Friday, June 25, 2010
TIARNAN O’Mahoney’s decision to remain as chairman of the Irish Pensions Board is truly extraordinary.
The failure of the Government to insist on his departure is even more so. Does nobody in the Department of Finance know O’Mahoney’s CV? O’Mahoney is not a well-known man outside of business circles and the elite of the political classes. He is a pleasant, amiable fellow, well liked by many. He is clearly willing to serve the State.
But he was also a central figure in the reckless Anglo Irish Bank expansion. He had responsibility for raising the money that the bank then lent in turn. He didn’t get the top job as chief executive when Seán FitzPatrick was promoted to executive chairman although he got an enormous pay-off of €3.75 million in early 2005 when he decided he couldn’t work on under David Drumm’s leadership.
In fairness to him, O’Mahoney previously had used newspaper interviews to express doubt about the sustainability of Anglo’s breakneck expansion, something that may have been held against him when the contest to succeed FitzPatrick was under way. He can’t be blamed for the latter stages of the Anglo madness, although he remained close to FitzPatrick who was an investor and supporter of O’Mahoney’s subsequent venture. However, he later presided over a massive corporate catastrophe at a little-known company called ISTC. O’Mahoney set it up during 2005, raising €165 million from a who’s who of who really runs Ireland, the elite multi-millionaires. FitzPatrick was joined by the likes of Seán Quinn, Denis O’Brien, Johnny Rohan and Paddy Kelly in contributing capital. More money was raised from the sale of bonds to investors through Friends First and First Active and more loans were raised from banks all around the world. ISTC had €3bn to play with, trading in the bonds that banks use as capital.
"There is only one objective and that is to make money," said O’Mahoney. "This is unashamed capitalism. There is no debating the issue. This is about making money."
Unfortunately, it all went wrong. ISTC invested in bonds based on sub-prime mortgages. Creditors demanded the repayment of relatively small sums of money. Anglo couldn’t make the repayments. Bad debts of over €435 million had to be admitted. Creditors of €878 million existed but there were assets of less than €58 million to cover it. Investors were wiped out.
All of that is directly relevant to the position he holds at a State body overseeing pension provision. Pension funds have lost small fortunes because of the fall of values on the markets but also because of the failures of these very companies where O’Mahoney held sway. Pension funds are now struggling to meet their commitments because of those losses, causing as much anxiety to future pensioners as it does to existing pensioners. The members of pension funds are being cautioned about receiving lower than expected incomes upon retirement or perhaps having to work longer before they retire and draw down their long-term savings. This is all probably true. Yet these warnings are coming from a man who was involved at the highest levels of two businesses which cost pension funds small fortunes – and the State €22bn in the case of Anglo. This is beyond bizarre.
It goes further than that. O’Mahoney was appointed to his position on the Irish Pensions Board by Brian Cowen as Finance Minister. However, Seamus Brennan, the now deceased former Minister for Family and Social Affairs was most relevant to discussions with O’Mahoney given his position. Coincidentally, Brennan’s son, Seamus junior, who sprung to public attention when he failed to retain the family seat for Fianna Fáil in Dublin South because of the George Lee juggernaut worked for guess who? Anglo Irish Bank, of course.
O’Mahoney intends stepping down now once his five-year term of office is over. O’Mahoney, who once opined "in a personal capacity" that companies shouldn’t have to contribute to the pensions of employees (yet can give big pay-offs for missing the top job) has been quiet of late. It’s a pity because he was very quotable once. In March he told a group of accountants not to vote for Sinn Féin in that year’s election because of its "Long Kesh school of economics" which posed a major threat to the future economic stability of the state. He described Sinn Féin’s policies as "economic terrorism". Given this track record should a former director of Anglo Irish Bank be taken seriously when he starts lecturing us about pensions?
nThe banks say they are lending but business customers say they are not. Who would you believe? Both have statistics available to bolster their arguments, based on surveys they have carried out. Both are dismissive of the claims of the other side but are being relatively careful in what they say because of the mutual dependency that still exists. The Irish Banking Federation warns against relying on anecdotal evidence and cites a government-commissioned survey by a firm of independent accountants that said four out of five Irish businesses are getting the finance they seek. I find that hard to believe even before I consider the anecdotes I’ve been hearing. Four out of every five loans approved during the gravest recession in a generation and when the banks themselves are so strapped for cash? That scarcely seems credible.
Here’s what I suspect is happening: companies are being told informally that they are not going to get the money they request so they don’t even make an application. Only loans that are pre-approved get into the paperwork or computer system and even then head office may block the loans, which accounts for the one-in-five who are deemed as failed applications. Worse than that, many companies are complaining that existing overdraft facilities are being amended downwards or being withdrawn. The banks seem to be trying to protect themselves against potential bad debts, fearing that customers will be unable to meet repayments. However, they run the risk of forcing companies, partnerships and sole traders out of business if they do that.
Ironically, if a company does not have large outstanding loans, particularly made on property, then it may be more vulnerable to the withdrawal or reduction of facilities.
I also know of good businesses, even in property investment, that have never missed an interest or principal repayment, but who have been screwed by demands for extra interest repayments from their banks. This is because it has been judged that the value of the asset upon which the loan was security has fallen. This means that the original debt to equity valuation on the loan has changed, triggering a demand for a higher rate of interest. If there is a failure to make the increased demands for monthly repayments, there is a danger that the whole loan could be called in.
There must be cases where banks are entitled to say that they cannot lend more to a business because the chances of it being repaid are too poor. But equally I suspect that many good businesses are going to be brought under by the selfish attitude of banks who, it should be remembered, all would be out of business themselves were it not for the overly generous support of the State.
Matt Cooper is the author of Who Really Runs Ireland? His radio programme The Last Word is broadcast Monday to Friday, 4.30pm to 7pm on 100-102 Today FM.
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