Cantillon

INSIDE THE WORLD OF BUSINESS: Government hits a bump  on rocky road to Nama:THE ROAD to the National Asset Management Agency (Nama) is littered with unintended consequences. One of them played itself out this week.

The quite reasonable assertion by the European Commission that banks in receipt of State bailouts should not pay dividends has thrown a spanner in the works of the Government’s complex plan to use preference shares to avoid having to take direct stakes in the banks.

As a result, the Government finds itself in a position where it has to take shares it does not want in a bank that does not want to give them to it.

It is quite simply a mess. But at the same time it is not quite the disaster that some might suggest. The fact remains that, regardless of the outcome of the preference-share problem, the Government was going to have to put more capital into Bank of Ireland to bolster its balance sheet once the transfer of its land and development loans to Nama is complete.

The Minister for Finance has indicated that this injection will have to be by way of ordinary shares as the market quite rightly draws a distinction between ordinary share capital and preference share capital.

Given that the Government would as a result be holding a mixture of preference and ordinary shares in any case, does it really matter how this comes about as long as the final balance between the two satisfies the markets and the regulators? Presumably all or part of the post-Nama injection can be made by way of preference shares, if that is what all concerned are anxious to achieve. The net result is the same.

Yesterday’s news is obviously not ideal from Bank of Ireland’s perspective as it appeared to harbour hopes of being able to source capital from third parties and limit the State’s involvement to the current tranche of preference shares.

It is entirely correct – from the standpoint of shareholders – for the management of the bank to fight the good fight in this regard. But given the wider economic landscape, its chances of being able to avoid having to issue ordinary shares to the Government must in truth have been pretty slim.

Tables turned on CAG

THE CRITICISMS made this week by the former director of internal audit at Fás, Terry Corcoran, against the Comptroller and Auditor General (CAG), John Buckley, and his office, are the second swipe at the constitutional officer arising from the Fás affair.

A few weeks ago the former head of the board’s audit committee, Niall Saul, said that if Fás was a private company and the CAG was its external auditor, then its contract would not be renewed.

Buckley responded to one of the points made by Saul at the outset of Thursday’s meeting of the Dáil Public Accounts Committee, when he said it was not the case that he and his office had given repeated assurances that controls at Fás were excellent.

Corcoran, in his detailed criticism, has said the CAG’s office failed to ring the bells loudly enough when it first saw internal audit’s report of going-ons at the Fás corporate affairs division, and has failed since then to put sufficient focus on the role of the former Fás director general, Rody Molloy.

The CAG’s office is more used to providing information that makes others uncomfortable than being itself the focus of critical comment. Interestingly, there appears to be no forum for holding to account the work of the State auditor.

Spilling the beans

WHAT IS sauce for the goose is sauce for the gander, as Bernard McNamara appears to be on the verge of discovering. The once mighty builder clearly fears that his decision to name the Davy clients pursuing him over the Glass Bottle site deal is about to backfire spectacularly.

Davy was understandably furious at McNamara for naming some of its clients who sank €62.5 million into the venture. It was a veritable who’s who of Celtic Tiger big shots: Martin Naughton, Lochlann Quinn, the Keating family, Louis Ronan, Kieran McLaughlin and Coolmore Stud are just some of the names. To say this was a cause of exquisite embarrassment for Davy would not be an understatement.

The boot would now appear to be firmly on the other foot, with McNamara due to furnish Davy with a detailed list of his assets, including the value of projects carried out by Michael McNamara and Co, the contracting firm from which McNamara has distanced himself.

McNamara has come back demanding that Davy sign a non-disclosure agreement. The reason was not disclosed in court on Thursday but presumably it is with a view to limiting the extent to which details of his finances enter the public domain. Davy has refused to do so and the matter comes before the courts on Monday.

It is, as Mr Justice Peter Kelly, pointed out, a “rather extraordinary” request and it will be interesting to see what he makes of McNamara’s conversion to confidentially.

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The Finance Bill, which gives effect to measures announced in the 2010 budget, moves to committee stage in the Dáil.

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