The Sunday Times - Money Comment 07/06/09

Posted by Jill Kerby on June 07 2009 @ 21:37

With Irish bankruptcy proceedings hopelessly complicated and expensive and no formal voluntary insolvency arrangement in place like they have in the UK, preventative measures have always been the way to proceed here in Ireland when someone gets mired in debt. 


From the end of September next, a new protocol between the banks and MABS, the state funded, money advice and budgeting service will be launched with two aims – the setting up of a partnership approach between creditors and MABS and then following a five step plan that will result in a mutually acceptable, affordable, sustainable, repayment plan that keeps everyone out of the courts. 


So far so good; however, it could come a little unstuck when some creditors, who must “ensure that their door is always open to customers who may find themselves in financial difficulty” find that no matter how willing in principal they are to help their debtors cope with this downturn, in reality if it comes to a ‘them or us’ conflict of interest, there might not be the satisfactory ending that this protocol seems to anticipate.


September seems a long way off for anyone currently struggling with serious debts or who hiding from their bank. You might want to get onto the protocol queue as soon as you can by speaking to a MABS advisor now.  A copy of the IBF/MABS Operational Protocol: Working Together to Manage Debt can be downloaded at www.ibf.ie




We should know next month what tax changes to personal pensions are recommended by the Commission on Taxation, but pension consultants are expecting the worst - that the tax-free lump sum, worth 25% of a pension fund in the case of the self-employed or director’s pensions and the equivalent of one and half times final salary for employees in occupational schemes, will end up being taxed, perhaps the 17.5% figure that was leaked by government sources around the time of the April mini-budget. 


For someone with a million euro pension fund, this tax raid means a potential loss of €43,750.  If such a recommendation is made, pension consultants expect a rush of interest by the self-employed and company directors who are over age 50 out of their Retirement Annuity Contracts and executive pensions into more flexible PRSAs. 


John Mulholland of Dublin pension consultants Custom House Capital says that redundant employees and executives are also “quite sensibly” opting for the PRSA solution, since it doesn’t stop them looking for, or working in a new job even after they collect their PRSA lump sum and pension. 




Early this year, at a personal finance seminar I was giving, a woman rounded on me for my apparent lack of sympathy for first time buyers who were now stuck with enormous mortgages and negative equity.  


She thought it was unfair of me not to jump on her bandwagon and demand that the government – “who are bailing out the bankers” - force these same bankers “to do something” to alleviate the financial and emotional stress her son was under in trying to meet the repayments on his “bachelor apartment”.  


Interest rates were still a couple percentage points higher then than they are now, so this mammy’s boy was probably paying at least 2%-3% more interest than he is now. But it was the fall in the market price of his house that she was also concerned about:  “It was the banks lending too much money that caused prices to rise, but now that they’ve crashed he’s stuck with a mortgage that’s worth more than the apartment,” she lamented.  His bank “forced” this money on him, she insisted, and so should be forced to share his “loss” of equity. 


Sadly, it doesn’t work that way. But since January the sharp fall in interest rates has reduced the unfortunate man-child’s mortgage by at least a few hundred euro a month, but house prices have fallen a further 6%-8% since January, so he still deeply in negative equity. 


Which is why I thought that a survey last week showing how 80% of mortgage applications are being rejected by the banks was such encouraging news, at least for the newest crop of first time buyers.  


The mortgage lenders are now doing what they should always have been doing: they are not just checking out the applicant’s job security, their credit record and future earning prospects, but also whether the property itself is a good risk. And with record inventories of brand new units unsold, and prices still falling at a pretty shocking rate every month, is it any wonder that the banks are demanding larger deposits and stricter repayment terms? 


The biggest reason that loans are being turned down – with a 45% rejection rate - is the person’s inability to meet long term repayments, says Select Finance Group, the broker consultancy that conducted the research.  It doesn’t say whether this is due to the lender’s concern about unemployment or the inevitability of rising interest rates.  I suspect it’s probably both.   


Select Finance’s conclusion is perfectly clear:  if you want a mortgage loan in this market you better prepare a personal mortgage plan with ‘wow’ factor – as in, “Wow, this person looks like their job is secure…and they’ve got a 20% deposit too!”

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Money Times - 03/06/09

Posted by Jill Kerby on June 03 2009 @ 23:10



Can Ireland ever become energy independent?

It’s a question that one entrepreneur and a team of construction and environmental engineers, hydro-geologists, construction experts, accountants, lawyers and financiers believe they have answered.  And if they are right in believeing it is possible The Spirit of Ireland project (see www.spiritofireland.com) not only end our 90% dependence on imported fossil fuel, but also eventually pay financial dividends to individuals and communities that invest in the project. 

Led by entrepreneur and electrical/electronics engineer Graham O’Donnell and inspired by Trinity College Professor of Applied Physics Igor Shvets, the Spirit of Ireland wind and hydroelectric project is aiming to replace €3 billion worth of imported fossil fuel into this country each year within five years.  It could also eventually result in the export of surplus energy to the UK and the continent and act as a magnet for inward foreign investors interested in s  

By September, the Spirit of Ireland preliminary research will be complete says Mr O’Donnell, and a report will be released outlining the next phase, at the heart of which will be a consultative process with the people of Ireland on a local and county basis. “Without the willingness of the Irish people to harvest the wind, this project will not happen,” O’Donnell admits. 

For anyone not familiar with this scheme, it involves identifying at least three Atlantic glacial valleys between west Cork and Donegal that would be suitable for the creation of hydro storage reservoirs in which wind turbines will drive Atlantic seawater up into the naturally formed valley reservoirs. The water in the reservoir is then allowed to flow back down to the sea, driving turbines, from which is created a constant supply of cheap power that will flow through the national electricity grid. 

About 2500 wind turbines in wind farms around the country will be required to maintain the surge of electricity that is generated by the three hydro storage reservoirs on the west coast, and communities and their local county council representatives will be canvassed for their views and ultimately, their consent in the building of the wind farms.  This ambitious project has set itself a five year target date to have the first turbines up and running and generating electricity. 

Spirit of Ireland estimate that the project will cost €10 billion euro, of which they hope to raise €3billion from Irish pension funds, €1 billion from the National Pension Reserve Fund, €1 billion directly from the Irish public and an additional €5 billion from global sovereign wealth funds.  This money will be raised in the form of a ten year initial private bond issue (as opposed to a public flotation on the stock market) with an annual ‘coupon’ or interest payment.  They say they are determined that ownership of this important energy resource remains in Irish hands for the benefit of the Irish people.   They currently estimate that it will create in the region of 82,000 direct and indirect jobs (both from construction of the sites, the extension of the electricity grid, which will require extra funding, as well as manufacture of materiel and parts and provision of the myriad services that are involved in such huge national project).

A large proportion of this money will be spent directly in Ireland, they say, using Irish manufacturers and suppliers:  “This technology already exists and is up and running in places like Finland and Japan,” says O’Donnell, “ but there are Irish firms that are already making some of the components and parts that are needed and we are bringing them on board.”

The funding details remain sketchy – though they estimate it will cost €800 million to build each of the three 1000 gigawatt turbine stations – and raising the €10 billion seed capital will be a challenge in today’s environment. O’Donnell says he has already received positive support from the government and all the political parties (the government will play a back seat in the scheme he claims) but ultimately the Spirit of Ireland will happen only if it gets the cooperation, not just of the wider financial community, but the community of citizens who will have to accept the establishment of the wind farms in their town lands and counties. 

O’Donnell insists that within a year a national energy atlas will be in place that will determine where the wind farms will be needed – consultation will begin from September -  but that they expect there will be a “huge financial payback” for local and county authorities who do participate . (The Irish co-op movement, he says, has figured largely in how the project will be managed and operated.) 

Ordinary investors, as bond holder receiving a set annual return, will not have the same profit opportunities that might arise if they were to buy oil or energy company shares directly, or a managed fund of alternative energy stocks.

But bonds can be a profitable part of any well balanced investment portfolio and if this project works out as its developers are confident it will, the Spirit of Ireland bond should appeal to anyone keen not only to see a payback for their community (and country) but for themselves and their families as well. 

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