"S.O.S. Wall Street rapes Ireland." These words currently sit high above Belfast laid out on the side of a mountain, aptly reflecting what some people In Northern Ireland are now thinking. One wonders if Stormont and the politicians are sleeping. I’ve heard the phones are broken on the hill, so we know they are not physically talking to anyone, let alone those in the business community.
First Minister Peter Robinson described the sale of business loans from NAMA to Cerberus last year as ‘excellent news,’ whilst others wrote articles with the hope that Cerberus would be the knight in shining armour for Northern Ireland’s economic recovery. I think it’s early days but the jury is certainly out at the present time.
In Greek and Roman mythology, Cerberus denoted a three-headed dog or ‘hellhound’ with a serpent’s tail and a mane of snakes and lions’ claws, which guarded the entrance to the underworld to prevent those who entered from escaping.
Maybe we should see it for what it is, a company who has to and wants to make money, and there’s no shame in that. Yes, they’ve bought thousands of loans worth billions of pounds and it has given them control of hundreds of companies, properties including office blocks, hotels and development land, but let’s be honest, that’s what private equity companies do and have been doing for decades.
However, what is unbelievable is the lack of knowledge and understanding of what is taking place here. This is new territory for all of us as we have never before witnessed what is happening in terms of our banking sector selling hundreds and thousands of business loans that relate to the business community here. We are certainly in unprecedented times.
A very disappointing development in the last few months is the deafening silence of Ulster Bank, an institution which is 82%, who have sold billions of pounds worth of loans directly linked to the business community.
There are a number of concerns around this area, one being that it’s very clear that Cerberus and others don’t intend to hang around Belfast any longer than they have to. The business model of the private equity companies is quite simple – buy loans, fix them up and sell them on as quickly as possible, making a tidy return in the process for their investors.
Recently I’ve been told ‘off the record’ that Ulster Bank sold in excess of 1500 loans to Cerberus in the last twelve months. Just take stock for a moment – the SME community accounts for 95% of the businesses in Northern Ireland. It’s imperative for the already stretched local economy that as many of the companies involved in the loans trades continue to trade and are allowed to get on with their business. In reality though, this is unlikely. The situation will be for all companies, whose loans have been sold, that unless you have a new capital partner in place, you may lose your business. That’s how it works.
Cerberus' business model involves borrowers rapidly repaying the former NAMA or Ulster Bank loans by selling properties or finding new financial backers. A number of borrowers have been able to reach a deal to date but something worth noting is that across the country from Dublin to Cork and Galway to Belfast, the private equity companies now based in Ireland are now taking enforcement measures, to gain control of property portfolios, so they can sell them and get a return on their money.
When I was a little younger, there used to be a phrase, “Money from America” – a local businessman said to me recently that it’s very clearly now “Money to America.” He is correct. The private equity companies are investing billions of pounds now on these shores. They then fix up and sell on for profit so they can send back to hedge funds and investors in the USA – quite incredible. At the time of writing there are over one hundred and seventy private equity companies now based in Ireland. All buying loans from the very sick banking sector. The same banks that for years have persecuted their customers by shouting from the rooftops that they do not do debt forgiveness. Well, well, well, how ironic given the last eighteen months.
The interesting thing for me is that most of this information has largely gone unreported. Politicians, journalists and even large sways of the business community are either completely unaware of what is happening or turning a blind eye. Perhaps there could even be a little of – it’s not happening in my back yard – and it’s not affecting me.
The reality is, it is happening in our backyard and the scale of what has happened is incredible. I would like to understand, why all the secrecy – why do we not know the exact number of loans that the Ulster Bank has sold recently? Are we not entitled to some visibility and transparency around this matter?
We are living in austere times with little credit. Northern Ireland is not sustainable given the public sector provides for 70% of the work force. We need the private sector to grow and prosper. Many would argue that the last thing we needed was a local bank that allegedly supports the business community selling billions of pounds worth of loans to private equity companies. The results and out workings of this are potentially ruinous for many.
So what can you do?
We at GDP Partnership are currently working with borrowers on proposals across the country, which would enable local business owners to remain in control of their businesses. It's crucial that local people whose loans have been sold find a funding partner, one that will allow them to continue with their business and orchestrate an exit from private equity.
Failure to find an appropriate partner and get a proposal accepted could be fatal for their business as well as the SME sector. I would urge the politicians to engage and ask questions and show a bit of an interest in what is going on here. I would also encourage Ulster Bank to let us know how many businesses were involved in the trades. This would be a good start and allow us to understand the potential scale of the problem.
Ireland doesn't need to be raped by Wall Street and we shouldn’t have to worry about a three headed dog; we have enough challenges. However, like most things in life, education around the process and what the private equity companies actually want will go some way to resolving the many challenges ahead without the local economy suffering unduly.
By Conor Devine MRICS GDP Partnership