Michael Smurfit interview: 'The downturn is only a setback'
Business magnate insists he is not immune to the recession and believes Ireland should be more imaginative in dealing with the banking problems
WITH an office perched high above the Mediterranean and situated just a stone's throw from the opulent Monte-Carlo Casino, Michael Smurfit's everyday working environment seems light years away from the bleak backdrop of the Irish recession.
Monaco doesn't do traditional drab office-land, but the section of the principality where Smurfit works is a nondescript corner. A small Irish Tricolour fluttering from the fourth floor of the office block is the only clue that the property houses the Irish consulate to Monaco.
Smurfit is the honorary consul and also controls a wide range of investments, which includes paper and packaging shares to positions in hi-tech companies, and, of course, his 51pc stake in the K Club, the only golf complex in Ireland to host the Ryder Cup.
On his desk rests the 'Financial Times' and on a large screen CNBC fires off the latest financial headlines, indicating that Smurfit is nowhere near winding down gradually into retirement.
Outside, tourists are milling around the narrow streets of Monaco. Its global reputation as a centre for banking and finance is well established, but the manicured lawns, belle epoque architecture and associations with lavish wealth are also core to its identity.
While old and new money are in retreat in Ireland, in Monaco all forms of wealth are celebrated, and mega yachts manoeuvre silently into its twin harbours of Fontvieille and Port Hercule, almost on the hour.
Smurfit himself likes to pound the spotlessly scrubbed streets near his office for at least an hour a day and, as he tells me, he still has the same shirt size, waist size and body weight he had 30 years ago.
Despite his surroundings, Smurfit's office is adorned by pictures and maps from Ireland and he is up to date with developments back home. I foolishly suggest that living among such opulence denotes a certain separation from Ireland and from the sharp downturn afflicting the country and much of the western world. On the contrary, Smurfit says.
"I don't know anybody who hasn't been affected. I think a lot of BS goes on about this, like people who say, 'I dodged the bullet', and the next day they are calling you up saying, 'Can I have a loan?'," he laughs.
He says Ireland has been unlucky in relation to what's happened over the past three years.
"Ireland was very unlucky, there was always going to be a correction in the property market, but the collapse of Lehman Brothers and the subsequent global credit crunch was a triple whammy for such a open economy; we are more affected than anybody else because we are so open," he comments.
"I expected a significant contraction, but nothing on this scale.
"Nobody really understood the reckless lending that went on in certain institutions, like Anglo, to what was in effect development properties, rather than developed properties. The property market can sustain itself once there is income coming in, but if you are buying cow fields, that is a different thing.
"What amazed me, and concerned me, to some extent, was that anybody who had a castle or a country-type house felt the need to build a golf course alongside it, and then houses. Like at the K Club, we sold in excess of €150m worth of properties, but there was only room at most for one or two of those type of properties.
"The over-building has been quite horrendous. Sadly, the rush to the bottom has effectively affected the amount of revenue we can even generate at the K Club."
He is slow to blame anyone personally, but does point the finger at one policy mistake.
"We should have ended the tax breaks early on to avoid the over-building, that was an error. The county councils, who are responsible for development, should have been looking at the overall situation; are these hotels sustainable? To me, they're not. The job of NAMA is a very difficult one. But it is the only solution," he says.
I spoke to him as Irish bond spreads headed towards fresh new highs.
"The problem today is the uncertainty; markets deplore uncertainty, that is the cause, the numbers are swirling around; is it €25bn or €35bn or €45bn? Whatever the number is, it will underline the scale of the problem and that should bring the certainty and underline there is a finish line to the problem," Smurfit says.
He does not spare Anglo in his comments.
"Anglo targeted the property developers and made a lot of money. But that money was predicated on rolled-up interest and high margins and those margins came home to roost, as we all know. And then there were the shenanigans that went on there, at least until the new board came into being. The only word is 'horrifying'," he says.
"The reckless lending was brought about, in my view, by the influx of foreign banks, like Bank of Scotland, taking significant market share with 100pc mortgages, etc, forcing the otherwise sound and conservative Irish lenders into trying to maintain some semblance of market share.
"They were forced into the same situation and we've seen the results of that recklessness. I don't think there are many directors left on bank boards that were there during all of this."
That kind of banking is alien to his own personal experiences.
"I had one bank, which shall remain nameless, call me up and offer me €200m to use as I wanted, with no personal security required, just a margin of 1.5pc," he recalls.
"I think you have to lay the blame where it lies. Whether the fall-out of this is going to be prosecutions or some form of retribution by the authorities, only time will tell.
"These things take time. But I think that examination should be rigorous and complete and a report issued so the public can make up their own minds whether there is blame to be apportioned or not."
His own financial headache is the K Club in Co Kildare, where losses are surging.
"It has been difficult, very hard times; the American market has dried up, although it has come back a little bit, but we've just got to stay the course. My partner, as you know, is Gerry Gannon and he is in NAMA, so we have to come to an arrangement with NAMA with regard to the K Club," he says.
"I have been funding the losses up to this year personally because my partner is unable to do so. But we'll see what happens in the future.
"We are a very important employer, we employ hundreds of people. It is important to have a flagship like the K Club and I am proud to be part of it. I think we have bottomed; we are forecasting modest growth over the next three to five years, for instance. But if our fractional ownership programme takes off it might be better than modest. I think it is a five- to seven-year project.
"We are in partnership with a London-based company, First Light. If that takes off, the K Club will certainly have a strong financial future, but it is too early to call that particular initiative."
He says he is not immune to the downturn: "I just about have the resources, but to say I wasn't impacted by the downturn would be wrong. Smurfit shares went from €20 to €1 at one point, so we all got battered."
Ultimately, though, he remains optimistic about Ireland.
"The nation is going to come out of this, I have no doubt about that. We have an underlying strength in exports, this is only a setback," he says.
But the loss of competitiveness remains a running sore.
"There was a time in the K Club when we couldn't get any one Irish to work there, but it is different now. I don't think there will be any pay increases in the economy over the next few years. I can't see the Government being allowed by the bond markets to increase salaries over the next few years."
He is against Ireland getting outside help and doesn't want it to happen. "I hope not. I sincerely hope not, that would be very damaging, it is a last resort," he says.
He is not keen on an election either.
"It would be very unhelpful to have an election; we need to rally as a nation to get through this storm," he says.
"Once that is passed let the politicians go at each other and see what happens. But now is not the time. As for Brian Lenihan, I knew his father very well and I am very impressed by his approach to his task, especially considering his own personal difficulties, it shows great moral and mental courage."
Smurfit says Ireland should be more imaginative on the banking problems.
"I think there is a strong case to be made on the bonds and restructuring, but my understanding is the Government is worried about the effect upon sovereign debt. My suggestion would be that the bondholders would take a different type of haircut, they would be made whole all right, but instead of them being paid off over 10 years, they would be paid off over a longer period; it would be a major restructuring, with the threat that if they don't agree with the restructuring, there could be something worse out there."
Meanwhile, he leads a very full life in Monaco, with his own yacht.
"It is called the 'Lady Anne', named after my mother, but it is just wonderful to own a yacht. It's here most weekends," he says.
"I think the yacht market has had a terrible time; when the current builds are finished, there are going to be hundreds of yachts for sale. I know one person who was worth a billion, but is now worth 100 million. He has two yachts, but no buyers for either. It is the upkeep that really costs, some of the bigger yachts in Monaco have a staff of 70, for instance."
His health is also good, he says.
"I am the same fitness as I've always been, same weight as 30 years ago, same shirt size, same waist size. I work at it two hours a day, walk around Monaco one hour a day and I also ride a bike," he explains.
"I still enjoy art and it's one area I could see myself expanding into in the future. Remember there is art and there is good art. I used to compete like crazy with Tony Ryan and John Magnier for art, and I am still interested, but I am neither a purchaser or a seller at the moment."