“We’Re Seeing A Whole Wave Of Zombie Smes Being Kept On A Form Of Life-Support Machines By Banks Refusing To Confront Their Debt Problems,”

[Sancho Panza]

Bloomberg 25/7/13

'For John Perry, the Irish government minister charged with revitalizing the country’s ailing small businesses, the real-estate crash just got personal.

A judge in Dublin this week ordered Perry, 56, and his wife, who together own a hardware store and funeral home in western Ireland, to settle debts totaling 2.47 million euros ($3.3 million) with Danske Bank A/S. (DANSKE)

In a country considered the frontrunner among bailed-out euro members to fix its finances and exit its emergency loan program, Perry’s troubles turn the spotlight on the fragility of the recovery. A third wave of losses facing its banks, which already lost 131 billion euros on loans mainly linked to property, is exposing Ireland’s lingering vulnerability. The European Commission said this month borrowing by small and medium-sized companies poses a threat to the financial system comparable with imploding residential mortgages.

“We’re seeing a whole wave of zombie SMEs being kept on a form of life-support machines by banks refusing to confront their debt problems,” said Neil Hughes, managing partner at Dublin-based Hughes Blake Chartered Accountants, which handles bankruptcy cases. “This means many companies can’t make any plans, impeding the country’s economic recovery.”

Perry, appointed minister for small businesses by Prime Minister Enda Kenny after the 2011 election swept out the previous government, is emblematic of Irish woes.

‘Grace of God’

While Perry has not spoken publicly on the matter and a spokeswoman declined to comment in an e-mail, colleagues rallied around him.

“I suspect he reflects hundreds, if not thousands, of similar cases of small business people up and down the country for whom these are the consequences of the crash,” Communications Minister Pat Rabbitte said in an RTE Radio interview on July 23. “There but for the grace of God go anybody in the climate we’re in.”

Danske gave the minister and his wife the loan in October 2011 to restructure earlier borrowings, according to legal filings by the bank. Perry secured the loans on the family hardware store, the Stone Park restaurant and retail premises in the village of Ballymote, County Sligo, as well as 50 acres of surrounding land.

While the loan was to be repaid in a year, that hasn’t happened, prompting the bank to pursue Perry through the courts. The Copenhagen-based bank is closing most of its offices in Ireland, eight years after paying 967 million pounds ($1.49 billion) to buy National Australia Bank Ltd.’s units in Ireland and Northern Ireland at the height of the economy.

Property Crash

Perry, who says on his website that Ireland is living through some of the most economically challenging times since its foundation after the real-estate crash, fell behind his repayments almost immediately, according to the filing.

Perry’s story is merely the most high profile of loans to small and medium-sized companies gone wrong. About half the country’s 50 billion euros of SME loans are impaired, or will not be repaid in full, the country’s central bank has estimated.

For many Irish company owners, the problems are linked to real-estate loans taken out during the nation’s Celtic Tiger boom, which collapsed in 2008. Irish commercial property prices have fallen by two thirds, and residential property by half since 2007, according to the country’s statistics office.

More than half of Irish SME loans are property related, Fiona Muldoon, a director at the central bank, said at a conference in April in Tralee, southwest Ireland.

“SME arrears throw up complex issues and there is a high level of property-related borrowing,” Muldoon said. “In Ireland, all roads lead to property.”

Drugstore Debt

The ability of SMEs to repay those loans has been devastated by the wider crash in the economy. Retail sales have fallen for four of the last five straight years, and are still dropping. Unemployment tripled, and emigration has resumed.

One example of the malaise is drugstores, many of which are being dragged down by real-estate debt even while the core business is relatively immune to swings in the economy.

“We are being contacted frequently by pharmacists who are heavily indebted,” said Rory O’Donnell, president of the Irish Pharmacy Union. “Many invested heavily in their premises before the crash and some also bought property in lieu of a pension plan. They have a sustainable, viable business in the main, but many are carrying unsustainable debt.”

Troubles among such small-business owners are beginning to feed through to the financial system, already laden down by soured residential mortgages.

Losing Money

Ireland’s largest 10 consumer lenders before the crash, including four foreign-owned banks, lost about 131 billion euros on soured and sold loans since the nation’s real-estate collapse, according to data compiled by Bloomberg News.

Dublin-based Bank of Ireland Plc, the largest lender by assets, said in March about 27 percent of its 10.7 billion-euro Irish SME loans were in default at the end of December. Up to now, banks have been loath to write off debts, as they try to preserve capital before stress tests next year.

“Banks are trying to avoid having to take loan impairment charges and are just kicking the can down the road,” said Hughes at Hughes Blake Chartered Accountants, which has been involved in one in every two company examinership, an Irish form of Chapter 11 bankruptcy protection, in the past two years.

Pressure, though, is mounting on the banks to act. The European Commission, one of Ireland’s bailout masters, told banks to step up their efforts on troubled SME loans, and the Irish central bank set targets at the end of June for banks to restructure loans.

Political Career

Some clues are emerging as to how bankers will treat troubled SME loans, according to Hughes. That may involve carving loans into three portions. The first tranche may involve linking a repayment to the underlying business. The second leg is a sale of assets, such as holiday cottages attached to a hotel. The third element may involve writing off some debt.

The remaining debt “is the hard bit, as it covers the part of the loan where the bank faces a loss or perhaps a debt-for-equity swap,” said Hughes.

For Perry, the minister, his political career is at stake. Should he fail to reach a settlement with Danske, he could potentially face bankruptcy proceedings. Rules prohibit a bankrupt person from being a member of the Irish parliament. Judge Peter Kelly gave him six weeks to reach a settlement.

“It would be manifest very quickly if the talks are not going to bear fruit,” said Kelly.'

That name crops up again,National Australia Bank 13/7/13.

Irish GDP for 2012 was $210bn.

[Wurzel Of Highbridge]

And

That's just the SME side of things that are 'driving growth', there are many out there living on borrowed money and time. Lets not forget the mortgage arrears situation that is still growing

I have previously made estimates that Ireland will require another €20,000,000,000 bailout as the country is insolvent. The banks have cash-flow injections from the EBC, but are still losing money.

We have spent 6 months attempting to buy properties and so far been unsuccessful primarily due to insolvent homeowners not being able to sell and banks not repossessing any properties has run the market dry of stock.

Since we could be looking at a bail-in situation here in the next 12 months, if our latest attempt at buying falls through I will be shifting 50% of our savings out of the country and back to the UK.

[thecrashingisles]

It's the economy of the living dead.