Debt was top of the financial agenda at the start of 2012 as the IMF calculated it might need up to €800bn in its bailout fund. It expected its member states to contribute €400bn, with the eurozone being asked for an extra €200bn added to the €150bn already agreed. It was suggested that the contributions would not be measured according to member states’ size, but in voluntary pledges, which would excuse those already in receipt of bailout funds — Ireland, Greece, Portugal — having to contribute.
On the home front, businesses coping with difficult debt burdens were now required by the Revenue Commissioners to submit detailed information on their banking arrangements. Requirements that came into force at the start of 2012 require those applying for “phased payment arrangements” to complete a new format rather than the traditional process of making an agreement with their individual Revenue contact. The new form required more information, including details of debts currently in place, the company’s last banking review and its outcome. Since 2010, there was a 30% rise in phased payment arrangements, with 16,000 in place by the end of September. Revenue said the new format would “assist the instalment process”.
Worries about the health of banks was again highlighted this month by figures showing lenders parked record amounts of cash with the ECB. Deposits hit a high of €453bn at paltry overnight rates of 0.25% as compared to better returns available elsewhere. Having received €490bn from the ECB’s three-year liquidity programme, which was designed to underpin confidence in financial institution, banks still remained wary of dealing with each other.
A counterpoint to the prevalent January gloom was Bord Bia’s announcement of record overseas sales of Irish food products, at an all-time high of €8.85bn last year, and up 25%, or nearly €2bn, since 2009. Dairy and beef were up by 15% and 17% respectively, while sales of prepared foods, such as ready meals and chocolate, rose 12% to €1.5bn. Seafood was up by 13%, boosted by strong sales of organic salmon.
With another tourist season about to kick off, CSO figures gave a ray of hope to the hard-hit sector. Overseas visitor numbers for 2011 were almost 8% ahead of 2010, and while the final quarter showed a decrease of 3%, the overall growth was encouraging.
“As we look to the coming tourism season, we are very much aware that the economic landscape continues to present a challenging environment for travel, particularly in the first quarter of 2012,” said Niall Gibbons, CEO of Tourism Ireland.
Cork teenager Harry Moran’s PizzaBot game made the top of the iOS and Mac app charts. Having developed the app shortly after learning to code at Coder Dojo, run by another Cork teen, James Whelton, Harry’s game was so popular on the apps chart it even eclipsed global favourites such as Fifa 12, Angry Birds, and Call Of Duty.
Nama and Treasury Holdings squared off in a High Court challenge where the developer tried to prevent receivers taking control of a number of its more high-profile assets such as the PwC headquarters in the IFSC, the Westin Hotel, Central Park in Leopardstown, and the Ballymun Shopping Centre. Locked in talks over the €2bn owed by Treasury’s bosses, Johnny Ronan and Richard Barrett, Nama took the decision to appoint receivers to those properties that had been pledged as security for €500m of loans owed to the State-owned bad bank. Treasury said they had “complied in every material way with Nama’s requirements” and were “extremely disappointed” by the decision.
Over a third of the Facebook employees at the company’s Dublin base learned they could earn six-figure windfalls when the social networking site went public on the New York Stock Exchange later in the year. With a valuation of about €57bn expected, it would guarantee many of the 400 employees stock options worth hundreds of thousands of euro each.
Good news was on the agenda this month with the Irish Examiner’s exclusive that Providence Resources’s exploration off the Cork coast had broken the 1,800 barrels per day figure set by the company as being “commercial”. Flows of 2,000bpd were achieved during the test on the appraisal well at Barryroe, 48km off the Cork coast, which would see the first oil from an Irish well arriving on shore by 2014. This is the fifth time oil has been found during explorations of the Barryroe licensing block, but the other wells, drilled in the 1970s and 1990s by Esso and Marathon, fell below the commercialisation target.
An establishment that was once the summer haunt of Bertie Ahern, the Parknasilla Hotel in Kerry, went into receivership, along with Dublin’s iconic Burlington Hotel. A third hotel, also part of developer Bernard McNamara’s portfolio, the Cork International, was also taken over by receivers.
At a time when the average Irish household finances are squeezed ever tighter, Irish billionaires have enjoyed a wealth increase of €1.29bn over the last 12 months, according to Forbes magazine’s annual rich list. Well-known Irish businessmen Denis O’Brien, Martin Naughton, and Dermot Desmond, as well as construction tycoon Pallonji Mistry and soup heir John Dorrance, found their collective worth valued at €20.6bn, up from €18.9bn last year. Seán Quinn Sr joined the list in 2010, only to be removed in 2011 when his empire imploded.
The Irish financial regulator did not pick up on warning signs that Anglo Irish Bank was breaking its own lending rules, according to Professor of Economics at Williams College in Massachusetts, Gerard Caprio, co-author of The Guardians of Finance: Making Regulators Work for Us. This ignoring of vital signs was part of a widespread failure of regulators in many countries to enforce rules which might have prevented much of the financial crisis.
The ECB said it had no plans to relax the payment schedule on the €30bn of promissory notes to the former Anglo Irish Bank issued in 2010 as part of the cost of winding down the defunct lender, now christened the Irish Bank Resolution Corporation. While the Government continued to seek a deal on repayments, ECB president Mario Draghi said: “As to whether the ECB plans to do anything about the existing terms of the contract, the answer is no, the existing terms of the contract are the existing terms of the contract.” Olli Rehn, the European Commission economics head, did take a more conciliatory view, saying he had “sympathy” with the Irish situation and would consider a “readjustment” of the debt burden. The promissory notes are estimated to cost €47bn over the next 13 years.
The idea of Ireland defaulting on its debts was given a definite thumbs down by Karl Deeter,a financial analyst at Irish Mortgage Brokers & Advisors, in a new book, What If Ireland Defaults? With contributions from Nobel Laureate Joseph Stiglitz, as well as economists Constantin Gurdgiev, Megan Greene, and Stephen Kinsella, Deeter’s input suggested a default would mean a run on the banks, a close-down of all lending, and a Government-imposed restrictions on moving funds outside the country.
The ever-increasing popularity of Irish whiskey across the globe is creating its own problems, especially for the smaller, independent operations. The Jim Beam Group, new owners of Cooley Distillery, excited aristocratic ire this month with their decision to cease supplying product to Slane Castle owner, Lord Henry Mountcharles. Slane Castle Irish Whiskey, launched in 1999 and aimed at the premium US market, had an arrangement with the former owners that the Beam Group said will no longer apply.
With the London Olympics making property in the UK capital a solid investment, Nama agreed a rumoured €19m deal to sell 112 apartments close to the Games site. London Development Securities Plc bought the vacant property with plans to refurbish the block converting much of the buildings into apartments. The Wick Lane Wharf property in Hackney Wick, which the London company acquired in joint venture with Realstar, was a “complex loan transaction secured on a quality portfolio of assets, and we wish to acknowledge the proactivity and certainty that Nama brought to this process”.
The euro plunged to a 22-month low against sterling, resulting from increased unemployment across the eurozone and slowing factory output. The surge in sterling was partly the result of investor worries about the economies of Italy and Spain prompting a fresh crisis, and the flight into the UK’s perceived safer haven status. Sterling reached a high of 81.3p to the euro, and brought a welcome boost for Irish exporters selling into the UK market.
Another bright spot emerged with the return of AIB to the debt markets for the first time since the crisis began, where €395m was successfully raised in bonds secured against UK mortgages. The move followed similar ventures back into the markets by Bank of Ireland and Irish Life & Permanent late last year.
The international phenomenon of pop-up shops gathered steam in Ireland this month, with up to 40% of retail rental deals for five years or less, and 20% for those of two years duration.
The worsening situation in Greece created a financial contagion throughout the EU markets, prompting Finance Minister Michael Noonan to suggest the return to the bond markets could be sidetracked. “We hope we’ll get back into the markets at the back end of 2013, but we might not because there is such uncertainty in Europe now,” he said.
While the domestic property market remains largely dormant, international investors have circled some bargains in the Dublin market. A California firm, Kennedy Wilson, where scion of the famous political dynasty Bobby Shriver is an advisor, finalised a €40m deal to buy the landmark Gasworks apartment block. The US firm had previously bought a stake in Bank of Ireland in 2011. The deal saw Kennedy Wilson partnered with Canadian firm Fairfax Financial to buy the 210-unit block in Dublin 4 from receivers acting for Ulster Bank. The deal values the apartments at under €200,000 each, located in an iconic glass-and-steel barrel structure built inside an old gasometer. Rental income is understood to be €3.25m per year.
As the economic and social situation became ever more dire in Greece, individuals were pulling savings out of banks at a reported rate of €800m a day. With predictions of a return to the drachma gaining increased popular currency, particularly if the radical leftists won the upcoming election, many were investing nest eggs in gold and diamonds ahead of a period of “social chaos”.
Ireland’s actions in tackling the financial crisis got a vote of confidence this month from legendary investor Mark Mobius, executive chairman of the Templeton Emerging Markets group, which oversees €40bn in assets. He said Ireland “has shown the way” in tackling its economic crisis, and had been “willing to take a bit of medicine” and would emerge from the crisis faster than other distressed nations. “The Irish were able to take the medicine, and the proof will be in the pudding, but I think they will come out of this a lot faster,” he said.
The Bank of Ireland board added two billionaires this month — Wilbur Ross, whose investment firm WL Ross holds a 9.3% stake in the bank, and V Prem Watsa, whose Fairfax Financial group also owns substantial stock, were appointed non-executive directors. The bank is 15% state- owned, making it the only large Irish bank not in government hands. Ross is a legendary US banking investor with a personal fortune estimated to be worth around €1.7bn, and has been outspoken in his views that the Irish economy will recover well from the current financial crisis.
An Irish Examiner exclusive revealed that holders of thousands of commercial mortgages and loans may have overpaid millions in interest because Bank of Ireland does not automatically cut standing order payments when interest rates fall. A Dungarvan businessman was refunded €33,000 in interest overpayments by the bank on his commercial loans, and had his annual repayments reduced by €30,000 per year after he challenged the bank for failing to automatically reduce his monthly loan repayments when interest rates changed from 2001 to 2008. He also forced the bank to refund €11,000 on the interest overcharged on his current account as a direct result of the bank failing to cut his monthly commercial loan repayments when interest rates fell. The businessman brought a case for repayment of the overpaid interest to the Financial Services Ombudsman and was awarded an extra €2,500 in compensation.
Government borrowing costs remained below Spain, as both countries prepared for a return to the bond markets. Investors were willing to lend to Ireland for nine years at 6%, while the rate for Spain was 6.3%.
Research from ICT Ireland showed tech companies had more than 700 vacancies for senior engineering and technology jobs, and added that it often takes companies over three months to fill vacancies for these senior positions and even longer for those needing work permits. IT companies took on more than 1000 non-EU workers in 2011 to satisfy some of their needs.
The seemingly good news that Nama made a profit in 2011 for the first time was tempered by the proviso that it was forced to write €1.3bn off the value of its assets as it struggled to juggle the impact of falling property values. It made a profit of €247m in 2011, according to its annual report, compared with a loss of €1.18bn in 2010.
The pensions time bomb ticked louder this month when a study found that a third of workers plan to rely solely on the state pension in their retirement. With the pension currently amounting to €12,000 per annum, the survey, conducted among 1,000 adults, found that 40% plan to use a combination of the state contributory pension and a private retirement income. Only 6% are relying on their property portfolios for retirement funding. With just two out of five adults having a private pension plan, the research showed that men, the over 55s and the higher social classes were most likely to put aside money for retirement.
Dublin hotel room bookings rose during the first half of 2012, research from Deloitte showed. For the six months to June, occupancy levels reached 70%, up 1%. The average rate paid for a room climbed 7.8% to €86.91, with revenue per room increasing 10% to €60.94.
Research by the Association of Irish Chartered Accountants revealed that just 17% of business professionals have confidence in the economy, down from 25% in the first quarter of this year. The research also showed that 75% of Irish finance professionals believe the economy has remained in a stagnant condition — down from 80% three months ago, and 86% in 2011. Support for the Government’s austerity measures was also under pressure, with just 50% of accountants still supporting the tough medicine, compared with 75% in 2011.
Ikea, the world’s largest furniture retailer, announced plans to build a budget hotel chain across Europe, in keeping with the trend for independently booked, low-cost holidays.
In comparison to Ireland’s more subdued style of protest, Greeks this month emerged on to the streets of Athens hurling petrol bombs and stones as tens of thousands rioted in the biggest anti-austerity demonstration so far this year. Chanting “we won’t submit to the troika”, protestors were joined by striking workers opposing the new round of cuts demanded. Police fired tear gas at black-clad youths who threw stones, petrol bombs, and bottles. The demonstration was estimated to be the biggest since May, 2011.
The ESB revealed it was planning to raise funds by issuing an Islamic bond, known as sukuk, in the first move of its kind for an Irish company. The national energy supplier reportedly hired a specialist firm to advise on the best method of accessing the market for these bonds. Islamic finance, which complies with rules set down in the sharia body of religious laws, has become an increasingly popular source of financing in recent years as borrowers struggled to raise funds in the traditional money markets. With Malaysia the world leader in the sukuk market, investing in the ESB’s network would appeal to sukuk investors seeking companies underpinned by strong assets. Accessing this sharia-compliant market would allow the ESB to tap into the enormous financial resources in the Far and Middle East — a market valued at €1.2tn a year.
Irish government policy must focus on encouraging the development of global companies as well as fostering entrepreneurship, warned Deirdre Somers, head of the Irish Stock Exchange. Ireland will lose out on the new generation of potential large companies without established initiatives to encourage expansion. “Encouraging entrepreneurship is not an end in itself,” she said. “The end must be creating companies that have scale and importance on a global stage and which will contribute economically to Ireland for decades to come.” Policy should encompass an ambition to grow 10 companies with a market capitalisation of more than €1bn by 2017, she said.
Irish homeowners finally began to get concrete details of the upcoming property tax. Allowed to decide the value of their home themselves, people will return a checklist to the Revenue Commissioners after Jul 1, 2013, but penalties will accrue to anyone who understates the value. Spot checks with other properties in any area will give tax collectors an estimate of what a house is worth. The charge, which will estimate the average semi-detached house at around €300,000 is expected to raise €500m for the Government.
Heading into the last quarter, Ireland was among the few EU countries showing an increase in economic activity in the services sector. The NCB Ireland Services Purchasing Managers’ index rose to 53.9 in September from 51.7 in August, with new business and employment levels on an upswing. With growth the fastest since Feb 2011, up to 50% of the companies surveyed were optimistic about the short-term and expected business expansion to support a rise in activity over the next 12 months.
Despite some glimmers of activity in the property market from first-time buyers availing of keenly priced houses, a Central Bank research paper suggested that prices may not return to boom levels for another two decades. The house price collapse in Ireland was the most expensive of 147 property crashes examined by researchers, and has cost taxpayers €63bn to recapitalise the ailing banking sector. The study included similar property crashes in a number of Nordic countries and Japan to estimate the possible extent of the current Irish crisis, and found it would likely take a period of between 11 and 22 years for recovery to happen. The Central Bank economists found the crash in property values so severe it could take four to five years for banks to return to profit.
An EU study found Ireland had the second-worst lending conditions for small business in the EU. Only Greece has a worse lending climate, the study on competitiveness among the 27 member states found, and it was nearly two thirds more difficult for an SME to get credit at the end of 2011 than it was in 2009. “The sector is held back by weak domestic demand, lack of innovation, problems with access to finance, and rising costs of doing business at local level,” the report claimed. “The Government should continue to keep a close eye on access to finance, as improvement in this area is crucial for future growth.
“The lack of domestic demand and lack of finance have lowered the level of investment in equipment, which remains under the EU average.”
Bank of Ireland said it had received 37,000 formal lending applications from SME and agri customers up to the end of August, of which almost 30,000 have been approved.
The Irish workforce is not good enough to support the proper environment for start-up companies, according to one leading technology entrepreneur attending Dublin Web Summit in the RDS. Limerick native Patrick Collison, whose three-year-old online payments company Stripe is based in California’s Silicon Valley and is valued at €380m, said it would have been impossible for him to set up the company in Ireland.
“There isn’t the investment initiative here,” he said. “If we had started in Ireland there’s no chance we would have secured the investment we did in the early stages of the business. A lot of the people we work with in California have started their own companies in the past and are really self-motivated and incredibly good at what they do. I think it would have been really hard to bring those people to Ireland.”
Shares in one of Ireland’s most successful companies, Kerry Group, fell after it cut its full-year earnings guidance due to ongoing problems in its Irish consumer foods sector. In an interim management statement to the end of September, the Tralee-based company said it now expected to post earnings per share growth for 2012 of between 9% and 11%, down slightly from the 8% to 12% it had previously indicated. The company, which is creating 900 jobs at its research plant in Kildare, said it recorded “good organic growth”, despite “challenging market conditions in Europe and the continuing competitive consumer foods market situation in Ireland and the UK”.
In one of the biggest entertainment deals of the year, Walt Disney Co agreed to buy Lucasfilm Ltd and its Star Wars franchise for €3.46bn. Disney announced it planned to release a Star Wars film in 2015, with sequels following every two or three years. George Lucas, owner of Lucasfilm Ltd, agreed to stay on as creative consultant on the new films. The deal made Lucas the second-largest individual holder of Disney shares, with a 2.2% stake. The Lucasfilm deal marks the third time in seven years that Disney has taken over an iconic studio, having bought Toy Story creator Pixar in 2006, followed by Marvel in 2009. In 2005, the year the last Star Wars film was released, LucasFilm generated €450m in operating income.
Volkswagen Group Ireland reported a pre-tax profit of €3.4m in 2011, up from €1.34m in 2010. The group, which distributes and markets VW, Skoda, Seat and Audi in Ireland, recorded a turnover of €398m in 2011, up €55m on the previous year. Its Irish car sales across all brands amounted to 20,749, or 23% of the new car market, while its commercial vehicles held a dominant 24.7% share of the light commercial market. To the end of October, the Volkswagen brand was the best-selling marque, ahead of Toyota.
Irish gaming company Havok, now owned by Intel, is looking to China for growth. The company, which began as a Trinity College Dublin spinout in 1998, opened an office in Beijing four months ago, and is seeking to introduce its technology to some of the larger companies in China. 60% of the games played in China are made by indigenous Chinese developers rather than imported brands and titles.
“We feel there’s a big untapped market there where these developers can benefit from the type of technology that Havok has really made a standard in some of the other markets,” said managing director David Coughlan. “We have been doing business in China for a number of years, initially with studios that would be part of western publishers like 2K, Ubisoft and THQ. But increasingly we had started doing business with some indigenous Chinese companies, and it had got to a point where it made sense to have a team on the ground there.”
Havok technology is used in many of the major video games on the market, including Halo 4, Call of Duty: Black Ops II and Assassin’s Creed III. It is used on all the major platforms, including Xbox 360, PlayStation, Wii and PC, and the iOS and Android mobile platforms. The company’s technology has also been employed in films such as The Matrix, Harry Potter, and Quantum of Solace.
A technology master plan due to be rolled out next summer will see Dublin City developed as a world centre of digital excellence.
“Dublin cannot wait for national government action,” said Lord Mayor Naoise Ó Muirí. “Our future economic success, our ability to attract talent and investment and our competitive branding internationally mean we have to use and apply digital technologies now.”
The plan will increase access to new technologies and promote the tech industry. “Dublin has a good reputation for software and technology and has a pretty good name in digital terms, but we can do better. Broadband penetration is not what it should be in some areas of the city. The same goes for urban wifi areas,” said Mr Ó Muirí.
The new plan would link the many smaller initiatives happening around the city, Ó Muirí believes. The coming months would allow for consultation on what shape the master plan should take. “It’s not a high-falutin’ talking shop,” he said.
Economic fallout continues in what was once a guaranteed Irish industry — the pub trade. Up to 7,000 jobs have been lost since 2009, according to a report from the Drinks Industry Group of Ireland — representing a 20% fall in full-time employment in the sector. The downturn is due to declining alcohol consumption, reduced consumer spending and a shift to off-licence sales. Figures from the Revenue Commissioners show that the volume of alcohol sold from warehouses in the first nine months of 2012 declined by 3.8% year on year, while total sales volumes are 34% lower than in 2008. Full-time employment in Irish pubs now stands at 27,900, down from 34,900 three years ago.
The first independent, purpose- built distillery for a new whiskey in more than 200 years began distilling in Dingle, Co Kerry, this month. The Dingle Whiskey Distillery started production of gin and vodka at the site of the old sawmill in October, and whiskey production has now come on stream. This marks the latest venture by the Porterhouse Brewing Company, Ireland’s largest independent brewery, and has been in development for the past three years. The new venture has created 20 jobs. To mark the occasion, the owners of the first 500 casks will be known as the Dingle founding fathers, who choose their own bespoke cask.
Some good news arrived for hard-pressed mortgage holders as the year draws to a close, with AIB indicating it will step up the pace of mortgage write-offs in 2013, and offering customers who are working with the bank the chance to have some of their debt cancelled. The bank will now tackle problem loans “in a more industrialised fashion than seen before”, said Garry Stran, head of the AIB’s arrears unit. Some 30% of borrowers who have had their mortgages restructured and who are working with the bank could have some of their debts written off. “Writing off debt where people are doing the very best they can is absolutely appropriate,” he said.
Any loan restructurings would be based on a borrower’s ability to pay while allowing them a “reasonable” living standard. “Given the scale of the problem, do we really want to be having emotive conversations with people about TV subscriptions, gym memberships and cigarette habits? No, we don’t.” The Insolvency Bill due to become operative in 2013, will allow debtors to emerge from bankruptcy after three years instead of the current 12 and to write-off debts up to €3m.