Cantillon

Inside the world of business

Positive outlook and lending survey hard to reconcile

IT IS DIFFICULT to reconcile the Central Bank’s modestly positive outlook on the economy with its own bank lending survey.

If, as seems to be the case, lending officers see no relaxation over the coming year of last year’s drastic credit tightening for business, where will the money to fund the recovery come from?

The National Asset Management Agency (Nama) does not appear to figure in the answer to this question despite its avowed purpose being the restoration of the flow of credit.

The bank lending survey is quantitative and heavily influenced by prevailing sentiment among the participants: bank lending officers. Clearly no word has come down to them from on high to the effect that, once the banks have dumped their property and development loans on the taxpayer, they will be turning on the credit taps.

It is no surprise. In truth the banks have never done more than pay lip-service to this notion. It is obvious that the priority remains the husbanding of whatever capital remains in the institutions in order to minimise the dilution of shareholders’ holdings in the second part of the Nama process: investment by the State to cover losses on the loans transferred to Nama.

A realisation that Nama will do little or nothing to increase the credit flow into the economy appears to be dawning finally in Government circles. The Tánaiste this week floated the notion of the State going guarantor on loans to small and medium business. Coughlan does not seem even remotely perplexed at the notion of the taxpayer going guarantor on vital loans to businesses from banks that they have spent billions saving from the knacker’s yard and control in all but name. The only winners in such a ridiculous state of affairs would be the banks. In that regard, at least, Government policy remains consistent.

Laws can’t change ethics

There was a lot of talk about ethical standards at the corporate governance conference organised by the Irish Stock Exchange in the Four Seasons Hotel in Dublin.

Technocrats, businesspeople, professionals and politicians all seemed to be on-message about the need for higher standards, though there were a few voices calling on society not to overindulge in the self-flagellation.

Foreign speakers remarked on the level of soul-searching under way in Irish public life, and reminded the attendees that the corporate crisis is an international phenomenon.

Marc Jobling, assistant director of investment affairs with the Association of British Insurers, said the largest industry in his country was the financial services sector. The second largest was the corporate governance sector.

While some speakers had an obvious inclination to dive into the details of the Combined Code, and how it might be changed – or written into law – in an effort to stop bad things happening, others argued that such efforts were futile unless the ethical standards of those running companies, or countries, were not improved.

Tánaiste Mary Coughlan, in her opening address, concentrated on the debate over possible changes to the law. She read out her reasonably lengthy script but it is fair to say there was little of the leadership factor in it.

She left immediately for an engagement in the northwest, stopping on her way out for questions from reporters who wanted to ask her, once again, about Fás. The answers were as familiar as the questions.

Stock exchange chairman Padraic O’Connor, when introducing the Tánaiste, spoke about society needing leadership from Government if it was to effect the needed cultural change. There was little in what the Tánaiste said to indicate he had struck a chord.

Murtagh’s rough ride

If figures revealed in yesterday’s court proceedings against Brendan Murtagh and others are to be believed, the Cavan businessman has been having a rough ride for some time.

According to the information put before the court, his net worth plummeted from more than €200 million in February 2007 to just €3.5 million a year ago. And given how unprofitable the past year has been for most, the trajectory is unlikely to have changed in the meantime.

It is possible, of course, that the figures do not fully reflect Mr Murtagh’s means (such as his 2.8 per cent shareholding in Kingspan), a fact acknowledged by the court. The next three weeks will be busy for him, however, as he draws together what Mr Justice Peter Kelly expects to be the definitive version of his financial state.

Counsel for Mr Murtagh suggested 21 days would not offer enough time for her client to disentangle his web of partnerships, special purpose vehicles and other structures.

Mr Justice Kelly thought otherwise and so we can hope for a true window on Mr Murtagh’s financial world by the end of February.

Tantalisingly, this could be followed by cross-examination of the businessman himself in early March if the opposing side is not satisfied with the information as provided.

Mr Murtagh is a co-defendant in the case with Cork businessmen Greg Coughlan and Brian Madden. Thus far the three have had judgment orders for more than €60 million registered against them, including a €33 million judgment in favour of EBS earlier this week. In the case considered yesterday, a €28 million judgment has already been secured. It seems safe to say the property investment relationship between the three has not been a fruitful one.

All of this must be processed by Mr Murtagh as he continues to attend to his day job as a director of Kingspan and recovers from a less-than-happy investment in Smart Telecom, among other punts. As the judgments mount, his rough ride shows no sign of slowing any time soon.

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NEXT WEEK: No-frills airline Ryanair will report figures for the third quarter of its financial year on Monday.

On the same day, the Central Bank will publish final private sector credit figures for 2009