"Fear Stalks the Market"

The diagnosis of the banking pandemic may be clearer, but the prognosis remains wholly uncertain.

In the UK, investors in Barlcays and Lloyds are betting that the government will have to step in to nationalise the institutions, while in Ireland, mandarins have been talking up the strength of the two main players – Bank of Ireland and Allied Irish Banks, as they stress that no moves will be made to bring the pair into public ownership.

Their current share prices “are not indicative”, according to Irish Central Bank governor John Hurley, of their true health, who also said today in Dublin that “fear stalks the market”.

But the banks still have to be shifted to the MRI scanner to obtain deep insight. Until they lay their cards on the table, investors can’t take Hurley’s view as gospel, even if it is actually true.

Last summer, speaking to journalists following Bank of Ireland’s AGM in Dublin, now outgoing chief executive Brian Goggin brushed aside suggestions that the blame for the on-going collapse of the domestic property market should be laid squarely at the feet of Ireland’s banks.

He “completely and utterly” rejected the notion.

His objections would hardly convince a jury.

The property rollercoaster had been fuelled by the banks: cheap finance and a too-cosy relationship with property developers were important ingredients in the boom.

So too, the laissez-faire attitude of the government, whose coffers were swelled by property taxes that fuelled its public spending spree. The government, said one leading Irish economist recently, should have been taxing mortgages to cool the market, not offering borrowers tax relief. It should also have been patently obvious that its over-reliance of property-related taxes was a highly dangerous strategy.

And as Anglo Irish Bank, the poster-boy institution for the boom years, heads for nationalisation, the true extent of the fallout won’t be clear for some time.

And even at Anglo, where new chairman Donal O’Connor is now navigating a course through the rapids without even a paddle, plenty of more nasty surprises could lay in wait.

But O’Connor, a former managing partner at PriceWaterhouseCoopers, may already have some insight in that regard.

He replaced Sean FitzPatrick before Christmas following the revelation that his predecessor had hidden €87m in loans from auditors.

O’Connor and FitzPatrick had been firm acquaintances. Mr FitzPatrick recounted to the UK’s Daily Telegraph back in 2002 how he and his wife Triona had spent one of their recent evenings attending a play in Dublin with O’Connor and his wife, Vera.

No doubt FitzPatrick tried to imbue O’Connor with some insight into Anglo Irish Bank.

Maybe he just didn’t listen.

http://www.telegraph.co.uk/finance/2835628/Early-starts-and-busy-days-achieve-the-right-results.html

http://online.wsj.com/article/BT-CO-20090121-708628.html

http://www.rte.ie/business/2009/0121/financial.html

Kerviel. Scene 1. Take 1.

Poor Jérôme Kerviel. Fame is often hard won, infamy easier so.

His dubious accolade as the top of the rogue trader league has unearthed an unsavoury insight into Société Générale, and raised questions over just how much of a blind eye was turned to Kerviel’s sleights of hand.

Remember, that at one stage the young Kerviel was making substantial profits on his unauthorised deals – so much so, in fact, that he didn’t even know how to come clean and tell his superiors that he made almost €1.5bn for the bank. Instead, he continued to hide his activities, leading to the mess that he, and the bank, find themselves in now. But Kerviel’s testimony to date has also exposed some lax supervision. He took no holiday in 2007, afraid to hand over his positions to a colleague who would undoubtedly smell a rat. But no-one seemed perturbed that Kerviel wasn’t heading for the slopes or the Côte d’Azur for a few days’ break. Even he has expressed surprise that the biggest warning bell of all – his unwillingness to relinquish his positions – went completely ignored.

And what life for Kerviel now? Book rights, a movie? Or, as in Nick Leeson’s case, commercial manager of a non-descript football team in the west of Ireland. It’s a big come down from quaffing champagne and downing cocktails in Singapore.

But John Rusnak, the US trader who racked up a $700m loss at AIB’s subsidiary Allfirst, seemed like he was already thinking of the movie synopsis before he was shipped off to prison to serve over seven years. What’s more, he also claimed he was in a similar frame of mind to Kerviel, his conscience nagging at him to own up. But that was at a stage when Rusnak was $100m in the red, not even making a profit.

In Rusnak’s last interview, with the Baltimore Sun, before he went to prison, he spoke about how he could have stolen almost any amount he wanted to from Allfirst.

“I had a lot of authority,” he said. “If I was looking to profit, I would have shipped $20m out of the country and then left. There was very little oversight. But that's not what happened." He said he realised he was in a spot of bother when he had lost a "minuscule" amount - $100m.

"Every single day I was there, I should have reported the losses and stopped trading," he continued. "It was my inability to say no and admit failure. I worried every day, and every night I couldn't sleep. I knew I was betraying people's trust.”

But here’s where the appeal, surely, for the Hollywood types should have kicked in. Rusnak had to tell his kids he was going to prison.

"We're still going to be a family,” he told them. “But Daddy did something wrong. It's like someone cheated on a test at school. I cheated at work, and then I told the truth. And now I have to go away for a while." Perhaps not Oscar potential, but it has TV movie written all over it.

Kerviel should pay heed. He’s likely going to have a few years in a confined space to ponder his past. He’ll have to think of a new way to make a living. Script consultant may just be one of them.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/27/ccsocgen127.xml

http://www.tribune.ie/article.tvt?_scope=TribuneFTF&id=10321&SUBCAT=&SUBCATNAME=&DT=02/02/2003%2000:00:00&keywords=kleenex&FC=

http://www.baltimoresun.com

http://www.jeromekerviel.com

Vets aid ailing Celtic Tiger

The Industrial Development Agency (IDA), charged with luring billions of dollars of investment to Ireland’s shores from companies such as Microsoft, Google, Wyeth and Ebay, could do well to cast an eye over its own public face from time to time.

‘Why Dublin for Asset Management?’ asks the website, citing reasons such as a highly skilled workforce, ultra modern telecommunications (many would disagree), excellent air transport infrastructure (another bugbear) and the low corporate tax rate.

And don’t forget, the St Bernard Veterinary Hospital.

The what?

Exactly. One link on the IDA website should direct users to the Dublin Funds Industry Association – a body which has changed its name to the more all-encompassing Irish Funds Industry Association. However, the link on the IDA website has never been updated, and instead sends browsers to the above named pet clinic. Even more curiously, the clinic is based in Chalmette, Louisiana, but using an Irish domain name.

Good to see the IDA on top of its game.

Note to self: check links on website.

http://www.idaireland.com/home/index.aspx?id=136

http://www.dfia.ie/

http://www.irishfunds.ie/

Cold call for Vodafone

For Vodafone, this is small beans. For Perlico investors including Michael Smurfit, it’s payback time.

Yesterday the global mobile giant said that it had agreed to buy Irish telco Perlico in a deal that values the six-year-old firm at an astonishing €80m. An upfront cash-payment of €32m will be made, with the remaining earn-out dependent on future performance.

And already it looks as if Vodafone may have overpaid.

Even assuming that the acquisition price of Perlico remained €32m with no earn-out, Vodafone has paid €512 for each of the Irish firm’s 62,500 subscribers. Last year, Perlico rejected a takeover approach from Telefonica-owned O2. Maybe O2 saw the real value of the company.

Last month, Vodafone paid stg£537m (€773m at the time), for Tele2 in Italy and Spain. That gave Vodafone an additional 3m fixed-line subscribers, making the acquisition cost per customer just €257 – about 50% less per head than the cost of Perlico. And remember, that’s only if Vodafone doesn’t have to stump up the outstanding €48m for the Perlico business.

What’s more, Vodafone is buying an operator that has done nothing yet but haemorrhage cash.

Latest accounts for Perlico Communications show that it generated turnover of €4.2m in 2005, up from €1.1m the previous year, and it reported an operating loss of €2.2m, compared to an operating loss of €1m in 2004. Assuming Perlico had even 55,000 customers during 2005, it means that each subscriber only generated revenue of about €76 per annum.

And if Perlico, by a feat of corporate magic, had somehow managed to move to a €1m operating profit position last year, Vodafone has still forked out at least 40-times earnings for the business. That looks like an extremely good deal for Perlico, but a leap of faith for Vodafone.

Vodafone has said that it will now be able to offer Perlico’s 62,000 (although it was reported to be 75,000 just six months ago) fixed-line and broadband customers additional services. Say, credit cards?

In May, Perlico said that it was planning a major push into the personal financial services market, intending to offer customers loans and credit cards. Mortgages, income protection and life protection products were also on the agenda, and the carrier was already in advanced negotiations with two Irish financial institutions.

“We don’t intend to be just a broker,” said Perlico founder Iain MacDonald back in May. “We want to develop products with providers and see this as a very good opportunity to deliver better value to consumers.” He even hinted that Perlico would consider buying a financial services outfit.

So are these projects on ice now Vodafone has come on board? Possibly, although Vodafone has said that Perlico will retain its own brand which may give it licence to continue its diversification.

While Perlico had originally slated last September as a “soft launch” date for its suite of finance products, it doesn’t appear to have happened just yet. It’s likely that those pesky takeover negotiations with Vodafone got in the way.

Just how interested will Vodafone be in pursuing these strategies? Difficult to call. They might be perceived as being a distraction from the core business. But if Perlico proceeds with its plans, and they’re successful, could Vodafone consider replicating such an approach in other markets? No, would seem the obvious answer, but maybe Arun Sarin’s mind is swirling with the possibilities.

In the meantime, the winners out of this are Perlico’s shareholders.

A €20m fundraising last year valued the company at just €55m, so Vodafone is already paying a potential 45% premium on that. Paper magnate Michael Smurfit paid €10m to acquire his 18% stake in Perlico. He could conceivably make a generous return on his investment.

Other Perlico investors include Iain MacDonald’s father Malcolm, a former corporate financier at ICC and Bank of Scotland, as well as David Martin, the former finance director of food and agri group IAWS. Serial technology entrepreneur Jim Mountjoy is also quids in.

Will the only loser be Vodafone?

http://www.rte.ie/business/2007/1113/perlico.html

http://www.siliconrepublic.com/news/news.nv?storyid=single9621

http://www.theregister.co.uk/2007/07/31/o2_results/

http://www.theregister.co.uk/2007/10/09/vodafone_tele2/

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2000/12/22/cnvoda22.xml

http://www.perlico.com

US homeowners await green cavalry

Has it really come to this?

Just where to begin pointing out the flaws in this madness isn’t easy.

With so many US homeowners and developers having their backs to the walls, a chink of light is reported. It’s surely one of the most spectacular false dawns ever.

Incredibly, some US estate agents are hoping that foreign buyers – including those from Ireland – are going to help prop up the housing market and prevent it heading into even deeper freefall.

Someone has forgotten to take their pills.

The debris from the US sub-prime implosion has spread not only domestically, but across the globe.

In Canada, which counts the US as its biggest trading partner, a peak in housing prices during the summer has already turned into a rout, with anecdotal evidence from cities such as Edmonton, that homes are now sitting on the market unable to find buyers in what was just months ago a sizzling-hot property cauldron.

Manhattan, in particular, has enjoyed a cosy relationship with Irish property investors for years.

A euro on steroids and prospects for capital appreciation in the city have provided the catalysts needed to attract old money, new money and the par-venu hoping to gain credibility. Owing an apartment in Majorca just doesn’t hack it any more – Manhattan’s the place to be, apparently.

And the Irish have taken chunks out of the Big Apple.

The buyers read like a who’s who of Irish society. Among those who have famously splashed out on pads include Derek Quinlan, who two years ago paid an astonishing $26m for a cavernous townhouse on East 64^th Street – the second-most expensive house bought in New York in 2005, and the second property he owns on the street.

But others have followed suit. Domhnal Slattery of Claret Capital, Ciaran Haughey, son of former Taoiseach Charles Haughey, and his sister Eimear Mulhern have all been buying apartments in New York. The list doesn’t end there. Jockeys, property developers and other business personalities have been stuffing money into New York.

Others amassing Stateside portfolios include Galway solicitor Patrick Keane, who last month sourced a $1.37m mortgage from Anglo Irish Bank to buy an apartment at West 48^th Street. From Limerick, Patrick Cheeser of Cheeser Auctioneers recently obtain a $2.8m mortgage to buy on East 63^rd Street; and James McEvoy, an auctioneer in Newbridge, Kildare, who earlier this year obtained a $1.36m mortgage to buy on 5^th Avenue.

In fact, even as the credit crunch bites, Anglo Irish Bank has continued to dole out tens of millions of dollars worth of mortgages to Irish buyers.

But how long will this last? However long, it certainly won’t be enough to support the US market in any conceivably appreciable manner.

Last week, however, Associated Press reported that there’s a “rally in the struggling housing market driven by foreign investors”.

“European investment is likely to pick up,” the piece quotes Mark Vitner, chief economist with Wachovia as saying. “Now is the time to come over and take advantage”.

Without doubt, a feeble dollar makes the prices wholly attractive. But the financial woes of late, and the prospect of more to come, must surely be enough to make even the most experienced of investor think twice.

“The theory goes,” adds the Associated Press, “that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.”

Bunkum.

Irish investors aren’t buying the Graysons’ four-bedroom in Charlotte that’s been sitting on the market for the past six months, or any other similar property – they’re buying newly-developed apartments in major urban areas such as New York and Chicago – the result of which has no impact on helping existing home-owners elsewhere in the US to sell their properties.

Irish and other investors simply can’t save the US property market. You might as well ask the Japanese to save the whale.

Is Anglo Irish Bank digging a hole for itself? Maybe not. It has strict lending criteria, and its clients can generally afford to hang on to property for the longer-term, even if they happen to take short-term hits.

But even Anglo Irish Bank can’t be expected to save the US real estate market.

Even its former executives aren’t finding these easy.

One-time Anglo Irish Bank chief operating officer Tiarnan O’Mahony is the latest to feel the fallout pain.

His International Securities Trading Corporation (ISTC), which he founded two years ago, announced yesterday that it has delayed its results announcement, taken a €70m ($102m) charge, and suspended grey trading of its shares.

ISTC borrows money from mainstream lenders and then uses the funds to lend the same money to borrowers, making its profit from the difference between the interest rates it pays, and the higher rate it charges to its own clients. Among its investors are former Anglo chief executive Sean Fitzpatrick.

ISTC has €210m in SIV capital notes which have either been downgraded or listed for review by Moody’s Investor Services. It has also cancelled a convertible bond issue.

Seems there’s enough problems at home without having to rescue the US too.

http://ap.google.com/article/ALeqM5gs7J81K2jeycsahYDzU3W5Bqr0XgD8SQLVL00

http://www.bendweekly.com/Real-Estate/10256.html

http://www.nytimes.com/2007/08/19/realestate/19cov.html?_r=1&oref=slogin

http://www.rte.ie/news/2007/1112/finance.html

http://www.istcorporation.com/press.html

http://www.pensionsboard.ie/index.asp?locID=30&docID=-1

http://www.finfacts.com/irelandbusinessnews/publish/article_1011772.shtml

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=THE+MARKET-qqqs=themarket-qqqid=28106-qqqx=1.asp

http://www.finance-magazine.com/supplements/stock2006/display_article.php?aid=7015

http://www.arandomwalk.com/2007/11/07/us-housing-forecast/

Wynn-win for Coughlan in Macau gamble

Just as the tiny gambling Mecca of Macau is being rocked by a sensational corruption trial, one Clare native is hoping to weave his magic on the former Portuguese colony off the coast of mainland China.

After a decade working with the luxury Peninsula hotel group, Ian Coughlan has taken the 45-minute boat trip from Hong Kong to take on a new challenge at the Wynn Resorts’ operation in the Chinese special administrative region (SAR).

And Coughlan could have hit a personal jackpot.

While he initially moved to Macau back in January to work as director of hotel operations with Wynn, he has been recently promoted to president of the gleaming, gold-fronted 20-storey resort, which boasts 600 rooms and a 100,000 square feet casino.

A tasty remuneration package has been negotiated for 48-year-old Coughlan, who was born and raised in Ireland, but has spent most of his adult life abroad, working in hotels in Switzerland, London, Atlanta, Hawaii and Asia.

An SEC filing last week by Wynn Resorts reveals that Coughlan, whose initial contract runs five years, will be paid a base annual salary of $750,000 (€511,000), with the prospect of earning a bonus of a further $750,000 this year alone should targets be met. And that’s not all.

Married to Pamela, and with two young children – Kyle and Emmet – Coughlan has also negotiated three return business class flights a year for his family, to either Singapore or Ireland. Four return business class flights with Cathay Pacific from Hong Kong to London next March to make it home in time for St Patrick’s Day will cost almost €14,000 (HK$159,412).

Meanwhile, Coughlan and his family receive gratis accommodation while in Macau “at a level commensurate with [the] employee’s position”. He’ll also get a “luxury automobile” and will always travel first-class on business. And don't forget the health plan and paid membership to clubs, societies and professional associations.

Not a bad deal.

But just as Coughlan is settling into his new role, the Macau casino industry has stumbled under an unwelcome spotlight.

The Wynn Macau resort – whose Las Vegas-based quoted parent has a market capitalisation of $15bn (€10.2bn) – is one of a number of new casinos jostling for a cut of the island’s massive $7.2bn gambling income. Last year the SAR overtook Las Vegas as the world’s largest gaming centre.

Wynn Resorts, which is headed by Steve Wynn, has earmarked a total of $1.2bn for its Macau hotel, which opened in 2006. A portion of that fund is being used to develop a new extension. Among those that stumped up when debt raised to fund the initial construction was syndicated, was AIB.

Wynn is just one of the companies riding a wave of investment in the former colony, which generates almost all its tax income from the gambling sector.

The floodgates opened in 2002, when Macau liberalised its gaming market and broke now 85-year-old Stanley Ho’s monopoly.

That year there were 11 casinos with 339 gaming tables and 808 slot machines. Now there are 25 casinos, 2,970 gaming tables and 7,349 slot machines. All this on a 28-square-kilometre area with a population of roughly 500,000.

And gambling-mad Asians are flocking to it.

According to Steve Wynn, the company’s Macau resort reported a staggering $900m in chip sales within 13 days of opening its doors in September last year.

In the three months to the end of September 2007, it recorded revenue of $347.6m, and in the nine-month period to the end of September, sales topped $1bn.

Adjusted Property EBITDA (earnings before interest, taxes, depreciation, amortisation, pre-opening costs, property charges and other, corporate expenses) at the Macau resort totalled $92.8m in the three months to the end of September 2007 (only slightly less than the Las Vegas casino), and $264.5m in the nine-months to the end of September.

Wynn’s emergence in the SAR has also forced US competitor Sands to up the ante. Earlier this year it said that its operating costs in Macau had climbed because it had to raise wages there to compete with the Wynn resort.

The Sands’ Macau president might well be looking enviously at Coughlan’s lucrative deal.

While Macau’s gambling industry has traditionally been the focus of a constant turf war between triad gangs (even Stanley Ho’s underworld connections have been the subject of extensive speculation and investigation), it’s corruption that is now blighting the landscape.

Last week the trial commenced of Ao Man-Long, the former secretary for transport and public works in Macau.

He’s accused of taking bribes, of money laundering and abuse of power that saw him amass a fortune of more than $100m in just six years – 57-times his family’s income during the period. He’s alleged to have helped developers win tenders for a number of projects in Macau, including the Venetian hotel and casino, owned by Sands.

The courtroom drama has rocked Macau, led to protests and even delayed the construction of one major new casino by Australian businessman James Packer – son of Kerry ‘Packer-Whacker’ Packer.

The Wynn group is also trying to snap up land to expand its Macau operations. Apart from extending its existing resort, it reported recently that it has submitted an application to the local government to obtain a concession to use an additional 52-acres in Macau’s Cotai district.

Coughlan is going to have plenty to keep him occupied. At least he can escape back to Ireland in luxury when things get rough.

http://www.wynnmacau.com/index.jsp#

http://www.forbes.com/feeds/ap/2007/10/31/ap4286982.html

http://www.hotel-online.com/News/PR2004_2nd/June04_WynnMacau.html

http://www.olamacauguide.com/wynn-resorts.html

http://www.onlinenevada.org/steve_wynn

http://www.taipeitimes.com/News/biz/archives/2006/10/22/2003332888

http://www.feer.com/articles1/2007/0705/free/p020.html

http://www.forbes.com/markets/2007/11/02/las-vegas-closer-markets-equity-cx-er_ra_1031markets40.html

http://english.peopledaily.com.cn/200506/22/eng20050622_191700.html

http://www.theaustralian.news.com.au/story/0,25197,22716257-643,00.html

http://www.reuters.com/article/ousiv/idUSHKG4479220071104

http://www.lasvegassun.com/sunbin/stories/gaming/2005/may/10/518734415.html

https://www.cia.gov/library/publications/the-world-factbook/geos/mc.html

http://www.ccac.org.mo/en/

http://macaudailyblog.com/general/macau-corruption-protest-video-clip/

http://en.wikipedia.org/wiki/James_Packer

http://www.lasvegassands.com/

Murphy’s towering ambition

Does Fergus Murphy know something staff at ACC Bank don’t?

The freshly departed chief executive was only appointed to the position at the Rabobank subsidiary last January, and just a few months later has jumped ship to join Garrett Kelleher’s Shelbourne Development, the company that has already started construction on what will be the world’s tallest residential apartment block, the Chicago Spire.

Murphy has worked with the Dutch institution Rabobank for 13 years, having been managing director of its Irish arm prior to heading up its Asian operations, which are based in Singapore. He was then drafted back to Ireland to complete the integration of ACC, which Rabobank acquired in 2002 for €165m from the Irish government. Murphy had helped initiate and manage that acquisition.

He replaced Adrian Hegarty, the then interim ACC chief executive, who had taken up the reins after Colm Darling resigned from his post last December.

Coincidently, Darling left soon after ACC had been severely criticised for a controversial scheme where ACC loaned a total of €500m to thousands of customers to buy geared tracker bonds. Investment in the Solid World 5 geared bond carried high interest rates, and initially it performed very badly, leaving many investors wondering why they hadn’t just stuffed the money in a deposit account. ACC didn’t even actually buy shares in the bond on behalf of investors; it bought derivatives that mirrored it.

Since then, however, the bond has performed well, up 41.48% since its launch by last Monday.

Still, some Rabobank insiders have expressed surprise that Murphy has decided to so radically cut short his tenure at ACC, especially since the job of firmly positioning ACC’s refocused strategy within the Rabobank sphere appears to be as yet incomplete.

That’s led to questions over just how well ACC is holding up in a tough Irish banking market.

And despite the headline figures, maybe all’s not well.

In May, ACC reported pre-tax profits for 2006 of €67.3m, on total operating income of €152.8m. Costs, including a number of “one-off” expenses, said the bank, had climbed by 5% during the fiscal year, bringing the cost-income ratio to 62.7%.

In 2005 ACC recorded a pre-tax profit of €32.5m, down 53% on 2004’s figure. But while that was significantly improved during 2006, operating profit actually fell last year compared to 2005, when it was €166.6m.

And there’s a but. A big one.

ACC’s cost-income ratio for 2006 is a significant deterioration on 2005, when the figure was a much better, if still unattractive, 54.6%. That means the company was being run even less efficiently last year compared to 2005 - all prior to Murphy coming home.

Want to know just how bad that cost-income ratio is? Take a look at Anglo Irish Bank, which ACC is attempting to at least partly emulate with a shift towards concentrating on small and medium-sized business customers. Anglo may be a far bigger operation, but shouldn’t it be easier to maintain a tighter cost-income ratio in a smaller operation?

At the end of May 2007, Anglo’s cost-income ratio was a ravishingly low-cut 25%.

As further comparison, ICC Bank, which was also once a State-owned institution just like ACC, had a cost-income ratio of just 35.8% before it was sold to Bank of Scotland in 2001, and it was trending down.

In that light, ACC’s current cost-income ratio appears a truly dismal testimonial to five years of private ownership.

Perhaps Murphy saw a big mountain to climb, or maybe he just wanted to move to fresh pastures.

And no more different could those pastures be than a Chicago building site.

As ‘President, International’ of Shelbourne Development, Murphy will oversee the massive $2.4bn Spire project being backed by Anglo Irish Bank and expected to be complete by 2010. He’ll also have responsibility for other US projects.

The 2,000 feet-tall (610 metres) Spire will be almost twice as high as the former World Trade Center towers in New York, while it will also dwarf Chicago’s John Hancock skyscraper, which stands at 1,127 feet (344 metres), or 1,500 feet, if its giant antennae are accounted for.

Garrett Kelleher has overcome much scepticism about his project during the past year or so, most notably from the Chicago Tribune. With ground work having already begun, he has at least answered those critics who wondered whether the scheme would ever proceed. Now all he has to do is find buyers for the swanky apartments – all 1,200 of them.

A graduate of Trinity College, Dublin, Kelleher has firmly put his bon viveur days behind him. As a student he was, apparently, known for embracing the lifestyle. He is now on the ‘board of regents’, no less, at the Ave Maria university in Florida. The Catholic university was founded in 2003 with a $250m endowment from Tom Monaghan, the founder of Domino’s Pizza.

A new-age Tower of Babel, the Spire certainly won’t be. But both Kelleher and Murphy will no doubt be praying hard for success.

http://www.accbank.ie/press_office/pr_290107.html

http://www.accbank.ie/press_office/pr_160507.html

http://tribune.televisual.co.uk/2006/12/10/79969.htm

http://www.accbank.ie/files/ipt_solidworld.pdf?1194541492656

http://archives.tcm.ie/businesspost/2006/12/10/story19492.asp

http://www.rte.ie/business/2007/1106/acc.html

http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=11949359

http://www.angloirishbank.ie/downloads/English_Credit_Summary_May_2007.pdf

http://www.irlgov.ie/debates-00/s30nov/sect2.htm

http://www.designbuild-network.com/projects/chicago-spire/

http://en.wikipedia.org/wiki/John_Hancock_Center

http://www.chicagotribune.com/

http://www.shelbournedevelopment.com/

http://www.avemaria.edu/boardofregents2

http://en.wikipedia.org/wiki/Ave_Maria_University

http://en.wikipedia.org/wiki/Tom_Monaghan

Credit where it’s due

The newspapers these days must put the toughest of Wall Street traders off their morning cereal.

But even as the news just seems to get worse and worse, some outfits are seemingly sticking up two fingers right back up at the markets.

Ireland has become renowned for being a soft regulatory touch for the listing of debt instrument issuances, and it shows. There are over 90 firms registered in the country with ‘CDO’ (Collaterised Debt Obligation) in the title. Firms from Lehman Brothers– with its Saphir vehicle, to Deutsche Bank with its upbeat-named Jazz CDO, have settled 3,000 miles from the US financial hub, and called Dublin home.

But there have been major structural cracks appearing, the first seen in Dublin-registered SIVs (Structured Investment Vehicles) Cheyne Finance, and subsequently Rhinebridge.

A $2bn SIV, Rhinebridge was sponsored by German bank IKB.

In mid-October it defaulted on its debts to the owners of Rhinebridge’s commercial paper. A receiver, Deloitte, was appointed to Rhinebridge to try and sort out the mess.

“Rhinebridge ran into difficulty due to the recent events in the credit markets resulting in it being unable to fund its short term debt repayments while at the same time the market value of the assets have deteriorated,” said Deloitte a few weeks ago.

It was the second time an Ireland-based SIV had got into trouble. During the summer, Cheyne Finance also stopped paying its short-term debt and Deloitte was also appointed receiver. Royal Bank of Scotland then secured exclusive talks to refinance the $6.6bn fund, but the period of exclusivity expired last week. A deal is still expected to be concluded, however.

But CDOs – an Irish favourite - are even riskier than SIVs, because they’re more expensive to finance. SIVs are open-ended investment structures that can be continually refinanced (even if it isn’t that easy these days), while CDOs are closed-end, with set maturity dates. Merge the two, and you get SIV-lites.

Confused? Good, that’s the way for the banks like to have everyone.

The Saphir vehicles established here by Lehman have already drawn fire from Australia.

Sydney-headquartered Grange Securities, which was acquired by Lehman Brothers in January this year, began selling CDOs called Mahogany Notes through a company called Mahogany Capital, to Australian local councils and other investors in 2004, and again in 2006, according to the Sydney Morning Herald.

The Mahogany Notes were invested in Saphir Notes, which are in turn products from Lehman Brothers, manufactured by its Dublin-based Saphir Public Finance company.

Both the Mahogany issuances are now well underwater and that’s caused some upset.

And as if banks were not getting into enough trouble with the residential mortgages in the US, there’s the prospect of what might happen with so-called commercial-backed mortgage securities (CBMS), with musings over recent weeks that this could be the next of level of subsidence to hit markets.

Just recently though, despite all the turmoil, a new CBMS vehicle was registered in Dublin. Pan European Hotels CBMS, the formation of which was administered through the Channel Island’s office of Allied Irish Banks, is bent on issuing CDOs despite the current turmoil.

It could be someone thinking big, or someone thinking small and one swallow, as they say, doesn’t make a summer – the fact they’re thinking about it at all is a bold move.

Seems like there may be some life left in the debt markets after all.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2726873.ece

http://www.risk.net/public/showPage.html?page=328506

http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2833%2526cid%253D176787,00.html

http://www.ft.com/cms/s/0/6e6e2f26-7ceb-11dc-aee2-0000779fd2ac.html

http://www.arandomwalk.com/2007/08/30/aib-cheyne/

http://ftalphaville.ft.com/blog/2007/08/29/6895/the-cheyne-finance-wind-up-letter/

http://www.iht.com/articles/2007/11/05/business/hedge.php?WT.mc_id=rssbusiness

http://ragingbull.quote.com/mboard/boards.cgi?board=CLB01194&read=114340

http://www.grangesecurities.com.au/dynamicpages.aspx?cid=1&navid=1

http://www.smh.com.au/news/business/asic-protects-cdo-investors-names/2007/11/04/1194117879435.html

EU tobacco pricing still in firing line

Executives at Altria, Imperial Tobacco, and British American Tobacco must be taking long drags thinking over this conundrum.

During the summer, mandarins in Brussels indicated that Ireland, Austria and Italy must amend domestic legislation that establishes a minimum selling price for cigarettes. It said that the price imposition may infringe EU law.

On the face of it, the European Commission move seems positive for cigarette manufacturers' stocks, if not for general health. Or so you might think.

The Commission gave the three countries until mid-September to eliminate mandatory minimum cigarette prices, or face its wrath – albeit very long, drawn out wrath. In Ireland, the minimum selling price per pack of 20 is €1.30, but retail prices are around €7.30 after taxes and excise duty.

The Comission has threatened to harry the three respective governments through the European Court of Justice if they fail to dispose of the miniumum price regulation.

And there’s a precedent.

Back in 2000, the Commission found that the Greek government was in breach of EU rules by also determining the minimum price of a packet of cigarettes. In its ruling, the Commission said that manufacturers, their representatives or authorised agents of cigarettes and importers from non-member countries “shall be free to determine the maximum selling price for each of their products for each Member State for which the products in question are to be released for consumption”.

Legal wrangling in the case began in 1994, when the Commission fired off a missive to the Greek government, alleging it was in breach of the law by interfering with cigarette pricing. The Greek government, unsurprisingly, took a different view.

It argued that by maintaining a minimum selling price that it was protecting public health. The EU acknowledged that, but said that objective could be “adequately attained by increased taxation [of tobacco products] which would safeguard the principle of free formation of prices”.

The upshot was that the Greek argument was shot down.

Last March, the EC initiated a similar case against France.

For the big tobacco firms this is good news, right?

Wrong. It’s instilling fear.

They know that if the Commission is successful in forcing the Irish, Austrian and Italian governments to abandon minimum pricing policies, then the result could be a surge in taxes levied on their products. And that’s bad for business, if not for people’s health.

Yesterday in Ireland, the anti-tobacco lobby ASH called on finance minister Brian Cowen to introduce a whopping €2 per pack rise on cigarettes in his budget next month, which would bring the average price close to €10 (US$14.55) per pack of 20 (packs of 10 were outlawed earlier this year to deter young people in particular from smoking).

While the government is feeling a marginal fiscal tightening and additional sources of tax revenue would be welcome to help balance the books, slapping such a price rise on cigarettes is highly unlikely as it would fuel inflation, which has been just about kept under control. As an ‘old reliable’, it’s more than possible that some tax hike on tobacco will be implemented, but no where near as much as €2 per pack.

Altria, which owns Philip Morris and produces brands such as Marlboro, Chesterfield and L&M, has said that if the European Commission is successful in its pursuit of Ireland, France, Austria and Italy, that its actions “could adversely impact excise tax levels and/or price gaps in those markets”. In other words, Altria’s sales growth within the EU could be in danger of being stubbed out.

It’s not alone in fearing the worst. Gallaher, acquired earlier this year by Japanese Tobacco in a $15bn deal, said that the imposition of a minimum selling price in Austria last year, at €3.25 per pack, had actually helped its more expensive Memphis brand to stabilise its sales. However, at an interim results presentation in September last year, chief executive Nigel Northridge said that the activity, including lowering the price of its cheaper brands, “had led to a reduction in the Austrian profit pool”.

A smoking ban in Scotland hasn’t helped either, with Gallaher’s sales there down by single digit figures, although revenue in Ireland, where a ban has been in place in pubs and workplaces since 2004, has grown. Gallaher, whose brands include Benson & Hedges and Silk Cut, increased its Irish market share by 0.2% in 2006. It controls about 50% of the cigarette market in the country.

An EU ruling scrapping minimum selling prices could make things an awful lot tougher for the big tobacco firms, forcing them to continue looking further afield to regions such as Africa and Asia for further growth.

The European Commission could be killing them with kindness.

http://eur-ex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!CELEXnumdoc&numdoc=61998J0216&lg=en

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/06/1820&format=HTML&aged=0&language=en&guiLanguage=en

http://www.newash.org.uk/ash_na0mryn4.htm

http://www.eapn.ie/policy/3058

http://archives.tcm.ie/businesspost/2007/08/19/story25976.asp

http://www.iht.com/articles/2007/04/18/news/tobacco.php

http://news.bbc.co.uk/1/hi/health/3565899.stm

http://www.lse.co.uk/ShareChart.asp?sharechart=GLH&share=gallaher_grp

http://www.bloomberg.com/apps/cbuilder?ticker1=MO:US

http://www.marketwatch.com/news/story/imperial-tobaccos-acquisiton-altadis-expected/story.aspx?guid=%7BF03B94BF-38E5-4029-A267-12C97050AD22%7D

http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=420051&in_page_id=3

http://www.gallaher-group.com/

http://www.bat.com/

http://www.imperial-tobacco.com/

http://www.altria.com/

O’Callaghan gets sums right

Former Credit Suisse banker Barry O’Callaghan certainly knows how to crunch the numbers.

After spending a staggering $9bn on acquisitions within the past year, the founder of once-publicly listed educational firm Riverdeep has been busy bedding down financing – a task that could have been made all the more difficult in the current climate.

Not so, perhaps, for O’Callaghan.

His educational outfit, now called Education Media and Publishing Group (EMPG) and one of the largest educational publishing groups in the world, has been busy in the past week courting institutions to take on syndicated debt.

Credit Suisse, Lehman Brothers and Citigroup are spearheading the syndication of $7.15bn of EMPG’s debt, with one presentation already having been made in London, another in Barcelona, and another yesterday in New York.

The debt pile has been accumulated following Riverdeep’s reverse takeover last year of Houghton Mifflin for roughly $5bn, and the $4bn purchase earlier this year of Harcourt, the US arm of Anglo-Dutch publisher Reed-Elsevier. The latter will have an 11.8% stake in EMPG once the deal is formally closed. Reed-Elsevier has already signalled that it may sell the stake.

Among the investors getting in line as part of the overall deal, is Davy Stockbrokers, which is forking out $235m in new equity financing.

The syndication consists of a $4.95bn first-lien term loan, a $1.7bn second-lien term loan, and a $500m revolving facility.

The first-lien term loan is apparently being priced at 375 basis points above Libor (London Inter-Bank Offer Rate). The 12-month rate is currently around 4.637%.

That compares to recent deals, including Chrylser’s $12bn bank loan arranged during the summer. A first-lien amount of $10bn was initially priced at 325 points above Libor, but was subsequently raised to 375.

It must be a hairy time going to the markets to look for financing for big deals, but having pulled off the two biggest coups of his life, it’s unlikely that anything fazes O’Callaghan these days.

http://www.thebusiness.co.uk/news-and-analysis/313321/credit-markets-poised-to-jump-back-to-life.thtml

http://www.reuters.com/article/marketsNews/idUKN2953978220071029?rpc=44

http://uk.reuters.com/article/governmentFilingsNews/idUKN1227507220070112

http://www.reuters.com/article/businessNews/idUSN1942939320070719

http://www.independent.ie/business/irish/reed-elsevier-eyes-sale-of-its-300m-stake-in-riverdeep-1046815.html

http://archives.tcm.ie/businesspost/2007/07/22/story25306.asp

http://www.hmco.com/company/investors/invest/ir_release_112906.html

http://www.reed-elsevier.com/index.cfm?Articleid=539

UK property - brave souls required

It’s been a jittery few weeks. No more so the past two, which has claimed the heads of Merrill Lynch and Citigroup. Irish bank stocks have been tumbling, while sentiment against financials remains seriously gloomy. Property prices are trending down. It’s enough to make you wonder what you should do with that property portfolio you’ve lovingly nurtured.

Even in London, where Irish magnates such as former tax inspector Derek Quinlan, and others including Limerick-based Aidan Brooks and co have spent years acquiring commercial property, it’s a question of holding nerves, and maybe even making a timely exit.

But even a price correction is making for opportunity.

UK-based Rowan Asset Management has just launched fundraising for a €15m fund for Irish investors that hopes to capitalise on falling prices in the UK. With gearing, the fund should have a total of €40m to invest. The Rowan 4 fund is being specifically established for clients of wealth management firm, Wealth Options, based in Kildare.

This is, obviously, the fourth Rowan fund to be raised, and so far the track record appears solid. Last year the first fund booked a 77% return on capital when it sold an office block on Palace Street in London, while other investments also performed well, with the existing funds having properties in cities such as Manchester and Peterborough.

Despite the global credit squeeze, Rowan Asset Management maintains that people still see UK property as a “safe haven”. The question is, for how long?

The FTSE UK Commercial Property Index has risen 115.6% in the five years to the end of the third quarter in 2007, beating growth in the FTSE-100, which was up 106.8% in the same period. And in the three-month period to the end of the third quarter 2007, the FTSE UK Commerical Property Index managed to post a 1.5% rise as world stocks were battered. The FTSE 100 dipped 1% in the same period.

So far, so good.

But for Rowan and its Irish investors, securing the types of returns that led to the greening of Britain within the past few years, may be a lot more difficult.

Earlier last month, the Royal Institute of Chartered Surveyors (RICS), said that the events in credit markets “have raised risk premiums across all asset classes” and that “following the rampant growth of the last four years, the returns outlook for UK commercial property has weakened”.

For the Irish, with so much money stuffed into UK bricks and mortar, this isn’t the type of news they want to hear.

Even back in June, the RICS was pointing out that the foot was off the accelerator in the UK commercial sector. In the first quarter of this year, 1,038 commercial properties were sold at auction in the UK, compared with 1,402 in the last quarter of 2006.

The most recent report by the RICS notes that the credit crisis will “undoubtedly” put upward pressure on yields and that the adjustment is likely to be “short and sharp in nature”. It added that a “marked repricing” of secondary commercial properties will continue.

While the RICS said it expects a soft landing in the commercial property sector, it noted that property shares are currently trading at a discount of around 30% below net asset values, “suggesting that the market is expecting more significant declines in commercial property values than we are anticipating”.

Many heavyweight Irish investors such as JP McManus, Sean Mulryan, John Magnier and Michael O’Leary have already generated significant returns from the UK commercial market. Among the other buyers are Michael Whelan of Maplewood Developments, Bernard Doyle and David Courtney of Spain Courtney Doyle, and former managing partner of Andersen Consulting, Roddy Ryan.

Despite the RICS’ expectation of a soft touchdown, it may take brave souls to sign up for what could now be a much longer term UK property play.

http://www.rics.org/NR/rdonlyres/9044AA6D-C714-49D2-8FB1-D5EB06586726/0/CommercialPropertyandtheCreditCrunchOct2007.pdf

http://www.ftse.com/Indices/FTSE_UK_Commercial_Property_Index_Series/Downloads/FTSE_UK_Commercial_Property_Factsheet.pdf

http://www.wealthoptions.ie

http://rowanplc.com/