Sunday, July 10, 2011
By Kathleen Barrington
The emerging trade in carbon credits gets relatively little media attention, even though it is a rapidly growing global market worth up to $1 trillion.
Like motherhood and apple pie, carbon credits are generally seen as a good thing, because they are supposed to limit the amount of damaging greenhouse gases that a company can emit in a year.
The idea is that companies in areas like energy and cement get a free carbon credit allowance from the government.
If the company is a particularly dirty one, emitting more than its fair share, it must buy credits from other companies that pollute less.
If it uses up less than its allocation, it can sell the credits to others - its reward for being clean.
The system is known as ‘‘cap-and-trade’’.
The idea is that the polluters are forced to clean up or pay up. The ‘‘polluter pays’’ principle is dear to many environmentalists. But its appeal isn’t confined to the tofu-eaters; it’s also surprisingly popular with pinstriped bankers.
Investment bankers, in particular, like the idea that the amount of carbon that can be emitted will be continually lowered by governments.
This means that carbon credits should become scarcer over time, and that their value should therefore rise.
The cap-and-trade system has been up and running in Europe for years, but US president Barack Obama has hesitated to introduce it in the US amid fears that it could damage industry, though investment banks such as Goldman Sachs favour the legislation.
American journalist Matt Taibbi of Rolling Stone, who is a stern critic of Goldman Sachs, reckons the carbon credit market is attractive to investment banks because it is, in effect, a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time because of its scarcity value.
‘‘Well, you might say, who cares?” Taibbi wrote recently. ‘‘If cap-and-trade succeeds, won’t we all be saved from the catastrophe of global warming? Maybe. But cap-and-trade as envisioned by Goldman is really just a carbon tax structured so that private interests collect the revenues.”
The claim resonates here in Ireland, where certain private interests have been doing very nicely from our very own cap-and trade regime, though for the moment the beneficiaries appear to be mainly in industry rather than in the investment community.
It emerged last year that cement companies made an estimated €226 million windfall from surplus carbon credits as a result of the over-allocation by the government of carbon credits to the cement industry.
Among the chief beneficiaries were Irish Cement, a division of cement giant CRH, the Quinn Group, headed by businessman Sean Quinn, and Lagan Cement.
Peter Goode, a director of Goode Concrete and a vocal critic of CRH who is embroiled in a High Court dispute with the building materials firm, described the carbon credit trade in Ireland as a ‘‘scam’’, which the Irish government had bequeathed to the cement industry ‘‘as a gift from the heavily burdened taxpayers’’.
Worse still, said Goode, the measure, which was designed to encourage industry to close down inefficient plants, instead had the effect of keeping them open. ‘‘If they close the factory, the credits disappear,” he said.
Paddy Healy, a former director of concrete provider Healy Brothers, agrees. ‘‘The carbon credit system is operating the exact opposite of how it should,” he said.
This is not a uniquely Irish phenomenon. A report published last week found that the European steel and cement industry had already accumulated surplus carbon credits worth a combined €4.9 billion under the EU’s Emissions Trading Scheme.
Sandbag, a group lobbying for a public interest implementation of cap-and-trade, found that, ‘‘just as loosely-fitted seatbelts are useless in preventing injury, a cap sitting above the emissions of the majority of participants is also useless’’.
The scheme has outraged providers of more eco-friendly cement. They argue that polluting cement effectively receives a taxpayer subsidy.
The windfall gains to the cement industry have arisen partly because of the recession, with the result that demand dropped between 2007 and 2008, whereas the allocation of carbon credits during the period 2008-2012 had assumed a high-growth scenario.
But critics said the over-allocation was also a result of strong lobbying by the affected industries.
Now, the EU may once again be poised to over-allocate carbon credits to the cement sector in the next phase of the scheme.
The gains to Irish cement companies could be very large if this happens. One source estimated that the Irish cement industry stood to make a further €625 million in windfall profits over the next seven years, on top of the €226 million it has already made. The result is that the Irish taxpayer will have transferred about €850 million to the cement industry from 2008 to 2020, at a time when the government is financially stressed.
Much of this was entirely predictable, as correspondence obtained by The Sunday Business Post reveals.
As far back as 2005, Seamus Maye, head of the Quarry and Concrete Family Alliance, wrote to the Environmental Protection Agency warning that no account had been taken of the cyclical nature of the construction industry when it came to the allocation of credits.
He pointed out that the industry was then producing at unprecedented record levels.
‘‘When the inevitable fall-off in activity occurs, the cement industry and specifically CRH is set to be rewarded by cashing in on massive CO2 surpluses or ‘‘credits’’, potentially putting tens of millions of euro into the pockets of the polluters,” he wrote at the time.
Things have turned out more or less as Maye predicted. Earlier this year, the Economic and Social Research Institute noted the potentially large gains for plants covered by the scheme and called for a tax on such windfall profits in the electricity and cement markets.
Separately, the emergence of cap-and-trade schemes has given rise to a big global market in carbon credits, a market in which Ireland is seeking to play a role. Financial Services Ireland director Brendan Bruen said earlier this year that global carbon trading volumes were expected to reach $1 trillion by 2020.
The financial services industry has already successfully lobbied for changes in Irish tax legislation to allow carbon credits to be bundled up and traded as shares, in the process known as securitisation.
One effect of the amended legislation is that foreign investors will be able to take their profits from investments in carbon credits in a tax-efficient manner.
The foreign investors will, therefore, avoid paying certain taxes on profits made from investing in assets known as carbon credits - assets that were effectively a gift from European taxpayers.
You wonder if it wouldn’t have been better value for taxpayers simply to have carbon emissions taxed in a clear and transparent manner in the first place.
Monday, July 11, 2011
Tuesday, July 5, 2011
A stealthy, lucrative sleight of hand
Sunday, July 03, 2011 By Kathleen Barrington
Do you remember Bob Diamond of Barclays Bank being examined before a British parliamentary committee earlier this year?
He was being asked to explain why Barclays had paid just stg£113million (€125million) corporation tax in a year when it made £6.2 billion in profits.
It was big news on TV and in the papers.
The House of Commons cross-party select committee wanted to know how the £6.75 million-a-year boss had managed to keep Barclays’ corporation tax bill so low, at a time when its profits were so high.
It turned out that part of the answer to that question was that Barclays had racked up massive losses lending to sub-prime borrowers in the US. It was then able to offset those losses against its British corporation tax bill.
It won’t be any surprise if our own bankers repeat Diamond’s trick.
And it will be equally unsurprising if some ambitious politician seeks to hog the headlines by hauling a few of them before a Dáil committee in a few years’ time, to make them explain why they are paying so little corporation tax now that they are profitable again.
The bankers are likely to answer that part of the reason they are paying so little tax is that they are legally entitled to offset losses racked up during the financial crisis against their newly-restored profits.
That is likely to prove controversial, as the tax losses available for offsetting against future profits are absolutely enormous - as this newspaper revealed last week.
The figures released by Minister for Finance Michael Noonan showed that the 100 largest banks operating in the state, which include IFSC operations, would be able to carry forward €34 billion in unused losses and capital allowances to reduce the amount of tax they pay in the future.
Take Bank of Ireland, for example. It is headed by Richie Boucher, who has been on the board of the bank since 2006, a period in which it engaged in a reckless lending spree.
Bank of Ireland has reported heavy losses in recent years, and has survived only with the support of billions of euro from the Irish taxpayer.
But every cloud has a silver lining, and some of those losses have morphed into assets on the Bank of Ireland’s balance sheet, assets that might be attractive to a potential purchaser.
Some of those tax losses are described as deferred tax assets, an accounting term used to describe an item on a company’s balance sheet that may be used to reduce its tax bill in the future.
‘‘In accordance with applicable accounting rules, the Group has recognised deferred tax assets on losses available to relieve future profits to the extent that it is probable that such losses will be utilised,” the note stated.
That’s an asset which could prove very attractive to a future owner of the bank - especially a bank that is currently very profitable and seeking to reduce its tax bill.
True, it’s perfectly normal business practice to allow businesses to write off profits against prior losses.
However, it is one thing to allow a business to write off losses against future profits when it is the shareholders, the board and management of those businesses who picked up the tab for the losses in the first place - and quite another to allow a business to write off big losses against future profits, when it’s the taxpayer who has picked up the tab for the losses after the shareholders were wiped out.
It is the support of taxpayers that has enabled the banks to avoid liquidation and their management and employees to remain in often well-remunerated employment in circumstances where, if the rules of free market capitalism had applied, they would be out of a job.
It is doubtful whether the public would be happy to see a new, private owner substantially reducing its tax bill as a result of availing of that deferred tax asset, particularly if some of the management team that caused the original bank problem in the first place survived intact under the new owners.
The public would almost certainly view such a move as yet another example of bankers getting the better of policymakers. Certainly, the Organisation for Economic Co-Operation and Development was so concerned about this issue that it published a report on the matter two years ago.
The report pointed out that, as a result of the financial crisis, a large number of banks had sustained substantial losses. ‘‘The scale of those losses, and the potential regulatory capital, profit and cashflow benefits for banks able to convert them into cash, mean that revenue bodies must be alert to potential tax compliance risks as a result of aggressive tax planning involving losses,” it warned.
The OECD pointed out that ‘‘these large commercial losses can be regarded as the flip side of large profits made in the years prior to the crisis, with increased bank leverage combined with asset valuations which underpriced risk, producing exceptionally large returns on . . . capital.”
In short, the banks made a fortune in the good times by taking excessive risks, secure in the knowledge they wouldn’t be allowed to fail; they passed the bill to the taxpayer when times got tough; and they are likely to offset the losses they have racked up against future profits - most likely when the banks are back in private ownership.
The previous government recognised this risk to a certain degree, when it imposed certain tax loss restrictions on banks transferring loans to the National Asset Management Agency.
The measure means that, when the institutions return to profitability, a minimum of 50 per cent of their trading income will remain chargeable to tax in an accounting period, notwithstanding claims for relief for losses carried forward into that period.
It remains to be seen whether this will be enough to satisfy a public that will have been reeling from years of cutbacks and tax hikes when the banks eventually return to profitability.
But if the example of Britain is anything to go by, the banks will get their way. British chancellor George Osborne, who initially floated the idea of stopping banks offsetting their losses against tax while he was in opposition, changed his mind as soon as he got into government.
Instead, he introduced a bank levy. Shares in the banks rose on the day the levy was announced, as it was less costly than the banks had feared.
Do you remember Bob Diamond of Barclays Bank being examined before a British parliamentary committee earlier this year?
He was being asked to explain why Barclays had paid just stg£113million (€125million) corporation tax in a year when it made £6.2 billion in profits.
It was big news on TV and in the papers.
The House of Commons cross-party select committee wanted to know how the £6.75 million-a-year boss had managed to keep Barclays’ corporation tax bill so low, at a time when its profits were so high.
It turned out that part of the answer to that question was that Barclays had racked up massive losses lending to sub-prime borrowers in the US. It was then able to offset those losses against its British corporation tax bill.
It won’t be any surprise if our own bankers repeat Diamond’s trick.
And it will be equally unsurprising if some ambitious politician seeks to hog the headlines by hauling a few of them before a Dáil committee in a few years’ time, to make them explain why they are paying so little corporation tax now that they are profitable again.
The bankers are likely to answer that part of the reason they are paying so little tax is that they are legally entitled to offset losses racked up during the financial crisis against their newly-restored profits.
That is likely to prove controversial, as the tax losses available for offsetting against future profits are absolutely enormous - as this newspaper revealed last week.
The figures released by Minister for Finance Michael Noonan showed that the 100 largest banks operating in the state, which include IFSC operations, would be able to carry forward €34 billion in unused losses and capital allowances to reduce the amount of tax they pay in the future.
Take Bank of Ireland, for example. It is headed by Richie Boucher, who has been on the board of the bank since 2006, a period in which it engaged in a reckless lending spree.
Bank of Ireland has reported heavy losses in recent years, and has survived only with the support of billions of euro from the Irish taxpayer.
But every cloud has a silver lining, and some of those losses have morphed into assets on the Bank of Ireland’s balance sheet, assets that might be attractive to a potential purchaser.
Some of those tax losses are described as deferred tax assets, an accounting term used to describe an item on a company’s balance sheet that may be used to reduce its tax bill in the future.
‘‘In accordance with applicable accounting rules, the Group has recognised deferred tax assets on losses available to relieve future profits to the extent that it is probable that such losses will be utilised,” the note stated.
That’s an asset which could prove very attractive to a future owner of the bank - especially a bank that is currently very profitable and seeking to reduce its tax bill.
True, it’s perfectly normal business practice to allow businesses to write off profits against prior losses.
However, it is one thing to allow a business to write off losses against future profits when it is the shareholders, the board and management of those businesses who picked up the tab for the losses in the first place - and quite another to allow a business to write off big losses against future profits, when it’s the taxpayer who has picked up the tab for the losses after the shareholders were wiped out.
It is the support of taxpayers that has enabled the banks to avoid liquidation and their management and employees to remain in often well-remunerated employment in circumstances where, if the rules of free market capitalism had applied, they would be out of a job.
It is doubtful whether the public would be happy to see a new, private owner substantially reducing its tax bill as a result of availing of that deferred tax asset, particularly if some of the management team that caused the original bank problem in the first place survived intact under the new owners.
The public would almost certainly view such a move as yet another example of bankers getting the better of policymakers. Certainly, the Organisation for Economic Co-Operation and Development was so concerned about this issue that it published a report on the matter two years ago.
The report pointed out that, as a result of the financial crisis, a large number of banks had sustained substantial losses. ‘‘The scale of those losses, and the potential regulatory capital, profit and cashflow benefits for banks able to convert them into cash, mean that revenue bodies must be alert to potential tax compliance risks as a result of aggressive tax planning involving losses,” it warned.
The OECD pointed out that ‘‘these large commercial losses can be regarded as the flip side of large profits made in the years prior to the crisis, with increased bank leverage combined with asset valuations which underpriced risk, producing exceptionally large returns on . . . capital.”
In short, the banks made a fortune in the good times by taking excessive risks, secure in the knowledge they wouldn’t be allowed to fail; they passed the bill to the taxpayer when times got tough; and they are likely to offset the losses they have racked up against future profits - most likely when the banks are back in private ownership.
The previous government recognised this risk to a certain degree, when it imposed certain tax loss restrictions on banks transferring loans to the National Asset Management Agency.
The measure means that, when the institutions return to profitability, a minimum of 50 per cent of their trading income will remain chargeable to tax in an accounting period, notwithstanding claims for relief for losses carried forward into that period.
It remains to be seen whether this will be enough to satisfy a public that will have been reeling from years of cutbacks and tax hikes when the banks eventually return to profitability.
But if the example of Britain is anything to go by, the banks will get their way. British chancellor George Osborne, who initially floated the idea of stopping banks offsetting their losses against tax while he was in opposition, changed his mind as soon as he got into government.
Instead, he introduced a bank levy. Shares in the banks rose on the day the levy was announced, as it was less costly than the banks had feared.
Monday, June 27, 2011
Graduates face difficult career decisions
By Kathleen Barrington
Now that they have finished their school and university exams, this year’s student graduates will have to consider where on earth they are going to find jobs at a time when unemployment is running at almost 15 per cent.
It is four years since this column pointed out that it would make financial sense for students sitting the Leaving Cert to consider a career in the public sector due to higher pay, better pensions and shorter working hours.
At that time, you could earn on average €47,000 a year in the public sector, compared with just €32,000 a year in industry.
You could also look forward to a pension pot that was typically worth about €1 million more than a private sector one.
It is still largely true that you stand to be better paid if you work in the public sector than in the private sector, judging by the CSO statistics published earlier this month.
They showed that average weekly earnings in the public sector amounted to €871.09, compared with €602.85 in the private sector.
But the backdrop against which students are making their career decisions has changed utterly since 2007.
There is an embargo on public sector recruitment, while public sector pay and pensions, which have already been cut, could be further slashed even if they currently remain more generous than private sector pay and pensions.
The harsh reality is that the public sector won’t be hiring en masse over the next few years, forcing a new generation of school and university-leavers to consider private sector solutions to their employment needs - whether that be at home or abroad.
A recent study by the international recruiting firm Manpower Group makes for interesting reading, as it shows where the job shortages are - both globally and domestically.
In a survey of 40,000 employers across 39 countries including Ireland, Manpower found one in three employers was experiencing difficulty filling positions ‘‘due to a lack of available talent’’.
It also said that employers were more likely to report difficulty this year than at any time since 2007.
The top jobs that global employers are having difficulty filling are technicians, sales representatives, skilled trades workers, engineers and labourers, according to the survey.
That’s followed by managers/executives, accounting and finance staff, information technology staff, production operators and secretaries.
Employers now find filling vacancies in Ireland easier than in all but one of the 39 countries surveyed.That won’t come as a surprise, given the sharp rise in unemployment over the last four years.
The relative ease with which employers can now fill vacancies means it is effectively an employers’ market, though the ready availability of labour should be helpful to the Industrial Development Authority in persuading foreign employers to locate here in the future.
But the Manpower survey also found there are still jobs which employers find relatively difficult to fill in Ireland. Top of the list are sales representatives, followed by engineers, secretaries, nurses, chefs and cooks.
The next most difficult positions to fill are drivers, skilled trade workers, managers, call centre operators and quality controllers.
In another pointer to job applicants, the three main reasons for having difficulty filling jobs are lack of experience, no applicants or lack of technical skills.
The lack of experience issue should be easily resolved by ambitious candidates if they gain work experience in their desired area during the holidays before presenting themselves for a formal interview.
Of course, many school and university-leavers will also want to take into account which jobs will likely pay them best.
However, the jobs for which there is most employer demand aren’t necessarily the best paid, judging by a salary survey published by Morgan McKinley this year.
The survey, which is available at www.morganmckinley.ie, shows that, despite the downturn in the financial services sector, jobs in accountancy and finance generally pay better than jobs in areas where employers are experiencing shortages, such as engineering.
For example, the top-paying job in information technology covered in the survey is a chief technology officer with more than five years’ experience. Someone in that position would expect to earn €125,000 a year. The next best-paying job in IT is a software development manager who, after five years, would expect to earn about €93,000.
By contrast, the top-paid finance director of a large company would expect to earn about €150,000 a year in Dublin, while a financial controller would expect to earn about €110,000 in Dublin.
The middle management jobs in financial services also appear to be better paid than middle ranking jobs in engineering, though comparisons between sectors are quite difficult as the job categories aren’t always strictly comparable.
At the bottom end of the scale, it seems that customer services staff with languages remain quite modestly paid even though employers say such jobs are hard to fill.
That suggests that candidates are either not particularly interested in the work or that they find the salaries unattractive.
One thing is clear though: this year’s crop of school-leavers and students need to study the jobs market carefully before making choices about their future careers.
They must consider where the vacancies are, what the pay and promotional opportunities are likely to be and how those match up against their own personal interests, knowledge, skills and ambitions.
Now that they have finished their school and university exams, this year’s student graduates will have to consider where on earth they are going to find jobs at a time when unemployment is running at almost 15 per cent.
It is four years since this column pointed out that it would make financial sense for students sitting the Leaving Cert to consider a career in the public sector due to higher pay, better pensions and shorter working hours.
At that time, you could earn on average €47,000 a year in the public sector, compared with just €32,000 a year in industry.
You could also look forward to a pension pot that was typically worth about €1 million more than a private sector one.
It is still largely true that you stand to be better paid if you work in the public sector than in the private sector, judging by the CSO statistics published earlier this month.
They showed that average weekly earnings in the public sector amounted to €871.09, compared with €602.85 in the private sector.
But the backdrop against which students are making their career decisions has changed utterly since 2007.
There is an embargo on public sector recruitment, while public sector pay and pensions, which have already been cut, could be further slashed even if they currently remain more generous than private sector pay and pensions.
The harsh reality is that the public sector won’t be hiring en masse over the next few years, forcing a new generation of school and university-leavers to consider private sector solutions to their employment needs - whether that be at home or abroad.
A recent study by the international recruiting firm Manpower Group makes for interesting reading, as it shows where the job shortages are - both globally and domestically.
In a survey of 40,000 employers across 39 countries including Ireland, Manpower found one in three employers was experiencing difficulty filling positions ‘‘due to a lack of available talent’’.
It also said that employers were more likely to report difficulty this year than at any time since 2007.
The top jobs that global employers are having difficulty filling are technicians, sales representatives, skilled trades workers, engineers and labourers, according to the survey.
That’s followed by managers/executives, accounting and finance staff, information technology staff, production operators and secretaries.
Employers now find filling vacancies in Ireland easier than in all but one of the 39 countries surveyed.That won’t come as a surprise, given the sharp rise in unemployment over the last four years.
The relative ease with which employers can now fill vacancies means it is effectively an employers’ market, though the ready availability of labour should be helpful to the Industrial Development Authority in persuading foreign employers to locate here in the future.
But the Manpower survey also found there are still jobs which employers find relatively difficult to fill in Ireland. Top of the list are sales representatives, followed by engineers, secretaries, nurses, chefs and cooks.
The next most difficult positions to fill are drivers, skilled trade workers, managers, call centre operators and quality controllers.
In another pointer to job applicants, the three main reasons for having difficulty filling jobs are lack of experience, no applicants or lack of technical skills.
The lack of experience issue should be easily resolved by ambitious candidates if they gain work experience in their desired area during the holidays before presenting themselves for a formal interview.
Of course, many school and university-leavers will also want to take into account which jobs will likely pay them best.
However, the jobs for which there is most employer demand aren’t necessarily the best paid, judging by a salary survey published by Morgan McKinley this year.
The survey, which is available at www.morganmckinley.ie, shows that, despite the downturn in the financial services sector, jobs in accountancy and finance generally pay better than jobs in areas where employers are experiencing shortages, such as engineering.
For example, the top-paying job in information technology covered in the survey is a chief technology officer with more than five years’ experience. Someone in that position would expect to earn €125,000 a year. The next best-paying job in IT is a software development manager who, after five years, would expect to earn about €93,000.
By contrast, the top-paid finance director of a large company would expect to earn about €150,000 a year in Dublin, while a financial controller would expect to earn about €110,000 in Dublin.
The middle management jobs in financial services also appear to be better paid than middle ranking jobs in engineering, though comparisons between sectors are quite difficult as the job categories aren’t always strictly comparable.
At the bottom end of the scale, it seems that customer services staff with languages remain quite modestly paid even though employers say such jobs are hard to fill.
That suggests that candidates are either not particularly interested in the work or that they find the salaries unattractive.
One thing is clear though: this year’s crop of school-leavers and students need to study the jobs market carefully before making choices about their future careers.
They must consider where the vacancies are, what the pay and promotional opportunities are likely to be and how those match up against their own personal interests, knowledge, skills and ambitions.
Monday, June 20, 2011
Banks buying from their own borrowers
Sunday, June 19, 2011
The subsidiaries of foreign-owned banks are poised to buy back prime properties on the cheap from their own distressed borrowers.
The banks are particularly keen on buying back fine investment properties in well located areas, according to market sources.
The sources said that in some cases it was the banks’ employee pension funds that would buy back the properties; in others it was special units of the banks which had been set up to hold distressed properties until there was a recovery in the market.
The expectation is that the subsidiaries of the foreign-owned banks in the South will soon be following the example set by their British and Northern Irish counterparts, who have been buying up prime assets from their own distressed loan book.
Last week, for instance, Ulster Bank took over a designer outlet retail park near Banbridge, Co. Down.
The stg£70 million Outlet, as it is entitled, was developed by GML Estates, a division of developer John Farmer’s Orana Group.
(The Orana Group is known to investors in the Republic, as some clients of Goodbody stockbrokers lost €31 million in the Northern Ireland Property Fund, which had a joint venture with Orana.)
The Outlet contains 82 stores employing 500 staff. The developer had originally hoped to attract many shoppers from the Republic. But southern consumers are no longer travelling there in such large numbers, as they now have less money in their pockets due to rising unemployment, lower wages and higher taxes. Higher petrol costs have also dulled enthusiasm for long distance shopping trips.
The vehicle used by Ulster Bank to acquire the Outlet last week was West Register (Northern Ireland) Property Ltd. The company is a subsidiary of West Register Property, a division of the Royal Bank of Scotland, the Scottish bank that is the ultimate parent of Ulster Bank. West Register Property acquires assets from RBS’s distressed property portfolio if it considers this the best way to recover the most money for the bank in the medium term.
Last year, Ernst & Young, which had been appointed as administrators to the Richmond Shopping Centre in Derry, sold the centre to West Register. The business had been placed in administration after RBS had called in its loans.
RBS is not the only British bank buying up assets from its own distressed borrowers: Lloyds Banking Group also currently operates a similar subsidiary in Britain.
The model that it has adopted was previously used by British banks following the British property crash in the early 1990s. The idea was to avoid having to account for the losses if the properties were sold on the open market and to benefit from any future recovery in the property market.
However, there have been suggestions in Britain that West Register has sometimes acquired distressed property at below market value, leaving the original borrowers with a sour taste in their mouths.
Last year, Property Week, the British property magazine, reported that RBS had sold one of its most high-profile distressed properties (Charters, the luxury residential development in Sunningdale, southwest London) to West Register.
The magazine said that RBS had, in July 2010, ‘‘sold’’ the scheme to West Register for stg£16.2 million, a year after appointing chartered accountancy firm PriceWaterhouseCoopers as administrators to the development.
John Morris, a director of the development, claimed at the time of the administration in May 2009 that RBS had turned down a £30 million plus offer for the scheme, an offer which was backed up by an independent valuation for Investec, the lending bank.
The July 2010 transaction for just £16.2 million raised eyebrows in Britain, given that luxury residential values in the south-east had risen markedly since May 2009. Property Week said at the time that it had been unable to obtain a comment from either RBS or PWC on the ‘‘cut price £16.2 million sale to West Register’’.
Of course, the banks will want to get the best return on their distressed property portfolios. And they may be of the view that the best way to get a good result is to hold out for a market recovery in the medium term.
But the distressed investors could be forgiven for thinking that they are being penalised for having acquired good assets, which will likely recover in value over the medium term.
They may also fret that the banks have a conflict of interest in that they may want to rush to buy assets at the current distressed prices, so that they can benefit from any future upswing.
The activities of West Register in the North and in Britain are likely to be of interest to property investors in the Republic who own prime assets funded with borrowings from Ulster Bank. That’s because Companies Office filings show that, in 2009, Ulster Bank set up a division called West Register Property (Republic of Ireland) Ltd, to acquire and develop property assets here.
A spokesman for Ulster Bank said that the southern West Register had done ‘‘nothing significant’’ so far. She indicated that West Register only bought back property in cases where Ulster Bank had provided the original loan for the property.
She also said that West Register normally only bought property when it had already been placed on the market for sale and that it would be sold at market value.
She said if there was only a single bid in the market, the deal was done at arms length.
The investors to whom Ulster Bank lent vast sums of money to buy assets at high prices in the past will certainly be hoping that Ulster Bank lives up to those assurances.
The subsidiaries of foreign-owned banks are poised to buy back prime properties on the cheap from their own distressed borrowers.
The banks are particularly keen on buying back fine investment properties in well located areas, according to market sources.
The sources said that in some cases it was the banks’ employee pension funds that would buy back the properties; in others it was special units of the banks which had been set up to hold distressed properties until there was a recovery in the market.
The expectation is that the subsidiaries of the foreign-owned banks in the South will soon be following the example set by their British and Northern Irish counterparts, who have been buying up prime assets from their own distressed loan book.
Last week, for instance, Ulster Bank took over a designer outlet retail park near Banbridge, Co. Down.
The stg£70 million Outlet, as it is entitled, was developed by GML Estates, a division of developer John Farmer’s Orana Group.
(The Orana Group is known to investors in the Republic, as some clients of Goodbody stockbrokers lost €31 million in the Northern Ireland Property Fund, which had a joint venture with Orana.)
The Outlet contains 82 stores employing 500 staff. The developer had originally hoped to attract many shoppers from the Republic. But southern consumers are no longer travelling there in such large numbers, as they now have less money in their pockets due to rising unemployment, lower wages and higher taxes. Higher petrol costs have also dulled enthusiasm for long distance shopping trips.
The vehicle used by Ulster Bank to acquire the Outlet last week was West Register (Northern Ireland) Property Ltd. The company is a subsidiary of West Register Property, a division of the Royal Bank of Scotland, the Scottish bank that is the ultimate parent of Ulster Bank. West Register Property acquires assets from RBS’s distressed property portfolio if it considers this the best way to recover the most money for the bank in the medium term.
Last year, Ernst & Young, which had been appointed as administrators to the Richmond Shopping Centre in Derry, sold the centre to West Register. The business had been placed in administration after RBS had called in its loans.
RBS is not the only British bank buying up assets from its own distressed borrowers: Lloyds Banking Group also currently operates a similar subsidiary in Britain.
The model that it has adopted was previously used by British banks following the British property crash in the early 1990s. The idea was to avoid having to account for the losses if the properties were sold on the open market and to benefit from any future recovery in the property market.
However, there have been suggestions in Britain that West Register has sometimes acquired distressed property at below market value, leaving the original borrowers with a sour taste in their mouths.
Last year, Property Week, the British property magazine, reported that RBS had sold one of its most high-profile distressed properties (Charters, the luxury residential development in Sunningdale, southwest London) to West Register.
The magazine said that RBS had, in July 2010, ‘‘sold’’ the scheme to West Register for stg£16.2 million, a year after appointing chartered accountancy firm PriceWaterhouseCoopers as administrators to the development.
John Morris, a director of the development, claimed at the time of the administration in May 2009 that RBS had turned down a £30 million plus offer for the scheme, an offer which was backed up by an independent valuation for Investec, the lending bank.
The July 2010 transaction for just £16.2 million raised eyebrows in Britain, given that luxury residential values in the south-east had risen markedly since May 2009. Property Week said at the time that it had been unable to obtain a comment from either RBS or PWC on the ‘‘cut price £16.2 million sale to West Register’’.
Of course, the banks will want to get the best return on their distressed property portfolios. And they may be of the view that the best way to get a good result is to hold out for a market recovery in the medium term.
But the distressed investors could be forgiven for thinking that they are being penalised for having acquired good assets, which will likely recover in value over the medium term.
They may also fret that the banks have a conflict of interest in that they may want to rush to buy assets at the current distressed prices, so that they can benefit from any future upswing.
The activities of West Register in the North and in Britain are likely to be of interest to property investors in the Republic who own prime assets funded with borrowings from Ulster Bank. That’s because Companies Office filings show that, in 2009, Ulster Bank set up a division called West Register Property (Republic of Ireland) Ltd, to acquire and develop property assets here.
A spokesman for Ulster Bank said that the southern West Register had done ‘‘nothing significant’’ so far. She indicated that West Register only bought back property in cases where Ulster Bank had provided the original loan for the property.
She also said that West Register normally only bought property when it had already been placed on the market for sale and that it would be sold at market value.
She said if there was only a single bid in the market, the deal was done at arms length.
The investors to whom Ulster Bank lent vast sums of money to buy assets at high prices in the past will certainly be hoping that Ulster Bank lives up to those assurances.
Tuesday, June 14, 2011
Investors left in limbo by apartment wrangle
Sunday, June 12, 2011
By Kathleen Barrington
The fortunes of an estimated 120 investors in the Citywest Golf Suites developed by businessman Jim Mansfield have taken a turn for the worse in recent months.
The investors paid a combined €52 million for 140 apartments at Mansfield’s leisure and conference complex in west Dublin, which went into receivership last year.
They bought the apartments and leased them back to Mansfield. In exchange, they were to get a guaranteed annual rental for an initial period of seven years.
Things got off to a good start during the boom years.
But some of the investors say they suffered an initial loss when Mansfield’s HSS Developments ceased making timely rental payments to them two years ago, as his business began to struggle with the downturn.
That left the investors making repayments on hefty mortgages entirely out of their own pockets, as they were no longer getting any rental income.
Some of the investors have said they are very stressed as their banks are now demanding capital and interest repayments on their mortgages, which were initially interest-only.
The plight of the investors got worse after the decision of Bank of Scotland Ireland (BOSI), one of Mansfield’s financial backers, to appoint a receiver to HSS last year.
Due to complications arising from the receivership, the owner investors are being denied access to their properties, making it impossible to convert, rent or occupy them.
On top of that, investors are owed thousands in promised rental income from Mansfield’s company, which was using the apartments as hotel rooms.
BOSI, which was owed €180 million, appointed Martin Ferris as receiver over its interests in the ground floor and common areas in the Citywest Golf Suite block.
Investors are now uncertain whether the units they own in the ‘apart hotel’ are insured. Ferris told them that he had only insured his own interest in the building -the ground floor and the common areas.
Ferris told The Sunday Business Post that he was only responsible for insuring those areas. He also said that he had not received service charges from the investors.
He said they should be raising their concerns with their agent, a company called Capitacorp, which is headed by director Jack Kinnerk.
Kinnerk declined to comment. But it is understood that he is working on a solution to resolve a very complex situation that was not envisaged at the time that the investors bought their apartments.
The apartments effectively amount to units of three hotel bedrooms, sold at prices ranging from €200,000 to €400,000 per unit.
The investors enjoyed tax breaks associated with investing in hotels, which allowed them to write off certain costs against other income, mainly other rental income.
Peter Bradshaw’s mother, Angela, is one of the investors in the Citywest Golf Suites. He has a Land Registry document showing that she has legal title to one of the units in the hotel.
He said she was owed rent of €18,000, which was not paid by HSS. When she was paying interest only, her mortgage repayments were €800 a month. Now that capital and interest are included, she is paying €2,400 a month.
Peter Bradshaw said that he tried to gain access to his mother’s apartment the week before last, in order to begin work on converting the hotel bedrooms into an apartment.
He said he had given the management prior notice of his intention to gain access. But he was refused entrance by security staff, who told him they were working for Ferris. This leaves his mother in the position of owning a unit to which she has no access, on which she is servicing a mortgage and which may not be insured in the event of a fire or other damage.
He wanted to get access to her unit and convert it into an apartment so she can either rent it or move in.
‘‘Imagine owning an apartment and not being able to get into it, and paying €2,400 in capital and interest. We are not allowed to let the apartment and we are not allowed to get into the building,” said Angela.
Other sources said the question of returning the hotel bedrooms to apartment usage was fraught with difficulties, as it required a change of planning in circumstances where the building was licensed as a hotel.
The Bradshaws are not the only investors who are concerned. Other investors spoke on condition of anonymity.
One said he had spent about €1.2 million on three units, but hadn’t received any rental income from his units for the last two years. He said that when he pays capital and interest back to his bank, he will face repayments of €10,000 a month on units from which he is getting no income at all. He too would like to have the units converted back to apartments that could be rented out.
He was concerned that, if this problem was not sorted out soon, it could jeopardise his relationship with his bank, which is funding a separate new business venture that he says could bring 100 jobs to the town in the west where he lives. He said all he wanted was the ‘‘the apartment and the use of the apartment back’’.
An accountant who introduced clients to the development and invested in the development herself made the point that since the hotel tax breaks expired, there should be no difficulty in converting the units back to apartments.
She said many investors were very happy with the location of their investment, and were simply seeking a solution to their problem. The investors are believed to have mortgages with a range of banks, including BOSI itself. BOSI declined to comment, and referred all queries to Ferris.
Several sources have suggested that some of the investors have already defaulted on their mortgages, though the precise numbers could not be quantified. This raises the possibility that the banks may now have title to apartments that are uninsured.
One thing is clear: the situation is a mess and needs to be resolved.
Otherwise, the fear is that the matter could end up in court - where the only winners would be the lawyers.
By Kathleen Barrington
The fortunes of an estimated 120 investors in the Citywest Golf Suites developed by businessman Jim Mansfield have taken a turn for the worse in recent months.
The investors paid a combined €52 million for 140 apartments at Mansfield’s leisure and conference complex in west Dublin, which went into receivership last year.
They bought the apartments and leased them back to Mansfield. In exchange, they were to get a guaranteed annual rental for an initial period of seven years.
Things got off to a good start during the boom years.
But some of the investors say they suffered an initial loss when Mansfield’s HSS Developments ceased making timely rental payments to them two years ago, as his business began to struggle with the downturn.
That left the investors making repayments on hefty mortgages entirely out of their own pockets, as they were no longer getting any rental income.
Some of the investors have said they are very stressed as their banks are now demanding capital and interest repayments on their mortgages, which were initially interest-only.
The plight of the investors got worse after the decision of Bank of Scotland Ireland (BOSI), one of Mansfield’s financial backers, to appoint a receiver to HSS last year.
Due to complications arising from the receivership, the owner investors are being denied access to their properties, making it impossible to convert, rent or occupy them.
On top of that, investors are owed thousands in promised rental income from Mansfield’s company, which was using the apartments as hotel rooms.
BOSI, which was owed €180 million, appointed Martin Ferris as receiver over its interests in the ground floor and common areas in the Citywest Golf Suite block.
Investors are now uncertain whether the units they own in the ‘apart hotel’ are insured. Ferris told them that he had only insured his own interest in the building -the ground floor and the common areas.
Ferris told The Sunday Business Post that he was only responsible for insuring those areas. He also said that he had not received service charges from the investors.
He said they should be raising their concerns with their agent, a company called Capitacorp, which is headed by director Jack Kinnerk.
Kinnerk declined to comment. But it is understood that he is working on a solution to resolve a very complex situation that was not envisaged at the time that the investors bought their apartments.
The apartments effectively amount to units of three hotel bedrooms, sold at prices ranging from €200,000 to €400,000 per unit.
The investors enjoyed tax breaks associated with investing in hotels, which allowed them to write off certain costs against other income, mainly other rental income.
Peter Bradshaw’s mother, Angela, is one of the investors in the Citywest Golf Suites. He has a Land Registry document showing that she has legal title to one of the units in the hotel.
He said she was owed rent of €18,000, which was not paid by HSS. When she was paying interest only, her mortgage repayments were €800 a month. Now that capital and interest are included, she is paying €2,400 a month.
Peter Bradshaw said that he tried to gain access to his mother’s apartment the week before last, in order to begin work on converting the hotel bedrooms into an apartment.
He said he had given the management prior notice of his intention to gain access. But he was refused entrance by security staff, who told him they were working for Ferris. This leaves his mother in the position of owning a unit to which she has no access, on which she is servicing a mortgage and which may not be insured in the event of a fire or other damage.
He wanted to get access to her unit and convert it into an apartment so she can either rent it or move in.
‘‘Imagine owning an apartment and not being able to get into it, and paying €2,400 in capital and interest. We are not allowed to let the apartment and we are not allowed to get into the building,” said Angela.
Other sources said the question of returning the hotel bedrooms to apartment usage was fraught with difficulties, as it required a change of planning in circumstances where the building was licensed as a hotel.
The Bradshaws are not the only investors who are concerned. Other investors spoke on condition of anonymity.
One said he had spent about €1.2 million on three units, but hadn’t received any rental income from his units for the last two years. He said that when he pays capital and interest back to his bank, he will face repayments of €10,000 a month on units from which he is getting no income at all. He too would like to have the units converted back to apartments that could be rented out.
He was concerned that, if this problem was not sorted out soon, it could jeopardise his relationship with his bank, which is funding a separate new business venture that he says could bring 100 jobs to the town in the west where he lives. He said all he wanted was the ‘‘the apartment and the use of the apartment back’’.
An accountant who introduced clients to the development and invested in the development herself made the point that since the hotel tax breaks expired, there should be no difficulty in converting the units back to apartments.
She said many investors were very happy with the location of their investment, and were simply seeking a solution to their problem. The investors are believed to have mortgages with a range of banks, including BOSI itself. BOSI declined to comment, and referred all queries to Ferris.
Several sources have suggested that some of the investors have already defaulted on their mortgages, though the precise numbers could not be quantified. This raises the possibility that the banks may now have title to apartments that are uninsured.
One thing is clear: the situation is a mess and needs to be resolved.
Otherwise, the fear is that the matter could end up in court - where the only winners would be the lawyers.
Tuesday, June 7, 2011
Investors nurse losses after trusting sales rep
05 June 2011
By Kathleen Barrington
It is three and half years since Leo and Marie Dunne invested €130,000 in what they say they understood was a capital guaranteed fund.
The couple, long-standing Bank of Ireland customers, invested in a policy called the Financials Fund, which was sold to them by a representative of Bank of Ireland Life.
They ended up losing €48,000 of the €130,000 when they cashed in their policy three years later, after discovering their capital wasn’t guaranteed after all.
The Dunnes were just two of many investors who invested a combined €25 million in the fund in late 2007.The fund’s top ten holdings included many international banks, as well as Bank of Ireland stock.
In October 2007, Leo left Eircom after 30 years’ service. Leo, then 47, and Marie, then 46, were planning to live in Italy, where they had a home. But it would be another 13 years until Leo turned 60 and his Eircom pension would kick in. In the meantime, they were planning to live on their €230,000 savings for the next 13 years, plus some rental income from their house in Ireland.
The €230,000 was at the time earning about 3.5 per cent with ICS, another Bank of Ireland subsidiary.
The couple wanted to invest some of the money in a secure, but higher-yielding, investment.
In the autumn of 2007, they met with a Bank of Ireland Life sales representative.
They say they told the rep their main requirement was that their capital be safe and that the term of the investment not exceed three years.
They say they repeated those requirements at a second meeting with the sales rep on December 13, 2007.
They say that at the second meeting they agreed to sign up for the Financials Fund in the belief that their capital was guaranteed.
They say they signed a form and the rep filled in all the other details. They returned to Italy on December 18, 2007.
In the spring of 2008, Leo and Marie became interested in buying a more expensive house in Italy. In order to proceed with a contract, they needed to know if they could borrow from Bank of Ireland if their existing house in Italy did not sell in time.
Leo contacted the sales rep who had advised him on his Financials Fund investment.
The sales rep referred him to a loan officer.
When Leo asked the loan officer if he could use the Financials Fund as collateral for the loan, he said the loan officer told him that the capital in the Financials Fund was not guaranteed, but that he was sure it would be fine, as he himself had invested in the fund. ‘‘This obviously caused us some concern," Leo said.
Leo then e-mailed the sales rep who had originally sold him the fund.
The rep contacted him by phone. During the May 2008 phone call, Leo asked the rep if the loan officer was correct in his assertion that the capital in the Financials Fund was not secure.
Leo said the sales rep told him the loan officer was either mistaken or had misunderstood the question.
Leo and Marie returned to Ireland for a family wedding later in May and picked up the information about the Financials Fund that had been posted to their Irish address, even though they had been living in Italy since October 2007.
They became concerned that it did not appear to offer the guarantee they had asked for. They complained to Bank of Ireland Life. The company’s position was that it was clearly stated in the policy documentation that the investment was not guaranteed. It said the policy was sold in good faith, the risks were explained and that the couple had been offered a cooling-off period.
Bank of Ireland Life said in a letter that it did not hold a recording of the May telephone conversation during which Leo was allegedly reassured that the fund was guaranteed.
‘‘As such, we are unable to comment on any information or policy details provided to you during this call in relation to the security of your capital sum."
The sales rep has since left the bank and could not be reached for comment.
The Dunnes subsequently complained to the Financial Services Ombudsman that they had been mis-sold the investment. In May 2009, the Ombudsman found against them.
The Ombudsman ruled that the essence of the complaint was whether they were aware that the policy did not have a capital guarantee. The Ombudsman noted that the Dunnes had signed the personal review form which contained a declaration that they had received and read a copy of the company’s terms of business document, that they had read and understood the information provided and that it was an accurate reflection of their circumstances.
The Ombudsman also noted that the Financials Fund booklet said the illustrated benefits were not guaranteed. The Ombudsman also noted that the documents were sent to the address given on the application form in December 2007.
But the Dunnes say they didn’t know what was on the form because it was filled in by the sales rep after they had ‘‘naively’’ signed it blank. They also say that they didn’t read the documents sent to them at their Irish address because they were in Italy.
In an interview stretching over several hours at their home in Navan, Co Meath, Leo and Marie pointed to many inaccuracies in the form that they believe could prove they did not get an opportunity to review it. Chief among these is a monumental overstatement of their monthly income.
‘‘The form states we have monthly incomes of €30,000, each which is incorrect," Leo said.
The couple say the only income they had at the time was the €650 in rent from their home in Ireland. Marie said that even when she was working, she barely earned €30,000a year, never mind a month.
Unfortunately, there was no oral hearing held at which the Dunnes’ version of events could be tested against the sales rep’s account.
The Dunnes are also unhappy that they had only 21 days to make an appeal to the High Court (they did not appeal). They are also unhappy that they had no right to have the case reviewed internally.
Eddie Doyle, managing director of financial claims company Refund.ie, has also met the couple.
He remarked on ‘‘the large number of apparent errors’’ in the documentation originating from the bank, and the inconsistencies in the comments and observations of the bank’s representative.
‘‘One would have imagined that these anomalies would have triggered some form of verbal examination of both parties by the adjudicator before arriving at a final decision," he said.
The Dunnes feel it would be unwise to take legal action on their own as it would be too expensive to redress a loss of €48,000. They are going public in the hope that anyone who has had a similar experience will contact them.
It is believed there may be others who suffered even bigger losses than the Dunnes, as Bank of Ireland launched a second Financials Fund in February 2008.
There was also a geared version of both funds where investors borrowed to invest in bank shares, leaving them nursing even larger losses, possibly in excess of 70 per cent.
© Thomas Crosbie Media 2011.
By Kathleen Barrington
It is three and half years since Leo and Marie Dunne invested €130,000 in what they say they understood was a capital guaranteed fund.
The couple, long-standing Bank of Ireland customers, invested in a policy called the Financials Fund, which was sold to them by a representative of Bank of Ireland Life.
They ended up losing €48,000 of the €130,000 when they cashed in their policy three years later, after discovering their capital wasn’t guaranteed after all.
The Dunnes were just two of many investors who invested a combined €25 million in the fund in late 2007.The fund’s top ten holdings included many international banks, as well as Bank of Ireland stock.
In October 2007, Leo left Eircom after 30 years’ service. Leo, then 47, and Marie, then 46, were planning to live in Italy, where they had a home. But it would be another 13 years until Leo turned 60 and his Eircom pension would kick in. In the meantime, they were planning to live on their €230,000 savings for the next 13 years, plus some rental income from their house in Ireland.
The €230,000 was at the time earning about 3.5 per cent with ICS, another Bank of Ireland subsidiary.
The couple wanted to invest some of the money in a secure, but higher-yielding, investment.
In the autumn of 2007, they met with a Bank of Ireland Life sales representative.
They say they told the rep their main requirement was that their capital be safe and that the term of the investment not exceed three years.
They say they repeated those requirements at a second meeting with the sales rep on December 13, 2007.
They say that at the second meeting they agreed to sign up for the Financials Fund in the belief that their capital was guaranteed.
They say they signed a form and the rep filled in all the other details. They returned to Italy on December 18, 2007.
In the spring of 2008, Leo and Marie became interested in buying a more expensive house in Italy. In order to proceed with a contract, they needed to know if they could borrow from Bank of Ireland if their existing house in Italy did not sell in time.
Leo contacted the sales rep who had advised him on his Financials Fund investment.
The sales rep referred him to a loan officer.
When Leo asked the loan officer if he could use the Financials Fund as collateral for the loan, he said the loan officer told him that the capital in the Financials Fund was not guaranteed, but that he was sure it would be fine, as he himself had invested in the fund. ‘‘This obviously caused us some concern," Leo said.
Leo then e-mailed the sales rep who had originally sold him the fund.
The rep contacted him by phone. During the May 2008 phone call, Leo asked the rep if the loan officer was correct in his assertion that the capital in the Financials Fund was not secure.
Leo said the sales rep told him the loan officer was either mistaken or had misunderstood the question.
Leo and Marie returned to Ireland for a family wedding later in May and picked up the information about the Financials Fund that had been posted to their Irish address, even though they had been living in Italy since October 2007.
They became concerned that it did not appear to offer the guarantee they had asked for. They complained to Bank of Ireland Life. The company’s position was that it was clearly stated in the policy documentation that the investment was not guaranteed. It said the policy was sold in good faith, the risks were explained and that the couple had been offered a cooling-off period.
Bank of Ireland Life said in a letter that it did not hold a recording of the May telephone conversation during which Leo was allegedly reassured that the fund was guaranteed.
‘‘As such, we are unable to comment on any information or policy details provided to you during this call in relation to the security of your capital sum."
The sales rep has since left the bank and could not be reached for comment.
The Dunnes subsequently complained to the Financial Services Ombudsman that they had been mis-sold the investment. In May 2009, the Ombudsman found against them.
The Ombudsman ruled that the essence of the complaint was whether they were aware that the policy did not have a capital guarantee. The Ombudsman noted that the Dunnes had signed the personal review form which contained a declaration that they had received and read a copy of the company’s terms of business document, that they had read and understood the information provided and that it was an accurate reflection of their circumstances.
The Ombudsman also noted that the Financials Fund booklet said the illustrated benefits were not guaranteed. The Ombudsman also noted that the documents were sent to the address given on the application form in December 2007.
But the Dunnes say they didn’t know what was on the form because it was filled in by the sales rep after they had ‘‘naively’’ signed it blank. They also say that they didn’t read the documents sent to them at their Irish address because they were in Italy.
In an interview stretching over several hours at their home in Navan, Co Meath, Leo and Marie pointed to many inaccuracies in the form that they believe could prove they did not get an opportunity to review it. Chief among these is a monumental overstatement of their monthly income.
‘‘The form states we have monthly incomes of €30,000, each which is incorrect," Leo said.
The couple say the only income they had at the time was the €650 in rent from their home in Ireland. Marie said that even when she was working, she barely earned €30,000a year, never mind a month.
Unfortunately, there was no oral hearing held at which the Dunnes’ version of events could be tested against the sales rep’s account.
The Dunnes are also unhappy that they had only 21 days to make an appeal to the High Court (they did not appeal). They are also unhappy that they had no right to have the case reviewed internally.
Eddie Doyle, managing director of financial claims company Refund.ie, has also met the couple.
He remarked on ‘‘the large number of apparent errors’’ in the documentation originating from the bank, and the inconsistencies in the comments and observations of the bank’s representative.
‘‘One would have imagined that these anomalies would have triggered some form of verbal examination of both parties by the adjudicator before arriving at a final decision," he said.
The Dunnes feel it would be unwise to take legal action on their own as it would be too expensive to redress a loss of €48,000. They are going public in the hope that anyone who has had a similar experience will contact them.
It is believed there may be others who suffered even bigger losses than the Dunnes, as Bank of Ireland launched a second Financials Fund in February 2008.
There was also a geared version of both funds where investors borrowed to invest in bank shares, leaving them nursing even larger losses, possibly in excess of 70 per cent.
© Thomas Crosbie Media 2011.
Monday, May 30, 2011
Another Anglo mess to be unravelled?
Sunday, May 29, 2011
By Kathleen Barrington
A senior businessman took time out from his hectic schedule last week to explain to me what he considers to be the ‘‘multiple conflicts of interest’’ that Anglo Irish Bank has in its dealings with private investors, through its wealth management division.
The executive, who spoke on condition of anonymity, was one of a number of investors who, in 2006, invested between €500,000 and €1 million in Anglo’s European Geared Property Fund.
The fund ultimately raised about €1.3 billion in equity and borrowings to acquire property in Britain, Ireland, Belgium, Germany, France and Romania, some of it developed by Anglo’s own Irish developer clients.
The businessman has now been told that his investment is worth about 28 per cent of the amount he invested.
So anyone who invested €1 million in the fund has seen €720,000 wiped off the value of the investment. If the €1 million was borrowed from Anglo, the loan remains to be repaid even though the assets in the fund have plunged in value.
Investors lost even larger sums in other investments touted by Anglo’s private banking and life assurance subsidiaries.
Last year, The Sunday Business Post reported that people who bought into Anglo’s Select Geared Property Fund, opened in 2007, had seen 97.5 per cent of their investment wiped out.
The businessman says many of the properties backing the two funds were sourced from property developers who were some of Anglo’s biggest borrowers.
‘‘As a result of the continuous stream of publicity from the courts, it is now apparent that most of the properties were bought from, or with, clients of the bank. Since then, it has become obvious that those clients were in serious trouble at the time. Some have been declared insolvent,” he said.
The businessman says he understood that when he invested in the European Geared Property fund in October/November 2006, he was investing in properties that had already been secured by the bank up to 18 months previously, and that they had increased in value since.
He shows a handwritten note from Anglo Irish Private Banking, in which the executive promoting the fund writes:’ ‘Give me a shout when you have had a chance to review. A considerable number of the properties are substantially in the money having been secured 6-18 months ago.”
He believes this claim was misleading, as subsequent documentation showed that the vast bulk of the properties were acquired after 2006.
The businessman also says that about a year after he invested in Anglo’s European Geared Property Fund, he was offered a loan facility to invest in the Select Geared Property Fund.
He says that he told Anglo that he did not want to participate in the second fund, as he thought the valuations of the properties were too high.
‘‘I was astounded some time later to discover that the European Geared Property Fund had, in fact, bought at least one of those properties which were part of the Select Geared Property Fund that I had refused to invest in,” he said.
The businessman raises a number of serious questions, such as whether the interests of the investors in the fund were being adequately protected by the wealth management division, in circumstances where the equity the investors were putting up may have had the effect of bailing out the bank and/or its clients.
Anglo strongly rejects the idea that a conflict existed.
‘‘The vast majority of the properties in the European Geared Property Fund [EGPF] were bought on the open market from third parties, in conjunction with - not from - the relevant joint venture partner,” the bank said in a statement.
‘‘In a small number of cases, Anglo bought from the developer on pre-agreed contractual terms when the site was being developed.
"Importantly, in those instances, investors were not exposed to development risk as Anglo contracted to buy the finished building only, thereby removing development risk from the EGPF. The intention of the bank was not to have development risk in the fund.”
Anglo also insisted that the European Geared Property Fund was marketed in a fully transparent way.
‘‘All clients were made well aware, during the equity raising period, through the fully disclosed information contained in the fund brochure that Anglo provided senior debt and temporary equity bridging finance for the projects in question.
The full extent of Anglo’s relationship with all parties, including developers and JV Partners, was made very clear to all potential investors,” it said.
Anglo also said the brochure included a clear statement of all fees, expenses and costs associated with the acquisition and management of the fund and underlying properties.
It said that ‘‘all investors have had, and continue to have, the right to come into the bank and review all documentation related to the fund and each of the underlying properties’’.
The brochure, seen by this newspaper, did make absolutely clear that the charges would have wiped out 29 per cent of the investor’s initial investment at the end of the first year.
The figure assumed no rental income and no change in the capital value of the properties in which the fund invested, though in practice investors would have been expecting rental increases and rising property values.
The charges were large because there were so many advisers feeding at the investors’ trough.
The typical costs included fees for agents, surveyors, valuers, lawyers and tax experts, and a slice for the taxman in the form of stamp duty, capital duty and Vat.
The documents reveal that investors paid between 1 per cent and 1.5 per cent to the fund’s joint venture partners for originating and structuring the transactions. This fee was calculated on the gross property value. Anglo’s offer documents also show that the bank charged loan arrangement and other fees, equivalent to about 1 per cent of the amount borrowed.
It is true that Anglo informed investors that the investments were high-risk. In particular, the Anglo documents clearly warned about the dangers of borrowing to invest. It noted that a fall in the capital value of the investment of 20 per cent would reduce the value of investor equity to zero.
Some of the investors have hired solicitors LKG to examine whether there is the basis for taking a case that Anglo’s wealth division was either incompetent or failed in its fiduciary responsibility to its customers.
At the time of writing, the solicitors had been contacted by 15 disgruntled investors after the firm placed an ad in a national newspaper.
It remains to be seen if there is any basis for taking legal action, and whether the investors will show willing to throw good money after bad.
.
By Kathleen Barrington
A senior businessman took time out from his hectic schedule last week to explain to me what he considers to be the ‘‘multiple conflicts of interest’’ that Anglo Irish Bank has in its dealings with private investors, through its wealth management division.
The executive, who spoke on condition of anonymity, was one of a number of investors who, in 2006, invested between €500,000 and €1 million in Anglo’s European Geared Property Fund.
The fund ultimately raised about €1.3 billion in equity and borrowings to acquire property in Britain, Ireland, Belgium, Germany, France and Romania, some of it developed by Anglo’s own Irish developer clients.
The businessman has now been told that his investment is worth about 28 per cent of the amount he invested.
So anyone who invested €1 million in the fund has seen €720,000 wiped off the value of the investment. If the €1 million was borrowed from Anglo, the loan remains to be repaid even though the assets in the fund have plunged in value.
Investors lost even larger sums in other investments touted by Anglo’s private banking and life assurance subsidiaries.
Last year, The Sunday Business Post reported that people who bought into Anglo’s Select Geared Property Fund, opened in 2007, had seen 97.5 per cent of their investment wiped out.
The businessman says many of the properties backing the two funds were sourced from property developers who were some of Anglo’s biggest borrowers.
‘‘As a result of the continuous stream of publicity from the courts, it is now apparent that most of the properties were bought from, or with, clients of the bank. Since then, it has become obvious that those clients were in serious trouble at the time. Some have been declared insolvent,” he said.
The businessman says he understood that when he invested in the European Geared Property fund in October/November 2006, he was investing in properties that had already been secured by the bank up to 18 months previously, and that they had increased in value since.
He shows a handwritten note from Anglo Irish Private Banking, in which the executive promoting the fund writes:’ ‘Give me a shout when you have had a chance to review. A considerable number of the properties are substantially in the money having been secured 6-18 months ago.”
He believes this claim was misleading, as subsequent documentation showed that the vast bulk of the properties were acquired after 2006.
The businessman also says that about a year after he invested in Anglo’s European Geared Property Fund, he was offered a loan facility to invest in the Select Geared Property Fund.
He says that he told Anglo that he did not want to participate in the second fund, as he thought the valuations of the properties were too high.
‘‘I was astounded some time later to discover that the European Geared Property Fund had, in fact, bought at least one of those properties which were part of the Select Geared Property Fund that I had refused to invest in,” he said.
The businessman raises a number of serious questions, such as whether the interests of the investors in the fund were being adequately protected by the wealth management division, in circumstances where the equity the investors were putting up may have had the effect of bailing out the bank and/or its clients.
Anglo strongly rejects the idea that a conflict existed.
‘‘The vast majority of the properties in the European Geared Property Fund [EGPF] were bought on the open market from third parties, in conjunction with - not from - the relevant joint venture partner,” the bank said in a statement.
‘‘In a small number of cases, Anglo bought from the developer on pre-agreed contractual terms when the site was being developed.
"Importantly, in those instances, investors were not exposed to development risk as Anglo contracted to buy the finished building only, thereby removing development risk from the EGPF. The intention of the bank was not to have development risk in the fund.”
Anglo also insisted that the European Geared Property Fund was marketed in a fully transparent way.
‘‘All clients were made well aware, during the equity raising period, through the fully disclosed information contained in the fund brochure that Anglo provided senior debt and temporary equity bridging finance for the projects in question.
The full extent of Anglo’s relationship with all parties, including developers and JV Partners, was made very clear to all potential investors,” it said.
Anglo also said the brochure included a clear statement of all fees, expenses and costs associated with the acquisition and management of the fund and underlying properties.
It said that ‘‘all investors have had, and continue to have, the right to come into the bank and review all documentation related to the fund and each of the underlying properties’’.
The brochure, seen by this newspaper, did make absolutely clear that the charges would have wiped out 29 per cent of the investor’s initial investment at the end of the first year.
The figure assumed no rental income and no change in the capital value of the properties in which the fund invested, though in practice investors would have been expecting rental increases and rising property values.
The charges were large because there were so many advisers feeding at the investors’ trough.
The typical costs included fees for agents, surveyors, valuers, lawyers and tax experts, and a slice for the taxman in the form of stamp duty, capital duty and Vat.
The documents reveal that investors paid between 1 per cent and 1.5 per cent to the fund’s joint venture partners for originating and structuring the transactions. This fee was calculated on the gross property value. Anglo’s offer documents also show that the bank charged loan arrangement and other fees, equivalent to about 1 per cent of the amount borrowed.
It is true that Anglo informed investors that the investments were high-risk. In particular, the Anglo documents clearly warned about the dangers of borrowing to invest. It noted that a fall in the capital value of the investment of 20 per cent would reduce the value of investor equity to zero.
Some of the investors have hired solicitors LKG to examine whether there is the basis for taking a case that Anglo’s wealth division was either incompetent or failed in its fiduciary responsibility to its customers.
At the time of writing, the solicitors had been contacted by 15 disgruntled investors after the firm placed an ad in a national newspaper.
It remains to be seen if there is any basis for taking legal action, and whether the investors will show willing to throw good money after bad.
.
Subscribe to:
Posts (Atom)
