Friday, July 31, 2009


The plan involved “extraordinary” forbearance by the group’s banker creditors in agreeing to a two year moratorium on interest payments and effectively refraining from calling in massive loans. This forbearance was “remarkably absent” when the banks were dealing with smaller borrowers, he remarked.

“In truth the banks can do little else but forbear because if they take action to recover the monies due to them by these companies, they will bring about a collapse of the house of cards that is the petitioner, the related companies and indeed the wider group that is associated with them.”

The banks had therefore stood back and not only took no steps to recover the monies but some banks actually advanced more sums to pay off the companies unsecured creditors.

“It is sometimes said that when small or modest borrowers encounter difficulties in repaying their loans, then such borrowers have a problem. For those with larger borrowings, it is the banks who have a problem,” he said. “If ever a case demonstrated the accuracy of that proposition, it is this one.”

He had the “gravest reservations” about the projections on which the independent accountant relied given the extraordinary collapse of the property market and little of no indication of a revival in its fortunes.

The projections were based on discussions with the companies management and out of date valuation reports by two firms - CBRE and Hooke & McDonald, who could not be considered fully independent having worked for the group in the past.

The propsed survival scheme was also most unusual as it would not require any investment in the companies or a write down of debts. One or both such elements figure in practically all schemes relating to companies in examinership, the judge noted noted.

No investment was required because the banks would continue to provide funds towards development of the lands and no write down was envisaged because the banks were the only creditors, he noted.

In all the circumstances, he was not satisfied the companies had a reasonable prospect of survival. Even if so satisfied, he would exercise his discretion to refuse protection because there was “something artificial” about what was proposed.

The only creditors involved are the banks and they would be able in any event to take steps to reclaim their debts and deal with the property involved, he noted. They would be expected to maximimse its value as they saw fit.

The Irish Times

Tuesday, July 28, 2009

The Zoe Group

The judge said the proposed scheme includes “pouring” money into developments over the next three years when the office space market was already “grossly oversupplied” and the residential market was “flat as a pancake” and showing no sign of revival.

The court heard chartered accountant Fergal McGrath, author of a report recommending the survival scheme, was a member of the Zoe group’s auditors, LHM Casey McGrath.

The judge noted the independent accountant’s report recommended existing senior management remain in place. “The captains who navigated the ship onto the rocks are to remain in charge,” he observed.

An “extraordinary” number of directorships were held by directors of the petitioning companies “no doubt for the best fiscal reasons” and the court had to deal with “a maze, a spider’s web” of companies, he added.

All of the group’s major bank creditors and the Revenue have adopted a neutral stance towards the examinership application and the court heard some of the banks had advanced further monies to pay off most of the group’s trade creditors.

AIB and Bank of Scotland Ireland are the largest lenders with 40 and 23.8 per cent of the €1.2 billion borrowings respectively.

ACC Bank, which earlier this month issued letters of demand over its €136 million debt, said it was “guardedly neutral” but its counsel Rossa Fanning warned that stance could change during the examinership if the National Assets Management Agency (Nama) legislation was deemed unfavourable towards the bank.

Michael Cush SC, for six key companies in the Zoe group which effectively finance all the other companies, indicated the exercise of “forbearance” by the banks was crucial to the survival scheme. The group had engaged with the banks last December and produced a survival plan agreed to by all banks except ACC.

ACC took a different view and its subsequent move to call in loans led to this “almost unique” and “most unusual” application for protection which had the prior support of 90 per cent of banker creditors and no write down of debts was proposed, he said. If there was a winding up, there would be an enormous write down and the estimated deficiency would exceed €1 billion.

An orderly realisation of assets was proposed and it was anticipated there would be a €300 million surplus after three years and all creditors would be paid. The group had sold 39 units for €11.7 million since last December and had a rent roll of €25 million which was expected to increase.

Mr Cush said the group had a number of “quality” sites in Dublin’s docklands which would “regain value when the property market improves”. Counsel read from an affidavit of Mr Carroll’s who said be believed the sites would be at the forefront of the future development of Dublin.

Mr Cush added valuations from CBRE and Hooke and MacDonald of December 2008 were included in the papers before the court. In reply to the judge, he said these valuers had worked for the Zoe group as had practically all valuers.

The consequences of protection being refused and the group being wound up would be “enormous”, counsel said. It was very unlikely the market could absorb such a huge property portfolio at once.

The Irish Times

Friday, July 24, 2009

The Speed of Light

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

For most of Wall Street’s history, stock trading was fairly straightforward: buyers and sellers gathered on exchange floors and dickered until they struck a deal. Then, in 1998, the Securities and Exchange Commission authorized electronic exchanges to compete with marketplaces like the New York Stock Exchange. The intent was to open markets to anyone with a desktop computer and a fresh idea.

But as new marketplaces have emerged, PCs have been unable to compete with Wall Street’s computers. Powerful algorithms — “algos,” in industry parlance — execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there.

New York Times

Tuesday, July 21, 2009


JOHN FLEMING, the struggling west Cork property developer, has total debts of more than €1 billion. The extent of Mr Fleming’s borrowings emerged yesterday when he sought protection from some of his creditors in the High Court.

The court granted protection to Tivway, a company within Mr Fleming’s property development group, following an attempt by the Dutch-owned ACCBank to take control of the firm over unpaid loans of €21.5 million.

Tivway, which is behind the high-profile Rockbrook residential and retail development in Sandyford, Co Dublin, now has 100 days to come up with a rescue plan or else be wound up. Mr Fleming paid €245 million for the 11.3 acre Rockbrook site in Sandyford.

The court heard yesterday that the office block, due to be developed by Tivway in the complex, would be worth less than €10 million if completed. The cost of building the tower, which was to have been financed by ACC, was put at €20 million.

ACC withdrew from the project in March and demanded repayment. The court was told that ACC’s loans represented less than 2 per cent of the group’s total debts, indicating total debts of more than €1 billion.

Anglo Irish Bank is owed €268 million as “a contingent creditor” of Fleming, the court heard.

The State-owned bank supported the appointment of an examiner to the company, subject to the survival plan devised by the examiner, George Maloney of Dublin firm Baker Tilly Ryan Glennon.

The examinership was described in court as “the least unpalatable option” by the bank’s counsel, Cian Ferriter. It gives the company protection from its creditors.

Mr Fleming is one of the most prolific developers in Munster. He built and owns a number of hotels including the lodge and spa at Inchydoney in west Cork, the Radisson Hotel in Limerick and the Sheraton hotel and golf resort at Fota Island in Cork.

His construction group has built projects in the industrial, energy and pharmaceutical sectors.

The court was told yesterday that the group’s 650 employees were at risk if ACC successfully appointed a receiver to take control of Tivway as it would have a knock-on effect given the “inter-dependency” between companies within the Fleming group.

Lyndon McCann, Tivway’s legal representative, told Mr Justice Brian McGovern that if the company folded, Anglo Irish would have “no alternative but to engage in the unpalatable action of calling in the debt”, leading to the collapse of the group and the threat to the employees.

ACC opposed the appointment of the examiner, saying it did not make commercial sense for a firm with only two assets, including a partially-built office block in Sandyford, Co Dublin, that needed up to €6.5 million to complete.

The Irish Times

Stairway to nowhere

Monday, July 20, 2009

The Moon

Friday, July 17, 2009

What went wrong with economics

OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians. John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him.”

In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled. Though economists are still at the centre of the policy debate—think of Ben Bernanke or Larry Summers in America or Mervyn King in Britain—their pronouncements are viewed with more scepticism than before. The profession itself is suffering from guilt and rancour. In a recent lecture, Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.” Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.”

In its crudest form—the idea that economics as a whole is discredited—the current backlash has gone far too far. If ignorance allowed investors and politicians to exaggerate the virtues of economics, it now blinds them to its benefits. Economics is less a slavish creed than a prism through which to understand the world. It is a broad canon, stretching from theories to explain how prices are determined to how economies grow. Much of that body of knowledge has no link to the financial crisis and remains as useful as ever.

And if economics as a broad discipline deserves a robust defence, so does the free-market paradigm. Too many people, especially in Europe, equate mistakes made by economists with a failure of economic liberalism. Their logic seems to be that if economists got things wrong, then politicians will do better. That is a false—and dangerous—conclusion.

The Economist

Wednesday, July 15, 2009


Tuesday, July 14, 2009

How a Bubble Burst's

The photograph, taken by Richard Heeks, of Exeter, shows a soap bubble with one half still perfectly formed while the other shatters in a distinctive pattern of streaks.

"There's something so satisfying about picturing something in your head and then finally seeing it on the camera," he said.

The Telegraph

Thursday, July 9, 2009

Brain Freeze

Our brains are telling us it’s painful to price our homes to reflect 20 percent to 50 percent losses in market values. So buyers overprice houses and wait for something to happen.

A myopic, loss-averse view of the market, for example, means listing for $500,000 or more when comparable upscale homes are selling for $400,000 or less. I have seen it in my suburban Chicago neighborhood, where homes have been on the market and unsold for years.

Logic Circuits

Our loss-aversion fears are so powerful that they override our logic circuits. We tend to ignore economic reality because we are emotionally anchored to our homes and values based on boom-era prices. It’s like holding on to a favorite stock long after it has tanked.

There are also influential cerebral centers for optimism and self-confidence. We hang on to properties, falsely believing that prices will rebound to the bubble years of 2005-2006.


Saturday, July 4, 2009

I Stand Alone

This is from a poster on a blog that I make sure to read The Housing Bubble
we are about 1 year to 18 month's behind the curve here.

Friday, July 3, 2009

Ireland's Dr Doom

Nama is in effect Fianna Fáil’s shrine to the property bubble for which the party still yearns. Prepare to pay 10 per cent more in income tax for the next 10 years to pay for it all . . . we are headed for national bankruptcy, argues MORGAN KELLY (Ireland's Dr Doom)

WRITING HERE two years ago, I pointed out that the exuberant lending of Irish banks to builders and property developers would sink them if the property bubble burst. Since then, the bubble has burst, the banks have sunk, and we are all left wondering how to salvage them.

Underlying Nama is the delusion that the collapse of our property bubble is a temporary downturn. In a few years time when the global economy recovers we will be back building houses like it was 2006. All the ghost estates, empty office blocks, guest-less hotels and weed choked fields that Nama has bought on our behalf will once again be worth a fortune.

The reality is that, because of our surfeit of empty housing, there will be almost no construction activity for the next decade. Empty apartment blocks in Dublin will eventually be rented, albeit at rates so low that many will decay into slums. However, most of the unfinished estates that litter rural Ireland – where the only economic activity was building houses – will never be occupied.

Nama is a variant on the “Cash for Trash” scheme briefly floated in the United States last year where the government would recapitalise banks by overpaying for their bad loans. Our Government is proposing to buy €90 billion of loans and will reportedly pay €75 billion for them.

The International Monetary Fund (IMF) guesses that Nama will cost us €35 billion, and this is probably optimistic. The narrowness of the Irish property market meant that banks effectively operated a pyramid scheme, bidding up prices against each other. Now that banks cannot lend, development assets are effectively worthless.

The taxpayer is likely to lose well over €25 billion on Anglo alone. Among its “assets” are €4 billion lent for Irish hotels, and almost €20 billion for empty fields and building sites. In fact, I suspect that the €20 billion already repaid to the casino that was Anglo represents winners cashing in their chips, while the outstanding €70 billion of loans will turn out to be worthless. And it is well to remember, as the architects of Nama have not, that although the problems of Irish banks begin with developers, they do not end there.

The same recklessness that impelled banks to lend hundreds of millions to builders to whom most of us would hesitate to lend a bucket; also led them to fling tens of billions in mortgages, car loans, and credit cards at people with little ability to repay. Even without the bad debts of developers, the losses on these household loans over the next few years will probably be sufficient to drain most of the capital out of AIB and Bank of Ireland.

The Irish Times

Thursday, July 2, 2009

Sarasota Revisited

Anglo Irish Bank will take a 33pc haircut on a parcel of land it's selling in Florida that was acquired by developer Paddy Kelly in 2004 for $60m (€42m).

It's believed that the state-owned bank has agreed in principle to sell the land to US property developer Zeb Portanova, who must complete the deal to buy the 15-acre site by September 1. It's understood that a $40m (€28m) purchase price has been agreed. The site, Sarasota Quay, was to incorporate a landmark $1bn (€707m) commercial and residential development.

Despite Anglo Irish Bank's effort to sell the site, it has been reported that Mr Portanova may struggle to meet the September 1 deadline.

Two former partners of another planned $1bn development in Sarasota, the Proscenium, have filed a legal action against Mr Portanova in Florida. They claim he defaulted on a deal to pay them nearly $5m. In April, Cadence Bank filed a $3m foreclosure suit against Mr Portanova and the Proscenium.

The Sarasota land owned by Mr Kelly became the subject of legal action more than a year ago. Irish American Management Services (IAM), the company behind the planned development of the site, was backed by Mr Kelly, John McCabe of McCabe Construction, and John Walsh, a long-time investment partner of Mr Kelly. Legal action was taken by Bussoleno, registered in the British Virgin Islands, seeking foreclosure in January last year on mortgages it granted IAM for parcels of land at Sarasota. Bussoleno claimed that IAM was delinquent on $7.7m in loans.

This week, Bussoleno brought a legal action in Ireland against the three men to enforce a $5.77m judgment granted in the dispute by a court in Florida. Legal representatives for Bussoleno told the Commercial Court that the company was concerned that Mr Kelly was subject to debt-recovery proceedings and that he had said his liabilities may exceed his assets.

The Indo