Cantillon

Inside the world of business

Banks may favour Denis O'Brien in tussle over IN&M

HOSTILITIES HAVE resumed with a vengeance in the Independent News Media boardroom, with Denis O’Brien launching an attack on two fronts.

Earlier this week it emerged that he had acquired a 1.3 per cent direct shareholding in Australia-based media group APN News Media, in which Dublin-based Independent News Media (INM) holds a 30.96 per cent stake.

And yesterday came the revelation that he had sought the removal of Gavin O’Reilly and Brian Hillary – the chief executive and chairman respectively of INM – from the board.

As with O’Brien’s previous forays his strategy is not very clear but there is no doubt as to his objective, to wrest control of the company away from the O’Reilly camp.

Ultimately it is INM banks who have the whip hand in any board room battle as they have a very strong hold over the company following its bond swap and refinancing in 2009. No one can control more than 35 per cent of the company unless they have the banks’ backing.

They are unlikely to support anything that does not – at a minimum – reduce their exposure. And that means money.

Thus the third piece of news on the O’Brien front this week that revenues at Digicel are growing strongly – up 16 per cent to €601 million – will no doubt feed speculation that some sort of move by O’Brien is imminent as his coffers are replenished.

But given that his foray into APN has involved the outlay of a mere $6.85 million the possibility that O’Brien is merely tormenting his adversaries should not be ruled out either.

An issue for Davy

IT IS one of the principles of the Central Bank’s new fitness and probity regime that financial sector staff occupying key jobs, aka “controlled functions”, be “financially sound” themselves. The rule is up there in the regulator’s new set of standards on the type of people suitable to work in financial institutions, alongside such desirable qualities as honesty, ethics, integrity and other numerically inexpressible concepts.

“A person shall manage his or her affairs in a sound and prudent manner,” the Central Bank declares.

An employee whose job is a controlled function must be able to prove that his or her performance is “not adversely affected to a material degree” by the fact that they have defaulted on a payment with a creditor, been subject to a judgment for unpaid debts, been the subject of a bankruptcy petition, been director of an insolvent entity or been disciplined by a regulatory or professional body.

The regulator’s recommendations in its initial consultation paper attracted the attention of the stockbroking firm, Davy, which felt the need to note that individual financial fitness was “a complex issue”.

Of course, after the debt-fuelled speculation of the last few years, this is a rather graceful sounding understatement.

“While we appreciate it is essential that any fit and proper regime makes reference to a person’s financial position, we would caution that this is handled in a balanced and measured way,” the firm’s head of regulation and compliance, Ger Knowles, notes in his letter to the regulator, published on its website this week.

Quite so.

The VAT question

FIRST THE good news and then the bad. Yesterday’s exchequer returns show that tax revenues remain on track and crucially Ireland should hit the fiscal targets set out in the programme of assistance agreed with the EU-IMF.

But the persistent failure of VAT revenues to come in on target is without a doubt a worrying development. For the third month in a row they disappointed, missing the target by 3.3 per cent in August.

The size of the undershoot is not the issue, but the pattern that is now emerging.

Most commentators remain sanguine as far as the 2011 fiscal outrun is concerned, believing that better than expected returns on areas such as corporation tax will ensure that the overall 2011 tax revenue target is met.

That said, several have now started to flag up that the slowdown in the global economy may threaten this as the outperformance in areas such as corporation tax is attributed to the export sector and the strong performance it is exhibiting.

For the time being no one is panicking, but it would be dangerous at the same time to focus exclusively on the 2011 fiscal position and ignore the longer-term danger signs inherent in the current trend of VAT receipts, which are a proxy for domestic demand.

As Bloxham’s Alan McQuaid puts it: “The domestic economy remains extremely weak and the government needs a turnaround in private demand if it is to reach the sort of annual growth rates necessary to make inroads into its debt burden, which is officially projected to peak at 118 per cent in 2013.”

TODAY

European Central Bank president Jean-Claude Trichet participates in a panel on “The Future of the Euro and the Effective Governance of the EU” during the 37th Villa d’Este forum on “Intelligence in the World, Europe and Italy” in Cernobbio, Italy.

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