It’s time to feel the pain and adjust to our much reduced circumstances

AS a new year unfolds, the next phase of the recession will be more brutal. At every level, be it household, business or nationally, we have been busily adjusting our expenditure in line with reduced incomes and revenue. As the situation deteriorated, we kept our focus on survival. Each situation eventually stabilises.

The new normality will then have to be confronted. For most people, the worst aspect will be resolving residual debts. More than anything else, 2010 will be about dealing with debt.

Total private sector debt peaked at more than €400bn. This includes property credit (residential and commercial) here and abroad. Current values of assets are less than debts. This negative equity can only be sustained if individuals are prepared to put good money after bad. Businesses and investment funds that have been on the acquisition trail are worst exposed.

Banks and borrowers have to face the music before interest rates start to rise by the end of the year. Short-term palliative measures, such as interest only payments or interest holidays, are unsustainable. The overwhelming outcomes will be either business closures or consolidation.

This has happened already with enterprise insolvencies reaching an official level of 4 per day or 1,400 per month. I fear the first half of this year will see many directors and entrepreneurs winding up many companies rather than sustaining further losses. As we have seen with Budget Travel, O’Brien Sandwich Bars and Waterford Crystal, reputation or scale of operation provide no protection to shareholders.

The deep irony is that 2010 will provide a fundamental contradiction. The underlying causes and circumstances of the recession are improving – while all the symptoms of depression will become more evident. The outcome will be a downsized but more durable economy. Zombie banks and businesses will either expire or be merged into new entities. The fundamental lesson of the 1930s’ depression was that all recessions are cyclical. The human spirit will endure and we are entitled to have new hopes and expectations.

Last year had one severe sting in its tail, namely the appalling news of the serious illness of Brian Lenihan. Regular readers of this column will know of my singular praise for his performance over the past 12 months. After initial unfamiliarity with an economic brief and faced with unprecedented crises, he has provided strong political leadership and effective managerial competence. His forte has been his communication skills. He uniquely combines his affability, politeness and eloquence to soften the harshness of his message. He has been decisive and courageous in dealing with the public finances. His biggest challenge remains restoring our banking system to solvency and sustainability.

Pancreatic cancer is a chilling diagnosis for anyone to receive. Who knows how any of us would react when confronted with our own mortality? Perhaps with a mixture of incredulity, anger, denial, depression and prayer. Brian’s optimistic and excellent spirits were embodied in his radio interview with RTÉ’s Seán O’Rourke. I was reminded of his late father’s catchphrase: “What problem? No problem.” Irrespective of party political persuasion, one has to be totally supportive of his battle to defeat this disease. Hopefully, he can continue to discharge his important functions while receiving treatment. The priority should be to do whatever is necessary to restore his health. The work pressures of being a minister are enormous both physically and mentally. He needs to be selfish. The widespread groundswell of genuine emotional support for him can act as a real tonic towards his recovery.

The year-end also revealed the risible story that Michael Fingleton of the Irish Nationwide Building Society (INBS) had written to the Ceann Comhairle seeking an apology and retraction for comments made about him in the Dáil debate on NAMA by the Fine Gael chief whip, Paul Kehoe. Fingleton has a brass neck. It is not clear whether this letter was written before the broadcast of the Prime Time Investigates programme or the Irish Nationwide EGM, both held in late December.

‘Fingers’, as he is nicknamed, has refused to do any interviews since his resignation as boss of INBS. Perhaps he might address many outstanding questions about his tenure of office.

The primary function of any CEO is to enhance shareholder value. Several years ago INBS shareholders had the expectation of a cash windfall if the building society was demutualised and sold. Last month’s EGM presided over an insolvent institution. The state has to take a special shareholding in lieu of a bailout, while NAMA undertakes €8bn of toxic debts.

A senior lender told the nation’s viewers of the decision-making processes within INBS. She outlined a lack of proper credit procedures, assessments of repayment capacity and asset values. INBS was run by a completely dominant CEO. Desperately bad lending decisions and poor corporate governance weren’t the only failings.

Each year ‘Fingers’ and his pal, Sean Fitzpatrick, had a cosy arrangement of providing short-term lending facilities to conceal Fitzpatrick’s loans from Anglo shareholders and auditors. Both must have knowingly colluded in this cosy arrangement.

Hopefully we can leave it to the various official multiple investigations to provide due process as to the legalities. Irrespective of these outcomes, we can safely conclude they were inappropriate and ethically dubious. For all these considerable achievements, Mr Fingleton departed INBS with a €1 million bonus in 2008. This comes on top of a mega salary and a personal pension payoff on an incredibly massive scale. The most apt apology should come from Mr Fingleton to his former shareholders and taxpayers. These guys still don’t get it.

THE new year provides the opportunity for a fresh outlook. As a gambler, I never hold back from fearlessly bold predictions. Here are my top tips for 2010:

Gerry Adams, after 27 years as head of Sinn Féin, to step down ... Kilkenny to win five senior hurling titles in a row ... David Cameron to be elected British prime minister in May ... AIB to be subject to majority state ownership.

Tiger Woods to compete successfully in the golf majors ... Roy Keane to survive and succeed at Ipswich town ... All-Blacks to emerge as the top rugby nation in advance of the next World Cup down under ... FAI to face financial insolvency ... Alex Ferguson to step down as Man Utd manager.

Politically, Brian Cowen to carry out a significant cabinet reshuffle: Mary Coughlan, while just about holding the Tánaiste job, to be demoted out of Enterprise and Employment; Mary Hanafin to be promoted; Willie O’Dea or Batt O’Keeffe to take over in Health from Mary Harney who is to step down, while Martin Cullen is in dire jeopardy.

Economically, I predict oil, interest rates and the euro will increase in value – all of which will have negative implications. While car sales should recover, property prices may not. Stock markets should start to surge towards the latter half of the year. Listed companies with strong relative market positions, low borrowings and sound balance sheets will do best.

Happy new year.