Inside the world of business
Anglo's truly bizarre €15m loan to Kearney
THE HIGHLY unusual approval of a €15 million loan by Anglo Irish Bank to Belfast property developer Paddy Kearney to buy subordinated bonds in the bank was all the more shocking in that it was sanctioned in February 2009 after the nationalisation of the bank.
The loan deal, highlighted earlier this week in these pages, points to a pattern of support shown by the bank under the “relationship banking” model that ultimately destroyed it.
Much like how the bank agreed to lend money to Seán Quinn to cover losses on his disastrous Anglo share punt, the loan deal for Kearney showed that the lender was also willing to lend to a favoured client for a punt on the bank’s own subordinated bonds.
Kearney, one of the bank’s top five clients in Northern Ireland, was estimated to be worth more than £125 million (€140 million) at the time of the loan agreement.
The proposal is said to have been put together by the bank as a favoured loan and a quid pro quo for the support Kearney had shown the bank by willing to participate in the Maple 10 transaction.
The developer had helped out the bank the previous July by joining (unbeknownst to him) nine other trusted clients in agreeing to buy a 10 per cent shareholding backing Quinn’s contracts for difference (CFD) position in Anglo.
That deal left Kearney exposed on a quarter of the €45 million worth of loans provided by the bank to each client for the deal.
Anglo estimated, based on the reduced value of Anglo’s subordinated debt in the markets, that Kearney could bag a profit of €9 million when the debt was repaid at par several months later under a call option or when it matured five years later.
That such a transaction was even considered less than a month after the nationalisation of the bank is bizarre in the extreme.
Social network meets Wall Street
AFTER MONTHS of frenzy, social media giant Facebook finally became a public company yesterday, raising $16 billion in the third-largest public offering in US history and the biggest ever for a technology company.
In a possible omen for the future, the process was not entirely glitch-free. Trade in the shares was delayed half an hour, with Nasdaq OMX Group conceding it had a problem delivering trade execution messages.
Still, it won’t trouble the company’s early investors who yesterday become instant millionaires – at least on paper. Employees whose shares are locked in for the next six months will hope that the fervour for the stock will be sustained despite the stock attracting its first “sell” rating yesterday from a US broker who argues it is overpriced by over 25 per cent at last night’s close.
After briefly climbing as high as $42.05, the shares dipped back towards the offer price with the New York Times suggested last night that the company’s “army of bankers” appeared to have kept the stock from falling even further. If so, they have been well paid for the service. Bloomberg estimated last night that the 33 investment banks involved in the flotation will divide about $176 million between them – despite accepting a lower than average fee for their work. Demand for the business was so great that Facebook paid a fee of just 1.1 per cent of the $16 billion raised compared to the 3.6 per cent average of the 10 largest previous US flotations. But questions remain. The social media group which reported sales of almost $4 billion last year has a long way to go to justify its new valuation.
Much of the company’s stock remains in private hands, as does founder Mark Zuckerberg’s control of the company. “Our mission isn’t to be a public company. Our mission is to make the world more open and connected,” the company’s now enormously wealthy founder said last night. He might shortly discover that, having taken that step into the glare of public listing, his new investors do not entirely share those views.
US chamber nails its pro-Yes colours to mast
CORPORATE AMERICA is not known for wasting time, and executives of some of the leading US companies in Ireland were determinedly on message yesterday as they gathered in Dublin. After chamber chief executive Joanne Richardson outlined the contribution of the chamber’s members to the Irish economy, Peter O’Neill warmed to his theme of the need to nurture and harness talent. It was apposite on a day when the country general manager for IBM had earlier announced plans to create one of two global services integration hubs in Dublin, creating somewhere between 200 and 300 jobs at what is already one of the State’s largest employers.
Calling for reform of both second-level and tertiary education in Ireland, O’Neill said the availability of talent was a hugely important factor in attracting companies to Ireland and was also “the single most important factor in retaining and growing investment mandates once they land in Ireland”.
Suzanne Rosselet-McCauley, a former co-author of the IMD World Competitiveness Yearbook, warned Ireland should take care not to get complacent – either about the recent gains made in cost competitiveness or about its ability to attract US investment.
All of which brought the speakers round to austerity and the upcoming fiscal treaty vote. In a broadside, maybe, to Germany, Rosselet-McCauley decried austerity in isolation and called for a growth agenda.
O’Neill, for his part, reiterated the chamber’s strongly pro-Yes position in the impending poll, adding pointedly: “We will benefit as long as we remain a central part of Europe and the euro zone.”
Message delivered.
NEXT WEEK
May 23rd – Bank of Japan monetary policy meeting (MPC). Bank of England to publish minutes of MPC meeting.
ONLINE
You can get the latest news each business day at irishtimes.com/businessor by following us on Twitter at twitter.com/IrishTimesBiz. We also have a Facebook page at facebook.com/IrishTimesBizwhere you can read the latest business headlines, blog posts and reader polls.
