Re: Re: The Question of Land

It is nice to see something positive being put forward. Good post PVC, but as the French say, “MmmmmOui,” meaning they agree but not fully. Maybe I’m still too negative, but I think your property links have led you to overestimate the role for and the potential of the construction sector . Also we need a coherent new banking structure. What we currently have, at banking senior management level, is devoid of plain cop, and must go. For construction employment, stuck in my head is an EU average of about 7.5% of the total workforce, so it should be a bit lower for Ireland with the stock we have. That would put potential employment at about half your figure.

There remain a few elephants in the room, namely, (a) recognition by the population that it was jointly responsible for getting into this mess; (b) the structure and viability of existing construction players and (c) NAMA and the future.

The Population
What the French call “Moralité commerciale” was notably absent from Ireland ; very obvious and incomprehensible to me when I returned here in the winter of 2001. Greed and the fast buck was king, for everyone from the most basic tradesman to senior managers in all sectors. The Irish had lost the plot; they saw nothing wrong in regularly spending €1200 on a handbag or golf driver or €4,000 on a Villeroy & Boch toilet. (Brings new meaning to pi$$ing away money).

The majority of the population was out of touch with reality. Nowhere was that more obvious than in the construction sector, where, in 2004, a group of carpenters went on strike claiming that they are not being paid the agreed daily rate of €170 net. That was the then pre-tax equivalent of about €85k p.a. Two years later, in 2006, unskilled construction workers in Ireland earned an average of €756 per week, which was more than a month’s wage in the new EU- joiner countries, considerably more in some cases.

We as a population therefore need to understand that we caused the economic crap in which we find ourselves swimming or drowning. Government (including opposition) need to admit the same. Nobody likes being called a fool, (so politicians, with an eye to th etrough, will not deliver that message) but that is what the majority of Irish were in recent years. That message must be said, loudly repeated, understood and accepted. There must be a “mea maxima culpa” that it was wrong to just give everyone more money, or jobs, or buy in Cape Verde/India/Bulgaria/whatever. ( a la Bertie, “Ah, shur, it will be grand.”)

Structure and viability of construction sector.
With a very few exceptions, the current big players are dead. Many big suppliers are also dead. Those lucky (or prescient enough) to buy credit insurance will survive; currently insurers are paying out millions, and delaying paying out many more, if gossip is to be believed.

Commentators are slow to remark on the manner in which most builders & developers have structured their businesses. Most went for “unlimited” status during the boom years to avoid filing their financials and showing their vast profits (useful today for hiding their vast losses), but this is only a decoy. Inevitably the ultimate holding company is a limited entity, registered offshore which protects both their privacy and private assets. Intercompany debt, asset values and thus net worth even when figures are available are considerably disguised. Some have given personal guarantees (only to banks!), but where these exist they inevitably have been given a multiple of times to several banks. Not worth much, a legal quagmire and a delaying mechanism that will take years to unwind.

Omitting the financial institutions in the Irish Times Top 1000 list for 2004, the building industry related companies accounted for 147 (or 16%) of the remaining 920 companies. Those 147 had sales of €26 billion. Some of this is exports, because manufacturers and overseas subsidiaries and activities are included. The figures for 2008 are even higher, and show the magnitude of the problem when it is realised that the payment process for the costs element of those sales has ground to a halt. From the top of the pyramid downward, suppliers are not being paid. The message is going down the line that “we are awaiting payment on a big job that has been completed/signed-off on/whatever.” Prevaricate, delay, lie. Create longer snag lists, initiate proceedings. Whatever. Everyone is putting off the evil day of realising that the money is not there now and will not be there in the future. Round Two of failures will happen when NAMA starts.

Developer’s arguments that “We have a great team people with the skills to bring projects to a conclusion” are, I suggest, nonsense. The disconnect with reality was enormous. During the boom, builders/developers operated on such huge margins that many never had to worry about accurate pricing. The odd bad debt did not matter, it could be absorbed. Credit control disappeared and credit terms were given out like snuff at a wake. (Developers just paid the interest and when the covenants were near breaching, banks revalued the assets upward). When work got scarce, tendering got more competitive; companies had no proper pricing models, poor credit control and project management skills. Several subbies went bang due to poor pricing; then, up the line new contracts did not easily allow for “extras” so they started to lose money and then fail. Enter our old friend the spiral.

Personally, I have not the confidence to accept that a developer who asks his wife for a figure to put in his tender for a site is capable of running anything, let alone for him to comprehend “Profitable Growth Orientation.” Similarly, someone who arrives at a parent teacher meeting by helicopter when he was 10 miles away by car rarely has the cop to run a “Lean Organisation.”

NAMA & the future
The hard questions are in relation to NAMA. NAMA will buy the dud properties from the banks at what level of discount? (Will they include Hotels? How will it interact with the Brit banks here?) Clearly the guys in the Dept of Finance have been out of their depth for quite a while, so what are the odds they will be taken for a ride by the developers?
The skills of running an intensive ward of sick companies are very different to new business lending.

So, expect a small discount on the buy-in, a bond issue and sale/buy-back, but at what repo rate? Enough hard questions: let’s ask a simple one: NAMA takes over a completed block of apartments, some occupied, but most empty. Twenty apartments have been sold, deposits paid, awaiting closure. Purchasers decide to forgo completion and lose deposits rather than take a hit on negative equity. Will NAMA institute proceedings for specific performance? What right of action will the existing tenants have against NAMA for not acting against the defaulting buyers? Who will pay the service charges?

The big elephant in the room is corporate enforcement, surrounding which there is deadly silence.
All senior bankers, from ordinary manager level up, are legally required to act with probity. (For bankers – that means integrity and uprightness; honesty.) IFSRA rules are very clear about this. Other professionals, like accountants, have similar requirements imposed by their professional bodies. Anyone heard anything from the void of accountancy bodies?

Senior bank managers and anyone who devised lending criteria or sat on a credit committee during the 2004-2008 period have a question mark over their acumen. Directors are in a worse position; if they were aware they should be fired immediately; if they were unaware, they should be fired for incompetence. The banking sector must delete its top level or it cannot ever extricate itself from the present mire.

I do not believe in the silence. Huge sums of money were moved around to dress up the dodgy balance sheets of banks. People spoke, phoned each other. These types of conversation, just like Dealing Room transactions, were taped. The Regulator must have known; even now, where are the tapes? Did anyone ask for them? Why the silence? Where are the journalists? Why no real questions? Maybe they are too interested in the length of the slit in Monica Leech’s skirt?

We saw what the accountants did to a defunct stockbroking firm in Cork a few years ago – they raped what was left, to the extent that the (broke) customers actually despised the accountants more than the stockbroker who ripped them off. Wait for the bun-fest that will be NAMA. The lawyers and accountants are licking their lips already.

Meantime, sit back, you will be told nothing. It will be in the National Interest to keep schtumm. It will go go away, Shur it ‘ll be alright. Enda’s bunch will get in, they will spend their days saying what a bags Brian’s bunch made of it. The Greens will be on the sidelines again, talking lightbulbs, like they did when Lehmans was sliding down the tubes last September.

As Myles once asked “Tell me this, how is it done?”
K.