Looks like Carroll's businesses to be wound up

Dubh Geannain

http://www.rte.ie/news/2009/0731/carrolll.html

So what do ye reckon the knock on effects of this could be? Apart from People losing their jobs.

Are we going to see firesales of some of the assets as a result and could this undermine the work of NAMA?

Or is their another legal route he can go to delay the process further?

pocketdooz

AIB and BOI will buy ACC's c.€130 million debt from them and arrange a restucturing of LC's debt.

Zoe will not be wound up and it will get pushed back and delayed until folded into NAMA

imo

amacca

pocketdooz wrote: »

AIB and BOI will buy ACC's c.€130 million debt from them and arrange a restucturing of LC's debt.

Zoe will not be wound up and it will get pushed back and delayed until folded into NAMA

imo

Agree, apparently Irish banks in talks with ACC this weekend. Bet ACC get most of their money back as guaranteed banks + political establishment very anxious to see NAMA thing go smoothly and ACC seem very likely to win supreme court decision if its let go that far.........high court judge said Carrolls application for examinership was based on very fanciful projections for future asset values and seems like supreme court could only overturn his decision if they could prove he interpreted the law incorrectly when reaching his final decision which seems very unlikely given the high court judge in question is supposed to be an expert in this area.

Our banks assume yet more toxic debt so the boat wont be rocked. Good move on ACCs part.

Out of curiosity, do you think this is a good thing or would you prefer to see these developers empires crumble suddenly around them with the resultant firesale of assets and fall in property values rather than the slow tortuous decline and artificial floor in property prices?

I cant seem to decide which is a better situation on balance.

SkepticOne

amacca wrote: »

Out of curiosity, do you think this is a good thing or would you prefer to see these developers empires crumble suddenly around them with the resultant firesale of assets and fall in property values rather than the slow tortuous decline and artificial floor in property prices?

I cant seem to decide which is a better situation on balance.

If you believe that the current situation is a temporary anomaly in the market that will soon resolve itself then allowing NAMA to bail out the developers is a good thing.

If however you believe that what is happening is that the situation is returning to normal from a massive bubble then bailing out the developers in this way is a bad thing.

Hasschu

The fairest solution for all concerned is to force the failed companies into bankruptcy. The valuation will be determined at the auction of the properties in receivership. The bank concerned will get exactly what the assets are worth, not a penny more, not a penny less. NAMA has all the hallmarks of a costly political boondoggle complete with all the familiar Irish hallmarks, cute hoors, cronyism, nepotism, screwing of the middle class taxpayer all for the benefit of the political elite and their backers and hangers on. The politicians are deathly afraid of true valuations and they should know that propping up property prices using the usual subterfuges will delay the recovery.

amacca

SkepticOne wrote: »

If you believe that the current situation is a temporary anomaly in the market that will soon resolve itself then allowing NAMA to bail out the developers is a good thing.

If however you believe that what is happening is that the situation is returning to normal from a massive bubble then bailing out the developers in this way is a bad thing.

Id be in the massive bubble camp and my gut instinct is to let the lot of them fail and pay for their hubris by selling at market value but I suppose I cant help feeling there would be a lot of fallout for relatively decent hardworking people in that situation...... just like the fallout I think they are going to experience through increased taxes/lack of opportunities etc because of NAMA. Its not cut and dried for me but its fair to say I could be susceptible to govt propaganda.

Supreme court hearing got underway this morning. I still think carroll will limp along until his company debts get rolled into NAMA. Heard a commentator talking about the extraordinary generosity carrolls lenders are showing to him in respect of arrears..............

nesf

SkepticOne wrote: »

If you believe that the current situation is a temporary anomaly in the market that will soon resolve itself then allowing NAMA to bail out the developers is a good thing.

If however you believe that what is happening is that the situation is returning to normal from a massive bubble then bailing out the developers in this way is a bad thing.

There is some argument for a longer unwinding of the company rather than a "fire sale" winding up. Dumping that much property onto the market at once isn't exactly a good idea if they banks want to make as much back as they can.

SkepticOne

nesf wrote: »

There is some argument for a longer unwinding of the company rather than a "fire sale" winding up. Dumping that much property onto the market at once isn't exactly a good idea if they banks want to make as much back as they can.

Another argument could be made that a cash strapped government holding vast amounts of assets will have the effect of depressing the market while at the same time underutilising those assets, dragging out the slump and delaying recovery.

blucey

nesf wrote: »

There is some argument for a longer unwinding of the company rather than a "fire sale" winding up. Dumping that much property onto the market at once isn't exactly a good idea if they banks want to make as much back as they can.

they shouldnt have lent all that crap and got themselves into the stuke then should they? You call it firesale, I call it market clearing.:D

nesf

blucey wrote: »

they shouldnt have lent all that crap and got themselves into the stuke then should they? You call it firesale, I call it market clearing.:D

Sure, but we are where we are.

nesf

SkepticOne wrote: »

Another argument could be made that a cash strapped government holding vast amounts of assets will have the effect of depressing the market while at the same time underutilising those assets, dragging out the slump and delaying recovery.

Selling off these assets wouldn't solve the cash problem, it would be a temporary panacea at best.

blucey

nesf wrote: »

Sure, but we are where we are.

that doesnt imply we have to be where we dont need to be.....NAMA is fine. Overpayment....is not. And its not needed. But hey, whad do i know...

SkepticOne

nesf wrote: »

Selling off these assets wouldn't solve the cash problem, it would be a temporary panacea at best.

Does not mean it would not happen. Actions like that have been characteristic of the current government. Get out of the current fix now then worry about the consequences later.

nesf

blucey wrote: »

that doesnt imply we have to be where we dont need to be.....NAMA is fine. Overpayment....is not. And its not needed. But hey, whad do i know...

The issue is banking regulation really. Banks are required to meet certain capital ratios. The Government has two options:

1) It can give these distressed assets a good haircut (i.e. knock 30%+ off the price on average) and get closer to market value and by doing so end up needing to invest billions into AIB and BoI so they can maintain their capital ratios meaning almost certainly a large degree of state control of both banks.

2) It can overpay for these assets and only knock of 20% or so off the prices on average and by doing so not wipe out the equity of AIB and BoI and not have to take control of either bank.


Either way the Government ends up paying out. The question is whether you consider 1) or 2) the lesser evil. The Government feel 2) is, others would prefer 1). Personally I think either choice is strongly distasteful. Though I'm deeply sceptical of the Government's faith in an improvement in the property market in the next 5-10 years of the level they seem to be expecting.

blucey

nesf wrote: »

The issue is banking regulation really. Banks are required to meet certain capital ratios. The Government has two options:

1) It can give these distressed assets a good haircut (i.e. knock 30%+ off the price on average) and get closer to market value and by doing so end up needing to invest billions into AIB and BoI so they can maintain their capital ratios meaning almost certainly a large degree of state control of both banks.

2) It can overpay for these assets and only knock of 20% or so off the prices on average and by doing so not wipe out the equity of AIB and BoI and not have to take control of either bank.


Either way the Government ends up paying out. The question is whether you consider 1) or 2) the lesser evil. The Government feel 2) is, others would prefer 1). Personally I think either choice is strongly distasteful. Though I'm deeply sceptical of the Government's faith in an improvement in the property market in the next 5-10 years of the level they seem to be expecting.

Pay 30% - not knock off 30%. Put the money that would otherwise be overpaid into recapitalisation. Clean banks, state owned and sold off in 5 years.

nesf

blucey wrote: »

Pay 30% - not knock off 30%. Put the money that would otherwise be overpaid into recapitalisation. Clean banks, state owned and sold off in 5 years.

Yup, that is the other option. The knock of 30% number is that that's roughly the threshold at which you need to recapitalise to the extent that banks will be under state control, rather than it being a proper valuation of the loans.

silverharp

nesf wrote: »

Either way the Government ends up paying out. The question is whether you consider 1) or 2) the lesser evil. The Government feel 2) is, others would prefer 1). Personally I think either choice is strongly distasteful. Though I'm deeply sceptical of the Government's faith in an improvement in the property market in the next 5-10 years of the level they seem to be expecting.

It will be interesting to see what they do with the new empty blocks. From Nama's point of view they should be trying to lease them out at any price if they wont sell. Existing property owners will no doubt lobby that they should either not rent them out or not to undercut the market. There seems to be an opportunity for price fixing unless Nama has a market oriented mandate.

blucey

if you want to pose some questions to oireachtas members, http://brianmlucey.googlepages.com/ for starters.

NAMA - the great taxpayer robbery of 2009

Flamed Diving

So, what next folks?

Dubh Geannain

Two of his companies are now in Receivership. Another two are three have hearings on the 6th of September.

So much for ACC waiting for NAMA, which was the spin from government buildings last night :rolleyes: They seem to want their pound of flesh now.

Although, once in control of the assets involved I don't see them flooding the market cos there's no demand or credit available.

silverharp

One thing for sure , it will be harder to maintain the pretence that these kind of assets only need a 30% haircut or so. I was talking to someone today who knows the well known valuers around town and there was no way they were going to stand over 08 valuations for Carroll, to paraphrase they could come up with enough believable BS at that time but not now.

It as simple as Mark to market , and make decisions on that basis. Anything else is will be exposed pretty quick

Économiste Monétaire

Karl Whelan's opinion piece in tomorrows Irish Times:

OPINION: The Carroll judgment is very good news for the taxpayer: the cat is out of the bag as to why the banks are cosying up to Nama, writes KARL WHELAN

IT IS too early to assess the impact on the Irish property market of the Supreme Court’s decision to deny examinership to Liam Carroll’s Zoe group. However, despite a lot of coverage focusing on potential complications stemming from the decision, I believe that the Carroll case has been very positive for the public interest.

The first positive aspect is that the case has finally given us a clear picture of the likely financial state of the Irish property developers whose loans the National Asset Management Agency (Nama) is supposed to purchase.

Carroll’s accountants have admitted that, as of today, his Zoe group could only pay back about one-quarter of the money it owes to the Irish banks. Keep in mind that many analysts have predicted Nama will purchase loans for an average discount of one-quarter. If Nama were to purchase the Zoe loans for such a price, it would imply the Irish taxpayer paying three times the amount that they could currently be sold to anyone else for.

Of course, it could be argued Carroll’s property empire might be in worse shape than those of other developers. It seems perfectly possible, however, the opposite is the case. His properties mainly consist of Dublin projects likely to get developed in years ahead. Consider, in contrast, the position of those developers who have pinned hopes on developing the proverbial field outside Mullingar.

The second positive aspect of the Carroll case and the judgments passed are the insights they have given us into the current unholy alliance between the Irish banks and property developers.

The first instalment in this story will be familiar to those who have followed banking crises elsewhere. As the property market began to fail and the prospect of substantial losses loomed, the banks decided to take it easy on developers because the revelation of large losses could have scared off international money markets from providing them with funds.

By the time these international markets were scared off, in September 2008, the banks continued to deny they were facing enormous losses. This denial of reality paid off for them. By fooling our Government into believing they suffered from a short-run liquidity problem rather than a long-term solvency problem, the banks managed to receive an almost-blanket guarantee on their debts from the Irish taxpayer.

The Carroll case revealed the latest, and most disturbing, aspects of the unholy banker-developer alliance. Justice Peter Kelly concluded that the survival plan put forward by the Carroll group was “fanciful” and “lacking in reality” and he was supported in this assessment by the Supreme Court.

However, despite the reality that Carroll’s business simply could not be saved, all the Irish banks involved, apart from ACC, actively supported this survival plan, allowing Carroll to continue rolling up interest and also taking the highly unusual step of providing the funds to pay off unsecured trade creditors.

Why would the banks do this? Why would they extend further money to a clearly failing developer with a fanciful survival plan? The only possible answer is these banks were determined to maintain the illusion Carroll would one day pay back the money he owed. And the reason for this illusionist act? Nama.

With Nama apparently determined to put an optimistic spin on all loan purchases, viewing them through the rose-tinted spectacles of “long-term economic value”, the incentive for the participating banks has been to maintain that loans such as Carroll’s are good and to then sell them to Nama for far more than they will ever repay.

The only reason we were ever allowed see the inside workings of Zoe’s alliance with the bankers was because Dutch-owned ACC was left out of Nama and so didn’t have any incentive to pretend the Zoe loans were any better than they are.

We don’t know what’s going to happen next in the Carroll saga. Quite possibly, the other banks involved in lending money to Carroll will now pay off ACC and revert to business as usual, ordering liquidators to let the fanciful survival plan be put into action. And quite possibly, Nama will end up purchasing Carroll’s loans at a large premium without the Irish public ever knowing, because the information will never be revealed, thanks to “commercial sensitivities”. Still, to some extent the cat is out of the bag because the public has now been able to see how little the Nama loans are really worth.

Much of the commentary on the Carroll judgment has focused on two potentially negative implications. The first has been the concern that a liquidation of Carroll’s assets will result in a “fire sale” that will somehow make the underlying situation in the Irish property market worse than it is already. I think this concern is misplaced.

What we now know is that the banks have been actively working to keep development properties off the market, so that their true values are kept out of the public domain. However, to work through our current problems, these property assets are going to have to be dealt with – either sold at a reasonable price or else demolished or returned to agricultural usage.

Carroll’s properties represent a small fraction of the overall €90 billion in assets that need to be dealt with. If the Supreme Court decision gets us finally started on the road to working through this overhang of property assets, then it will have done the Irish public a big favour.

The other widely expressed concern is that the potential sale of Carroll’s assets will be a “problem” for Nama’s valuation method. I suspect the problem these commentators are worried about is that when such sales reveal the true low value of Irish property assets, this will make it more difficult for Nama to pay high prices under the guise of long-term economic value. Well, this may be a problem for bank shareholders but I can assure readers that it’s good news for the Irish taxpayer.

Karl Whelan is professor of economics at University College Dublin

Link.

Carawaystick

silverharp wrote: »

One thing for sure , it will be harder to maintain the pretence that these kind of assets only need a 30% haircut or so. I was talking to someone today who knows the well known valuers around town and there was no way they were going to stand over 08 valuations for Carroll, to paraphrase they could come up with enough believable BS at that time but not now.

It as simple as Mark to market , and make decisions on that basis. Anything else is will be exposed pretty quick

The Supreme court judgement reckoned things had moved on so much from December that any projections made before June were useless.