PHOTOGRAPH BY ADAM FERGUSON
On a Sunday morning in October, Simon Kelly sat in the breakfast room of Dublin's Morrison Hotel, looking eager to chat. Simon, 38, and his father, Paddy Kelly, 66, were once among Ireland's most audacious real estate developers. During the boom years, they borrowed around €700 million from the now-infamous Anglo Irish Bank to buy golf resorts and build hotels. Today, the Kellys are €800 million in debt, Anglo Irish has been nationalized, and the Kellys' former assets litter the streets of Dublin. Discussing the Morrison, Simon says casually, "Oh, I own part of the hotel. Well, not anymore. Now, NAMA owns it."
The National Asset Management Agency, or Ireland's "bad bank," was created by the government in 2009 to help stanch a crisis within the Irish banking system that has pushed the country to the edge of insolvency. Ireland's finance minister appointed NAMA's board—a former bank manager, two accountants, and former government officials—which now controls hundreds of the developers' hotels, offices, and resorts. It remains to be seen whether NAMA will take over the rest of the developers' personal assets. According to spokesman Ray Gordon, "Where NAMA is unable to work with debtors [either by virtue of their refusal to cooperate or the hopelessness of their financial position], then NAMA will pursue all avenues to recover what they can for the taxpayer."
NAMA, excluded from Freedom of Information laws, is famous for its opacity. Its actions, meanwhile, have not stopped the momentum of the crisis. The Irish spent this past week bracing for the arrival of European Union and IMF officials to negotiate a possible emergency bailout of the Irish economy. Ireland has not yet asked for assistance, but in an interconnected euro zone, its neighbors may not allow it the luxury of resisting. "Ireland is our closest neighbor, and it's in Britain's national interest that the Irish economy is successful and we have a stable banking system," says George Osborne, the U.K. Chancellor of the Exchequer. "So Britain stands ready to support Ireland in the steps that it needs to take to bring about that stability."
Irish Finance Minister Brian Lenihan has pledged to work with the EU and IMF while asserting his country's stability. "Our budgetary policy has full confidence among European partners," Lenihan told reporters on Nov. 17. "But in relation to banking, steps taken to date require further support. What may be required may not be in fact an actual transfer of money now but a demonstration of how much money can be made available if further difficulties materialize."
The Irish government underestimated the severity of the crisis for the past two years. As of September, it had injected €45 billion into its banks. NAMA says it will absorb an estimated €73 billion in loans from the banks at a discount of about half of their value. It sounds like relatively small stakes compared with the U.S.'s $700 billion bailout, except that Ireland's population hovers at 4.4 million, according to the World Bank; the bailout so far equals 30 percent of the country's €158 billion gross domestic product. EU officials say Ireland's emergency aid package could be worth $136 billion (€100 billion), roughly the same amount given to Greece last May.
While the U.S. economy was driven off a cliff by the reckless securitizing of subprime mortgages and Greece collapsed under the burden of misrepresented government spending, the Irish traveled a simpler road to ruin: by taking out enormous, unregulated loans. Ireland's economy has contracted for three consecutive years, and the Irish Central Bank governor has declared his country's fiscal deterioration "worse than almost any other country." In mid-November the yield on 10-year Irish bonds almost reached 9 percent, compared with 11 percent for Greece.
There were hardly any critics of the Celtic Tiger from 1995 to 2007, when GDP growth averaged 5 percent to 10 percent and pushed Ireland into the ranks of the world's leading economies. Now seemingly everyone in Ireland recalls a symbolic moment when they realized things had gone too far. For David Byrne, a repossessed-car auctioneer, it was the sight of his fellow countrymen swilling expensive wine. For Simon Ensor, a real estate agent, it was the day the owners of a 1,000-square-foot Dublin carriage house insisted on selling it for €2.5 million, as opposed to the agent's suggested €2 million—and then the house went for €3 million at auction. For many, it was the day the Savoy Hotel in London was bought by Irish property developer Derek Quinlan in a celebrated expression of reverse imperialism.
Post a comment about this story in Reader Discussion…
Track and share business topics across the Web.
RSS Feed: Most Read Stories
RSS Feed: Most E-mailed Stories
RSS Feed: Most Discussed Stories
Buy a link now!
About Advertising EDGE Programs Reprints Terms of Use Disclaimer Privacy Notice Ethics Code Contact Us Site Map
©2010 Bloomberg L.P. All Rights Reserved.
Read Full Article »