Tuesday, June 10, 2014

10/6/2014: In Irish Press: Wilbur and Electricity Taxes

In Irish news today, one dominant story is that of BofI investor, Wilbur Ross moving on off 'Ireland Corp' team and into the not-too-shallow Government's Christmas Cards list. The US billionaire is cashing in his chip at the Irish Banks Casino and there is no end to glowing reviews of his legacy.

Per RTE report: "Mr Ross said he believes the bank is "on the right track". This is "definitely not a negative comment on BoI or Ireland. Both are clearly on the right track," Mr Ross said in an emailed message after Deutsche Bank announced it was to sell his stake." Naively, RTE could not fathom an idea that Mr Ross might be speaking in marketing mode - he is selling the stake in a bank, so hardly can be expected to make any comments adverse to his own interest of talking up the said bank.

But never mind, the really grotesque bit of the story is at the bottom, where our Government and State officials pour praise all over Mr Ross. Now, Mr Ross made a nice profit having taken some risk. No problem there. A slight blemish on his investment strategy in Ireland is the fact that much of this return was down to taxpayers taking on the bank recapitalisation burden. Slightly more of a blemish is the fact that during his tenure as a major shareholder and board member, the Bank became synonymous with playing the hardest ball with those borrowers who fell onto hard times. Still, let us not begrudge him in his success.

But the glowing and even slavish praise being heaped onto him makes one wonder if there is still a gas station somewhere on, say, N3 or N7 left unnamed? Is it time for a 'Wilbur Ross Plaza' replete with convenient Centra and washing facilities?

In a related bit of the story, we have projected valuations of the stake. Updating the above report from RTE, latest information we have is that he is selling the stake for EUR0.26-0.27 per share, a discount of up to 8.5% on yesterday's price. This is an impressively shallow discount (my expectation was closer to 10-12%), but still a discount. Some years ago, when Mr Ross just bought into BofI, I suggested that any exit will require a discount. A couple of Ireland's illustrious Stockbrokers came out of the hedges to bite me, claiming that actually Mr Ross can sell at a premium, as there can be a great demand around the world for BofI shares in a strategic package volume. Ooops...

Never, mind, however, the illustrious Stockbrokers are back at it, now lauding the virtues of 'increased free-float' of BofI shares in the wake of Mr Ross' exit as a major support for the stock. By said logic, BofI should just quadruple numbers of shares in the market, to gain even more 'support'.

On a related side, Reuters reported that "Ireland's Finance Minister Michael Noonan in December said that while the government had no interest in running banks long term, it was under no financial or political pressure to sell." (link here). Of course, this is the same Minister Noonan who's standard answer to virtually all questions about Irish Government involvement in managing strategic or operational aspects of individual banks it owns is: 'We have no control over what they do' and who's voting record as shareholder is about as 'activist' as that of the Anglo shareholders back in 2005.

A far less-dominant story also in the news today is that Irish Government is raising by a whooping 50% tax on domestic electricity. This is covered here. Per report: "Householders will be charged €66.55 a year in the PSO levy, up 47pc. When valued added tax (VAT) is added the annual cost on each household bills will go to €75.42." 

Irish Independent politely calls this a 'sneaky tax'... sneaky, presumably, because it is dressed up as a 'Public Service Obligation' - a levy designed to subsidise renewables energy companies and peat-burning stations. Which makes it more subtle than just bludgeoning taxpayers in dark alleys for their spare change.

At the end of 2013, Ireland had the fourth highest levels of electricity taxes and electricity prices in the EU27 and posted between the fourth and the fifth highest rate of increases in taxes and levies for electricity in EU27 (depending on annual consumption levels for households). Here is some additional background on how Irish Government has been extracting cash out of financially strained households via electricity supply systems.

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