’s linguistically-divided leaders to form a government seven months after a general election.

King Albert II yesterday ordered the caretaker government to draft a budget plan for 2011 which will cut the budget deficit to 4.1 per cent from 4.8 per cent in 2010. The target implies cutbacks or tax increases of €1.8 billion.

Although diplomatic and other sources say the mounting force of market pressure may yet persuade Belgian leaders to agree a power-sharing deal, the latest effort to broker a compromise came to nought last week and the king’s mediator shows little interest in renewed talks. Amid the turmoil, investors have been demanding near record premiums over the price of German debt to hold Belgian paper.

Spain is also returning to the market this week with the sale on Thursday of €2 to €3 billion in bonds. The sale is important for the country, which has repeatedly denied it has any requirement for external aid, as it will be a crucial gauge of sentiment. It is widely acknowledged that any Portuguese intervention would intensify pressure on Madrid.

The Irish Examiner reports that the manufacturing sector returned to strong growth last year — up 15.7% — with experts saying it will help lead the economic recovery.

Production for Ireland’s manufacturing industries for November was 15.7% higher than in November 2009. This was the best performance on a monthly basis in 2010.

However, the seasonally adjusted industrial turnover index for manufacturing industries was 1.4% lower in the three-month period September 2010 to November 2010 when compared with the preceding three month period, according to the Central Statistics Office (CSO).

In the basic pharmaceutical products sector, production rose almost 37% while in the computer electronic and optical products sector production fell 18%.

Bloxham analyst Alan McQuaid said things appear to have improved last year with manufacturing output in the first 11 months of 2010 up 7.4% on average on the same period of 2009, while total production was 6.8% higher.

"It now looks like manufacturing output will post an average increase in volume terms for 2010 as a whole of between 7% and 8%, a very impressive performance all things considered," he said.

The "modern" sector, comprising a number of high-technology and chemical sectors, showed an annual increase in production for November 2010 of 21.7% and an increase of 3.2% was recorded in the "traditional" sector.

"The bottom line is that external demand will be key to how Irish manufacturers perform in the coming months. Any weakening of the global economy will clearly have an adverse impact on output/exports.

"That said, Irish manufacturers are benefiting from improved competitiveness, with the lowering of the cost base arising from the decline in wages and prices across the economy expected to place Ireland in a very favourable position to benefit from the eventual recovery in trade flows," said Mr McQuaid.

Employers group, IBEC said Irish industry has shown itself to be exceptionally flexible and companies have been able to cut costs and improve productivity in response to the crisis.

IBEC senior economist Reetta Suonperä said: "As global demand recovered, the benefits became apparent during 2010."

Some of the sectors that saw particularly steep falls in output during 2009 have returned to very strong growth in 2010 thanks to recovering demand and a weaker exchange rate.

Machinery and equipment, rubber and plastic and basic metals all posted double-digit growth in November.

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Editor's Picks:

ECB intervenes as debt crisis deepens - - Move to buy Portuguese bonds as investor fears turn towards Belgium; Alan Wilde, head of fixed income and currency at Baring Asset Management, said: “The crisis is reaching another key phase with debt auctions this week. It seems unlikely that Portugal can avoid a bail-out.”

Concerns over Belgian debt levels grow - - King asks caretaker government to move ahead with spending cuts; The call came as 10-year debt yields rose 12 basis points to 4.24 per cent, an indication of investors' growing nervousness at financing Belgium's sovereign debt. Belgium now pays a 1.4 percentage point premium, or spread, over benchmark German paper, the highest since January 2009.

Global accord targets credit bubbles - - Basel III offers co-ordinated buffer against economic cycle; Part of the larger “Basel III” banking reform package, the “countercyclical capital buffer” heralds a step change in the way national banking regulators interact and is the first concrete example of “macroprudential” regulation that seeks to moderate the economic cycle.

Falling off the wall: Rising wages will burst China’s bubble - - Peter Tasker who is based in Tokyo says: The message is clear. The China story that has been sold so skilfully all over the world is simply another version of the “new era” thinking that has characterised every investment mania from the South Sea bubble to the dotcom frenzy.

Radical rage: Paranoia disfigures the Tea Party - - Gideon Rachman says ehen Gabrielle Giffords’ father was asked if his daughter had any enemies, he replied bluntly – “Yeah. The whole Tea Party.” His comments raised the central political question about the Arizona shootings. Is it fair to link the attempted assassination of Congresswoman Giffords – and the killing of six bystanders – to the current political climate in America? Or was this just a random act of violence from which no wider moral should be drawn?

Chinese city allows personal investing abroad - - Wenzhou residents can send up to $200m a year

Argentina suffers shortage of banknotes - - Government blamed for country’s runaway inflation; Argentina is suffering a shortage of bank notes – with long queues outside cash machines across much of the country.

California faces budget cuts of $12bn - - Among the areas in line to suffer from cuts planned by Jerry Brown, the new governor of America’s most populous state, are higher education and welfare services; California has a budget deficit of more than $25bn (£16bn), which Mr Brown, a Democrat, said could only be closed by a “vast and historic realignment of government services”.

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Editor's Picks:

In Giffords’s District, a Long History of Tension - - The 8th Congressional District of Arizona, home to Representative Gabrielle Giffords, is a classic swing district that shares a long border with Mexico and has known its share of tensions; She and aides began expressing worry about what they saw as an escalation of threats after a year of brutal town hall meetings over health care. They began to take precautions. “When we did a swing through the district, we began telling the police what we are doing: We let them know where we were going to be,” said Rodd McLeod, her campaign manager.

Killing Underlines Divisions in Pakistan - - The same young lawyers once seen as a force for democracy are now rallying behind the confessed killer of a provincial governor; Their energetic campaign on behalf of the killer has caught the government flat-footed and dismayed friends and supporters of the slain politician, Salman Taseer, an outspoken proponent of liberalism who had challenged the nation’s strict blasphemy laws. It has also confused many in the broader public and observers abroad, who expected to see a firm state prosecution of the assassin.

Judges Berate Bank Lawyers in Foreclosures - - In many opinions, judges have accused lawyers of processing shoddy or even fabricated paperwork in foreclosure actions when representing banks; More broadly, the courts in New York State, along with Florida, have begun requiring that lawyers in foreclosure cases vouch for the accuracy of the documents they present, which prompted a protest from the New York bar. The requirement, which is being considered by courts in other states, could open lawyers to disciplinary actions that could harm or even end careers.

The Politicized Mind - - David Brooks says the political opportunism occasioned by the Tucson massacre has ranged from the irrelevant to the irresponsible, all while we ignore the most productive questions.

A Resurgent Chrysler Says It Is Here to Stay - - Chrysler is in the midst of a new-product blitz that includes revamped models, as well as smaller models it will get from Fiat.

In Detroit, Toyota Vows to Earn Trust - - Akio Toyoda, Toyota’s president, made his first appearance at an American auto show, and said his company was committed to gaining the trust of consumers.

S.E.C. Files More Charges in Galleon Case - - Four people and a hedge fund, Trivium Capital, face civil charges brought by the Securities and Exchange Commission; “Today’s action reveals disturbingly corrupt arrangements — faithless company executives who secretly pass corporate information to hedge fund managers willing to violate the law for profit,” said Robert S. Khuzami, the S.E.C.’s head of enforcement.



© Copyright 2010 by Finfacts.com

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