Ireland’s new insolvency service will pursue and prosecute borrowers fraudulently seeking debt forgiveness, said Lorcan O’Connor, head of the new agency, Bloomberg reported. Borrowers who lie about their finances face fines of as much as 100,000 euros ($130,000) or as long as five years in prison, according to laws which created the Insolvency Service of Ireland, known as the ISI, last month. “There is anecdotal evidence that in some cases people have been either preferring certain creditors over others or adopting a strategic default,” O’Connor, 37, said in an interview at the ISI’s Dublin office on May 7. “It’s incumbent on the service to ensure we are strict and protect the integrity of the 99 percent of cases that are genuine.” Analysts are split over how many Irish borrowers are so-called strategic defaulters: borrowers who can afford to pay but don’t do so in the hope of winning future debt forgiveness. Gregory Connor, a finance professor at NUI Maynooth, estimated in March that strategic defaulters may make up more than 35 percent of arrears cases. Finance Minister Michael Noonan responded that these figures are “wholly anecdotal and not based on any robust, structured or in-depth analysis of the situation.” “We don’t know how many strategic defaulters there are out there, but certainly somebody seeking to play the banks would have to be a lot more cautious,” said Eamonn Hughes, an analyst at Dublin-based Goodbody Stockbrokers. “A lot of the pieces of the puzzle are falling into place on who may qualify for a deal.” Read more.
Daily Insolvency News Headlines
Tue., May 14, 2013
When Argentina defaulted on its debt in 2002, the economy was collapsing and a bloody popular revolt had helped topple two presidents in a week. Now, the country could default again, but it would be over a matter of principle rather than necessity, Reuters reported. After a decade of sleepy litigation, investors got a jolt late last year when U.S. courts ruled in favor of "holdout" creditors who had rejected Argentine debt exchanges in 2005 and 2010 and sued to be repaid in full on their defaulted bonds. A U.S. judge ordered Argentina to pay the holdouts the full $1.33 billion owed them the next time it serviced restructured debt. Argentina appealed, and a ruling by the 2nd U.S. Circuit Court of Appeals is expected in the coming weeks. Investors are following the case closely because Argentina appears willing to enter into technical default in order to avoid paying the holdouts any more than other creditors received. The nearly 93 percent of bondholders who accepted the debt exchanges got returns of as low as 25 cents on the dollar. Tough-talking Argentine President Cristina Fernandez has pledged to keep paying the restructured debt but vows never to pay the "vultures" that bought the bonds at a steep discount and sued for full repayment. Read more.
Five years after rescuing one of the world's biggest banks, the British government still hasn't figured out what to do with it—a sign of the country's struggle to put its banking woes behind it, The Wall Street Journal reported. Royal Bank of Scotland Group PLC received a bailout of £45 billion, or about $70 billion, in 2008. Today, it remains 81%-owned by U.K. taxpayers, and a return to private hands is unlikely soon, according to government officials. Under pressure from the Bank of England, officials at the U.K. Treasury have been studying splitting up RBS, with one part fully nationalized and the remainder devoted to serving British businesses and individuals, officials say. It is unclear whether the breakup idea will come to fruition, because government officials worry it might be too complex and risky to justify the potential benefits. But with an election looming in 2015, the U.K.'s coalition government is under pressure to act. The debate over how to fix the banking system has mushroomed into a political brawl, dragging in parties ranging from the head of the Bank of England to the archbishop of Canterbury. Read more. (Subscription required.)
India’s Tata Steel has announced a $1.6bn writedown on its struggling European division, underlining the chronic difficulties facing steelmakers across the continent, the Financial Times reported. In a notice to the Bombay Stock Exchange, the steel division of the broader Tata conglomerate blamed weak European macroeconomic conditions for the decision, the largest writedown by an Indian company. Tata Steel’s European operations, which it acquired following the $13.1bn purchase of Anglo-Dutch steelmaker Corus in 2008, have endured a torrid period recently in the face of weak demand and falling prices. The announcement raised fears in particular over the future of the group’s troubled UK operations, where 18,500 of its 33,000 European staff work. In the notice, Tata Steel said: “The impairment is primarily due to a weaker macroeconomic and market environment in Europe where apparent steel demand has fallen significantly in 2012-13 by almost 8 per cent, which in aggregate results is almost 30 per cent since the emergence of the global financial crisis in 2007.” The writedown is the largest for a company with Indian operations since Vodafone of the UK took a £2.3bn impairment charge on its unit in the country in 2010. Read more. (Subscription required.)
The Israeli government was debating the final points of a two-year austerity budget early Tuesday that would cut spending and raise taxes, outraging many Israelis who voted in a new government this year after promises of economic relief, the International Herald Tribune reported. Even before the new government’s first budget was approved, 12,000 Israelis took to the streets Saturday night in a show of anger reminiscent of the vast social protests that rocked the nation in the summer of 2011. At that time, record crowds complained of the high cost of living — and eventually many voted their cause and expected the new leadership to respond. Instead, the government announced that a large deficit required higher taxes and less spending. The austerity measures are intended to help close a 2012 deficit of about $10.5 billion, which was 4.2 percent of the gross domestic product and double the amount that had been projected. Read more. (Subscription required.)
Euro-zone policy makers have been in rare harmony over the significance of their plan to build a much lauded banking union in their effort to strengthen Europe’s financial system and prevent future bank troubles from burdening government finances and taxpayers, The Wall Street Journal MoneyBeat blog reported. Most of them also appear united in their support of accelerating plans to bring banks under common supervision and for regulations for winding down failed banks. But as euro-zone finance ministers headed for another round of talks in Brussels Monday, it was clear that a banking union means different things to different nations within the currency bloc. While for some, it’s meant to strengthen supervision mechanisms and regulatory frameworks, for others it’s seen more as a way of pooling together resources and sharing risks. Nearly a year after the plan was first agreed, there are still deep divisions over the shape or the pace at which this banking union will be achieved. Read more. (Subscription required.)