The golden triangle – FF, the builders and the banks...
Despite last week's bail-out, some of the country's most ambitious redevelopment plans are still in jeopardy...
It was Fianna Fáil's best friend, Bob the Builder, who propelled the banks into the liquidity crisis and caused the historic post-midnight sitting of the Dáil. After a decade of swaggering around the corridors of power and inside the Fianna Fáil tent, many of those feted builders are now expected to put their most extravagant plans on ice and sit out the recession, cushioned by the citizens' guarantee to the financial institutions.
"We're not so much talking about a golden circle as the golden triangle – Fianna Fáil, the builders and the banks," says Labour's Joan Burton.
Irish banks are owed €110bn by the property and construction sector. It accounts for €60 of every €100 that residents have on deposit. As 28% of all borrowings, it is significantly greater than the 25% construction proportion of bank lending in Japan when the banks crashed there in 1989.
Question marks hang over two of the most ambitious redevelopment plans for Dublin. As An Bord Pleanála's hearing of Seán Dunne's planning appeal for his Ballsbridge proposal continued last week, speculation was rife that, even if permission is granted, it will not go ahead until the economy improves.
The old Doyle hotels site cost him €379m three years ago and, should he be permitted to build his entire proposal, construction would cost almost half a billion euro more. In the event that construction financing was available, the problem would be selling 98,000 square metres of residential units in a slump. Ulster Bank, the non-Irish-owned bank specifically mentioned by the minister for finance when he discussed the extension of the bank guarantee, is believed to be the sole lender for the development.
The roadblock for the developers is that, because of the massive indebtedness, overseas banks are less forthcoming in lending to their Irish counterparts. This type of lending is usually extended for short periods of about three months and, since the start of this year, some of the overseas lenders had refused to renew the arrangements. In other words, the builders had become such financial parasites, they devoured their own lifeline.
A risk assessment conducted by an international investment bank of AIB and Bank of Ireland found half of all loans for development were given to just 40 borrowers. Some 60% of AIB's total loans were taken up by the property sector and 70% of Bank of Ireland's.
A second trophy development hanging in the balance is the 24.5-acre Irish Glass Bottle site in Ringsend. It too smashed Celtic Tiger price records when it was bought in November 2006 by a consortium involving builder Bernard McNamara, financier Derek Quinlan and private clients of Davy stockbrokers. Anglo Irish Bank, the country's third biggest bank, has lent €288m for the project which envisages 2,166 apartments. The auguries are not good. Another developer, Liam Carroll, applied for permission to convert his brand new apartment development at the old Gasworks into a hotel, just down the road from the IGB site, when he failed to offload the apartments. Davy's clients put up €52.25m of the purchase price with McNamara's company lending it €62.5m plus a personal loan of €101,000. The starting date for construction – which will cost as much again as the purchase price – is next April. Watch this space.
Of the six institutions rescued by the government's decision last Monday night, AIB has the biggest loan book for the construction and property sector, at €30bn. Bank of Ireland has about €14bn. Irish Nationwide has nearly €10bn. Probably the most vulnerable of all is Anglo Irish Bank, the third biggest Irish-owned bank which described itself as "a relationship bank" but is more popularly known as "the builders' bank" and "the bank for big fish."
It is exclusively engaged in commercial lending and, though it has just 30,000 customers, its loans, primarily to the property and construction sector, come to €70bn. It is no surprise Anglo Irish was the one said to be closest to the precipice of ruination last Monday when its share price plummeted by 47%. The country's richest person, Seán Quinn, owns 15% of the bank's shares, along with his family.
Among Anglo Irish's big-name borrowers are Liam Carroll for his vast Cherrywood site in south Dublin, Bernard McNamara for his purchase of the gigantic Elm Park in Booterstown, Seamus Ross's Menolly Properties and Treasury Holdings for the refinancing of the Ritz Carlton Hotel in Enniskerry. It is also the foremost lender to Pierse Construction.
Report by Justine McCarthy - Sunday Tribune
...Forget the golden triangle – FF, the builders and the banks - more like the Devil's Triangle
(Devil's Triangle another name for Bermuda Triangle.)