Brendan O'Connor: A colony once again – the Great Irish fire sale
Buying high and selling low is a strange way to do business. But we seem delighted with ourselves, writes Brendan O'Connor
IF IRELAND were a person, you wouldn't want them managing your money. The golden rule of dealing in stock, property or any other tradable commodity is "buy low, sell high". In Ireland, we have tended to go the opposite route. Having bought the whole place from ourselves very high, we are now selling low to whoever will take it.
On a human level, we can all understand this tendency. Once bitten, twice shy and all that. You get up to your neck in debt without really thinking about it, you get burnt, and then suddenly you never want to get into extreme debt again. You think back on the amount of money you owed and you freak out and wonder how you slept at night and you deleverage as fast as you can.
So think of that on a national scale. A country that got burnt really badly decides "never again" and proceeds to sell off everything, regardless of price.
The ironic thing about this undue haste to transfer everything into cash is that what rich people are doing right now is borrowing at record low interest rates and buying stuff up. But not us. Not only do we have no money, but we got caught once when we bought at the top of the boom and now we are the ones selling at rock-bottom prices.
And each tranche of assets or debt we get rid of, we hail it as a triumph. It's almost as if we think it is an achievement to sell off debts and assets into a frothy but still much depressed market at much depressed prices. We never stop to think why rich people and rich funds from all over the world seem to be queuing up to buy Irish assets. Partially this is because we just have to accept that these have the liquidity to do this, and we need their liquidity. And of course we do not look at the great Irish sell-off the same as the buyers do.
These guys are clearly seeing Irish property and debt as a great bargain. We, on the other hand, look at it emotionally. We look on this process as house cleaning, remnants of the bad old days, reminders of our shame. We just want rid of it.
You'd question sometimes though if we shouldn't cast a colder eye over the great Irish sell-off. There was quite a bizarre story in The Irish Times on Thursday. The big picture was that an American investment fund called Lone Star, which invests in distressed assets, bought a portfolio of IBRC loans for between €3.65bn and €4.86bn. Great news. More of that toxic crap got rid of. And the single biggest unloading since the nationalisation of Anglo in 2009. It felt like another great purge.
Of course, the loans had a face value of €6.68bn, which means that Lone Star potentially picked up the loans for between a half and two thirds of their value. But you know we assume the portfolio had a load of crap buried in there anyway, and shure, don't we all know that commercial property is only worth half of what it was, so it sounds like a good deal for us anyway, doesn't it? And it cleans up the balance sheet a bit more.
The Minister for Finance was delighted with the deal, saying that, "the sale of this entire portfolio on top of the success of the Project Evergreen sale last year will considerably reduce the amount of assets that are now expected to transfer to Nama and bodes well for the ultimate success of the liquidation [of IBRC]."
The bizarre bit of the story was the bit about €115m of those loans that related to Duncan Bannatyne, one of the stars of the UK Dragon's Den. Bannatyne claims his loans were sold at a discount of about 25 to 30 per cent. Which he thought was odd because he says he had offered to buy the loans himself at a discount of just 3 per cent and was refused. In other words, the State lost about €25m-€30m by not selling the loans to Bannatyne. Which, if it is true, would make you wonder about how good the guys doing the fire sale are. Are we so keen to get rid of stuff and to get rid of it in large bundles that we are not exacting the best prices we could?
Presumably this sale process is up to its ears with consultants and property experts and suchlike. Are they too keen for the big headlines and are they not getting bogged down in profitable detail?
Of course, we probably don't have a reputation internationally as the canniest of people to do business with. You could imagine we could be seen as a soft touch. We are, after all the same people who paid back every single penny of bank debt that was doing the rounds of the markets at massive discounts. International financial traders who had bought risky Irish bank debt on the cheap couldn't believe their luck when we agreed to pay back every cent of that unguaranteed bank debt, 100 cent on the euro. Apparently we did it for reputational reasons. I'd say it gave us a bit of a reputation all right.
Ian Kehoe's recent RTE documentary, Who's Buying Ireland? looked at some of the guys who are hoovering up the country from underneath us for a fraction of what we sold it to each other for. Kehoe documented how the biggest landlord in Ireland is now a man called Bill McMorrow, CEO of Kennedy Wilson. He documented how former Coca Cola boss Neville Isdell bought the CHQ building for €10m, less than a quarter of what the State spent on it. CHQ is a stunning complex that should be the jewel in the crown of a revitalised Docklands but somehow, we're not capable of making it work ourselves so we need to give it away. There were others too, including the Comer brothers from Glenamaddy, who had actually decided that commercial property here had become too expensive again by the time the programme was made late last year.
You can't really argue with the market, and these guys are paying more than anyone else is prepared to pay for the assets they are buying, but you can't help thinking that we will look back on Ian Kehoe's programme in years to come as a sad document of the times, when we became a colony again, this time an economic one. And we will wonder if we gave it all away at the worst possible time, when we should have had some balls and tried to keep it ourselves.
The guilt of a hangover can make people real pushovers. People can tend to feel undeserving. They can be easily manipulated too. They'll agree to anything just to move on and forget it happened, as they swear never to drink again. As Nama promises to unload some big chunks of assets over the next while, we can only hope that this isn't another hangover we are going to regret.
But then, at least we can be sure the guys in charge – Nama, the liquidators of the IBRC, the big accountancy firms, the banks and the estate agents – all know what they're doing here. Don't they?