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INSIDE THE WORLD OF BUSINESS

Bord na Móna could not sell waste firm without huge loss

Bord na Móna’s decision to write down the value of its waste management subsidiary by €23.1 million, five years after it bought the company for €61 million, highlights the issues facing private waste management companies in Ireland.

A combination of government-imposed landfill levies – designed to encourage diversion of waste from landfills to other more environmentally-friendly means of disposal – an estimated 30 per cent drop in the volume of waste being produced across the country, and the cut-throat pricing policy of an industry that is becoming increasingly competitive have served to weigh heavily on some of Ireland’s largest private waste management companies.

NTR subsidiary Greenstar posted a loss of €64 million for the year ended March 2011, for example, while Limerick-based Mr Binman entered receivership last year.

While larger players such as Bord na Móna’s AES bemoan the proliferation of smaller companies in the market – chief executive Gabriel D’arcy called yesterday for greater consolidation in the sector – the flip-side is that many private operators believe the presence of a State-owned body in the private market is unfair. Bord na Móna’s €23 million impairment charge also raises questions about the group’s diversification strategy. While D’arcy was not at the helm when AES was acquired, the decision to buy into the private waste sector at the height of the boom seems ill-judged.

Bord na Móna said yesterday it does not intend to sell AES, stressing its “strategic importance” to the group. The reality is that it would not be able to offload the business without incurring a huge loss. Greenstar, for example, has effectively been on the market in different forms for two years. As the debate over the role of State assets continues, a bit of soul-searching on the part of Bord na Móna wouldn’t go amiss.

Situation in Spanish banks holds a certain resonance for Irish ones

Watching Spain’s unfolding banking crisis, for Irish observers, is a little like Groundhog Day. Shares in Bankia, Spain’s answer to Anglo Irish Bank, and even the big banks Santander and BBVA, began declining to the point where a short-selling ban was introduced, co-ordinated with a similar one in Italy, to halt the sliding share prices and soothe investors.

Shares dropped by up to 5 per cent but recovered some ground following the ban on investors betting on shares falling.

Spain’s ban is for three months and covers all stocks on its stock exchange, while Italy’s is only for a week and for shares in 29 banking and insurance companies.

Four years ago, this was the position the Irish banks found themselves in. They were pushed to the edge of the cliff as short-sellers purportedly made a killing against falling share prices.

The UK regulator, the Financial Services Authority, introduced a short-selling ban in the middle of September 2008 which prompted the Financial Regulator in Dame Street to follow suit in an attempt to squeeze the short-sellers. As anyone who followed the crisis will know, the short-selling bans only bought a brief respite as there were fundamental concerns among all classes of investors about the stability of the Irish banks.

The short-sellers were really just bogeymen conjured up by the bankers in an attempt to scare the authorities into some action and defend their positions that, were it not for these scaremongering investors, there was nothing really wrong with the banks. How wrong they were and how wrong the regulators were to believe there were not more serious concerns motivating investors.

The Spanish banks won’t get a full health check on the adequacy of their capital reserves until September and, much like the first months of autumn in 2008 for the Irish banks, the coming weeks will be a rollercoaster for depositors in Spain’s banks.

Yesterday’s share price declines all come shortly after euro zone finance ministers gave the green light to Spain’s €100 billion banking bailout. This suggests wider fears about Spain’s non-banking debt. Fears are turning to Spain’s ability to refinance €36 billion of debt held by 17 indebted, independently run regions.

In September 2008, Ireland only had a banking crisis to contend with. Spain in September 2012 will have more on its plate.

TODAY

The investigation into the former Anglo Irish Bank by the Garda Bureau of Fraud Investigation and the Director of Corporate Enforcement is due back before the Commercial Court.

Nama role in saving hotels limited

One of the many myths of the Irish crash is that the National Asset Management Agency (Nama) now has the future of the hotel sector in its hands. Nama certainly has a lot of hotels, as was confirmed by the Minister for Finance in a recent answer to a Dáil question.

The agency’s debtors and receivers appointed by it control some 121 hotels, of which 117 are fully operating.

Four hotels recently ceased trading.

“There are over 900 operating hotels in Ireland and, accordingly, Nama has exposure to only 13 per cent of the sector,” Mr Noonan said.

“Its potential impact on the overall viability of the sector is overstated,” he told his colleagues before going on to point out that when the Competition Authority looked into the issue on foot of complaints it decide not to pursue them after talking to the agency.

The Minister added that Nama had told him it would not be lending to hotels that were not commercially viable as there would be no foreseeable return on such funding and, therefore, it would run contrary to Nama’s statutory commercial remit.

One could argue the toss as to what constitutes commercial viability and fair competition in the current market, but the basic point is that Nama’s ability to bring about the necessary restructuring of the highly indebted sector is limited. Any worthwhile initiative in this direction would also require the involvement of the banks – who have hotel debt outside of Nama – and the non-Nama banks.

Nama may thus be off the hook, but unfortunately for Mr Noonan he cannot evade responsibility for sorting out this €7 billion mess so easily.

QUOTE OF THE DAY

"European securities markets are going through a period of extreme volatility which might cause their disorderly functioning"

– Spain’s stock market regulator, the CNMV, in a statement