Carroll ruling - Confidence challenged by uncertainty

WITHIN hours of the Supreme Court decision on Tuesday evening to withdraw court protection from companies in Liam Carroll’s Zoe Group the High Court — inevitably — appointed a provisional liquidator to two Zoe companies.

Both the Zoe entities are holding companies that distribute loans across the Zoe group. Dublin-based Vantive owes ACC €63.9 million while Jersey-based Morsten owes that bank €72.1 million. The six companies in the group owe eight banks €1.2 billion. These figures are all but incomprehensible for most of us and we will wonder at the great faith — and burden — bankers placed in one man. So, what happens next in this very Irish, this very expensive drama?

With a little over a month to go before the Dáil debates the NAMA legislation (September 16), the court heard opinions that the property market could not absorb such a large portfolio at once. So, in this pre-NAMA lacuna, the commercial property market is frozen.

In this respect, the principles of NAMA’s valuation methodology are absolutely pivotal. They will define whether the banks might survive without being nationalised. Whether taxpayers survive without being fleeced seems to be no longer worth asking. The only thing left to be established is how fleeced we will be.

The legislation suggests that banks will not get the full value of what they have loaned, but that they will get some figure based on crystal-ball gazing and wishful thinking of the most precarious kind. Not so long ago the inviable benchmark — current market value — was the only criteria that mattered. How the rules change when powerful interests are in play. The NAMA valuations “will recognise that the current market for property-backed loans and the underlying assets are very illiquid”, and will not require the banks to accept panic-sale prices. In other words the mother of all dig-outs underlined by the most fervent “Ah ‘shure it’ll be all right on the day” in our history.

What a shabby, inglorious end to our decade of delusion and casino banking. If the consequences did not have the capacity to be so profoundly ruinous for each and everyone of us, our children and their children too, we might be able to laugh at how preposterous the whole Bertie pantomime was.

The Carroll ruling is unlikely to be the last of its kind and apart from the impact it, and the others in the pipeline, will have on banking, the economy and Government policy there is another important issue at stake. That is the consequences each of these minor catastrophes has on the public’s confidence in our Government’s capacity to overcome the challenges.

Nothing undermines confidence more than the feeling that you don’t know what is going on. For the last while there has been a sense of drift and the “trust us” argument has worn thin.

Two nights ago the Department of Finance assured us the Carroll ruling will have no impact on NAMA. This reassurance must have been based on hope rather than certainty as the ruling was handed down less than two hours before the statement was issued.

In the next while this Government will have to impose cuts more severe than anything we ever imagined. Of course there will be huge opposition, but in these times communication is an important part of leadership. It is time a good communicator was employed to sustain the confidence needed at this time.