The banks are coming!
Or are they? There’s considerable angst in the licensed trade about the actions of the banks in appointing receivers to quite a number of pubs - particularly in Dublin - of late. Rumours that mass receiverships are in the pipeline have also fuelled speculation. Whatever the reality, publicans are clearly concerned about just what’s going on. In this two-part feature, Drinks Industry Ireland attempts to separate reality from rumour and gets some advice on what to do and what not to do for publi
Print22 March 2013
The recent controversy that led to the stepping down of David Madigan from Chairmanship of the LVA before Christmas (see LVA Chairman resigns) highlights the sensitivity of the licensed trade to the appointment of receivers to Dublin pubs.
The LVA letter announcing David’s stepping down pointed out, “There’s no doubt that there will be many more pub receiverships in Dublin in 2013 and beyond. We should remember that it is the banks and not the operators that appoint receivers”.
Following considerable debate the LVA Board has given a voluntary commitment not to operate pubs in receivership so that the Association’s leadership doesn’t have a conflict in this regard — but the rest of the membership can make their own decisions.
“Some members would have a principled view that they’d never run a pub in receivership where others see this as a business opportunity,” LVA Chief Executive Donall O’Keefe told Drinks Industry Ireland, “Both views are fine.”
In it’s Commercial Property Market Outlook 2013, CBRE states, “The sale of a number of pubs in 2012 confirmed that there are active cash buyers and finance-approved buyers ready to invest in the pub sector”.
This may be one reason for the ‘rash’ of receiverships brought in by Bank of Scotland at the end of last year when it moved in on five or six pubs over a 10-day period including Foleys of Merrion Row, Clarks in Irishtown, Russels in Renelagh and the Four Roads in Kimmage.
In the same period two pubs in Newtownmountkennedy, County Wicklow, were placed in receivership.
According to CBRE there’s likely to be an escalation in the number of ‘enforcements’ in the pub sector this year and some feel that another rash of Bank of Scotland clients’ pubs being put into receivership over the next three months could be on the cards.
“We do expect that there will be more receiverships in Dublin in 2013,” agreed Donall O’Keeffe.
That many publicans are being squeezed at both ends – by the recession on one and by the banks at the other (in terms of them putting pressure on what they consider to be underperforming pubs) – remains undeniable.
According to DIGI, the licensed trade witnessed a 35.5% decrease in volumes between 2007 and 2012.
The licensed trade wants to know just what’s happening with the banks. What are their intentions regarding the loans that remain outstanding, some of which will never be realised? Are they moving in on viable operations or not?
For while the banks remain tight-lipped, the truth may fall somewhat short of the rumour.
Rumour & reality
According to property advisers and consultants to the licensed trade Morrissey’s, “It’s the economy and the dynamic of the licensed trade that’s changed with many businesses having become insolvent due to a sustained reduction in the volume of trade previously enjoyed and/or compounded further by unsustainable debt”.
Bill Morrissey adds, “To date, the majority of insolvency cases with receivers being appointed by banks over the past five years has been as a result of pubs that are trading at a loss for a significant period of time now or secondly because the pub has developed a significant problem with the Revenue Commissioners”.
Regarding rumours that a significant number of pubs are set to go into receivership, Bill Morrissey adds, “Each bank is different however to date, from experience, the majority of banks have been slow to move against a viable pub operation, choosing instead to work with the owner”.
Tradewide concern
But many in the trade are concerned that installing a receiver into one pub affects all the neighbouring pubs if it’s not run properly.
Former LVA Chairman Derek Fowler has been running his own business for the past 26 years and bought Fowlers in Malahide some three years ago. He sees the banks treating pubs differently from other retail outlets.
“If a clothes shop closes tomorrow, it doesn’t re-open, the banks don’t move someone in to keep it open,” he says, “The banks take it off them and shut it down. They might sell it in a year or two so the business that was there spreads out to other surrounding smaller businesses and helps keep them afloat.
“But what’s happening in the on-trade is that the same bank that has lent to two neighbouring pubs might move a receiver into one and the other pub has to compete against a receiver who has no overheads to worry about.
“It’s the bank’s mortgage and they will probably pay the receiver more than the other publican’s taking out of the business for a week’s wages. So the receiver is costing more than the other publican’s costing to run the business and the other publican knows the business.
“Then the receiver starts running cheap food and drink promotions which suck the business from the other pub which then gets into trouble with the bank who’ve caused it…. So I don’t agree with what’s happening at the moment.
“If it’s your own fault then it’s your own fault,” he continues, “But if it’s market and economic issues then the banks should be sitting down and talking with their clients to find a way through.
“Banks are allowed to keep golf clubs, hotels and pubs open but everyone else is under duress. It’s ruining the whole fabric of the public house business in Ireland. It’s a knock-on effect.”
Across the road, his Malahide neighbour Tony Gibney would agree.
“The people coming in are not going to do a better job; it would be a rare case if that happened and the banks overall will devalue the asset – it’s devaluing their own asset as well,” he comments.
For its part, the LVA recognises that receiverships are an unfortunate reality of life.
Donall O’Keeffe told Drinks Industry Ireland, “It is our clear preference that pubs in receivership are put on the market as quickly as possible. If that isn’t the case it’s our view that it should be operated by the best possible operator.”
Next month, the second part of ‘Banking on reality’- working with the banks.
Many in the trade are concerned that installing a receiver into one pub affects all the neighbouring pubs if it’s not run properly.
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