Inside the world of business
Outrageous scenario teeters on the intolerable
ATTEMPTS TO contact Laurence and Mairéad Keegan yesterday were unsuccessful despite calls to their company’s office and elsewhere, but on the basis of what is in the accounts of their company, Kimpton, it is fair to feel a bit uneasy.
Here is a company that saw its turnover drop by 72 per cent in the year to June 2008 when it suffered losses. The property market in which it operated was in crisis, values were impossible to estimate, and the company’s assets were in developed and undeveloped Dublin property. Its books showed net liabilities of almost €3 million.
Yet the following year that same company began to conduct substantial construction work on residential property for its owners and their children. The amount involved was €5.32 million. We don’t know how much of this work was paid for, perhaps it all was, but given that the companys loans are now on their way to Nama, we surely have a right to know.
The Keegans did well during the bubble years. In 2004 and 2005 payments from their company to their pension fund were €3 million each year, while other emoluments were more than €1 million annually. The company itself tended to run small losses. In 2006 the couple got pension payments of €4.6 million, and additional emoluments of €1.95 million. The pension payments, of course, would have received favourable tax treatment.
If the loans being moved to Nama are not fully paid off then Kimpton becomes a case of privatised gains and socialised losses. If the directors and their family were to in any way benefit from the construction work Kimpton conducted last year, that would push what is already an outrageous scenario, into an intolerable one.
A question of rights
BY WEDNESDAY the Government will be able to assess – from the results of Bank of Ireland’s rights issue – whether its rivals have any prospect of raising sufficient capital from existing shareholders.
The initial signs from the expected take-up among the bank’s retail shareholders, which of course includes the stockbrokers’ private clients, are positive.
More than 80 per cent of retail shareholders are expected to participate in the €1.7 billion rights issue and about 95 per cent of institutional investors. Shareholders clearly feel that it’s worth sticking with the bank. Overall, the take-up is expected to be around this level. The Government, a minority shareholder, is participating, taking up €630 million of the shares issued, leaving it with a 36 per cent stake.
This is a vote of confidence in the bank, which is taking the smallest hit of the five participating institutions in the National Asset Management Agency.
Bank of Ireland has first-mover advantage in raising the capital it requires in less than three months after the regulator demanded it.
The bank requires the least amount of capital, putting it in pole position to boost reserves by €2.9 billion – in excess of the €2.66 billion the bank needs. The fully-guaranteed rights issue means that less than 10 per cent of the new shares will be taken up by the underwriters. This leaves the bank with a broad base of shareholders.
The bank’s shares closed up 7 per cent at 76 cent, above the 55 cent two-for-one rights offer to shareholders. The nil-paid price, which reflects market interest in participating in the rights issue, traded up 17.6 per cent yesterday.
All eyes will turn now to Allied Irish Banks, which must fill a much deeper capital hole, requiring €7.4 billion, of which an estimated €4.4 billion will come from the sale of its overseas units. Irish Life Permanent will seek to generate €700 million from a rights issue to meet a €900 million capital bill for its loss-making banking unit, Permanent TSB.
Infrastructure a priority
THERE WAS more than a hint in the figures published yesterday by construction group SIAC of what the future holds for Irish-based operators with its scale.
Large-scale jobs such as the M3 motorway and revamped Landsdowne Road stadium are coming to an end, but there does not appear to be anything new coming on stream.
With the private construction and property markets on the floor, the State is the only show in town, and while it has committed to spending around €5 billion this year, and similar figures in coming years, its agencies agreed contracts for just €60 million in March and April, implying a run rate of €360 million annually.
SIAC is already working on a number of substantial overseas projects, and it looks like it will be following this route more and more over the next few years as work in Ireland slows to a trickle or dries up altogether.
For some time now, the construction industry as a whole has been saying that the Government has quietly decided to shelve infrastructure development in order to save cash.
It makes sense to put some projects on hold, but where infrastructure spending is needed, for instance on waste water treatment, schools and public transport, it doesn’t.
According to some calculations, every €1 billion spent on infrastructure creates 28,000 direct and indirect jobs.
That’s 28,000 jobs for every €1 billion sucked up by the banks. Perhaps it’s time to review our priorities.
NEXT WEEK:Hungary's financial position will doubtless feature in talks between euro-zone finance ministers on Monday, while retail sales figures for April, due at the end of the week, should throw some light on the state of the domestic economy.
PODCAST:John Collins discusses Paddy Power's proposals to fund the horse-racing industry, talks to Caroline Madden about the unemployed self-employed, hears about new research from the Institute of Directors, and chats to Laura Slattery about Ryanair's results.
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