Eoin McGee runs Prosperous Financial Services in Ireland, he is a member of the IBA financial services committee, a director in two start up businesses and a regular contributor on Newstalk Radio. That's the work stuff. Outside of work he has a wife and three kids and is the manager of the local youths Gaelic Athletic Association team. As if that isn't enough to fill a fellow's calendar he runs 6 days a week and will one day break 3.5 hours for the marathon (a prestigious club I wholeheartedly look forward to welcoming him to).
All of the above is a very long way of saying he is a rather successful and busy chap. So I'm sure you can appreciate that I was very pleased and honoured that he found the time to give his expert opinion on a subject that is of great interest to all of us who follow the global markets: The Irish economy.
Take it away Eoin.
Ireland. Boom, Bust.... Boom?
It was 1990 and Ray Houghton had just chipped the ball into the back of the Italian net in the Italia ’90 world cup.
That was a pivotal point in the Irish economy. For the first time, maybe ever, we believed we could achieve on a global scale. Within 20 years we would be considered by Forbes magazine as the best place in the world to do business.
We had just come out of an awful decade where the majority of our youth emigrated and unemployment was rife. People were poor and had little, including any exposure to the real world. This was a country that didn’t legalise homosexuality until 1993 and that almost came to a standstill when Virgin mega store opened in Dublin and were planning on selling condoms.
The Irish have an obsession with owning property (for reasons I won’t go into here) so once the cheap credit became available people bought houses, more houses than they could ever live in.
As a financial planner mortgages have never really been my bag, but I did facilitate a few. But it was the stories that shocked me. It was the different cases I heard were getting approved. Stories like first time buyers borrowing 7 times their €30,000 a year salary.
People switching lenders every 6-9 months to clear credit cards and release enough for a family holiday.
Then there were those who thought they were property gurus. Their modus operandi was to raise €60,000 on their own home, divide the money in four pots of €15,000 and simultaneously lodge 4 investment property mortgage applications. They would draw down all four loans within six weeks of each other so as not to get rumbled. These people would go from having a modest loan on their own home to owning 5 different properties and owing over a million euro in a matter of weeks.
If the banks knew about it at the time of the application of course they wouldn’t have let the loans go through but incredibly six months later it was doors wide open. Certain banks designed products for the “professional investor” market.
The bank didn’t look for proof of the applicants’ earned income; 6 months rental income bank statements, a valuation on each property, a driver’s licence and a utility bill got you a €1 million mortgage refinanced often with enough of a top up to go buy another house.
It wasn’t surprising when it all inevitably came crashing down. We did well out of the 18 year boom. We became an international player and as one of our TD’s (MP’s) commented “we all had a party” (he regrets that comment!)
The sitting government, Fianna Fail, who had reigned over the majority of the boom, blamed the global financial crisis. The opposition, Fine Gael, who have been running the country since 2011 keep blaming the last lads.
There were mistakes made. When our banks were about to collapse late one September evening, the minister for finance came up with a plan. He would guarantee all deposits in all Irish banks, indefinitely.
This stopped the flee of money from the banks. It wouldn’t have been a bad idea had he not left the door open “indefinitely”. International money flooded in and the government was now on the hook for not only depositors but bondholders too. Any default by a bank would be seen as a sovereign default.
So the government had to clean up the banks to the extent that they could remove the guarantee. Genius plan number two kicked in.
Iceland was in similar crap as us albeit on a different scale. Their banks were also full of toxic loans. So they set up a good bank and moved all the good loans into it and then left the old banks to sort themselves out.
Ireland with its bank guarantee couldn’t do this so set up a bad bank (NAMA) and asked the banks to hand over all their crap. The problem was 6 months later, the economy worsens and you have to go to round two and round three etc constantly getting more and more crap into our tax payer owned bad bank.
Nama now owns the world’s largest real estate portfolio and it may well in time turn a good profit.
The Irish have left the IMF/EU/ECB bailout. The international markets think we are great little boys and we managed to hold on to our 12.5% corporation tax rate. We have yet to get the big debt write down we believe we are due because we saved the euro but our government still promise it is coming.
Commercial property is estimated by some to grow by 15% per annum for the next three years. Residential property, in Dublin at least is in a supply led boom. Employment is at 88% and my clients are starting to feel a hell of lot more confident.
We are not going to the World Cup, but we did win the 6 Nations.