"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

Low tax, high fliers

Do a quick search for ‘aircraft leasing’ firms in Ireland and you’ll find 153 of them.

Mostly international operations based in Dublin and Shannon, the country’s 12.5% corporate tax rate has acted as an enormous set of landing lights, guiding in leasing companies from almost every continent. So much so, that Ireland is quickly becoming the de facto world centre for the business.

Among the latest to set up shop is Orix Leasing AAX.

Owned by the Japanese financial services group Orix, the newly-registered company is undoubtedly linked to the company’s decision this month to snap up a 10% share in Malaysia-headquartered AirAsiaX, the long-haul, no-frills off-shoot of AirAsia, which in seven years has become the top Asian low-cost carrier.

Orix forked out $35m for its stake in AirAsiaX, with Bahrain’s Perigon Capital paying the same amount, also for 10%. Even Richard Branson’s got in on the AirAsiaX party, paying $7m for a 20% shareholding back in August.

Orix is obviously be going to be playing more than just a passive investor role in the start-up, whose maiden flight, to Australia from Kuala Lumpur, will be made this week. It’s probable that Orix is also going to be supplying aircraft to the new operation as it spreads its wings to the Middle East, and Europe. Even the Dublin Airport Authority has begun courting AirAsiaX, which is being advised by former Ryanair director of operations, Conor McCarthy. He also helped mould AirAsia, while has also provided assistance to Qantas low-fares carrier JetStar (headed by Irishman Alan Joyce), as well as AeroMexico.

At times, it seems as if the Irish are taking over the world of air travel, with former Aer Lingus boss Willie Walsh now heading British Airways, while more recently, in the US, former Ryanair executive Charlie Clifton helped to launch no-frills carrier Skybus. It appears the Irishfication of the leasing business is next on the agenda.

The Irish aircraft leasing business has its roots in the recently deceased Ryanair founder, Tony Ryan. He founded Guinness Peat Aviation (GPA), in 1975. By the early 1990s, just prior to the first Gulf War, it was worth over $4bn. But an intended 1992 floatation proved a disaster when key US fund managers failed to support it. General Electric stepped in the following year to save GPA. Ryan said at the time that the company had been “raped” by GE.

“What do you expect when you walk around with no clothes on?” countered GE boss Jack Welch.

Despite that debacle, the aircraft leasing business in Ireland has boomed.

Last year Limerick-headquartered Genesis Lease floated in the US, raising $641m. It’s currently valued at $795m. The company is registered in Bermuda, and resident in Ireland solely to avail of the low corporate tax rate. Other benefits apply too, such as favourable VAT treatment and stamp duty exemptions.

Others located in Ireland include Babcock & Brown, Macquarie, GECAS, Aercap, Investec’s aircraft leasing arm, and BCI.

In a recent edition of the Seattle Times, one of Boeing’s former leading salesmen, Toby Bright, said that the tax incentives for aircraft leasing firms in Ireland are “pretty overwhelming”, and this is serving as an incentive for much of the business to set up shop in Dublin.

"Walk into a pub in Dublin and you can’t privately talk business,” Bright told the newspaper. “It's full of other leasing guys."

Still, the collegial atmosphere wasn’t enough to lure Bright to the capital. He has been working with San Francisco-based aircraft leasing firm Pegasus, which was acquired earlier this year for $5.2bn by Terra Firma Capital Partners. Terra Firm owns AWAS leasing (which it bought in 2006), based, unsurprisingly, in Dublin, and will combine Pegasus with the former. That means shifting the California operation to Dublin. Bright was invited along for the ride, but declined.

So, just how effective is the Irish tax regime? Look no further than the latest set of accounts filed in Ireland for GE Commercial Aviation Funding.

With assets in Ireland of more than $14bn, in the period from mid-November 2005 to the end of 2006, it recorded income of $443.3m and a pre-tax profit of $415.3m. It paid Irish tax at the reduced 10% corporate rate that by now has reverted to the standard 12.5%. That incurred a tax liability of $41.5m during the period. However, it claimed group relief of almost $41.3m. The final tax bill? A mere $242,000.

No wonder leasing firms are jetting in.

http://archives.tcm.ie/irishexaminer/1998/06/09/bhead.htm

http://www.expertguides.com/default.asp?Page=10&GuideID=162&CountryID=44

http://www.reuters.com/article/innovationNews/idUSN1125118220070511

http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=sundaybuzz28&date=20071028&query=Toby+Bright

http://www.awas.com/contact/corporate_locations.asp

http://www.genesislease.com/corporate_management.cfm

http://www.gecas.com/

http://www.rte.ie/news/2007/1003/ryant.html

I found what I was looking for, thanks

As U2 band members Bono and The Edge try to push through a major refurbishment of the Clarence Hotel in Dublin’s Temple Bar, it seems the owner of the Holiday Inn on Pearse Street also has designs on the historic quarter.

John Moran’s recently established Inn@Temple Bar is likely scouting for a location to open up a new premises at a time when the dwindling number of hotel rooms in the capital is causing concern amongst both tourism and business bodies.

Jurys sold its Berkeley Court Hotel and Jurys Ballsbridge sites to developer Sean Dunne for €379m in 2005, and while Dunne has plans to construct a new 220-bedroom hotel on the adjacent sites, it will be some time before that ever comes to fruition, especially since Dublin City councillors are incensed at his ambitious masterplan.

Earlier this year they blocked a draft area plan for Ballsbridge that would have permitted high-rise elements, apparently scuppering Dunne’s blueprints which embrace high-rise construction. Dunne needs a big return on his pricey investment, and top-loading the parcel of land in the prime location is the way to do it.

The proposed €150m Clarence make-over is constroversial, although it’s acknowledged that the quays should be a strong focal point for the city. The plan involves demolishing a number of protected building facades and structures. The co-owners – developer Paddy McKillen (who build the Jervis Centre), Bono and the Edge, have threatened that the hotel could be sold if the plans aren’t approved by the council next month. The hotel was acquired in 1992 and has lost €12m since then.

Fianna Fáil supporter John Moran seems unperturbed by such a track record and could soon end up a close neighbour. Temple Bar no doubt appeals as a location for a new Holiday Inn, its pedigree far removed from the existing Holiday Inn’s unromantic location on Pearse Street.

This week, Holiday Inn brand owner Intercontinental launched what is believed to be the most expensive global corporate rebranding ever, costing $1bn (€700m). Each Holiday Inn hotel franchisee will be expected to spend a minimum of about €143,000 upgrading each premises. Perhaps Moran sees the rebranding as an opportune time to make a move into the capital’s heart.

Just where he’ll get space is the big question.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/24/bcninter124.xml

http://www.archiseek.com/content/showthread.php?t=6427

http://www.holidayinndublin.ie/

You don’t get owt for nowt

Next time you hear any business person dismiss the Republic of Ireland market because it “has a population smaller than Greater Manchester”, tell them to fire their entire marketing department.

The latest example of this was on (yes I’ll admit I was listening), RTE’s Marian Finucane show a couple of weeks ago. Some dimwit, and I can’t recall who, repeated this outdated gem of marketing drivel.

It only takes a moment to confirm that the population of Greater Manchester is 2.5 million – about 60% that of the Republic’s. If marketing departments believe 2.5 million isn’t far off 4.2 million, I’d hate to wonder how some chief executives think their businesses are doing.

http://www.gmep.org.uk/ccm/content/agma/vision-and-themes.en;jsessionid=515AFF608C6241F7CBD6DBDFC686195C

Stick out your tongue, Mr Sipowicz

With so many Polish people now living in Ireland (over 63,000 according to the 2006 census), it’s hardly surprising that a number of Polish-orientated businesses have sprung up in Dublin and elsewhere in the country. Indeed, enough critical mass seems to have been reached that it looks like a major healthcare operator from Poland is poised to establish its first foreign franchise here, an experiment which will do doubt offer a prognosis on whether the concept could be expanded to the UK, where there’s an even greater number of Polish ex-pats busy making a living (around 150,000).

Maria Stenka, a 45-year-old Polish dentist working from Dublin’s Dorset Street appears set to spearhead the launch of the first Lux-Med clinic in Ireland, and it’s an interesting play. Of the entire Polish community living in Ireland, almost one-third, or over 19,600 of them, live in Dublin city and county, making the prospects for Polish-speaking doctors and dentists seem rosy. Lux-Med may sound like a package holiday firm, but it’s big business on its home turf (http://www.luxmed.pl/en/page.php?sid=97 ).

The company operates 17 clinics throughout Poland, offering state-of-the-art medical facilities, and undoubtedly the service doesn’t come cheap. Lux-Med even likes to boast how during the summer a 50-strong team of its doctors looked after Rolling Stones concert-goers in Warsaw. No mean feat, and no doubt added to the 50 who were surely looking after the crumbling band members.

Lux-Med was acquired earlier this year by London-headquartered private equity firm Mid Europa Partners, which will certainly want to inject growth hormones into the business before it undoubtedly sells it on in a few years’ time. Part of that growth now looks like it will come from franchises set to cater for a burgeoning ex-patriate population in cities such as Dublin.

http://www.cso.ie/census/census2006results/volume_4/vol_4_2006_complete.pdf

Micko defends Ryanair (again)

On form as always, Ryanair boss Michael O’Leary squared up to tree-huggers last week at Bristol Airport, lambasting them for their opposition to the facility’s expansion.

Landing in a private jet (now that’s surely not Micko's – maybe it was borrowed from Shane, Declan and Cathal Ryan), O’Leary was in Bristol to announce three new Ryanair routes between the city and France. Some locals have been campaigning against the expansion of the airport, a move which they claimed will blight people’s lives and lead to more pollution. Asked for his reaction, Micko said that: “They badger us and bang on about how the end of the world is nigh because of global warming, but it’s not.” He said that aircraft account for less than 2% of pollution.

http://www.thisisbristol.co.uk/displayNode.jsp?nodeId=144913&command=displayContent&sourceNode=231190&home=yes&more_nodeId1=144922&contentPK=18662454

Now, while Micko might be right (or completely wrong) it would be best to do your own research. That could involve flying to many exotic locations in the pursuit of the truth. If you could get an EU grant to do it, even better. And if you do think Ryanair is polluting the skies by flying to every little shit-hole airport in Europe and beyond, then don’t take any more foreign holidays. Ever. See how you like that.

It's the economy, stupid

Doomsayers are having a field day following finance minister Brian 'Juicy Lips' Cowen’s warning yesterday that the Irish economy has reached a “turning point”.

Making a pre-budget statement this week in advance of the big day on 5 December, Cowen delighted opposition parties by admitting that economic growth forecasts are now lower than expected, paving the way for a budget far removed from the largesse displayed almost 12 months ago. Cowen said he expects the economy to grow 4.75% in the year to the end of 2007, compared to a previous forecast of 5.25%. Next year, he expects growth to drop to 3.25%.

It’s certainly a significant fall on a percentage basis (a 38% drop from 5.25% to 3.25%), but not one to be overly concerned about. Even averaging growth of 3.25%, Ireland’s economy is outpacing most of its western European counterparts, which still enviously eye the IDA’s ability to lure foreign investors, and the sustained period of growth Ireland has experienced.

http://www.independent.ie/national-news/this-year-a-turning-point-for-economy-says-cowen-1199620.html

Ireland’s unemployment rate still ranks among the lowest within the EU - 4.7% at the end of September (http://www.cso.ie/statistics/sasunemprates.htm ). While it has risen since 2001, it has been consistently close to full employment levels, and way below comparative EU figures. You also have to bear in mind that the Republic’s economy has absorbed well over 300,000 migrants in the past seven years or so, and the vast majority have found work. Much of that, of course has been in the bloated construction sector, on which the government has been overly reliant. But without jobs, those migrants will likely move on – to home, or elsewhere in Europe, probably keeping real unemployment levels low.

The seasonally-adjusted unemployment rate for the EU-15 members was 6.9% at the end of June, 2007, while only a small number of EU-15 countries, such as Denmark, Sweden and the Netherlands have lower unemployment rates than Ireland.

This week the National Treasury Management Agency, mandated with managing our debt, raised $6bn that will be used to fund on-going infrastructural projects. It was seen as further proof that the state coffers had dwindled and that tax revenue is unable to meet ambitious spending plans. The coffers have dwindled, but the $6bn raised represented just over 3% of the country’s overall GDP, and the country still has the lowest debt levels in Europe – a situation far removed from the days in the 1980s when Ireland had a higher debt level than Mexico (which nearly defaulted to the International Monetary Fund in 1982, and even by 1986 was using two-thirds of its foreign earnings to service its debt pile).

The lesson: shut up and stop complaining. Things have still never been so good.