Ryan Tubridy interviews Ian Kehoe on the Late Late Show

Last night.

On RTE One’s Late Late Show.

Ryan Tubridy interviewed Sunday Business Post editor Ian Kehoe about his forthcoming documentary The Great Irish Sell Off which will be broadcast on Monday night.

Mr Kehoe spoke about vulture funds, the effect they are having on Ireland’s property market, and Irish society in general, and how that effect is an “awful indictment of public policy”.

Grab a large tay…

Ryan Tubridy: “There is a sense, Ian, that while we were all watching Brexit unfold before our eyes and…what was happening in America, that possibly we had our eye off the ball about what was happening under our very noses. Is this, do you concur with that idea?”

Ian Kehoe: “I think something profound has happened in Ireland over the past year, past two years. It’s perhaps the biggest legacy of the crash. We’re all familiar with what happened. The banks went bust, the country went bust, the IMF came in, the ECB came in, we were told we couldn’t burn bondholders, we all know that story but I suppose, almost under the radar, the bigger story has been happening which is €200billion worth of Irish assets, distressed debt, property loans, your personal guarantees, your overdrafts – banks are parceling all this up, stuff up, and they’re selling it off to the highest bidder. And they’re funds. So, we’ve essentially sold off €200billion worth of Ireland to five or six or seven funds over the past couple of years and no one is really talking about it.”

Tubridy: “The scale is what? Unprecedented?”

Kehoe: “Well it is, I mean, when we were doing the programme we were saying, ‘Well, where can we go to? Where can we look to say where it’s been done before?’ So we went to Spain, wasn’t anything like what had happened in Ireland. We went to the United States, the east coast, the west coast, nothing like what happened in Ireland. Ireland is literally writing a new chapter in the book on what happens when you sell so much of the country to distressed debt.”

“Look at the numbers: Nama, we all know was set up, it’s selling off €72.5billion – these are billions, I suppose we’ve become declimatised to billions and billions – but €72.5billion. In the space of six months, a couple of years ago, the liquidators of IBRC, that was what was set up for Anglo and Irish Nationwide, sold €22.5billion. You know. A rapid-fire liquidation. Bank of Scotland Ireland, known to most people, I suppose, as Halifax a couple of years ago, they were so scarred from their Irish experience that they just went home altogether, they brought their ATMs with it and relocated them to Scotland but they sold off €30billion or €40billion in debt and on and on we go. It just, it all adds up and there’s a consequence for all of this.”

Tubridy: “We keep hearing ‘vulture fund’, ‘vulture fund’, and I suppose, for a lot of us, who are kind of rushing around, we don’t have a moment to sit down and analyse, we’re not economic experts, you know, we don’t quite get the business using…in my case, certainly, can you give us a kind of dictionary definition of what a vulture fund is or is there a broader?”

Kehoe: “I suppose it’s a bargain hunter. It’s like somebody going out in the January sales, trying to buy something – except they’ve very deep pockets and they don’t buy clothes. They buy billions, upon billions, of distressed debt. So there’s funds, they raise money from the markets, they raise them from investors and their business model is they tour the world looking for the next distressed market. So they go from Portugal to Greece, to Ireland. If Japan is in trouble, they go there.”

Tubridy: “All the economic basket-case countries that crashed.”

Kehoe: “Yeah. And if they think that country has potential, if they think the country is going to improve, they can buy debt on the cheap so 10, 20, 30 cent on the euro. So, they’re buying it at massive haircuts, massive discounts. And, then they hope, cross their fingers, work their assets really hard and make profits. And when they think they’ve made enough from a country – be it Ireland or Spain or wherever else – they sell and they move on to the next distressed market.”

Tubridy: “At a big profit. So, essentially, it’s Vegas. They come along and say ‘we’ll take all this. We think it’s rubbish but we see the potential’…”

Kehoe: “‘We see the big picture’. Individually, your loan might be in trouble. If I parcel up thousands of loans, and you get them all at a discount, you get 80 cent back from one or 70 cent back from another and, over time, when you keep on working it out, and if the economy improves, if you believe in the recovery of the country, you can make staggering sums of money, massive returns.”

Tubridy: “Vulture, as a word, is pejorative…”

Kehoe: “Well, they hate being called ‘vultures’..”

Tubridy: “There’s a shock.”

Kehoe: “You very rarely hear from a vulture fund unless you call them a vulture and then they’re on the phone, giving out.”

Tubridy: “Is that right?”

Kehoe: “That’s the one word that drives them absolutely mad.”

Tubridy: “Tell me why…in other words…are they the bad guys? Are they vultures, do you think?”

Kehoe: “I suppose…”

Tubridy: “Are they just businessmen?”

Kehoe: “I mean, look, it’s not a charity, it’s not altruism, they’re capitalists. They’re businesses and business will do what business will do. I mean I work for a pro-business newspaper and business does what business does and that’s the way it works. The real issue is how you regulate. What sort of tax structures you put around it, what sort of regulatory structure – the checks and the balances…”

Tubridy: “This country doesn’t have a great track record with regulation and…”

Kehoe: “And it hasn’t got much better, certainly in terms of vulture funds. But, you know, business will do what business will do and it’s up to the Government and the administrators and the policymakers to make sure they’re doing the right thing..what’s in the best interests of the country.”

Tubridy: “I hear of two waves, of two tranches where you have the first wave, say between 2011 to 2013 or thereabouts of hard assets, buildings. Tell me about that wave one if you want to call it that.”

Kehoe: “Yeah, a couple of years ago we made a programme ‘Who’s Buying Ireland’, it was great fun because we got to go off, we talked to Wilbur Ross, who’s been put into Donald Trump’s cabinet and he was buying Bank of Ireland, talked to guys buying bonds or, really rich guys – men and women – who were buying tangible, physical things and what happened then, in the last two to three years, these guys, extremely wealthy as they were, just got squeezed out of the market. That, instead of selling physical things, instead of selling tables, or buildings or hotels or apartment blocks, we started selling just distressed debt. And we didn’t do it in terms of €100million or €200million. You look at what Nama sells, they sell debt in terms of the billion.”

Tubridy: “How do you define distressed debt?’

Kehoe: “Distressed debt is where it’s barely covering the interest repayments. So it’s as if you’ve got a mortgage and you’re way in negative equity and you’re barely able, the cost, the value of the asset can barely cover the interest repayment on it.”

Tubridy: “But these guys see something…”

Kehoe: “These guys see potential because they can buy it really, really cheap and the really interesting thing is if they buy your mortgage – and this has happened all over the country – the liquidators of IBRC sold 15,000 mortgages and I think they sold them for maybe 20-30cent in the euro. The borrower is still on the hook for the 100 so they will be pursued for that 100, so there’s potential there to make a 70 per cent profit on your mortgage.”

Tubridy: “Who watching tonight should have reason to be concerned by vulture funding and funds and capitalists?”

Kehoe: “Well, I think there’s a lot of people already worried. I mean during the programme, we spoke to scores of people, whose loans had been transferred and the one thing that they couldn’t understand was how it happened to them. You know, you take out a loan from a bank and you assume you owe that money to a bank and, suddenly, it happens by a letter, every single time it happens by a letter in the post that says, you no longer owe your money to AIB or Bank of Ireland, you now owe it to some bizarrely titled special purpose vehicle called Tanager or Promontoria Arrow or Promontoria Eagle and all these really obscure titles and they’re all special purpose vehicles set up by a couple of vulture funds to manage the assets and then they just pursue you for what you’re owed..”

Tubridy: “Pay, pay, pay, pay, pay. You can’t go to the bank manager and say ‘hang on a second’…”

Kehoe: “There’s no one to even talk to…unless..if you’re a really big borrower, they say, if you owe millions or ten of millions…”

Tubridy: “I’m talking about someone who has a mortgage in a housing estate.”

Kehoe: “No. They’re lucky to get through to anybody on the phone. That’s the constant refrain, we kept on hearing from people. They were in a situation, they didn’t know what to do, they didn’t know where to go, they’re trying to ring through and every time you get through to a call centre, in Dublin or Scotland, or Wales or wherever else, you’re through to somebody different. And you’re there, I suppose, it’s one of the most stressful things to be in difficulty with your own mortgage and not to be able to talk to somebody who knows your personal situation is a very profound thing.”

Later

Kehoe: “It’s no coincidence that we have a housing shortage when the vast majority of the development land is controlled by private equity funds and hedge funds who’ve never built a house in their life and it suits their own agenda to keep supply down because, demand, the value of their assets goes up and they can sell it without building a thing and make a vast profit.”

Tubridy: “Are we being a little mealy-mouthed about the practicality of what had to happen in this country as an economy. The fact that we had to bring them in. I mean was this just a horrible fact of life, whatever about the Troika, the vultures, so-called, had to come in and pick at our carcass.”

Kehoe: “Someone had to do it. I mean the recession was so deep and, I suppose, so textbook as a recession that there was always going to be a period of catharsis and we talk about recovery. And we see the Government talking a lot about recovery and we would almost convince ourselves that we’re fully recovered. But we’re not. The recession was so bad and the crisis was so bad that we’re going to be dealing with this for the next ten to 15 to 20 years.”

Tubridy: “At least, I’d say.”

Kehoe: “At least. This is a generational event. You don’t just wake up one day and say, ‘great, the tax returns were good last month, we’re great again’. We’re not. This is part of it. But the question I would have and an awful lot of people, I suppose, who we talked to would have, is did it have to be done so quickly.”

Tubridy: “Yes. Was there panic nearly?”

Kehoe: “There was a panic. I mean we had so many great assets. You know, I’ve heard economists, like David McWilliams and these guys, saying ‘we’ve so many great assets’. Wouldn’t it have been great if we’d have taken stakes in brilliant hotels in Britain which we bankrolled and all over the world and put them into a sovereign wealth fund to try and fund our pensions for years to come. And there was some hope that that was something that Nama might do but, in the end, they just decided, let’s sell as quickly as we can, turn a profit and move on. So, I think we did panic, we sold far too much, too quickly. But we were being told to do this by the Troika.”

Later… and after a clip from Mr Kehoe’s documentary shows chief executive of
Ires Reit David Ehrlich showing Mr Kehoe a two-bedroom apartment next to the Facebook offices in Dublin which is renting for €2,800 a month, in a block which has 99 per cent occupancy

Kehoe: “This guy [Ehrlich] isn’t just anybody. This guy is the largest landlord in the State. Now, unlike vulture funds, he’s here for the long haul because he thinks Ireland will do well in the long haul, but he’s the largest commercial landlord in the State. Within the space of four to five years, he, David and his fund Ires, have gone from having zero apartments to close to 3,000 of them.”

Tubridy: “Just buying them up.”

Kehoe: “Just buying them up. Buying apartment blocks. If you go out to Sandyford and walk around…”

Tubridy: “Yeah, they’ve been abandoned for years..”

Kehoe: “They’ve been abandoned, they bought them all, pretty much all of them. You walk around, you go ‘that block’, ‘that block’, ‘that block’ – they’re all theirs and they control the market. We have created the perfect breeding ground for funds like this where we have poor rental laws, to push people in and out, you can rise rents, there’s no supply and massive pent-up demand. It’s a brilliant investment case, great investment case for investing in his company but it’s an awful indictment of public policy.”

Tubridy: “And it creates a dysfunctional scenario, doesn’t it? Because people , I just, anyone I know, looking, like €2,800 a month, what? It’s lunacy. And is that the future. To skew. And if they’re sitting on parcels of land that they won’t release because they’re..to screw the market, essentially to strangle it…”

Kehoe: “Well I can tell you one thing, if you’re spending €2,800 a month on an apartment to rent it, you’re never going to be able to afford to buy because you’re never going to be able to put the money aside. And what we’ve seen, and they’ve seen it, specifically on the east coast of the United States, has been a massive drop-off in housing ownership. So, in Ireland, we have this thing, it’s in-built within us that we all like to own our property…the future is more long-term, more long-term renting and that’s just another consequence of it.”

The Great Irish Sell Off will be broadcast on Monday, on RTE One at 9.35pm.

Watch the interview back in full here

Previously: Where The Big Colourful Players Are