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News : Irish Last Updated: Mar 22, 2013 - 9:05 AM

Friday Newspaper Review - - Irish Business News - - March 22, 2013
By Finfacts Team
Mar 22, 2013 - 9:02 AM

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The Irish Independent reports that a group of up to 30 Irish property speculators have been left sweating on their investments due to the Cypriot bailout crisis.

The group, mainly Irish nationals living in the Middle East, all invested in a fund to take advantage of the collapse in property prices back home in Ireland.

Under the scheme, each invested €20,000 or more with a property consultancy, which has been seeking to snap up cut-price Irish properties whose value is likely to increase in the coming years.

A further 20 British nationals are also thought to be involved in the scheme.

Investor funds were placed in a Cypriot client account.

However, the account cannot currently be accessed after banks on the Mediterranean island closed their doors last weekend.

And tens of thousands of euro could be wiped off the value of the fund should the Cypriot government cave in to pressure from the EU and IMF for a levy on bank deposits as part of a bailout deal.

Richard Jones (37), a project finance consultant from Ballyhaunis, Co Mayo, who is involved in the scheme, flew in to Cyprus earlier this week in an attempt to withdraw the cash before any proposed levy on the account.

"I came over yesterday because the banks were due to reopen, but they didn't," he told the Irish Independent.

"I found it hard to get into a hotel room here. Everything has been booked up by the Russians coming in to withdraw their cash. That just confirmed my decision to come out as there will be an almighty run on the banks once they reopen."

He said the clients' funds were held in a Cyprus bank because the country "has been seen as a gateway for investment from the Middle East into Europe".

"Most of my investors are very small -- around €20,000. But it is a lot of money to them. They are mostly Irish and British expats living in the Middle East and they see value to be had in Irish property now," he said.

Mr Jones said he believed the current crisis signals the "beginning of the end for the euro".

He added: "I think what the EU has signalled is that bank deposits are no longer safe. At a single stroke they have reduced the European banking system to third-world status."

The Irish Independent also reports that a property sold for €1.8m or €300,000 over its guide price – the highest for a Dublin house at auction so far this year.

No 1 Leeson Park, near Ranelagh, is in walk-in condition as it has been substantially upgraded from the days when it was a college for training ships' radio engineers.

In 2005, at the height of the boom, it was converted from eight flats into a stylish family home.

The purchaser was undaunted at the prospect of paying property tax of €1,900 this year or €3,800 in a full year along with stamp duty of €26,000.

But then again, they could have paid about €250,000 in stamp duty on a similar house during the boom.

Similar houses in Leeson Park could have sold for around €3.5m at one point – so the stamp duty would have been significantly more.

Now its new owner will enjoy a 370sq m (3,980sq ft) home, which retains traditional period features while also being equipped with luxury features such as underfloor heating and three en suites among five bedrooms.

Tree-lined Leeson Park is well known for its mixture of upmarket period homes, embassies, offices and some apartments as well as being close to Fitzwilliam Tennis Club.

The Irish Times reports that yesterday’s 2012 GDP figures from the CSO matched exactly with the expectations of the Government, which had built 0.9 per cent growth into its economic plans.

For most other economy-watchers, the outcome surprised on the upside, with the most striking positive coming in the performance of the domestic economy.

It isn’t powering along in Tiger fashion but the figures suggest it is stuttering slightly less than before, with an annual drop of 0.9 per cent in consumer spending, a better outcome than many had expected.

Furthermore, a 1 per cent quarterly expansion in consumer spending on a seasonally adjusted basis offers some hope for a more robust domestic economy this year.

Alongside this, investment was up by 1.2 per cent for 2012 as a whole, again ahead of most forecasts and helping to balance against a 3.7 per cent drop in Government spending.

Domestic reawakening?

A sense that the State’s slumbering (and cash-strapped) consumers and businesses could be ready to reawaken is particularly welcome in light of our export performance, which has been verging on the anaemic of late.

Last year’s export growth, while positive, was the lowest in three years. This reflected both weakness in exporters’ main markets, notably the euro zone, and continuing declines in pharmaceutical sales. It remains to be seen how the export picture will develop over the year, particularly in light of uncertainty in Cyprus and its consequences for the wider European economy, but a sense that the domestic picture is brightening offers some encouragement amid the uncertainty.

If the economy can sustain the rise in employment recorded by the CSO last month, there will be more reason for optimism.

A breakdown of last year’s export figures shows that services exports expanded by 7.5 per cent in the fourth quarter, compared with the same period in 2011. This compared with a decline of 3.8 per cent in goods exports, which reflects trends already seen in industrial production.

The Irish Times also reports that Irish credit unions have accused the Government of behaving worse than the Cyprus authorities in imposing losses on the savings of ordinary people.

A total of 16 credit unions have suffered losses of approximately €15 million following the Government’s decision to liquidate the former Anglo Irish Bank, subsequently called the Irish Bank Resolution Corporation (IBRC).

Chief executive of the Irish League of Credit Unions Kieron Brennan told the Irish Times yesterday that most of the losses would have to be absorbed by the credit unions involved. He said that would mean dividends might not be paid for a number of years in some cases, although shareholder funds would not be touched.

“This decision to allow the burning of a deposit-based instrument in Ireland is a first in the euro zone. In Cyprus they are debating something that might happen but it has already happened here,” said Mr Brennan.

He said his members were particularly aggrieved that a product designed specifically for credit unions had been treated in this fashion.

Mr Brennan has sent a letter to all 12 Irish MEPs in the European Parliament drawing their attention to “significant levels of credit union deposits which have now been reneged on by Ireland”.

Sanctity of deposits

He told the MEPs that each of the 16 credit unions had received €100,000 from the State’s Deposit Guarantee Scheme but some credit unions invested €2 million and so were now carrying a loss of €1.9 million. Mr Brennan said current reports that the proposed bailout of Cyprus would constitute the first interference in the sanctity of deposits within the euro zone were incorrect as the Government had caused a loss of €15 million to the credit union movement in Ireland. “This is a deposit-based instrument and it has been burned. In doing this the Irish authorities are doing precisely what they said they would not do,” Mr Brennan said yesterday.

He added that the Government had been responsible for the management of Anglo/IBRC and had prepared its plans for liquidation months in advance. He also said Anglo/IBRC had refused repeated requests from credit unions to transfer their deposit-based tracker bonds to AIB in 2011 at a time when a range of deposits had been transferred across. “The Government was responsible for Anglo/IBRC and so must accept responsibility for the consequences of the decision to liquidate the bank.

“We now want the Government to deal with the situation and force the liquidator to address it so that ordinary savers are not penalised,” said Mr Brennan.

Place in queue

However, Minister for Finance Michael Noonan told the Dáil yesterday that the credit unions would have to take their place in the queue with other creditors following the liquidation of IBRC. He said the tracker bonds sold to credit unions had a structured deposit element which was covered by the Deposit Guarantee Scheme and as a result the first €100,000 of any claim was covered. Mr Noonan added that the bond itself was not covered by the bank guarantee as it predated that scheme.

He told Fianna Fáil finance spokesman Michael McGrath that the credit unions involved had the option of getting out when the State moved virtually all deposits out of Anglo Irish Bank but they had decided to stay in. “If the hit on an individual credit union is such that it comes below the required reserves, it should take up the matter with the Credit Union Restructuring Board, ReBo”.

The Irish Examiner reports that Bank of Ireland chief executive Richie Boucher’s retention was a condition for a group of investors that bought a stake in the lender in 2011, according to Finance Minister Michael Noonan.

The Government sold a 34.9% stake in the bank to five investors — including WL Ross & Co and Fairfax Financial Holdings — in 2011, lowering the State’s stake to 15.1%.

The group of investors — also including Fidelity Investments, Kennedy Wilson and the Capital Group — invested a combined €1.12bn in Bank of Ireland.

The bank paid Mr Boucher total remuneration of €843,000 in 2012, after he waived €67,000 according to the bank’s annual report, published earlier this week.

It’s “difficult to argue that a good job isn’t being done there,” Mr Noonan told the Dáil yesterday. “The investors see fit to reward” Mr Boucher, he added.

Bank of Ireland’s board of directors shared a combined €2.56m in remuneration last year; with Mr Boucher’s total package double that of the next highest — and only other executive member of the bank’s board — chief financial officer, Andrew Keating, who was paid €418,000, but who was only appointed to his post in February of last year.

Before taking the €67,000 that he waived into account, Mr Boucher’s total pay package last year increased from €898,000 to €910,000.

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