Tag Archives | Brian Lenihan

NAMA. Some worthwhile reading.

I wrote back in April what my thoughts are with regards to how NAMA might actually be a good thing for some developers.

With the recent publication of the NAMA legislation (actually more like a wish list rather than legislation) by Minister for Finance, Brian Lenihan, one headline that did catch my eye was this from the Irish IndependentLenihan: Property won’t be bought back at discount.

The start of the article went as follows:

Mr Lenihan said the Government had the right to restrict certain individuals from acquiring land from NAMA.
“Yes, we will have the powers to preclude certain buyers, and, yes, it will be my intention to exclude the persons who brought us to this hazardous position,” he said.

All very noble, but I guess only time will tell how the very tight circle of Irish property developers and banking institutions will find a way around this.

Or even how tightly the government will stick to their intentions if the same property developers that are in trouble today are the “only game in town” in years to come if they end up being the only people willing to buy the property at any price from NAMA.

For some excellent reading on the proposed NAMA legislation, check out the following websites:

Anyone have any other recommendations?

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Budget 2009 – my thoughts!

The Department of Finance release 150 pages of disastrous news for the country last Tuesday evening. The country is going to be crushed with extra taxes and reduced benefits for the next couple of years. The only light that seems to be at the end of the tunnel could be seen in the long lines for Lotto tickets the next day for Wednesday nights €10m Lotto jackpot draw.

Winning the Lotto is about the only way left to make money in Ireland without the Government taking a huge chunk out of it. That and being lucky enough to have picked Mon Mome to win the Grand National at 100/1 last Saturday.

In a budget where the man on the street was hammered by a reduction in take home pay of up to 9%, Minister Brian Lenihan gave a complete lie to his pre-budget promise of providing a fair budget that would take equally from everyone. For many of us who are already either losing our jobs or having to take even bigger pay cuts to stay working, the Minister really showed that he’s still really only out to look after his parties political friends.

Blame

And worse, in a radio interview on Wednesday morning, the Minister then rubbed our noses in it even further when telling us that it’s all our fault.

Nothing then to do with Government mismanagement of the economy for the past 7 years, or the fact that the banks and developers were allowed create debts so large and unmanageable that no one now except the Government can sort things out – with our cash.

It’s our fault, according to the Minister, that he had to raise taxes because we were all doing our shopping up north. He seems to be forgetting that he almost forced us to do that by raising VAT at a time when it was being decreased by the British government.

Silver Lining

So was there anything in the budget documents that that could give us even a glimmer of hope for the coming years?

The shocking answer is that there is nothing, nada, zilch. The best that can be said about Tuesdays budget is that it could have been worse, for now. But it will be getting worse in 2010 and 2011 based on what the Minister had to say.

Impact

No one has escaped this budget – from the low paid who are now having to pay tax where they didn’t before, to those on social welfare where even the simple act of cancelling the Christmas bonus is the equivalent of a 2% cut in payments.

The common consensus before this budget was that the Government needed to do whatever possible to get people spending money again to give the economy a boost. Yet all that the Minister has done is remove even more money from our pockets which will probably even further reduce demand for goods and will probably mean prices will fall even further.

Ah, a positive eventually – cheaper good, if we do decide we want to spent what little money we have left.

But falling prices are bad for business and ultimately bad for employment so it’s a never ending spiral of bad news we’re facing.

Even if we decided, which would be to the dismay of the Government, we can’t afford to spend as much as before, they’ve managed to screw us on our savings as well. The DIRT tax, a tax on the interest you make on your savings, was increased from 23% to 25%. But that stingy measure will only bring in a measly €70m in a full year.

What can be done?

Unfortunately, with a couple of exceptions that I’ll come back to later, we’ve just got to suck it up and move on. We can, and should, let our politicians know what they’re doing to us – write them a letter or send them an e-mail. We’ll have an opportunity with the local and European elections coming up to give them a strong message about how we think they’re treating us.

To find out more about the impact the budget will have on you and your family, you can call the Revenue or any of the particular Government departments you deal with such as the Department of Social and Family Affairs.

Don’t forget though, that there are still ways to get some of your tax back from the government. You can claim tax relief on certain expenses you have during the year such as medical and dental costs, rent and refuse charges.

If you have a budget for how you spend your money, you should review this to take into account your drop in income. If you don’t have a budget, you can very quickly set one up by simply writing down all your monthly expenses set against your income. It’s quite likely that you’ll need to cut your spending across different areas – many of the areas I’ve covered here recently such as mobile phone and tv costs, electricity, gas and grocery shopping.

For many of us it’s going to be very worrying when we sit down to check out the full impact of the budget on our finances. Depending on our circumstances, we’ll be worse off by between €600 and €6000 per year. You shouldn’t avoid or delay checking your finances following the budget – some of the changes were implemented immediately (diesel and cigarette increases) on Tuesday night and you could be paying out extra already.

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Keeping our banks out of the hands of private equity

There’s been some coverage recently of the banking unions calls for the Irish banks not to “fall into the hands” of private equity investors. Obviously, with headlines like “Unions fears 3500 job losses” you can see why they might be worried.

While private equity funds have a “slash and burn” reputation – coming in and reducing costs anywhere possible while at the same time extracting as much money as they can for themselves – its unlikely that the strength of the unions within Irish banking would allow that to happen – in the short term anyway. It hasn’t happened in Eircom – from a job losses as a money saving tactic perspective at least.

There’s the good and the bad of private equity deals – but I don’t know enough to comment fully. The KKR takeover of RJR Nabisco in 1988, one of the most famous, is the subject of “Barbarians at the Gate” which is worth a read.  A positive example of a private equity deal was the £25m takeover of London City Airport by Dermot Desmond in 1995 and its subsequent sale for £1.65bn in 2006.

How and ever, the perception is mostly negative though. Thanks to Michael Wade at Execupundit.com, check out this Business Week article “How Private Equity Strangled Mervyns“. Some key quotes from the article:

Cerberus, Sun Capital, and Lubert-Adler stripped the 59-year-old retailer of its assets and threw 30,000 people out of work .

Its 149 remaining stores are being liquidated. More than 18,000 people have been thrown out of work—without severance and, in many cases, weeks of vacation pay—amid the toughest job market in a generation.

Then they stripped it of real estate assets, nearly doubled its rent, and saddled it with $800 million in debt while sucking out more than $400 million in cash for themselves, according to the company. The moves left Mervyns so weak it couldn’t survive.

You can see why people might be worried. It will be interesting to see what sort of deals the Minister for Finance, Brian Lenihan can come up with. Will competition concerns be thrown out the window in order to save the banks and keep them from the hands of the private equity companies?

And will the same competition considerations be heaved out the same window to allow Ryanair take over Aer Lingus? But more about that later.

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More about Brian Lenihans nominee panel for Bank boards

I posted a week or so ago looking for suggestions as to who should be appointed as the taxpayers nominees on the boards of banks following their bailout by the Government. We had some interesting suggestions from a number of people:

Wanted

  • Senator Shane Ross
  • Joe Higgins “has time on his hands these days – in fact why not make him Financial Regulator instead of that wimp we have?”
  • Eithne Tinney – “she shook up the EBS board”
  • Brenda Power – “she annoyed the HSE so much they won’t take her calls”
  • Nell McCafferty “she’d take on anyone”
  • David McWilliams – put his money (or action) where his mouth is
  • George Lee – lets see if he can act as well as he can talk
  • Bertie Ahern – he doesn’t trust banks
  • Grainne Carruth – great experience with cash handling
  • Dr. Alan Ahearne from UCG -He seems to make a lot of sense whenever he’s on the radio recently

Not Wanted

  • Celia Larkin
  • Glenda Gilson
  • Roseanna Davison
  • Eddie Hobbs – needs the banks now to fund his brendan investments
  • Anyone to do with the Financial Regulator – proven to be no good at their jobs already

Interestingly, there was a similar suggestion from the Irish Bank Officials Association who “don’t want the ‘old regime’ to be nominees“.

Unfortunately however, if Simon Carswell is to be believed, we’re going to get “same old, same old” in the names that are probably going to end up on this panel – former bankers, civil servants and regulators. More of the banking old boys network – there’d hardly be any concern on the part of the banks if that were to be the case.

No names have been announced by the department yet, but two former chairmen of the Revenue Commissioners, Dermot Quigley and Frank Daly, have been mentioned as possible appointees.

Former central bankers and regulatory figures are also likely to figure on the panel. The former chief executive of the Irish Financial Services Regulatory Authority, Liam O’Reilly, is already on the board of Irish Life & Permanent.

Expect other former senior public servants and ex-department secretaries to appear on this panel, which the Minister is thought to be planning to announce shortly.

Jobs for the old boys – but did we really expect anything different?

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Who should be on Brian Lenihans nominee panel to become bank directors?

Over the weekend, I posted my thoughts on the proposal from Brian Lenihan to place his nominees onto the boards of any banks involved in the governments bank bail-out / guarantee scheme. There were two comments posted in response, but along the same lines.

The question is – who should Brian Lenihan actually put onto his panel of nominees?

The suggestions in the comments for potential nominees were as follows:

  • Senator Shane Ross
  • Joe Higgins – “has time on his hands these days – in fact why not make him Financial Regulator instead of that wimp we have?”
  • Eithne Tinney – “she shook up the EBS board”
  • Brenda Power – “she annoyed the HSE so much they won’t take her calls”
  • Nell McCafferty – “she’d take on anyone”
Who else do you think should be on this panel? Who would you like to see walking into the board rooms of Bank Of Ireland or AIB in the coming months? Or who do you think should definitely not be sent in?

I have a few that I’ll post later in the week, but in the meantime, e-mail or post a comment below with your thoughts. Like our Consumer Pre-Budget Submission, I’ll compile the listing of suggestions from everyone by the end of the week and I’ll e-mail them into the Minister on Friday.

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Brian Lenihans pointless idea to nominate directors to bank boards

I’ve been doing a bit of thinking about one of the conditions being imposed by Brian Lenihan as part of his bank bail-out package. This is the one where he will be putting a person of his own choosing onto the board of each of the banks.

In order to promote the public interest, a covered institution shall, at the direction of the Minister, take all reasonable steps to appoint at least one but no more than two non-executive directors to its board from a panel approved by the Minister during the period of the guarantee. The covered institution shall remunerate those non-executive directors.

While I’m sure he has very noble intentions with this particular aspect of the deal, it is completely and utterly useless as a means to keeping an eye on the banks.

When you become a director of a company, your primary “fiduciary duty” is to the company itself – not to the shareholders, not to your fellow directors, and definitely not to any outsider third parties (like the Government or the Irish people).


Therefore, the board nominees of Brian Lenihan will definitely be on the inside, but they won’t be able to report any information back. They’ll very likely see what’s going on in the banks boardrooms, but they won’t be able to tell anyone.
But, I hear you say; they’ll have a vote on the board and they will therefore be able to influence things. And if they can’t influence things, they will be able to record their dissention on the minutes of the board meetings – which can be viewed by the shareholders (should they ever decide to do so).

Again, this all very noble in aspiration and theory but none of this is ever going to happen when it comes to day to day practice.

The government nominee is going to be in a minority of 1 at every meeting. They will be ignored and sidelined (completely legitimately, by the way) and they will not be able to do a single thing about this or about anything that they see happening within the confines of the boardroom.

My point pretty much ends there – it’s an unworkable idea that won’t achieve the results that we’re being told that it will – but you can read on for extra detail if you want to see a hypothetical example of how all this exclusion and isolation of the government nominee could be achieved by any unscrupulous banks.

Take as an example a theoretical bank, ABC Bank Limited. This theoretical financial institution has a board of 8 people – made up of 7 bank representatives and the single outsider nominee as part of this brave new “post bail-out” world.

Let’s see what could happen at the very first board meeting following the government nominee appointment:

  • The board votes for a Chairman and Deputy-Chairman. Custom and practice dictated that person x and person y were going to get these positions this year, because it’s their turn. The government nominee is aware that person y would probably be unacceptable to the share-holders and the government because of past indiscretions, but is outvoted 7-1.

  • The board then votes to create a finance sub-committee that will be responsible for determining pay, conditions, and looking after the accounts prior to presentation to the full board. Despite standing for one of the positions, our government nominee doesn’t get onto the sub-committee because he’s in a minority of one.
  • Concerned about what might be happening out of sight, tThe nominee asks about seeing minutes from finance sub-committee meetings, but is told that they’re never circulated to the full board “because it’s always been that way”. The nominee asks for a vote to be taken that would allow finance sub-committee meeting minutes to be shown to the full board, but is voted down 7-1.
  • The nominee, having tried to do his job for Minister Lenihan, but still within his directorial responsibilities, asks that this vote and decision be recorded in the meeting minutes, and that his dissatisfaction with the result be also recorded.
  • As the meeting continues, in an effort to become familiar with what’s going on within the company, the government nominee asks a series of questions about different items that are being discussed, or tries to find out the background to some items. He’s variously told that:

o We’ll have that information for you at the next meeting

o You don’t need to concern yourself with that particular item – we’ve always done things that way

o That’s confidential so we can’t give you any further details on that

o That’s a Freedom of Information issue, so we can’t give you that information

o That’s a day to day banking issue – you don’t need to micro-manage issues – the board is only responsible for high-level matters

o That’s a matter for the auditors – they’re happy with things so you don’t need to worry about it

And there we have it – the government nominee is sidelined and ignored at his very first meeting. This is all done completely legitimately and the board has operated within the bounds of all company law requirements – they’ve done nothing wrong except to reduce the government nominee to a mere sock-puppet at the boardroom table.

But hang on, what about the minutes from the meeting? Won’t they include all of the discussions and items from above? Well, let’s have a look at the next board meeting activities:

  • The minutes of the last meeting are circulated, and a vote is proposed for their approval. The government nominee notices that specifically:

o There is no record of his request that finance sub-committee minutes be submitted to the board – nor is there any mention of the vote that was taken.

o There is no note recorded in the minutes, despite his specific request for its inclusion, of his stated dissatisfaction with the fact that the main board doesn’t get sight of finance sub-committee minutes

o There is no record of the fact that he was supposed to be provided with information as a result of questions raised at the last meeting.

o Nor is there any record of his other requests for information which were dismissed, and obviously no record of the reasons for dismissing the requests.

  • The government nominee raises these issues, but the chairman ignores the protestations because the rest of the board as indicating that they’re happy with the minutes.
  • At a vote, the minutes are approved by a 7-1 majority as being a fair representation of the previous meeting. To the government nominee, it’s now like as if the previous meeting, and their complete contribution, didn’t happen at all.
  • The government, unhappy with the way minutes are taken, proposes a vote that minutes be recorded and subsequently be transcribed, rather than having a bank secretarial staff member taking them. However, that vote is also defeated – and as the government nominee slowly begins to realise the pointlessness of it all – doesn’t even bother any more to ask to have the vote and subsequent decision recorded on the minutes.

So, we now have a government nominee that can do absolutely nothing within the confines of the boardroom and who can do nothing outside of it either, since company law has not been broken.

It is entirely likely that if they were to try to reveal the true substance behind what’s going on at boardroom level in the bank, they are the ones who could potentially be in trouble.

In such a no-win situation, what is the government nominee to do? Be in a minority of 1 for the whole time on the board, or gradually toe the boardroom line and take advantage of their position as a board member of a major financial institution? Remember, the government nominee is going to be paid by the bank themselves rather than by the government – “whoever pays the piper calls the tunes?”

It’ll take government nominees of very strong standing and moral fortitude to stand apart in such a situation and not sell out completely and “become one of the boys”.

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Tinkering Around the Edges – Budget 2009

That’s about the sum total of my thoughts on Budget 2009 from Brian Lenihan. Lots of messing around here and there, but nothing that really stands out as addressing the causes, or resolving the impact, of the problems that we’re faced with.

With regards to state agencies, you may have heard that the plan is to:

proceed with 30 rationalisation proposals that will reduce the number of bodies by 41, streamline functions in 3 areas and rationalise the army barracks structure bringing it more into line with operational requirements and permitting economies of scale.

This does mean that the National Consumer Agency will be merged with the Competition Authority. There’s no further details on what the implications of this will be. Still – let the Celebrity Death Match between Ann Fitzgerald and Bill Prasifka begin. The winner gets to look after the consumers interests.

Suffice to say that in the short term, it won’t actually mean a whole lot anyway, and it’s unlikely to really save any money in the long term. Job losses? Hardly. Cost reductions? Unlikely. All we can hope for is that the interests of consumers are better served by the amalgamation of two useless regulators into one. We’ll see if two wrongs with regards to consumer affairs can actually make a single right.

Possibly the most interesting aspect of this decision is the fact that the National Consumer Agency was longer an interim (a pretend, powerless) organisation that it was an acutual properly functioning agency. It was announced in 2005, received statutory powers in 2007, and is now slated for amalgamation in 2008.

Isn’t that a damning indictment of the uselessness of the agency itself, and a perfect illustration of the complete failure of this governments policies and actions in looking after Irish consumers?

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