Cantillon

Thu, Mar 7, 2013, 00:00

Inside the world of business

What the moneylenders charge

For most people, even working out how to find a moneylender would lead to quite a bit of head-scratching. The reality for some, however, is that such enterprises habitually represent the only available bridge between being financially hamstrung and having a little bit of spending power. Desperation for cash, presumably, makes it easier to swallow the triple-digit interest rates that might be involved.

The Central Bank yesterday published the results of an inspection it conducted of nine licensed moneylenders, finding that most firms were “broadly compliant” with applicable regulations. An important word here is “licensed”. The 43 licensed firms that operate in the Republic offer little clue as to how business works for unlicensed moneylenders, or loan sharks, and their unfortunate clients.

The Central Bank maintains a register of the moneylenders that are licensed and also provides up-to-date information on the interest rates they charge. The latest information indicates that some borrowers are paying a mind-blowing APR (including collection charge) of 287 per cent on loans with terms of 20 weeks. The charges applied by unlicensed lenders must be truly frightening.

While the Central Bank’s survey found most licensed moneylenders are obeying the rules (it will pursue those that are not), the regulator also found some evidence of customers being advanced new loans before the term of their first loan has expired. Using characteristically mild language, the bank observes that this practice “is not necessarily in the consumers’ best interests”. We would perhaps go further and suggest that such double-decking of loans must surely be laying a paving stone on the path to financial ruin.

The Central Bank advises that using short-term, high-cost loans to fund long-term needs “should be avoided” and says the Money Advice Budgeting Service (Mabs) may be able to help people in such situations.

Moneylenders will always be with us, with some members of society always feeling they have nowhere else to turn. This being the case, it would be welcome if greater pressure could be placed on lenders when it comes to the interest rates they apply. Unlicensed lenders will always exist in their own murky world, but a little more moral leadership from their licensed brethren, with the lead of the Central Bank, would be more than welcome.

How to get ahead in a man's world

It’s probably not often that Christine Lagarde finds herself in the same sentence as Anna May McHugh, the arch-duchess of all ploughing championships, but in the spirit of International Women’s Day tomorrow, Cantillon is pleased to provide the occasion.

Lagarde has gone about as high as she can in her chosen career (having previously done the same in law and politics), achieving milestones for gender balance along the way. It is less than two years since she became first female head of the IMF, following in the footsteps of Dominique Strauss-Kahn. Before that, she was the first female finance minister of a G8 country and, before that again, the first female chairman of international law firm, Baker McKenzie. It would have been nice if her gender had not even been worthy of comment when she was appointed to these roles, but that is not so.

Making the jump from Paris and Washington to Kildare and Laois, we encounter the indomitable McHugh, who was this week named Veuve Clicquot Businesswoman of the Year.

Glittering in coral at a glamorous reception in the residence of France’s (female) ambassador to Ireland, Emmanuelle d’Achon, the managing director of the National Ploughing Association spoke of the difficulties in getting men to take her seriously in her younger days, before they realised she knew her stuff. Now nearing her 80s and presiding over an enterprise that generates visitor spend of more than €30 million a year, McHugh no longer has such problems and has learned a few tricks through the years. She described how one can “bring the men along” if the matter is approached correctly, prompting knowing applause from her mostly female audience.

The subtle approach has worked for her, but unfortunately more structured efforts are still required elsewhere. European Commission figures show that last year women occupied on average 13.7 per cent of board seats in plcs across the EU. In the Republic, this figure was just 9 per cent, despite women leaving education with equivalent, or better, qualifications than their male counterparts.

Elan forced to man the barricades again

The turmoil of the past decade means Elan chief Kelly Martin, and its board, are well accustomed to dealing with attacks on their track record and commitment to delivering shareholder value.

Until now, most of those attacks have come from within, as activist shareholders sought to force changes in the direction of company policy or the board line-up. This time, the threat comes from outside, as suitor Royalty Pharma looks to trigger a shareholder revolt over the company’s current plans to reinvest the bulk of the gains from the sale of its interest in the multiple sclerosis blockbuster Tysabri.

Elan says it is looking to diversify by investing in a range of opportunities. However, it has since announced a $1 billion share buyback programme and plans for a dividend income to shareholders based on royalty payments from future Tysabri sales.

There seems no doubt that, in part, its approach has been influenced by the sudden emergence of a concrete interest in a takeout of the rump of the company by Royalty Pharma – a company that has built a highly successful business out of acquiring royalties to successful and high-profile drugs for upfront cash payments.

The disclosure yesterday that, in discussions last year, Royalty had raised the prospect of acquiring Elan entirely – well before the proposal to sell the Tysabri rights to Biogen emerged – is instructive. Did the company buy into the notion of Royalty Pharma’s model without actually being tempted by the idea of selling out to them? Elan is not of course just Tysabri – despite Royalty’s attempts to paint it so – but income from the MS drug has and will continue to account for the vast bulk of its earnings and value. Its directors have seen off previous assaults but, judging by the presentation Royalty published yesterday, this will present a bigger challenge.

For the shareholders, they are now in the happy place of weighing two competing offers to put cash in their pockets.

Royalty insists its $11 a share proposal is fair but investors have pushed the shares higher in the market. Analysts differ on any likely takeout price but all agree Royalty is likely to have to go over $12 if it is serious in its intent.

Number of the day

€561 million - The fine levied onMicrosoft by the European Commission for repeatedly failing to offer users a choice of internet browsers.

Today

Representatives of the Department of Finance will appear before the Public Accounts Committee. Results are meanwhile due from Grafton, Fyffes and Irish Continental Group.

Sign In

Forgot Password?

Sign Up

The name that will appear beside your comments.

Have an account? Sign In

Forgot Password?

Please enter your email address so we can send you a link to reset your password.

Sign In or Sign Up

Thank you

You should receive instructions for resetting your password. When you have reset your password, you can Sign In.

Hello, .

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

Thank you for registering. Please check your email to verify your account.

We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.