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News : Irish Last Updated: Feb 20, 2013 - 10:16 AM


Wednesday Newspaper Review - Irish Business News and International Stories - - February 20, 2013
By Finfacts Team
Feb 20, 2013 - 10:10 AM

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The Irish Independent reports that hundreds of thousands of homeowners are facing more mortgage pain as interest rates are hiked.

AIB, the country's largest bank, is planning a new increase in variable rates, its chief executive has warned. The move is expected to spark a new round of rises from other lenders, hitting around 300,000 people with variable home loans.

AIB has around 70,000 customers who have variable rates.

Every 0.25pc rise in rates adds €30 a month to the cost of repayments on every €200,000 borrowed.

Experts said a new rise in rates would push up the number of residential customers who are in arrears.

Broker Michael Dowling of Abacus Finance in Dublin said all the lenders were ready to push up variable rates, but each lender was reluctant to be the first to move. Once one goes, others will follow, he warned.

He said banks were anxious to see the average variable rate go from around 4.3pc to 5pc. That could add €1,000 a year to the annual repayments on a €200,000 mortgage.

Mr Dowling said the Government now has a hands-off approach to mortgage rates, despite having put pressure on lenders to reduce variable rates.

Last year, AIB pushed through two rises of 0.5pc each. However, speaking about the imminent rise, AIB boss David Duffy said: "It's not going to be a whole series of raises."

The revelation of more hikes came as promises by AIB to restructure 33,000 distressed mortgages were dismissed as "spin".

Mr Duffy has said the bank would contact all those in arrears and offer them a deal to restructure their repayments by the summer.

But David Hall of the Irish Mortgage Holders Association accused Mr Duffy of engaging in "spin" when the bank said it would do deals with up to 33,000 distressed mortgage holders.

He claimed the bank had offered few, if any, distressed borrowers long-term restructuring such as split mortgages or mortgage-to-rent options.

Asked how many mortgage holders had been offered deals, an AIB spokeswoman said she had no figures at the moment.

The bank, which has been given €21.5bn by the State, claims its variable rate is one of the lowest in the market.

Meanwhile, there was a huge jump in the number of mortgages issued in the last three months of last year. This was mainly due to buyers scrambling to avail of mortgage tax relief, which has since been removed.

Some 6,000 mortgages were drawn down in the October to December period, up from 4,000 in the same three months in 2011.

For all of last year, close to 16,000 mortgages were drawn down, with a total value of €2.6bn. This is the first annual increase since 2006.

There were almost 14,300 mortgages issued in 2011, with a total value of €2.46bn, according to the Irish Banking Federation.

Experts are now predicting that €4bn worth of new mortgages will be issued this year.

Bank of Ireland, AIB and Permanent TSB have committed to ramping up their home-loan lending.

Dermot O'Leary of Goodbody Stockbrokers said AIB and Bank of Ireland alone are committed to issuing €2bn each in mortgages this year.

The Irish Independent also reports that a US bond market wizard named in classic book 'Liar's Poker' is expected to buy the luxury Ritz Carlton Powerscourt hotel after the Wicklow venue went into liquidation last night.

The company behind the five-star, 200-room Ritz-Carlton Powerscourt Hotel was put into liquidation at the High Court after a 100-day examinership failed to save the business.

Liquidation could threaten almost 300 full-time and part-time staff at the high-end venue.

However, the Irish Independent understands that US-based investor Ranieri Partners is in rescue talks to buy the hotel and a deal could be closed imminently.

Accountant Declan Taite of RSM Farrell Grant Sparks was appointed as liquidator of Carrylane, the company behind the hotel, yesterday. He was previously appointed as examiner.

Carrylane went into examinership in November last year, following the liquidation of its parent company Treasury Holdings – controlled by Johnny Ronan and Richard Barrett.

The hotel has debts of €47m owed to NAMA.

As well as Treasury's Mr Ronan and Mr Barrett, the Wicklow hotel was part-owned by as many as 200 investors in tax-driven schemes that helped finance the development.

Liquidation means all staff have automatically been made redundant, but they are being kept on on weekly contracts.

The US firm that is understood to be close to sealing a deal is owned by Wall Street titan Lewis Ranieri. The larger-than-life bond market guru was a major character in 'Liar's Poker', the book about Wall Street bankers in the 1980s written by Michael Lewis.

Mr Ranieri is credited with creating the multi-billion-euro global market for IOUs backed by masses of home loans and commercial mortgages.

Ironically, some analysts blame overheating of that market for the global crisis that has led, at least in part, to the liquidation of the Co Wicklow hotel.

The Irish Times reports that US lawyers for the National Asset Management Agency have claimed a challenge by former property tycoon Seán Dunne and his wife Gayle Killilea to dismiss its lawsuit was an attempt to make a “complex web” of fraudulent transactions look “very innocuous and mundane”.

The couple are seeking to have the State agency’s lawsuit against them in the Superior Court of Connecticut thrown out, arguing that Nama has no jurisdiction to take an action in the US court to overturn the transfer of a half-share in an apartment in Geneva, Switzerland from Mr Dunne to his wife.

In the third court appearance in an increasingly bitter dispute, Judge Barbara Brazzel-Massaro directed that Nama chief executive Brendan McDonagh swear a statement and be questioned by lawyers acting for the couple at a private deposition.

Sitting in the superior court in Stamford, the judge left it up to both sides to decide a date for Mr McDonagh’s deposition. She directed that another Nama manager, John Coleman, be questioned by the couple’s lawyers under oath at an eight-hour sitting next month.

One of the agency’s top 50 debtors, Mr Dunne, who personally owes Nama €185 million, and his wife, who now live in nearby Greenwich, Connecticut, are seeking information from Mr McDonagh about the agency’s view of Mr Dunne’s business plan and its decision to take enforcement action against him.

The court heard that Nama would seek details of further property deals – in Rye, New York, which it believes was also fraudulently transferred, and in Ireland – in addition to the transaction in Switzerland and three property deals in Connecticut at the centre of its lawsuit taken in July 2012.

Before the hearing, Ms Killilea’s attorney Philip Russell told reporters she was considering legal action, in Ireland or the US, over what he claimed was “vexatious” litigation against his client.

Entitled to details 

He said Nama’s lawyers had told them one of its former managers, Kevin Nowlan, would be most familiar with Mr Dunne’s dealings with the agency. But when he was questioned by the couple’s lawyers under oath last Friday, he didn’t know of any fact to support a claim against Ms Killilea.

Nama’s lawyers told the court they should be entitled to the details of any agreement between Mr Dunne and his wife over money transfers and that the Geneva transfer was “one piece of the puzzle”.

Attorney Thomas Rechin, for Nama, said the State agency should be able to discover details of property transfers in Connecticut, Switzerland and other deals in New York and Ireland to prove its case that Mr Dunne was “hiding assets” from creditors by transferring properties and money to his wife and family members.

Nama is entitled to know where Ms Killilea “got her money from”, he said.

“We have got to chase the money; we have got to follow the stream of cash,” he told the judge.

Stonewalled 

In a dispute over the discovery of documents, Mr Rechin said Nama had been “completely stonewalled” by the Dunnes and that the couple’s attempts to depose Mr McDonagh and two other Nama executives rather than to seek detailed discovery was a “shot in the dark”.

On the couple’s challenge to the US court’s jurisdiction, Mr Rechin claimed their application was intended to break the case down into “itty-bitty pieces” by forcing Nama to take separate legal actions in each country where transfers took place to make the action “much less troublesome for them”.

Peter Nollin, Mr Dunne’s lawyer, argued in court that he didn’t know under what common law jurisdiction Nama was pursuing its case: “Switzerland, Ireland, Sesame Street – I am not sure where.”

The Irish Times also reports that staff at Independent Newspapers will have their pension benefit almost halved under management proposals to address a €155 million funding shortfall.

The plan is part of a dramatic ongoing restructuring of the business over recent months. Management say its success depends on workers realising the “weakness of their legal position” and a possible alternative scenario that could see the “failure” of the group.

INM is also understood to be seeking approval from scheme trustees to purchase sovereign annuities to meet the cost of pensions, a move that would leave retired workers exposed to any future default by the State on its debt.

‘Severe’ cut 

The company concedes it is asking members to take a “severe” cut in their entitlements. “Specifically, a 64-year-old on a salary of €60,000 will have his pension reduced from €40,000 per annum to €21,600 – a cut of 46 per cent,” they concede in a document outlining the proposals.

They acknowledge that such swingeing cuts “will be difficult to accept, particularly as active members have been contributing 9.5 per cent of the salary to the DB scheme promise”.

Getting workers and pensioners to accept the changes will require that “they understand the weakness of their legal position and that they recognise the consequences of wind-up and/or INM failure”.

Existing defined benefit pension schemes at INM’s Irish business will close to future contributions under the planned restructuring. The age at which members could draw down on the scheme will also rise to 68.

Management is reported to see its options as either “walking away” from its pension liabilities by winding up the pension scheme “with likely major industrial disruption” or secure approval from the pensions regulator under a section 50 restructuring proposal by the end of June next.

The funding shortfall of €155 million compares with a current market capitalisation for INM of about €19 million.

Management argues that tackling the shortfall will “significantly increase the value of its Irish business”.

Under the restructure, younger staff would have the option of transferring out of the scheme, but that would effectively mean accrued benefits slashed to roughly one-third of their current value.

If the scheme were wound up, it is likely that staff and those made redundant in recent years would receive little or no pension from the group.

The proposal is dependent in part on a special once-off payment of €20 million. Sources close to the company say they have yet to tie down where the money would come from, given the heavily indebted state of INM. It had been expected that a successful sale of the South African interests could release cash for such projects but the group’s lenders are reluctant to sanction the diverting of those funds.

Voluntary redundancies 

The lenders’ stance could also undermine plans for a further round of voluntary redundancies at the newspapers. Staff were told last year that such a programme would be funded by the sale of the South African business.

INM warns that shareholders will be reluctant to invest further without a resolution of the pensions gap. However, there is also a recognition that shareholder approval of the South African deal could be jeopardised if lenders oppose using some of the proceeds to address the pension issue.

There are more than 1,000 members in the INM pension schemes. About 250 are active members – that is, still working for the business.

The Irish Examiner reports that the sale of Irish Life to Canadian insurance giant Great-West Lifeco is expected to result in the loss of some 250 jobs from its enlarged status over the coming 18-24 months.

The well-flagged €1.3bn sale of Irish Life — which still requires competition and financial regulatory approval, and should take until July to conclude — was confirmed yesterday. It will ultimately see the company subsume Canada Life’s Irish operations under the Irish Life brand, with the enlarged business being housed at the latter’s existing Abbey St headquarters.

An additional €40m dividend — payable to the State prior to completion — gives the Government a marginal profit on the €1.3bn it paid for Irish Life last year, as part of the bailout of the then Irish Life & Permanent business.

Canada Life has had an Irish presence since 1903 and has a 5% share of the country’s life and pensions market. The mix of it and sector leader Irish Life is expected to contribute around 10% of Great-West Lifeco’s annual revenues.

Great-West CEO Allen Loney said the deal “affirms our long-term commitment to Ireland” and represents “a good culture fit“.

Irish Life chief Kevin Murphy called it “a great day for Irish Life” and “a significant day and a huge endorsement for the wider life and pensions industry in Ireland”.

Mr Loney said Great-West “is here to create jobs, not destroy them”, but admitted there would be voluntary redundancies and natural attrition in the short-term.

While he didn’t confirm any numbers, it is understood that around 250 positions will go as the enlarged company seeks cost reductions of €40m within its first 18 months of consolidation. He said redundancies would fall fairly between both Irish Life and Canada Life staff.

Mr Loney added that the Canadians’ failure to land Irish Life last year was less to do with the quality of the asset and more to do with the economic downturn and eurozone debt crisis, adding that the change in Europe, and particularly Ireland, has been transformational and that he foresees good growth prospects. He added that Ireland is a key strategic market for Great-West.

Finance Minister Michael Noonan hailed the sale of Irish Life as “a very good deal” and “a historic transaction”, in that it marks the first nationalised institution to be resold by the Government into private hands. He said Irish Life had attracted around 50 initial expressions of interests

He added that the Government does not have a firm timetable regarding the sale of more banking assets — most notably, AIB and its minority shareholding in Bank of Ireland — but that further tranche sales will be looked at during the year.

Asked about the potential to hold out for an even better deal on Irish Life, Mr Noonan said it was a “very opportune” time to sell and it would not have been responsible of the Government to “hang around and take a punt on a price”.

He reiterated that it is not government policy to hold onto its bank stakes, saying that “as soon as we get value, we get out”.

This deal, he noted, shows that full recovery — on behalf of the taxpayer — can be achieved.

Meanwhile, PIBA — the country’s largest financial brokerage representative — welcomed the deal, saying it counted as “a strong vote of confidence” in the life and pensions market here.

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