State intervention is urgently needed to give businesses and homeowners extended holidays on loans and mortgage repayments, says one of Ireland’s leading risk management experts.
John Finn, managing director of Treasury Solutions, says the countries which emerge first from the coronavirus pandemic and resulting recession (which will be sharp but, hopefully, short) will steal an economic lead on those that recover slowly.
Clear thinking and collective responsibility now could be of immense benefit to the nation.
So are we starting from a good place?
The answer is yes from a banking perspective, John argues.
For example, in 2007, loans to business stood at around €144bn, of which property accounted for €96bn.
Business debt now stands at around €40bn, of which €13bn is property debt.
What is also interesting and important is that the banks have high liquidity levels at such an important time for the nation.
This was a problem area in 2008 but as we all know, they were charging for deposits recently as they didn’t require them. Furthermore their capitalisation is among the best in Europe as a consequence of the previous crisis.
“The core tenet of risk management is that you are only as strong as your weakest link. At this point in time, that weak link is cashflow. Unfortunately, some companies will go bust,” said John Finn. “But some creativity and flexibility for both business owners and taxpayers is required.”
The emphasis from government has been, not surprisingly, on getting cash into the system.
However, reducing cash outflows is also a key part of the solution. And not just in the coming weeks but also months. By way of example, SMEs are seeking a loan standstill for now; interest-only won’t work. Evidence suggests the banks are seeking to deliver on this.
“Similarly, people will need leeway not to repay their mortgages for three months but, in the medium-term, a reprofiling of mortgages may also be useful.
“I don’t think the banks should see this as a problem. There is a value in allowing someone who has, say, eight years left on a mortgage, to extend that to 13 years.
“Mortgages taken out since the crisis have been subject to more stringent Central Bank rules and, accordingly, shouldn’t be viewed as a big risk for a mortgage extension.
“If you act now to take €400 or €500 out of someone’s monthly costs (by lengthening mortgage repayment periods), that will relieve a lot of pressure on society. In the short term, this would aid people either to spend a little more or, just as importantly, to give them assurance that their incomings can match their outgoings.
“If the economy recovers to where it was, borrowers can always later opt to switch back to their former repayment profile.”
However, both loan deferrals and mortgage reprofiling will need urgent regulatory change that only the State and Regulator can deliver.
Having spent six years establishing and running the treasury function of Musgrave Group during a period of rapid expansion and acquisitions for the group, John Finn set up Treasury Solutions in 2001.
Since then, he has advised on debt deals varying from €0.25m to €400m for clients ranging from SMEs to publicly quoted companies creating one of the country’s most respected debt advisory services and arguably the top treasury risk management consultancy focused on the domestic market.
Its monthly reviews and newsletters, penned by John Finn, are closely followed by businesses of all sizes and are also distributed through The Treasury Hub network of accounting firms.
This network, which he co-founded, has grown from a standing start two years ago to a collaboration with over 550 employees.
Its focus is very much on helping small, medium and larger firms on all aspects of their banking activities and the efficient operation of their finance functions in that regard.
“We are the banking specialists for the SME sector,” stated Mr Finn.
Readers of these reports have had valuable advance warnings on many fronts: the first bulletin of 2020 issued in Mid-January cited refinancing of bank loans, equities and oil as the highest risk/priority areas.
Five weeks ago, he suggested that his readers consider hedging Sterling sales at the then current rate of 84p (to one euro) as the downside risk for Sterling was not priced in by the market. Earlier this week it reached 93.9p.
To put the latter in perspective, an exporter with GBP£1m sales hedged at 84p would be over €100,000 better off than hedging at current rates.
However, he has previous! In June 2006, he penned an article in the Irish Examiner where he highlighted the false conclusions around the stability of the Celtic Tiger based on very simple economic analysis. We all know what happened from 2007 on.
“My approach to this is simple: the goal is to provide our clients of all sizes with the knowledge of a full-time treasurer for a fraction of the cost in what is a challenging area for most finance functions and CFOs.
“Any suggestions that I make for companies to consider reflect both what the best companies are doing in their bank dealings based on our market intelligence and what I would do if I was a full-time treasurer or CFO. The bulletins are more than just a read. They are a guide.”
In summary, Mr Finn says Ireland is very well placed to emerge strongly from the current crisis, potentially shaking off the worst impacts within months.
The State’s health plan has been well co-ordinated so far. The banks are well capitalised and have strong liquidity. Interest rates are low as are oil prices and company debt levels, in general, are back at levels last seen in 2002.
To a degree, the country’s future prosperity is very much in its own hands.
If businesses and homeowners can be helped to weather the storm, the country can help itself to avoid long-term unemployment issues which have high associated welfare costs.
“We also must learn from the last global recession. We don’t want to see a further transfer of wealth from individuals to the likes of vulture funds.
“And we need to cocoon industries like food, logistics, healthcare and utilities. Finally, any initiatives that are labour-intensive must be supported. That is how we can ensure that the country will bounce back quickly.”
Investment firm Smith & Williamson has recruited Carl Donnelly and promoted Ashling Maguire as associate directors as part of its growth plans.
Paul Wyse, MD of professional services with S&W, said: “It’s always a highlight to the team grow by welcoming and promoting some of the most talented people in the industry. The expertise and client experience that Carl brings to the team will enable us to deliver quality client results – and even better services beyond the high bar that we have already set.
“We are also promoting Ashling to the well-deserved position of Associate Director – a role in which she will undoubtedly thrive. Watching our team members grow their experience and improve skill-sets is exemplified in Ashling, who has quickly become an invaluable member of our management team.”
Carl Donnelly joins as associate director — business tax services. With extensive experience in Irish tax, he provides advice with respect to company reconstructions, transactions, family owned private companies, and employee global mobility. Advising clients in Ireland and internationally, Carl brings expertise in a wide range of sectors including construction, pharmaceuticals, manufacturing, and technology.
He has extensive experience advising on business sales, the set-up of several FDI companies in Ireland, including tax residency position, VAT, and also assisting clients to develop succession strategies in a tax efficient manner.
He holds a BA Honours in Accounting and Resource Management, and is an Associate Member of the Irish Tax Institute.
Ashling Maguire is promoted to associate director — Assurance and Business Services. She joined the firm as an audit trainee in 2014, she has worked with clients across automotive, hospitality, distribution, pharma, aircraft leasing, not-for-profits and charities, and sporting and membership bodies. She has worked on forensic audits for large corporate clients, has led a team carrying out due diligence that led to the merger of a large professional practice, and also has experience of large-scale and diversified businesses. She holds a Masters in Accounting and is a Member of Chartered Accountants.
Professional services firm Grant Thornton plans to
expand its services in Munster, having appointed Vic Angley, previously of PwC, as partner to its Limerick tax practice.
The company has grown to now employing more than 1,450 people in seven offices across Ireland. GT has been particularly growing specific tax presence outside Dublin, notably in Munster.
Michael McAteer, GT’s managing partner, said: “Vic’s appointment demonstrates the firm’s commitment to expansion across the island of Ireland.
“The growth of our clients has led to a significant increase in the demand for all of our services over the last 10 years, and our team in Limerick, along with their colleagues in our Cork office, have ambitious plans to continue to further grow the business across the Munster region,” Mr McAteer added.
The appointment of Vic Angley as partner in the Limerick office reflects the significant and continued growth experienced by Grant Thornton Ireland over the past 10 years. The company currently employs over 1,450 people in seven offices across Ireland.
As well as working with PwC, Vic Angley has also worked with several large national tax practices over the past 20 years. He has extensive experience spanning several areas, including; cross border tax planning, corporate acquisitions, reconstructions and reorganisations and foreign direct investment into Ireland.
He is an associate of the Irish Tax Institute (CTA) and holds an MBA from the UCD Michael Smurfit Graduate Business School.
He has both written and spoken for organisations such as the Irish Research & Development Group (IRDG), Chartered Accountants Ireland, Ibec, and Bloomberg on a variety of topics including tax incentives for research and innovation, the Irish CFC regime, and succession planning for Irish family business.
Vic Angley said: “The key focus of our team in Limerick will be to deliver proactive, commercially relevant advice to our clients to assist them in addressing the many challenges an ever-evolving tax landscape presents.
“In order to deliver this, I’m looking forward to adding to what is already an exceptionally strong tax team, a number of high calibre senior appointments who will broaden the base of specialist tax advice we can deliver to our existing and future clients.”