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Sean Dunne's Icelandic debts

Commenter FPL has pointed to a Wikileaks document I hadn’t seen before, and I believe has not received widespread attention. Full PDF (Dunne is on Page 128).

It includes this page, which refers to developer Sean Dunne’s liabilities to Icelandic bank Kaupthing. The bank was sort of like Ireland’s Anglo Irish. It was nationalised last year. The document is genuine, according to Wikileaks, Kaupthing initiated legal action against the website within 24 hours of the document’s release.

dunne

Dunne owes €84.1m through DCD Builders, the building firm he established in 1983, to Kaupthing. This appears to relate to the infamous Ballsbridge site, which currently operates as D4Hotels. The document says Ulster Bank is also owed €326.5m by Mr Dunne for the site.

The document also outlines that Mr Dunne paid $2.75m, with a loan from Kaupthing, for a 1/16th stake in a Gulfstream Jet, as part of the Netjets fractional ownership scheme. This was done via a company called Zaskari Ltd. Despite a range of internet searches, I have not been able to find anything out about Zaskari. See update below.

Netjets is owned by Warren Buffett’s Berkshire Hathaway.

His collateral and guarantees are outlined as follows:

Hotel sites: €520m
Overall LTV 62.8% plus a guarantee from Sean Dunne for €250m (76% of total syndicated facility)

DCD Builders LTV covenant 65%
Zaskari Ltd is guaranteed by Sean Dunne

DCD Builders is given a credit rating of B-, while Zaskari Ltd is given BB+

Risk Factors are outlined as:

The client is currently appealing a decision to refuse planning on two elements of the proposed redevelopment scheme. A final decision is expected within 12 months. It is anticipated that the bank will be asked to increase the facility to cover further interest roll up and pre-development costs.

The Kaupthing document dates from September 2008. Obviously since it was made, Mr Dunne’s efforts to get planning permission at Ballsbridge have failed. And he still owes money to Ulster Bank, and Kaupthing. The Independent reported on the loans back in February 2008.

A few questions arise.

What is Zaskari Ltd? Where is it based? Where does it operate? Who are the directors?
What is Ulster Bank’s current postion on the loans outstanding? (Parented by RBS)
Will this be NAMAd?

Update:

A helpful pinster pointed me in the direction of Zaskari. It is registered in the Isle of Man. Here is the most recent (and only) annual return.

Annual Return (PDF)

The Directors of Zaskari are:

Sean Dunne (Building Contractor)
Peter John Halpenny of Clontarf (Manager)
Ross Paul Connolly of Rush (Chartered Accountant)

Secretaries are:

Douglas Trustees Ltd
Ross Paul Connolly

Share capital is listed as £2,000 of £1 per share.

Peter Halpenny is director of property and development at Sean Dunne’s other company, Mountbrook Homes. Ross Connolly and Mr Halpenny are also directors of Mountbrook Riverside IV Ltd, the vehicle used to seek planning permission for the redevelopment at Ballsbridge.

What NAMA needs

Constantin also has a good list of things that need to be added to the legislation, to make it more accountable to the taxpayer:

1) Provisions for taxpayer protection and provision for a taxpayers’ oversight board filled with only independent observers, who are not in the employment of NAMA, NTMA, the State or any other party to NAMA undertaking;

2) Complete and comprehensive balance sheet and cost/benefit analysis of the undertaking;

3) Exact upper and lower limits for banks equity the taxpayers will receive in return for NAMA funds and post-NAMA recapitalization funding;

4) The exact procedures for divesting out of the banks shares in 3-5-7 years time with exact legal commitment by the state to disburse any and all surplus funds (over and above the costs) directly to the taxpayers in a form of either banks shares or cash;

5) The formula for imposing a serious haircut (60%+) on banks bond holders, possibly with some sort of a debt for equity swap and a restriction that NAMA cannot purchase any rolled up interest acrued since the latest ‘restructuring’ of a loan;

6) A recourse to all developers’ own assets – applied retroactively to July 2008 when the first noises of a rescue plan started;

7) The list of qualifications for any bank to participate in NAMA, including, but not limited to, the caps on executive compensation at the banks and the requirement to set up a truly independent, veto-wielding risk assessment committee at each bank with a mandatory requirement for a position of a taxpayers’ representative on the board that cannot be occupied by a civil servant or anyone who has worked in the industry in the last 10 years;

8) A requirement that risk and credit committees of NAMA include at least 51% majority of independent experts who cannot be employees of the state, NAMA or any toher parties to this undertaking;

9) A condition that the banks must undergo loan book evaluation prior to transfer of any loans to NAMA, the results of which will be made public – on the web – instantaneously – and will impose a requirement on the banks to write down their assets, again before NAMA purchases any of them, by the requisite amounts to balance their own books in line with valuations;

10) A condition that any loan purchased by NAMA be placed on the open market for the period of 2 weeks and that NAMA will not pay any amount in excess of the bids received (if any), with a prohibition for the participating banks to bid on these loans;

11) A condition that every NAMA loan should be publicly disclosed, including its valuations and bids it receives in the auction stage of the process;

12) A stipulation that all and any regulatory authorities (and their senior level employees) that were involved in regulating the banking and housing sector in this country take a mandatory pension cut of 50% and return any and all lump sum funds they collected upon their retirement;

13) A provision for dealing with the speculatively zoned land to be acquired by NAMA, i.e orderly de-zoning of this land and transfer of this land to either public (if no bidders arise) or private use consistent with sustainable agricultural development, environmental improvements, public use or forestry;

14) The measures to prevent banks from beefing up their profit margins through squeezing their preforming customers;

15) The measures to force the banks to reduce their cost bases by laying off surplus workers;

16) The measures for accounting (in a transparent and fully publicly accessible fashion) on a quarterly basis for NAMA operations and the performance of the state-supported banks.

What NAMA means

Constantin has been giving some of the best NAMA analysis I have read thus far. I will quote two specific sections I believe are important (but read the whole thing on his blog). Light block quotes are from the draft NAMA legislation. All of this is from Constantin:

(c) a reference to the long-term economic value of the property [bank asset, per point (d) below] comprised in the security for a credit facility that is a bank asset is a reference to the value that the property can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated and in which a future price or yield of the asset is consistent with reasonable expectations having regard to the long-term historical average…

So, implicitly, this statement assumes an imposition of some assumptions on:

* What constitutes a stable financial system and how does this system impact the pricing in operative markets – something that is virtually impossible to ascertain as the only functional markets we have a history of relate to the property bubble period? Was our financial system stable when we were lending x10 times income to home buyers? Or was it stable when the likes of AIB were embroiled in a series of massive scandals?

* What constitutes an amelioration of the current crisis – with further issues arising as to what crisis is being meant in this context: the crisis in property markets? in banking? in credit supply? in money supply? in financial assets? in the economy at large? in the Exchequer revenue? in the labour markets? in the markets for land sites? or in demographics? or in all the above?

* What is the relationship that determines the future (expected?) price of an asset or a yield on the asset and what is the assumed relationship between the yield and the price? What determines the relevant expectations mechanism?

* What is the long-term historical average? A 10-year historical average taken from today back 10 years is one thing. A 5 year one is another. Yet a third number can be obtained if the historic average is taken back from some date in the past (say 2007 to 1998) and so on. In reality, there is an infinite number of long-term historic averages that can be taken. Which one will be selected and on what basis is never attempted to be answered in the document.]

(2) Subject to subsection (4), the acquisition value of a bank asset is its long-term economic value as determined by NAMA.

Well, see above on long-term economic valuation, but in effect this is the statement that says it all – there is no price, there is no pricing model, there is not even a hint at the pricing model fundamentals. This is a botched economic analysis that would not warrant a permission to buy a typewriter for the DofF, let alone to ‘invest’ Euro 90bn into any undertaking. And this problem is compunded by the fact that this Bill seals the hatches on risk and credit committees operating NAMA by requiring that their members be NAMA employees or directors and not establishing any independent presence on these committees. This is like having a reactor heading into a meltdown and shutting down your monitoring systems because they are flashing red.

(4) NAMA may, if it considers it appropriate after consultation with the Minister, and subject to any regulations made by the Minister under subsection (5)… determine that the acquisition value to be assigned to particular bank assets or class of bank assets shall be —
(i) their current market value, or
(ii) a greater value (not exceeding their long-term economic value) that NAMA considers appropriate in the circumstances.

But not a lesser value, note. And once again, since there is no market value or a mechanism to attempt establishing some market value testing, this means NAMA will pay above market value for all assets. Furthermore, this section explicitly commits NAMA to use taxpayer funds to pay the real price or more for the given loan! Sickened yet?

Ok, let me explain in a bit more detail. There is an auction with only one bidder. The bidder has stated up front that he will pay any price at or above the market price. But there is no market price. Where do you think the seller will set the opening bid at? If the implicit market value, known to the seller, but not the bidder is X, the seller will set an opening bid at X+y, where y is a positive premium on the ‘stupidity’ of the buyer or on the fact that the buyer has committed to buying the asset and is willing to pay above the market value for it. What will be the reservation price set by the seller? X+y+z, where z is a positive premium on ‘desperation’ of the buyer to acquire the asset. What will be the price paid by the buyer? X+y+z+v, where v is the premium on seller’s skills in convincing the buyer to purchase the asset. v is also non-negative. Done. Basic auction theory, folks. Incidentally, adopting the approach advocated by me in the bullet points below removes: y through forcing the banks to take realistic writedowns first prior to NAMA; and removes z by requiring a simulative establishment of the market which can test the actual price of at least of the assets. One can’t really remove v, for the smarter bankers will always be able to sell to the careless or incompetent, or both, authorities that can author this document in the first place.

Gerry Gannon's assets

One of the Anglo 10 is signing assets over to his wife, according to the Irish Mail on Sunday. I did a backgrounder on Mr Gannon here.

LEADING developer Gerry Gannon is transferring properties worth tens
of millions of euro, including an entire lake and foreshore, into his wife’s name.

The surprise move – initiated with 10 applications to the Property Registration Authority last Wednesday – comes as an increasing number of developers succumb to their massive debts and banks begin to foreclose on loans and seize their assets.

The motivation behind the sudden transfer is unknown – Mr Gannon and his lawyers refused to comment on the matter this weekend.

Mr Gannon is the co-owner of the K Club and reportedly one of the so-called Golden Circle, a group of investors who bought 10pc of Anglo Irish Bank in a secret deal now being probed by the Garda fraud squad.

The 10 borrowed EUR 451m from Anglo to buy the bank’s own now-worthless shares. The bank, now State-owned, has written off EUR 300m of the debt.

This week, Mr Gannon’s solicitors applied to have 10 properties transferred into his wife, Margaret’s, ownership. Nine appear to be unencumbered by mortgages.

One leading commercial lawyer said it could be an attempt to protect assets from any future legal actions.

The properties include an entire lake, Lough Glinn, with an extensive foreshore site on which he had once planned to build a luxury hotel. It was to be opened by former US president Bill Clinton.

There is also a house in a marina development on the shores of Lough Ree; two land banks, one behind Dublin Airport and one astride Clontarf Golf course; and a EUR 3m exclusive K Club home in Co. Kildare at which Mr and Mrs Gannon lavishly entertained guests such as Mr Clinton during the 2006 Ryder Cup.

‘It looks like he’s trying to dispossess himself of these assets,’ said the lawyer. ‘So if the banks were to seek to enforce a personal guarantee, those assets are no longer in his ownership.

‘As his wife probably did not give personal guarantees for large loans or businesses, the banks cannot go after her. Because all but one of these assets are mortgage-free, these would be the easiest for the banks to go after first.

‘The banks could, in fact, go after these properties. But obviously, if Mr Gannon can show he wasn’t trying to avoid any obligation under his personal guarantee, the transfer would be valid,’ the lawyer
added.

Anger and John O'Donoghue

The Sunday Tribune reported over the weekend that current speaker of the Dail, and former tourism minister John O’Donoghue spent upwards of €125,000 (excluding government jet costs) over two years. Among the details:

Among the expenditure were a series of €900-a-night hotels, €7,591 on “airport pick-ups” during a two-day trip to London, €120 for hat rental, €250 for water taxis and €80 to “Indians for moving the luggage”.

On one luxurious trip to Venice, the former arts minister, his wife and the civil servant ran up hotel bills of €5,834 at the Albergo San Marco, the Hotel Cipriani and the San Clemente Palace. The ministerial entourage travelled to Italy by government jet, where they were collected by a private airport boat and taken to their luxury accommodation.

VIP facilities, limousine hire and hat rental were all paid for at the taxpayer’s expense. A limousine in Berlin to transport O’Donoghue to a World Cup soccer game cost €2,436, while Therese O’Connor’s hat hire for an official engagement cost €120.

Curious how the Tribune, I believe, only managed to get access to the information just as the Dail was going into recess. But what is perhaps more important is the attitude of the FOI officer. At first they looked for €600 to get the information requested, which was later reduced to €200. This is clearly unacceptable.

Let me be very clear. As a citizen, I have a right to know about how every cent is spent by every Minister, TD and Senator. I have a right to know how taxpayers’ money is spent. It really is that simple. I want details of every single expenditure. For the moment only ministerial expenses can be accessed in this almost detailed way. TD expenses simply fall under broad categories. This has to change, and I will be pursuing this through every means necessary.

And one thing for the Tribune. Publish all the documents you received in the FOI to the web. This isn’t just your data, it’s our data.

Giving something back?

Given the day that’s in it, after seven years of blogging, I feel like I should try and give something back to the blogosphere.

Over the years I have offered hosting to a number of people who I felt deserved better tools than Blogspot offers, or would be better served by having their own domain, and the use of the WordPress platform.

So my offer is this, for what it’s worth:

To the first five people who leave a comment to this post (or drop me an email alternatively), and who’s blog is hosted on a third party platform such as wordpress.com, or blogspot.com, I will offer one year of free hosting using the WordPress platform. Included are advice and support on how best to implement the installation, full FTP access, a default selection of themes, and an array of plugins. I will install and host WordPress for you, free of charge. I will also help with any import of entries from a prior blog.

Of course there might not be five people out there who want this, so if you know of anyone, do leave a comment and point me in their direction.

And another thought, if at the end of the year you wish to move, I will of course export your database to a file, and you can go out on your own into the brave world of self-hosting. 🙂

Reboot Britain

Some thoughts and random quotes from the day:

Watching Gillian Tett from the FT explain the background of the problems with derivatives that led to the current financial mess.

Jenni Russell is giving some good anecdotes about dealing with lazy ass politicians. We need a way to eat away at the bunker mentality. Jenni only heard of Slugger two weeks ago? But does say any hack she has asked has said Slugger is the go to place to learn what is happening in Northern Ireland. Good talk.

Alberto Nardelli talking about the stalemate between traditional media and politics, using social media. Social media can supplement what traditional media does. YouTube does not substitute knocking on doors.

Tools make politicians approachable, personable. Pols on twitter leads to direct engagement.

Mick Fealty speaking on the background of Slugger, how it started and where it’s going. The internet is a bit like the wild west. Engagement leads to engagement.


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