The Irish Independent reports that a trio of Dublin property developers shared a €1m pensions boost in 2006, as their company rode the rising tide of a booming property market.
The payments, to Paddy Shovlin and brothers Tony and Pat Fitzpatrick, are detailed in accounts just filed for one of their companies, Taleside.
They are best known as the driving force of Sandyford's Beacon project, which includes a private hospital, office complex and high-spec apartments.
Last June, they also secured planning permission for a €100m mixed development in Dublin's Malahide, with plans for almost 200 homes.
The recent accounts for Taleside, just one of a handful of companies which link the trio, show a 50pc boost in turnover for the year ended April 2006.
The year's €63.8m turnover was boosted by €35.5m invoiced to connected company Beacon Hospital Construction "in accordance with ongoing development work" and on "normal commercial terms".
The sales boost, however, did not translate into higher profits as a €26m surge in the cost of sales depressed gross profits by 25pc to €14.5m.
A doubling of administration costs (to €1.6m) provided further pain, while other operating income shrank from €305,000 in 2005 to close to €59,000 in 2006.
Those factors, plus a higher tax bill, meant total profits for the year came in at €11.37m, down from €17.4m in 2005.
Despite the fall-off in profitability, the directors ploughed €1m into their pension funds, up from nil the previous year.
They also spent a total of €1.215m on four residential properties developed by Taleside, while the company closed the year owing its directors €2.5m, up from the €119,000 it owed them in May 2005.
Meanwhile, the company's "related party" disclosures list no less than 14 separate transactions, including the €35.5m Beacon invoice.
The Irish Independent also reports that independent electricity producer Energia saw profits generated in the Republic rise more than 45pc to €12.2m in its last financial year.
The company, which is part of the Northern Ireland-based Viridian group, also boosted its revenue to €554.8m in the 12 months to the end of March last year from €469.7m in 2006 as it added more customers and energy production costs rose generally.
It now supplies electricity to more than 27,700 businesses in the Republic, compared to 18,600 at the end of its 2006 financial year. Customers include Musgrave, Gunne Residential, Pizza Hut and O2.
Energia operates a 744 MW capacity power plant in north Dublin. Energia can provide about 20pc of the country's total electricity requirement.
Gary Ryan, Energia's sales and marketing director, said that the company had continued to win customer contracts during the year, which accounted for the increase in company profits.
However, he said that Energia continues to operate on tight margins, which would have been in the region of 1.8pc during the 2007 financial year and which have now risen slightly to approximately 2.1pc.
Energia also provides alternative energy to customers by buying electricity from wind power producers.
It has entered into a 15-year agreement to buy the output from a total of 165MW of electricity from windfarms under construction by independent firms around the country. Those wind farms are expected to be completed within the next two years.
Mr Ryan said that based on energy consumption growth in the Republic of about 4pc per annum, the country requires a new power station to be built every two years.
He said that Energia would continue to monitor opportunities as they arise in the marketplace.
Billionaire businessman Sean Quinn is currently planning to construct two power stations, one in Louth and the other in Galway, in order to capitalise on demand.
Last November the Republic's and Northern Ireland's power markets were merged as part of the European Union's attempts to create a single competitive electricity market.
Viridian is owned by Bahrain-based Arcapita, which acquired the Northern Ireland firm in 2006 for £1.62bn (€2.14bn).
The Irish Times reports that Wombat Financial Software, which employs 100 staff in Belfast and has strong links with the North, has been acquired by the New York Stock Exchange for $200 million (€134.7 million).
Founded in the US in 1997, Wombat established its research and development operation in Belfast in 2004, and has grown rapidly since.
A significant portion of the ownership of the company is also understood to be held in Northern Ireland. A number of senior Wombat executives, including chief executive Danny Moore, who is a graduate of Queen's University, Belfast, are from Northern Ireland.
Wombat employs 142 people worldwide, and develops software to speed up the delivery of electronic market data to hedge funds and investment banks.
It has direct links to stock markets and has designed software so that the data can reach the financial institutions in milliseconds.
The company has received backing from Invest Northern Ireland, including a $700,000 grant to expand the Belfast operations in 2005. Last year it acquired Harco Technology, another financial services software firm with Belfast offices, which expanded its operations further.
Under the terms of the deal, NYSE Euronext, created from the merger of Europe's Euronext and the New York Stock Exchange last year, will acquire 100 per cent of Wombat for $200 million in cash and will also create a "retention pool" for employees.
Mr Moore was keen to highlight Wombat's links with Northern Ireland, and said 10 of the first 12 full-time employees in Wombat had links with Northern Ireland.
"Our plan is to build from the successes to date, and continue to provide a vehicle for top local talent to make their mark on the global financial markets."
The acquisition is a fillip for the software industry in Northern Ireland, which has developed a speciality in the areas of financial services and mobile.
Pioneering companies such as First Derivatives and Kainos have been joined in recent years by companies such as Wombat and Liberty IT, a subsidiary of US insurance giant Liberty Mutual. Last year Mr Moore said Wombat had chosen to locate its software engineering in Belfast as it was an ideal location between London and the US.
He said the rapid expansion of the software industry locally made it increasingly hard to find good local talent.
At that time he also pointed out that staff were being incentivised by stock options.
"Our peer companies are all being acquired for very healthy multiples," he told The Irish Times.
Wombat has over 100 customers worldwide, including some of the world's largest financial institutions such as Merrill Lynch, Bear Stearns and Deutsche Bank. Merrill Lynch owned a minority equity stake in Wombat prior to the sale.
The transaction is expected to close early in the second quarter, and NYSE Euronext said it would add to its 2009 earnings.
The Irish Times also reports that Denis O'Brien's Caribbean-based mobile phone operation Digicel is set to double its profit before tax and finance costs to $440 million (€296 million) for the 12 months to the end of March.
Digicel's chief financial officer Lawrence Hickey told The Irish Times yesterday that the mobile phone group recorded earnings before interest, tax and depreciation of $220 million in the year to the end of March 2007. "We are on track to double that in [fiscal] 2008," Mr Hickey said. "It's been a good year for us."
He said the improved profitability was primarily the result of its operations in Haiti and Trinidad becoming "EBITDA positive" for the first time during the current financial year, which closes on March 31st.
Digicel launched in Haiti in May 2006 and had 1.8 million subscribers within 12 months, making it the group's biggest market in the Caribbean. Mobile penetration in the impoverished country grew from 5 per cent at the time of Digicel's launch to 35 per cent in 2007.
"All of our other established markets have [also] continued to improve their financial performance," Mr Hickey added.
The Irish-born Digicel executive said the mobile group was on target to record revenues of $1.4-$1.5 billion for the year to the end of March.
Digicel yesterday said it had more than six million subscribers in the Caribbean at the end of December, compared with 4.1 million a year earlier.
The company has invested $1.9 million across the region, with capital expenditure amounting to about $360 million in the current year.
Digicel was last month awarded a mobile licence to operate a GSM network in the British Virgin Islands, making it the group's 24th market in the region.
Its figures for the Caribbean include El Salvador but not its other assets in central America.
These are managed by a separate entity, Digicel Central America Holdings Ltd. It was recently granted a licence to operate a GSM network in Honduras and is pursuing licences in Panama and Nicaragua.
The Irish Examiner reports that Fitch Ratings yesterday reaffirmed Ireland’s long- and short-term foreign currency AAA and F1+ status.
Fitch, one of the world’s leading credit ratings agencies, said the strong financial management of the Irish economy has left it well placed to absorb lower economic growth this year and next.
While Ireland faces slower growth than at any time since the early 1990s Fitch is confident the economy will pull though these more challenging times where house building is falling sharply and consumer confidence is weakening.
“We do not expect turbulence in the housing market and low growth for a year or two to undermine Ireland’s AAA rating. Ireland remains one of the richest countries in Europe and has amply demonstrated its economic flexibility while the government has shown its consistent determination to maintain sound public finances,” said Chris Pryce, Director of Fitch’s Sovereigns Group.
Government debt, at 25% of GDP, is still almost the lowest in Europe, he said.
Fitch’s strong endorsement of the economy comes after some pessimistic forecasts suggesting growth will fall from 5% to 2% this year.
National Irish Bank however has been more optimistic forecasting growth of 3.5% claiming the pessimism has been over done and that the economy is well grounded with strong growth in services exports underpinning growth.
However, Fitch is aware of the threats that have caused some growth forecast to be revised downwards in recent months.
Growth in the last couple of years has had “elements of excess” that could result in a “potentially sharp correction”, said Mr Pryce.
“Growth of residential investment has been exceptional by international standards,” he said.
Housing completions in particular up to almost 90,000 in 2006 from about 25,000 a year in the 1970s and 1980s have skewed the Irish economic story, he said.
Economic flexibility combined with positive population growth that gives Ireland the youngest population in the EU means the Irish economy will continue to deliver in the coming years even if the next year or two become difficult, Fitch said.
The Financial Times reports that confidence in the UK property market has hit its lowest level since the housing crash of the early 1990s, according to an authoritative survey of estate agents that shows even the rampant London market is in difficulty.
The Royal Institution of Chartered Surveyors (Rics) reveals on Wednesday that 49.1 per cent more surveyors reported a fall in house prices in December than the proportion reporting a rise, the gloomiest figure since November 1992.
New instructions to sell property rose in December for the first time in six months, according to the survey, suggesting some homeowners are keen to sell before the market worsens.
The sharpest increases in new instructions were in the North and London. Rics said this was “not ... a complete surprise, given the exposure of its economy to financial services”.
The survey has proved a reliable early guide to movements in the housing market in recent years. Economists will pay close attention to evidence that market conditions are now at their loosest since August 2005, after a third monthly jump in the stock of unsold property, now up 18.3 per cent from a year earlier.
Surveyors expect price falls in all UK regions during the next three months.
Simon Rubinsohn, chief economist at Rics, took some consolation from a slowing pace of decline in new buyer enquiries and said the market had been even looser in 2005 without prices falling on an annual basis.
However, most surveys have reported price falls in recent months and economists have been surprised at the speed of the slump in sentiment.
It also emerged on Tuesday that the UK’s commercial property market recorded its worst one-month performance on record, surpassing even the steep declines of the early 1990s.
Data from Investment Property Databank showed total returns fell by 3.7 per cent in December, month on month, marginally more than November’s steep decline and more than in any month since the IPD index was formed in 1986.
Ian Cullen, co-founding director at IPD, said: “The staggering feature of this year’s headline result is the pace of the market reversal it reflects.” As of May, commercial property was showing 12-month total returns “in the mid teens” while total returns for the 12 months through December are minus 5.47 per cent.
The FT also reports that growing skills shortages in Asia mean multinational companies operating in the region may, within five years, be forced to pay western-level wages to skilled scientists, IT specialists and engineers, according to the head of one of the world's largest recruiting companies.
A shift to higher value-added manufacturing in Asia is contributing to skills shortages and resulting in "a massive productivity hit'' for many companies investing in the region, Jeff Joerres, chief executive of Manpower, the US staffing company, told the Financial Times.
Many western companies, he said, were "clearly underestimating'' the challenge of finding adequate staff for advanced jobs, both in China and in younger manufacturing destinations such as Vietnam and Cambodia. "Companies will shift from facing a technology deficit to a talent deficit. They are trading off one productivity loss for another," he said.
Legal changes in the Asian labour market also make attracting and retaining staff more difficult, he warned. This month China introduced a labour contract that raises the compensation companies have to provide for dismissing workers. Strikes for higher pay are also becoming more common.
Mr Joerres said: "We are looking at markets where [workers] have choices . . . Those companies that are blind to these changes and continue to forge ahead with antiquated western practices in Asia will really suffer.''
Mr Joerres predicted employers would soon have to pay Asian staff with skills the equivalent of their western counterparts.
The New York Times reports that Citigroup, the nation’s largest bank, reported a staggering fourth-quarter loss of $9.83 billion on Tuesday and issued a sobering forecast that the housing market and the broader economy still had not bottomed out.
To shore up their financial condition, Citigroup and Merrill Lynch, which has also been rocked by the subprime mortgage debacle, both were forced again to go hat in hand for cash infusions from investors in the United States, Asia and the Middle East, for a combined total of nearly $19.1 billion.
Citigroup’s gloomy news will most likely amplify the anxiety of consumers and workers already concerned that the mortgage crisis could plunge the economy into a recession. Adding to worries, the government reported that retail sales in December declined for the first time since 2002.
Growing pessimism led to another sharp sell-off in stocks, which fell about 2 percent for the day and are now down about 6 percent since the beginning of 2008, the third worst start for a year since 1926.
More bad news is coming, with Merrill Lynch expected to report sizable losses this week and major financial institutions like Bank of America retreating from their investment banking business. These moves add to concerns that financial institutions will be forced to pull back on lending at a time the economy most needs access to credit to help cushion against a downturn.
“It looks like the financial sector as a whole will see a big decline in profits, and the only time this happened in the last 100 years — financial firms’ going from making good profits to negative profits — was the Depression in the 1930s,” said Richard Sylla, a professor of financial history at New York University. “I don’t think it will be as bad this time; the Federal Reserve is fighting the problem as hard as it can.”
Just last week, the Federal Reserve chairman, Ben S. Bernanke, said the economy was worsening, bringing widespread hope that the Fed would move swiftly to lower interest rates. Wall Street’s worsening results combined with Mr. Bernanke’s comments will certainly add fuel to the economic stimulus package being debated by the White House, Congress and the central bank.
Citigroup’s record loss was caused by write-downs from soured mortgage-related securities and reserves for current and future bad loans totaling $23.2 billion. Responding to a string of dismal quarters, the bank said it would also lay off another 4,000 workers, on top of announced reductions of 17,000 employees, and cut its dividend to conserve $4.4 billion cash annually.
Citigroup, which earlier raised $7.5 billion from the Abu Dhabi Investment Authority to improve its capital, said it had raised an additional $12.5 billion from a number of investors, including the Government of Singapore Investment Corporation and Citigroup’s former chairman and chief executive, Sanford I. Weill. Citigroup will also offer public investors about $2 billion of newly issued debt securities, a portion of which will be convertible into stock.
At the same time, Merrill Lynch announced it had issued $6.6 billion in preferred stock to the Kuwait Investment Authority, the Korean Investment Corporation, Mizhuo Financial Group, a Japanese bank and other investors, including the New Jersey pension fund and a Saudi investment fund. That is in addition to the $4.4 billion it raised in December from Temasek Holdings of Singapore.
While the banks were able to raise record amounts of cash, they had to circle the globe to get it, and they had to raise it in two separate rounds. There is “a tremendous amount of liquidity in the world,” Mr. Weill said in an interview. “That is witnessed in the amounts of money Citigroup was able to raise in a very short period of time.”
Citigroup, which has a large consumer lending business, sounded some warning bells on Tuesday that the American economy was turning. The bank reported sharp upticks in losses stemming from souring auto, home and credit card loans, with problems coming from the same areas being hit by real estate.
Two-thirds of the credit card losses, for example, occurred in just five states — California, Florida, Illinois, Arizona and Michigan — that have been among those hit hardest by the housing downturn. Gary L. Crittenden, the company’s chief financial officer, acknowledged the bank’s losses appeared to be accelerating month after month.
The banks’ need for additional financing suggests that housing-related problem will persist. Citigroup executives expect house prices around the country will fall, on average, another 6.5 percent to 7 percent.
The news sent the company’s stock tumbling 7.3 percent, to $26.94. It has now fallen about 50 percent in the past year.
The write-downs did not assuage fears in the market that more bad news was coming. “I think the financials will continue to need to raise more money,” said Barry L. Ritholtz, chief executive of Fusion IQ, a quantitative research and asset management firm.
The fear is that financial institutions will continue to take large write-downs as bad loans mount, while consumers, facing higher energy costs, falling house prices and a bleak outlook for job growth, will rein in spending even more than they already have.
Citigroup set aside $4.1 billion for future bad loans, and Mr. Crittenden said the bank is tightening lending standards as credit card defaults increase, a move that could make it harder for consumers to continue the spending that has helped fuel growth in recent years.
Bank of America said on Tuesday that it would lay off 650 people on top of the previously announced 500 and retrench in a number of significant businesses, including certain trading operations and prime brokerage, or servicing hedge funds. Kenneth D. Lewis, its chairman and chief executive, sounded a somber note about the markets.
“I am not sure there are any quick fixes,” he said in a meeting with reporters. “Only time and a little more pain will be the answer.”
Adding concern to the outlook is the significant role that financial service companies have come to play on the back of robust growth. From 1995 through 2006, financial service companies represented 17.8 percent of the Standard & Poor’s 500 index and contributed a whopping 25.1 percent of total earnings. No longer.
Including Citibank’s large fourth-quarter write-down, financial service companies constituted roughly 7 percent of total fourth-quarter earnings, according to Howard Silverblatt, senior index analyst at Standard & Poor’s.
For a sense of how steep the fall has been, Mr. Silverblatt pointed out that for the fourth quarter, earnings for all companies in the index fell 11.2 percent. But taking out financials, the index was up almost 11 percent.
Mr. Ritholtz from Fusion IQ is watching carefully to determine if weakness in consumer spending is psychological and temporary or more severe, stemming from a lack of available capital.
“Lending is a function of trust — trust that people will pay back what they borrow,” he said. “The problem with the banks is that they don’t trust their clients or each other.”
The NYT also reports that the stock market fell sharply to its lowest level in nearly a year Tuesday after Citigroup announced a large quarterly loss and an economic report offered more evidence that consumers were cutting back.
The developments left many investors questioning assumptions about how bad things would get as a result of rising mortgage defaults and falling home prices. While the pain so far has been concentrated in the financial services, home building and related sectors, investors are growing fearful that it is spreading.
The Standard & Poor’s 500-stock index closed down 2.5 percent, or 35.30 points, at 1,380.95. The Dow Jones industrial average was off 277.04 points, or 2.2 percent, at 12,501.11. The Nasdaq composite was down 60.71, close to 2.5 percent, at 2,417.59.
The S.& P. 500 is down 5.95 percent for the year, its third-worst performance in the first 10 trading sessions of any year, according to Howard Silverblatt, chief index analyst at S.& P. The index fell further in 1939 (6.66 percent) and 1978 (5.96 percent).
“Right now, you have a market that is more of an emotional market than a rational market,” said Wayne Lin, an investment strategy analyst at Legg Mason’s global asset allocation division. “General human nature has it if there is an unknown out there, you fear the unknown.”
The day started with an announcement from Citigroup, the world’s largest bank, that it was taking a $22.2 billion charge largely related to mortgage holdings, cutting its dividend by 41 percent and raising $12.5 billion in capital from foreign and domestic sources. Shares of Citigroup fell 7.3 percent, to $26.94.
Merrill Lynch, which has also been rattled by its mortgage business, said it was raising $6.6 billion from two sovereign wealth funds and a Japanese bank. Merrill stock was down 5.3 percent, to $53.01.
Later in the morning, investors were taken aback by a 0.4 percent drop in retail sales in December, as sales fell for building materials, gasoline, clothing, electronics and sporting goods. The Commerce Department, which reports the data, also revised downward its reports for sales in October and November.
“The momentum is down,” said James O’Sullivan, an economist with UBS. “Based on the limited information we have, January looks even weaker.”
The drop in sales, coupled with a statement by the oil minister of Saudi Arabia that the kingdom would consider producing more oil, drove down energy prices. Crude oil prices fell 2.4 percent, or $2.30, to $91.90 a barrel.
Another economic report showed that wholesale prices fell 0.1 percent in December, suggesting that softer demand was helping to tamp down prices of some raw materials. Excluding volatile food and energy prices, the Producer Price Index was up 0.2 percent, according to the Labor Department.
The sell-off in the stock market was broad-based; prices fell for most of the nearly 2,000 stocks in the New York Stock Exchange composite index. The financial sector suffered the biggest losses, down 3.7 percent, followed by energy, down 3.5 percent.
Since last summer, investors and analysts have had a hard time keeping up with the onslaught of bad news. One indication of that has been Wall Street’s evolving expectations for corporate earnings. Analysts now forecast earnings will fall by 14 percent in the fourth quarter, down from an estimated 12.5 percent drop on Monday, according to Michael Thompson, research director for Thomson Financial.
Markets overseas fell as well on Tuesday. Stocks in emerging markets, which had in recent weeks bucked the bearish sentiment in the American stock market, declined more than 4 percent, suggesting that investors are starting to worry about what slackening retail sales in the United States might mean for markets that are heavily reliant on exports.
Emerging markets “are playing a little bit of catch-up because they have been insulated over the last week or two,” said Paul K. Lieberman, director of United States equities and derivatives strategy at BNP Paribas, the French banking group.
Economists caution that retail sales numbers are volatile from month to month, so investors should be careful when analyzing the drop in December. Because the Thanksgiving holiday fell earlier than usual, Mr. O’Sullivan said, some consumers may have started and finished holiday shopping sooner, resulting in soft sales last month. Retail sales were up 1 percent in November.
Optimists further note that, except for the financial sector, corporate earnings are still healthy. Wall Street expects earnings to be up 11.3 percent in the fourth quarter for the S.& P. 500 if financial firms are taken out, Mr. Thompson said.
“The expectations at this point have gotten too collapsed,” said James W. Paulsen, chief investment strategist at Wells Capital Management.
Still, economists conclude that the broader trends are not promising, at least for the next few months. Mr. O’Sullivan noted that a Conference Board survey released Tuesday showed that chief executives were less confident at the end of last year than any time since 2000, when the economy was on the eve of a recession.
The price of the benchmark 10-year Treasury note rose 26/32, to 104 22/32. Its yield, which moves in the opposite direction, fell to 3.68 percent, from 3.77 percent.