BUSINESS OPINION:The temporary seizure of a developer's car may vent our frustration but remains an empty token
RECENT EVENTS throw up difficult questions about how we should deal with the financial carnage following the dramatic bursting of our property bubble.
First we had the seizure of property developer Paddy Kelly’s 7-series BMW, which was taken by the Dublin County Sheriff on foot of an action by ACCBank, and returned the next day.
The timing of that event was not random.
ACC has had judgments totalling €23 million against Kelly and his sons Simon and Christopher relating to personal guarantees they gave on development loans that can not now be repaid.
While other developers have been keeping a low profile, Kelly and his seven-year-old BMW have been firmly in the public eye this summer. Last month, he spent the day in the car with Fintan O'Toole, assistant editor of The Irish Times, ferrying him around sites he had developed since the 1970s. During the interview, Kelly revealed he had bought the car in 2003 for €139,000. He also said that, having been worth €350 million at the height of the boom, he now had debts of the same amount, but seemed blasé about the economic and social wreckage left in the wake of the boom-time party.
Less than a week later, Kelly was in similarly unrepentant mood when he appeared at the Glenties Summer School, and was pictured quaffing champagne.
It’s hard to see how the developer’s actions could not be perceived by his lenders as an unabashed insult, while the taxpayers who are shouldering the cost of fixing our profligate banks were justifiably outraged.
ACC certainly rose to the bait. The lender is owned by the Dutch Rabobank group. Rabo has emerged from the banking collapse of 2008 relatively unscathed and does not want its foray into Ireland to threaten its hard-earned triple-A credit rating. Still, one would have to question the wisdom of seizing an old, admittedly luxury car – which has a resale value of less than €20,000 – when the debtor owes you €23 million.
Separately, the “revelation” that State-supported banks were paying gym membership fees for staff was also the subject of much political point-scoring last week. The practice will be hard to swallow for those who have had to absorb rate increases on mortgages from those banks.
But surely the focus should be on the massive pension and bonus payouts enjoyed by bank management as they drove their institutions on to the rocks.
Indignation would be better directed at former Irish Nationwide boss Michael Fingleton who still has the €1 million bonus he pocketed, even after the State had to step in and prop up the building society.
It might not be a popular view, but if we simply try and rain down as much pain as possible on developers and bankers, without differentiation, it will be counterproductive.
Much has been made of the fact that Kelly is now concentrating on his overseas business interests in exotic locations such as Florida, Malta and Africa. Watching him jet overseas is difficult to stomach. But if he succeeds in making profits on those developments and uses them to pay down his existing debts, surely that is a better result for everyone.
If developers are unable to earn money, it will simply crystallise losses on their loans. The inevitable knock-on would be that the National Asset Management Agency (Nama) would be faced with losses running into billions of euro. Similarly, if our banks are to be nursed back to health, pillorying thousands of experienced bank workers is not the right approach. It is the generals, not the foot soldiers, who made the bad decisions.
With the bond and equity markets clearly baulking at the cost of bailing out our banks and questioning our ability to fix themselves, do we really want anyone with a spark of creativity or drive to get out of banking?
The difficulty is that the history of Irish business and society suggests all the right noises will be made about punishing the culprits and reforming our corporate culture. But the passage of time will see public outrage wane – and things will revert to business as usual. That would be an awful waste of the recession.
Minister for Finance Brian Lenihan has been unequivocal about how Nama will handle developers. The agency will bankrupt those who do not play ball, and also has the power to go after their personal assets. Those powers will have to be used ruthlessly without fear of political interference.
Minister for Enterprise, Trade and Innovation Batt O’Keeffe said last month that director of corporate enforcement Paul Appleby has referred files relating to Anglo Irish Bank to the Garda Bureau of Fraud Investigation, which is a positive development.
No one should escape punishment if they are ultimately found to have broken the law. The excuse that the breaches are merely “white-collar” crimes against company law should not be entertained, particularly given the long-term impact of those actions on our economy.
But it would be a uniquely Irish reaction to the excesses of the boom if we were to deal with the hangover with an over-reaction of self-flagellation and populist petty punishments which leave our economy languishing for the rest of this decade.
