Tag Archives: Brian Lucey

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Last night, on RTÉ’s The Week In Politics,  Tánaiste Joan Burton, above, was asked about the possibility of junior bondholders in the former Anglo Irish Bank being repaid from the liquidation of IBRC.

She said:

“It is completely unlikely to happen because in the queue before the junior bondholders are the Irish people.”

Her comments came after Finance Minister Michael Noonan made comments about repaying junior bondholders in the Dáil last week.

Following Ms Burton’s comments last night, Brian Lucey, professor of finance at Trinity College Dublin, spoke on Morning Ireland this morning about the situation.

Gavin Jennings: “Brian Lucey, good morning, who are junior bondholders? Why would they be paid? And how much could they expect to be paid?”

Brian Lucey: “They can expect to be paid around €280 million. These are people who would have put capital into Anglo Irish Bank in return for a high yield. And because of that high yield, the accepting risk and that risk would be that the bank might fail. And, guess what, the bank failed. The reason they might think they might get paid now is because the economy is picking up and particularly property prices are picking up and they do have a claim under liquidation law, under the companies and bankruptcy laws, as they stand at the moment, they have a claim if, after everybody else is paid off, there’s money left in the pot, then they will get it. Joan Burton is a little bit loose with her language there. The implication people here is, ‘oh, once again, €35billion back, we’ll get it, they might get something’. The reality is the State can only recoup a maximum of €1.1billion which is fees outstanding as part of the guarantee system, that Anglo Irish Bank didn’t pay. So there’s an issue here. The reality is most of the people involved here are not the credit unions, the pension funds, etc, that had money with Anglo Irish Bank in this junior debt, they’re people, they were sold because they couldn’t hold on to it, they were junk bonds. They were bought up by vulture capitalists who are now expecting, having paid 2c, 3c, 5c, 10c on the Euro to get 100c back.”

Jennings: “So these are people who wouldn’t initially have been bondholders in Anglo?”

Lucey: “No.”

Jennings: “They would only have become so in the last couple of years, yes?”

Lucey: “Yes.”

Jennings: “Now when Joan Burton says that the people of Ireland come ahead of junior bondholders, is that true in terms of..”

Speak over each other

Lucey: “…except of €1billion that Anglo owes us. The €35billion is not going to be recouped. In fact we’re continuing to burn €25billion for Anglo over the next 20 years and that’s a greater immorality  than this €280million. €280million is two thirds of the total stand planned for next year for capital in the health system – in other words building hospitals. [Finance Minister] Michael Noonan should have stood up, in my opinion, and said, ‘Under absolutely no circumstances, whatsoever,  will a penny ever be paid out to these people’.

Jennings: “But what he did explain in the Dáil last week was, and you might be able to parse this for us, that the sale of loans assets so far has gone – I’m paraphrasing here – better than expected. So that all the people who were owed money would be written to, there would be ads put out, a deadline put and anybody, essentially, who was entitled to their money back, who wanted their money back would get their money back.”

Lucey: “That is what he said but I think that it’s economically unwise, politically foolish and morally reprehensible for these people.”

Jennings: “But there’s no precedent of us having done otherwise, so far?”

Lucey: “Well of course there isn’t – this government has been buckling all along under the mildest pressure from Anglo or people related to Anglo and, you know, it flabbergasts me and I think others that they would even contemplate this as opposed to saying, ‘get up the yard’.”

Jennings: “But without a precedent so far, why would they change their minds now?”

Lucey: “Well they won’t, so they’ll do this if they have to, if they think they have to. They could walk into the Dáil tomorrow and they could change the bankruptcy and liquidation laws. It might be that people would then, in the fullness of time, take a legal case against the State. The State should defend that to the hilt. They should run this clock out as long as is necessary. The State’s resources are ultimately, infinitely greater than anybody who bought these bonds at 7c on the Euro and who are now trying to get 100c back. And they should not ever pay these people. It is, fundamentally, it’s not an economic issue for me, it’s a moral issue.”

Jennings: “There’s also a legal issue though isn’t there…”

Talk over each other

Jennings: “But Michael Noonan pointed out in the Dáil last week, a high court case taken in Britain over two years ago which I think involved a similar case of essentially bondholders looking for their money back when they were entitled to..he pointed this out in the Dáil last week, right?”

Lucey: “He’s technically correct, which is the best kind of correct when you want to do something unpopular. Look, we are a sovereign nation and we can make a decision to do pretty much anything we like. People can then take legal action, if they wish, and in the fullness of time, the Irish and the  European courts say you must pay this, if that’s 20, 30, 40, 50 years down the line then that’s fine. But it would be incomprehensible that in the time, when last night, when people were sleeping in sub-zero temperatures on the cities and towns of this country, that we would think of doing anything like this. It’s not an economic issue, it’s not a legal issue for me, as a citizen of this state, it’s a moral issue and we should, as citizens, take a moral perspective. Economics and finance got us into trouble and got the rest of the world into trouble because we lost sight of the fact that it’s a moral issue. Adam Smith, the founder of modern economics, was not just an economist, he was a moral philosopher.”

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The Week In Politics (RTE)

 

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Finance professor at Trinity College Dublin, Brian Lucey

Brian Lucey spoke to Gavin Jennings on Morning Ireland this morning following the release of figures yesterday from estate agents, Douglas Newman Goode (DNG), which claimed that Dublin house prices rose by €20,000 since end March (€220 per day or €6,600 a month).

In response to the figures, Taoiseach Enda Kenny denied the suggestions that there is a property bubble in Dublin and blamed the price rise on supply and demand.

Gavin Jennings: “Is the Taoiseach denying a reality?”

Brian Lucey: “Well, no, I think he’s more realistic now than other Government spokespeople have been over the last while. Technically, this might not be a bubble because there are huge supply issues as the Taoiseach has identified now. That is when you have very low supply and demand is rising you’d expect to see prices rising. The thing is though that when you see a 25% year-on-year rise in house prices that should absolutely terrify people. High house prices are not good for the economy. If we have learnt nothing, and, apparently we have learnt nothing…Then, you know, there’s really no hope.

Jennings: If you say a 25% year on year rise should terrify people, what should it do to an administration, to a government?

Lucey: Well I presume it should terrify them as well, it should spur them into immediate action to try an advance the things that can be advanced quickly. Look, we’ve known since 1970, 1970, 44 years, that there is problems with land-bank hoarding. We’ve done nothing about it, why would we expect that simply because we’re into another bubble would Government and administration would stir themselves. We’ve known that there are problems with SME’s [small and medium enterprises] getting finance for the past five or six years and most of the developers are not the big billion dollar people, they are people building 20/30/50 houses, SME’s by any definition. We’ve known that there are problems for 18 months with zoned land not being serviced because local authorities don’t have the money to engage in putting in sewerage lines, etc. Nothing has been done on that.

Jennings: Do you get the sense though, now that that could be changing?

Lucey: I think that this is beginning to change but these things take a very long time. You know there’s ideas of building five, 10, 15,000 houses, that’s great, that’s next year, that will help. We’ve a very thin market and the market could very easily collapse out under it as the cash buyers disappear which will result in a double dip. Let’s remember, if you go back to the pretty seminal work of Morgan Kelly, who is the man that we really ought to take very seriously, the man who took the scales from all of our eyes. His original 2007 ESRI data analysis, which nobody has been able to disclaim, suggested we should be looking at 65% fall in house prices. We’re recovering and we’re now at about a 40% fall. House prices are not affordable in Ireland. They might be affordable in the south west, they might be affordable in the upper Shannon basin. They are not affordable in Dublin. And there’s a big problem here.

Jennings: In a word Brian Lucey, for people who are looking at the property market and aren’t in it as yet, in a word, there is a headline on the front of the Daily Mail “House Prices Back To Boom Levels By 2019” Are we going there?

Lucey: [inaudible]…Ah jesus…I think we run a danger, you know, but that kind of, those kind of headlines, I don’t know if the Mail are being their usual pop self or not but we don’t want to go back there, we want to get house prices down to a sustainable level. At a €35,000 average income, which is what it is in the country, if you do the math’s of three times one salary and once the next salary, and at 80% or 85% loan-to-value ratio we should be looking at average house prices at around the €200,000 area. That would be up and down according to different regions. But, when you’ve got it well above that, which we have, when you have international property valuers saying we are overpriced, when you see vulture funds and value funds and bottom feeding funds, that we’ve seen come in and pick up the good stuff and are now leaving, they are saying the markets is not toppy, on the rise. This is about as big a flare-lit tip-off that we have a major problem as you could get. The danger is, in the middle of July, it will be October before anything gets done.

Jennings: Just very briefly Brian Lucey, speculation yesterday in commentary from a German MEP, a senior advisor to Angela Merkel, that there is no hope of a deal on the €64billion banking bailout, should we be surprised?

Lucey: No! I mean every single commentator has been saying that there was never a hope of this, the Government have been peddling the argument that this is a game changer, it was never going to work, you cannot on one hand say to people “we are doing great” and on the other hand say “give us a hand out” we were never going to get this money, and it was fallacious to believe so and disingenuous to claim so.”

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Kenny denies there is a property bubble in Dublin (Irish Times)

Previously: €220 A Day

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“The Irish banking sector remains a source of some concern – with outstanding issues still requiring swift and decisive action. The recently submitted results of the Irish-specific balance sheet exercise indicated that while no capital shortfalls were identified, there is a need for adjustments to provisioning as well as risk-weighted assets – and these issues should be addressed before the ESM’s comprehensive assessment. So it should be clearly stated that the [Central Bank’s assessment]  just conducted is not forward-looking in nature and does fall short of a stringent stress test that is ultimately required and will be conducted when the ESM comprehensive assessment takes place.”

Mario Draghi (above), ECB President yesterday

What?

What does any of that mean?

TCD economist Brian Lucey appeared on Morning Ireland on RTE R1 earlier to give his interpretation….

Cathal Mac Coille: “There was some complicated bankers’ speak in there – but at the same time when we hear somebody as important as Mario Draghi saying, ‘swift and decisive action needed’, can we assume two things – he knows something is about to happen and secondly, until that happens, people are going to be worried about our banks?”

Brian Lucey: “Well I think he knows what he thinks should happen and that we should finally after five or six years get on with the residual losses in the banks and face up to the problems – whether that will happen is another matter. It’s interesting that today in the papers, Fitch, the ratings agency, are out re-enforcing this message, saying that there’s problems in the banks now. I think their numbers, which they’re getting from the banks are a little bit, perhaps, optimistic, still – in relation to the amount of money that would be lost from mortgages and it’s about the mortgages and about the ESM loans that Draghi, and presumably every one else is still concerned.”

Mac Coille: “Does this come down to ‘stress tests’ – because we know there’s a big one coming, but there’s one just carried out, in the recent past, by the Central Bank – and the Irish banks came out and said, ‘Central Bank has had a look, stress test already completed, we don’t need any more money for now’.”

Lucey: “My understanding is that those ‘stress tests’, or whatever they were, they were only released last week, were part of what was supposed to be the ‘Pan-European stress tests’. Now in the European context, things have slipped and they had hoped to have had the analysis done in the middle of the year, so that it would help them out in November/December. Now things slipped, for good reason or bad, so the European stress tests’ of all the European banks are going to be done as of the end of December data.
But what Draghi was saying was that we had a look, or rather the Central Bank of Ireland had a look, it’s a Central bank analysis, not an official ECB analysis, even though the Central Bank is part of the Euro system – that it  isn’t comprehensive enough because they aren’t taking enough of a look at what could go wrong. If you look at say, the Fiscal Council of the European Commission, part of what they’ll do is that they’ll publish in their analysis, a ‘stress test’ effectively, of sustainable Irish Government debt and they’ll say, ‘Well, you know if you get a 1% decrease above base-line on GDP you’ll get this, if you get a worse outcome it’ll be that” – and they present a range of outcomes, and I think that’s what we need to see from the banks – and that, we didn’t get, say in the last result.
“The result was very interesting – based on the data that they had, they were saying they were okay, but how they said that was very interesting, the Bank of Ireland came out and said, ‘Here’s some figures, here’s some data, a little bit of deterioration, we need to do some stuff, we don’t need to raise any capital right now’. The AIB came out and said, ‘The Central Bank said we were fine.’ The Permanent TSB said very little. Very interestingly, the Central Bank, as of this morning, I couldn’t see on their web-site, they haven’t yet issued a statement on these.
“So, you know as Karl Whelan in UCD described it in Forbes Magazine – in the same week as Forbes Magazine is saying Ireland as the best little country in which to do business – this was a shambles, and it was.”

Mac Coille: “Let’s look in the meantime, bearing in mind there’s the European Summit coming up on Thursday, let’s look at it in the wider context because Mario Draghi also talked about moves toward a European union, a united banking union, which he described yesterday as, ‘very messy’ as they stand. So let’s just look at that in context, and just bear in mind what Michael Martin said in part of that address on television last night, about what we should be looking for, or what he thinks we should expect from Europe in terms of help from banking.”

“Europe should give Ireland the retrospective debt deal that we were promised in June 2012. A further key point is that the European Central Bank should return to Ireland all profits it makes holding Irish bonds. It already does this for one country. The money saved would be almost equal to every cut planned for the Health Service next year.” (Michael Martin)

Mac Coille: “Now that would be very nice to get what Michael Martin is looking for. In terms of the big picture, where do you put, or how can you assess what Draghi was saying about our banks, and what, ‘swift and decisive’ action might mean, in hopefully a positive way?”

Lucey: “Look, I have never thought that we’re going to get the money back. I think that we have been, you know, the Government have been patient doing behind the scenes diplomacy, and I think that’s fine. But I think Draghi is signalling that we’re going to walk out next Thursday with an early Christmas present of 20 or 30 billion euro from anybody – that’s not going to happen. We’re not going to get that money back, not in any meaningful amount.
“As to the ECB giving us profits – I don’t know, I literally don’t know what country that it and I don’t know how much those figures are, but while 5 or 600 million might be nice – again, in the context of the 65 billion, the 62 billion that we’ve spent on the banks, plus the 30 billion or so, in relation to NAMA, 500 million here and there ain’t really gonna make a whole pile of difference.”

RUN!

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17/12/2011. Christmas Scenes Shoppers

According to the ESRI, from their latest report, Social Transfers and Poverty Alleviation in Ireland, 2004-2011; Ireland claims the top spot in Europe for AROP (At Risk of Poverty Rate).

The at-risk-of-poverty rate before social transfers is the share of persons with an equivalised disposable income, before social transfers, below the risk-of-poverty threshold, which is set at 60% of the national median equivalised disposable income (after social transfers).

 

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The Best Little Country In…Which to Be At Risk of Poverty (Brian Lucey)

Previously: Best For Business

Sasko Lazarov/Photocall Ireland