Ireland – Where did the money go?

Posted by admin | March 15, 2011 1
Fianna Fail Government sacked, now what?

Well that is the €85bn question, the value of the “bailout” to the Irish economy from the IMF / ECB not to mention asset stripping Ireland’s “fund” for Public Sector pensions which is to be filleted as part of the IMF / ECB conditions. No doubt many in Ireland will find this question relevant as they stare into the abyss of default, repossession and plummeting living standards.

As I have already pointed out the € 85bn Bailout may well turn out to be nothing of the sort. It equates to roundly € 55,000 for every productive worker in Ireland. Add to this annual interest servicing costs of € 4,960 per annum and you get the scale of the problem, Ireland’s public and private debt is simply unsustainable. Most reconstructions, Bankruptcy and liquidations, involve substantial debt reduction, a write off of debt before you begin a fresh start. Ireland is in unrealistic denial about being able to service its Public and private debt making the hard stop of debt default inevitable sooner rather than later.

The Irish Banks are increasingly likely to need most of the €35bn bailout fund set aside to keep them afloat, latest estimates indicate. Experts hired by the Central Bank are in the final stages of examining the bank’s loans, with financial sources putting the final bill at between €25bn and €35bn. This would be the worst case scenario as envisaged in the IMF/EU bailout agreed last November. The new Government will have to pump even more money into the banks than the €10bn earmarked by the outgoing administration, Finance Minister Michael Noonan admitted yesterday.

News that the Government will have to put even more cash into the banks is a bitter blow to the Fine Gael-led administration, which had insisted it would put no more money into the banks until “senior bondholders” had been forced to take losses. The HUGE mistake Ireland made was to guarantee not just deposits but ALL the liabilities of Irish Banks. The Hedge Fund Bondholders have been in LMAO mode ever since. Having made their financial bed of nails there is no going back, Ireland will be forced to sleep on it for years to come.

Well I can’t tell you where all the money went but a lot of it went into commercial and trophy property in London bought at overheated asset values. Let me illustrate the case of a London mansion owned by an alleged fraudster which it is suggested will attract bids of more than €23m tomorrow. Located at 31 Brompton Square, Knightsbridge, the mansion was owned by Achilleas Kallakis, a Greek property tycoon who is awaiting trial for an alleged £61m (€70m) fraud. Barclays Wealth, which has a mortgage on the property, appointed insolvency experts Begbies Traynor as the receiver to the property and the receiver has set tomorrow as the closing date for bids.

Mr Kallakis and his business partner Alexander Williams are awaiting trial for an alleged £56m fraud against Allied Irish Banks and £5m fraud against Bank of Scotland. The two have each been charged with two counts of conspiracy to defraud, 13 counts of forgery, five counts of fraud by false representation, two counts of money laundering and a count of obtaining a money transfer by deception. AIB had to write off €63m as a result of losses on loans which it gave the duo between 2003 and 2007 to purchase properties in some of London’s most up-market areas.

The Blurb for the property which is advertised as “distressed property” says;

“A magnificent Grade II listed family house, with one of the largest private gardens in Knightsbridge, perfectly positioned in the crescent overlooking the communal gardens of Brompton Square. The property benefits from full planning permission to develop over 23,000 sq ft of accommodation with underground parking. This is a rare opportunity to create one of Central London’s largest and finest private residences.”

It then goes on;

“The property benefits from a number of historic planning and listed building consents, the most recent being granted in November 2010. The latest permission finalises the extent of the basement to approve the current building works and allow the creation of further bedrooms, entertainment space, a spa complex with swimming pool, staff accommodation, a car lift and garaging. The basement extension is part complete with the initial ground works, excavation and secant piling concluded.”

What the last bit means is that the property has been transformed from a decent family home with a larger than usual garden in a nice crescent but off a busy road in South Kensington into a subterranean building site. Not just that but the new purchaser will have to buy the props and finish off this building site which has remained dormant for two years; so much so that the property is on the English Heritage at risk register which says;

“House 1824-39, part of Brompton Square layout. A series of planning and listed building consents have been granted for internal alterations and rear extensions. Works to implement the consents came to a halt in December 2008. An urgent works notice to make the building weathertight was served and complied with in December 2009.”

How 31 Brompton Square could look with only another £10m spent

So the blank cheque to finish off almost quadrupling the size of the house to Listed Building standards along with the swimming pool, leisure centre, car lift, staff quarters etc; which take up the full underground garden space could easily come to £10m as restarting such a project after two years is more expensive than starting from scratch. So added to the £20m sale price this would make the house price £30m sterling. So what is it actually worth, this development left unfinished with borrowed money by people awaiting trial on fraud charges?

The last recorded house sale in Brompton Square, which is mainly flats, was No. 29 which sold in 2007 some 20 minutes before the credit crunch for £10m. This was of course actually habitable (unlike No. 31) and in walk in condition. You have to ask if I was an Oligarski or a Mid-Eastern Potentate (both troubled classes at the moment) would I want to pay potentially £30m for a shell and a building site in Central London. For £4 – 7m they could buy a similar space in less polluted surroundings on private estates at St. Georges Hill, Virginia Water or Gerrard’s Cross in walk in condition. For £12m they could buy a huge mansion on the Crown estate overlooking Regent’s Park. So I don’t think there is a market for this property at £20m and its value is £4 ½ to 6m, if that, around a quarter of what was borrowed after fees. You really have to ask what valuation criteria did Banks use to lend on property like this that they felt 31, Brompton Square would be worth 3 TIMES the highest price ever achieved on this road at the peak?

Today the 3 storey basement containing the swimming pool, leisure centre, staff quarters and 3 storey garage (with car lift) is a 40 foot deep chasm

Add this in London to the many busted investments bankrolled by Irish Banks such as prestige hotels like the Connaught, Berkley and Claridges as well as the estimated 230,000 unsold new homes in Ireland of which 110,000 are “holiday” homes. Add to this the zombie estates, the zombie hotels built for tax breaks and without customers and the zombie developments then there are so many walking dead in the Irish property world that nobody can reliably predict future asset values or ascertain the reality of security behind current borrowings. The Irish Banks incompetent obsession with lending on property has led to their bankruptcy and the effective nationalisation by the Irish State of Allied Irish Banks, Bank of Ireland, Anglo-Irish Bank, Irish Nationwide and I.L. and P.

It is not a new claim to incompetence by the now bankrupt Irish Banks, indeed Bob Geldof pointed out in his 1986 biography “Is that it” that he was treated with derision when he approached a bank looking for backing for a business proposition, not a property. He later went on to cause outrage by describing Ireland as a “Banana Republic without bananas” and when receiving the civic honour of Freedom of Dublin said that “Modern Dublin and its planning can only be explained in terms of widespread political corruption.” With hindsight as Ireland heads into an extended economic winter paying for hundreds of Brompton Squares even Bob the Gob must be astounded at his gift for understatement.

31, Brompton Square today

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