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  • Would-be entrepreneurs shun the great shake-out

    May 31, 2011 @ 8:00 am | by Laura Slattery

    Enter the dragons... with presenter Richard Curran. Photo: RTE

    So it turns out the Chinese word for crisis is not actually opportunity.* For some employees facing redundancy this has nevertheless happily proved to be the case. In certain sectors, at certain times, mass layoffs have historically swelled the ranks of start-up firms. Once handed their P45s, redundant workers discovered it was the perfect chance to realise long-held desires to be their own boss. They scrambled through contact lists and made now anachronistic appointments with bank managers – ideally armed with a redundancy cheque as collateral.

    It happened after the 1993 closure of the Digital Electronics Corporation in Galway, which led to the formation of a cluster of indigenous tech firms, sucking in new investment. The still-thriving, Oscar-winning creativity of Ireland’s animation sector was born from the ashes of Sullivan Bluth, the multinational animated movie producer that shut its Dublin doors in 1995. And the demise of aircraft leasing company GPA in the early 1990s is survived by a generation of aviation finance firms.

    New figures from Vision-net suggest that this phenomenon isn’t repeating itself – not yet. The number of people choosing to become a company director for the first time has fallen by more than 40 per cent, according to the business information service company. Its study of Companies Office data found that 4,883 people registered as first-time directors in the first quarter this year, down 31 per cent from 7,062 on the same period in 2010. Since then, the sharp decline – described as “telling” by Vision-net managing director Christine Cullen – has accelerated.

    Timing is everything. Redundancy is a bitter blow at the best of times, but it is during the best of times that such bitterness can be channelled into productive outlets. Digital, Sullivan Bluth and GPA all closed at a time when the only thing on Ireland’s economic horizon was a massive boom. These were skilled workers freed from their contracts during a time of rising employment and nicely surging wages. But post-bust, start-up business models that would have seemed like simply marvellous ideas in 2001 now look like naive fantasies. Where once customers would have lined up, eagerly contributing to the top line, there is only a vacuum.

    Critically, this recession has also been accompanied by a dearth of the one thing even the most innovative of entrepreneurs with the most solid of business plans requires – finance. These are the days when securing a slot on Dragon’s Den is seen not only as a valid strategy, but – for consumer-facing businesses at least – vaguely sensible. It’s a television show, an entertainment. But the banks, after all, are out.

    Starting your own business has always been a risk, but in today’s dysfunctional economy it looks suspiciously like a folly. People who do, against the odds, manage to make their debut as a company director face a business climate that is still very obviously in the throes of a vicious shake-out. In May, companies were declared insolvent at a rate of eight per working day and liquidated at a rate of six per working day. Once it was the construction sector that led the implosion, now it is retail and wholesale firms that are hitting the wall with the greatest haste.

    Vision-net’s figures show that more than one in every two companies are showing signs “consistent with business failure”, by which they mean a decline in profits, tighter cashflow and an over-reliance on bank finance. Companies failing to meet their daily trade and finance commitments are, according to Cullen, having a “real domino effect” on the cashflow and debt repayments of other companies, exacerbating the crisis. The bulk of liquidated companies’ creditors are unsecured, meaning they’re unlikely to be paid what they are owed. It’s a form of contagion that’s hardly conducive for a fledgling start-up to thrive or even survive.

    *Sadly for motivational speakers, the Chinese word for crisis isn’t quite a combination of the characters for “danger” and “opportunity” either.

  • Still waiting for “new faces” in Government, S&P downgrades Ireland

    November 24, 2010 @ 7:00 am | by Laura Slattery

    Poor Frank Gill. The Standard & Poor’s sovereign debt analyst was one of the first people to set our democracy alarm bells ringing when in March 2009 he surmised there was a need for “new faces” in government. This rare example of simultaneous perceptiveness and gall outraged the Dáil, which can usually only muster up the latter. In any case, that was way back when S&P’s best brains were cutting Ireland’s credit rating to a now covetable ”AA+”. Things have moved on, in the markets’ eyes at least. Shortly before midnight last night, the ratings agency downgraded Ireland from “AA-” to “A”, outlook very much negative.

    And, no, an A is not good, as I wrote here, back when it was still possible to be glib about these things.

    The statement by Standard & Poor’s makes little mention of political instability, with just a quick, throwaway blackmail about Ireland’s credit ratings coming under “renewed pressure in the short term should the domestic policy consensus weaken”. You will be shocked to discover that neither the sensitivities of Dermot Ahern and Noel Dempsey, nor Paul Gogarty and his unpredictable childcare arrangements, nor Brian Cowen’s sexist remark about Joan Burton, make the cut. Instead, Frank Gill emphasises that the lower ratings “reflect our view that the Irish government will have to shoulder additional costs associated with further capital injections into Ireland’s troubled banking system”. By Irish government, he means us.

    The statement says lots of other nasty things too, although none of this will surprise anyone at this late stage of the game, what with Bank of Ireland set to join Anglo Irish Bank, AIB et al on the roster of failed, nationalised institutions that we will desperately try to offload on anyone rich enough and brave enough.

    Despite the speed at which events are unravelling, this may not happen overnight. ”In our view, Ireland’s banking system will take several years to downsize,” says Gill. “The outlook for future costs to the government from financial retrenchment remains uncertain.” (Some commentators are talking about a quarter of a trillion, all in.) Meanwhile, ”the high overhang of private debt, fiscal austerity and the uneven outlook for external demand in Europe” means that S&P now expects “close to zero nominal GDP growth for 2011 and 2012″.

    Frank’s still waiting for his “new faces”, as are we. In some ways, it’s comforting that an organisation whose clients are the power-crazed, plutocratic institutions we know as “bondholders” has been even more naive than local democracy fans when it comes to the office-clinging abilities of Fianna Fáil. On the other hand, a general election or no general election – pffft. Worryingly, it now seems that bit more irrelevant to the credit ratings agencies and their institutional investor paymasters.

    Standard & Poor’s will hold a teleconference on its downgrade decision at 3.30 pm today, although frankly I’m planning on training the full leaden weight of my gloom in the direction of the gothic horror that is the four-year austerity plan – upon which you will find news updates and commentary at, here at The Index blog and on

  • Who’s got a complaint about the banks?

    November 23, 2010 @ 12:01 pm | by Laura Slattery

    With every Irish citizen and half the euro zone suffering as a result of the activities of cash-devouring, nest-feathering bankers, it might be a more sensible question to ask who hasn’t got a complaint about the banks? This morning saw the release of the latest update from the Financial Services Ombudsman, Bill Prasifka, which reveals that disputes with financial institutions remain close to record levels. Some 3,631 complaints were received in the first six months of 2010, with a third of them originating from the big bad banks as opposed to insurance, investment or pension companies.

    Of course, taxpayers pretty much own the entire banking sector now. Are they being any nicer to us? Not according to Prasifka, who notes that his office, now operating on a lower budget, ordered almost €1.3 million in compensation to be paid to customers during the period. “This is an indication that some financial institutions are not making sufficient effort to resolve complaints at an earlier stage,” he said.

    So that’s €1.3 million recouped as a result of financial sector gall and misdemeanour. A shame that getting the rest of the billions back is going to prove a bit trickier.

    But let’s look at one of the more delightful practices that the banks inflicted upon their struggling customers. The ombudsman said today he has 40 cases on his books of mortgage borrowers who were persuaded and/or forced to abandon their favourable tracker mortgages in favour of fixed- or variable-rate loans. Such a manoeuvre had the effect of lessening (by a fraction) the margin-draining effect of trackers on the banks – given the dismal state of their margins today, it was/is a generally futile exercise. But such policies have had a much more profound effect on those who were convinced to switch, as it typically costs them hundreds of euro a month in higher interest payments.

    The ombudsman’s office is now wrestling with the idea of whether such decisions were “informed choices” on the part of consumers (some of whom may have reckoned they could save money in the short term by fixing). It’s pretty clear, however, that it was a swindle. Consumers could not have been “informed”, as the lenders were, that tracker mortgages would be withdrawn, leaving them locked into endless rounds of interest rate hikes while tracker customers continue to enjoy historically low European Central Bank (ECB) rates.

    Since then, the Financial Regulator has continued to warn – as late as last August - that lenders were convincing borrowers to “remortgage” onto far pricier loans. It cited “poor levels of disclosure”, which is still about as close a euphemism to “lies” that consumers can expect from their watchdogs.

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