April 1, 2023

Ireland Jails Sean Quinn, Once Its Richest Man

DUBLIN (Reuters) — Ireland jailed the former billionaire Sean Quinn on Friday for failing to disclose assets he was hiding abroad, completing the fall from grace of the richest man in Ireland’s “Celtic Tiger” boom.

Mr. Quinn, whose 4 billion euro ($5.2 billion) business empire collapsed after a disastrous investment in the now failed Anglo Irish Bank, is the first major player jailed in connection with the country’s economic collapse, having come to personify its boom and bust.

He was found guilty of contempt of court in June for violating an order not to block state-owned Anglo, since renamed the Irish Bank Resolution Corporation, from seizing foreign property assets worth an estimated 500 million euros.

He was initially spared prison and ordered to disclose information regarding assets spread as far afield as Russia, Ukraine and Belize.

But Justice Elizabeth Dunne told a Dublin high court on Friday that Mr. Quinn had only himself to blame over contempt she described as “nothing short of outrageous.”

“I cannot ignore the extent and degree of contempt of court on his part; the appropriate term by reasons of noncompliance with the orders is nine weeks,” said Judge Dunne, who deemed Mr. Quinn “evasive and uncooperative” when giving evidence.

Mr. Quinn, a father of five who used to fly around Europe on his Falcon jet sealing property deals, sat in court with a tissue held to his face. His eyes bloodshot, he stared straight ahead as the sentence was handed down.

The judge said she would consider placing a stay on the jail term until a Supreme Court appeal against the contempt is heard, but Mr. Quinn opted to start his term immediately, meaning he will spend Christmas behind bars.

He had tears in his eyes as he said goodbye to supporters and family members before being led out of the court by police. He told reporters he had made mistakes but that the “whole thing is a charade.”

Mr. Quinn’s son Sean and nephew Peter, who were also found guilty of contempt, were handed three-month jail terms in July. Peter Quinn fled the jurisdiction to Northern Ireland while his cousin served a full sentence.

Ireland’s costly banking rescue helped push the country into seeking an international bailout two years ago this month. It is the subject of intense negotiations in Europe to ease the burden as Dublin tries to exit its program next year. In the country’s boom years, Mr. Quinn turned a rural quarrying operation on his family farm into a global business empire spanning wind farms, cement plants and hotels, but he became the subject of the largest Irish bankruptcy order ever just four years after becoming its richest man.

He is still regarded by some as a hero thanks to his role as a big employer in his home county of Cavan. Thousands of locals, including sports figures and politicians, have held two rallies since August to support him in the court proceedings.

Mr. Quinn’s use of loans to make the ill-fated investments in the former Anglo resulted in the failed lender pursuing him for debts of almost 3 billion euros in a global treasure hunt from courtrooms in Dublin to the British Virgin Islands.

Article source: http://www.nytimes.com/2012/11/03/business/global/ireland-jails-sean-quinn-once-its-richest-man.html?partner=rss&emc=rss

As Europe’s Bond Market Dries Up, Traders Fear for Jobs

Once the master of a booming euro zone universe spanning Greece, Italy and Germany, he now presides over a shrunken, fear-struck bond market — and might well lose his job by the end of the year.

Panic that the default of a euro zone economy might lead to a crackup of the monetary union has turned European bonds, once freely traded and viewed as risk-free, into semi-poisonous hot potatoes that in some cases trade only by appointment.

The result has been a sharp drop-off in trading volume — the mother’s milk of bank profits — raising questions within capital-constrained banks in Europe about how much longer they will stick with their overstaffed bond divisions.

They may number only about a thousand here in Europe’s bond trading hub, but these highly paid traders, sales people and derivatives wizards have in many ways been at the vanguard of the boom and bust of the European debt bubble. Now that bubble risks pushing the euro zone into a second recession at the cost of millions of public and private sector jobs.

When money was cheap, bond traders facilitated the borrowing excesses of Greece, Italy and others — but once these debts came into question, they have been among the first to sell, and they continue to do so.

As Europe’s leaders prepare to gather in Brussels on Friday to chart a course to closer political union, the bond purveyors are again attracting scrutiny — only this time it is from their cost-conscious employers.

The numbers tell much of the tale.

During an earlier era when Greece could borrow money at nearly the same interest rate as Germany, Greek government bonds traded at the rate of as much as 60 billion euros a month. Through the first two weeks of September, just 1 million euros in Greek bonds exchanged hands on HDAT, the main platform for trading Greek bonds.

With Greece on the verge of default, such a result is hardly surprising. But as the fears of a euro zone collapse have spread in recent weeks, volumes have dried up for larger markets as well.

Italy, one of the deepest, most sophisticated bond markets in the world, reported that secondary market bond trading on its main MTS platform withered to 887 million euros on Nov. 24, from 5.9 billion euros on Jan. 7, 2010.

“This is an illiquid market that is really depressed — there is just no appetite for position-taking right now,” said Don Smith, an economist at ICAP in London, a leading broker-dealer that facilitates trades between large institutions. It is hard for bond traders, he added: “ You are there to make a market and instead you just sit there.”

Konstantinos Panayides, who was responsible for trading Greek bonds at Barclays Capital until he was let go this summer, knows the feeling.

“It was dead,” he said. “There were no prices and no one was taking positions,” not just for Greek bonds, but for Italian bonds as well, he recalled. He described an atmosphere of near panic as foreign investors unloaded their bonds to the big banks, which then had to find some way to move these deteriorating assets off their books.

Despite his reduced circumstances, Mr. Panayides, who is 31 and from Cyprus, does his best to keep up his bond trader’s swagger. He has no plans to return to a big bank, but is enthusiastic about a move to a small brokerage house where he will focus on distressed securities.

“You never give up,” he said, sipping a coffee in a cafe near his home in central London.

But there is no getting around it, he said. With banks reducing their balance sheets aggressively and risk appetite diminished, the environment is going to get worse before it gets better.

“A lot of people are going to get laid off,” he said.

Perhaps surprisingly, there have not yet been any mass layoffs in the euro government bond sector, which as early as 2009 was one of the main profit drivers for the large European banks.

That is largely because these areas have been profitable in the past, with top banks like Barclays Capital bringing in revenue of about 1 billion euros in a very good year. And unlike more risky pursuits like proprietary trading or structured products, bond trading does not require a significant outlay of capital.

But the process of reducing staff may be beginning.

Article source: http://feeds.nytimes.com/click.phdo?i=f1ffd8af186aabb465bfa4407e179375

Common Sense: Waiting for Gravity to Hit LinkedIn

After living through two destructive financial bubbles in the last decade, what explains the frenzy? LinkedIn, the professional networking concern, rekindled memories of the late-’90s technology boom and bust when its stock leaped from the offering price of $45 to $122.70 a share on its first day of trading on May 19. “Our mission is to connect the world’s professionals to make them more productive and successful,” its prospectus proclaims. “Our vision is to create economic opportunity for every professional in the world. …We believe we are transforming the way people work by connecting talent with opportunity at massive scale.”

As the first of the social networking concerns to issue shares to the public, LinkedIn makes a good test case for the existence of a social networking bubble. There’s widespread agreement that bubbles occur when a speculative mania causes the price of an asset to soar far above its intrinsic worth. After the mania runs its course, and investors finally recognize the divergence, the bubble typically bursts, causing prices to plunge. Early bubbles were the famous 17th-century Dutch tulip mania and the 18th-century trading in Britain’s South Sea Company.

Spotting a bubble before it deflates has proved difficult, if not impossible, since otherwise bubbles wouldn’t still occur with dismaying frequency. Academic literature is accumulating on the subject, including research into the monetary and fiscal conditions for a bubble and the psychology of herd behavior. Here’s a look at three key bubble symptoms as they apply to LinkedIn:

¶ Are LinkedIn shares priced far above their intrinsic worth?

Valuing a new and potentially disruptive company like LinkedIn is a challenge for even the most sophisticated analysts. After more than doubling on the first day of trading, the company’s shares have continued to continued to gyrate wildly — dropping below $61 at one point, and then rising again this week, closing at $99.60 on Friday.

LinkedIn’s share price should be the present value of its future earnings. Its price-to-earnings ratio, a common test for an overpriced stock, is in the stratosphere. But LinkedIn is too new to have reliable earnings, given its heavy capital investment. So let’s ignore earnings and focus on revenue, which will ultimately be the source of LinkedIn’s profits.

LinkedIn’s revenue for 2010 was $243 million. For the first quarter 2011 it was $94 million; extrapolating from the first quarter, a reasonable estimate for 2011 revenue seems $450 million, or nearly double. At this week’s valuation of $8.8 billion, that represents a current price-to-sales ratio of just over 30.

How does this compare to similar companies? No other company is quite like LinkedIn (which is part of its appeal), but Monster Worldwide and Dice Holdings are two major competitors in the Internet job search arena. Monster’s current price-to-sales ratio is 1.89 and Dice’s is 6.58. Both companies are more mature and slower growing than LinkedIn. Monster reported annual revenue growth for the most recent quarter of 21 percent; Dice reported 49 percent. So given LinkedIn’s revenue growth rate, its price-to-sales ratio should be about twice that of Dice (or about 13), and five times Monster’s (or 10).

But LinkedIn’s ratio of 30 is far above those levels, suggesting that by this measure, LinkedIn is substantially overvalued. At a price-to-sales ratio of 15, LinkedIn shares would be trading at $44 — about where the underwriters priced them. Give it a more generous ratio of 20, and shares still would be just $58.

E-mail: jim.stewart@nytimes.com

Article source: http://www.nytimes.com/2011/07/09/business/gauging-if-linkedin-signals-a-social-networking-bubble.html?partner=rss&emc=rss

Economix: The Misunderstood Mortgage Interest Deduction

Today's Economist

Casey B. Mulligan is an economics professor at the University of Chicago.

The home-mortgage interest deduction does not by itself significantly distort housing markets. Too much owner-occupied housing has been built because housing is excluded from sales and other taxes owed by businesses.

The housing boom and bust of the last decade, and government revenue shortfalls, have brought back the topic of whether the government excessively encourages home building. Those discussions invariably mention the elimination of the home-mortgage interest deduction.

This deduction allows taxpayers who own a home, have a mortgage and itemize deductions to reduce their personal income tax by including home-mortgage interest payments in their tax deductions. Homeowners rightly consider this when considering whether and how much to invest in a home and how much they should borrow.

A homeowner who pays, say, one-third of his taxable income in federal and state personal income taxes will recognize that a $3,000 monthly mortgage-interest payment really only costs $2,000, because the mortgage interest reduces his taxable income by $3,000 and thus the personal income tax owed by $1,000 a month. It’s as if he paid $2,000 and the federal and state government treasuries paid the other $1,000.

At first glance, the home-mortgage interest deduction would seem to cause homeowners to borrow excessively for home ownership, and thereby deplete government treasuries. But that ignores the fact that one person’s mortgage interest payment produces interest income for another person or a business. The lender may well owe taxes on the interest income.

More home-mortgage borrowing means more home-mortgage lending, and the latter means more interest income that can be taxed. In theory, home-mortgage borrowing could even add revenue to the Treasury if the lender is in a higher tax bracket than the borrower (or if the borrower is not itemizing her tax deductions).

Interest deductions are present in the business sector, too, and have the same essential properties as the home-mortgage interest deduction. A corporation that borrows to finance an investment project can deduct its interest payments from its taxable income, and that borrowing will generate interest income for whoever made the loan.

Landlords can also take out mortgages on their properties and deduct the interest payments from their taxable income (that benefit may, in turn, affect the rent they set). In that sense, the possibility of deducting mortgage-interest payments from income taxes does not by itself discourage renting rather owning.

In contrast, consumer durable goods do not enjoy the interest deductions that housing and business capital do. Someone who takes out a car loan to purchase an personal automobile cannot deduct the interest payments from her taxable income, even while the Internal Revenue Service may be collecting taxes on the interest income of the lender. In this regard, tax policy discourages investment in consumer durable goods relative to investment in housing and businesses.

This is not to say that housing investment has been efficient. Earlier this year I explained how housing is much less profitable than business capital before taxes, largely because of the host of taxes — like sales taxes
and income taxes on profits — that are owed by owners of businesses but not
by owners of homes.

Article source: http://feeds.nytimes.com/click.phdo?i=2a2f9e511ebda198ec86aefcd95bb274