Investors shouldn't bank on a prosperous new year around the next corner

January: IT was truly a rotten, rotten year for the property and equity market, never mind the State finances. 2008 started off on a downbeat note and got rapidly worse.

In January we woke up to the news that Christmas shoppers had not produced the expected lift for tax revenues which in the first few days of the year were revealed to be €1.826bn short of expectations for 2007. At that time Taoiseach Brian Cowen was naively predicting a deficit of €4.8bn for the year ahead, while Davy's was predicting that growth would slow to 2.5 per cent.

Such innocent times.

Mobile operator 3 Ireland hired investment bank Goldman Sachs to advise it on a possible bid for its €1bn-valued rival Meteor.

We found out Brendan Investments, the controversial Eddie Hobbs-directed property vehicle, was heavily supported in its search for investors by Hobbs himself and funds linked with him. The share register of the property investment company, which only managed to raise €13m despite a target of over €50m, revealed that three directors -- Hobbs, managing director Vincent Regan and chairman Dermot Flanagan SC -- each sunk €600,000 of their own money into the venture.

Developer Liam Carroll added to his holdings in Greencore and Irish Continental buying a €35m stake in Aer Lingus at €2.06 per share.

With the international financial system already reeling from the subprime crisis, the revelation that rogue trader Jerome Kerviel had managed to lose his employers Societe Generale €4.9bn delivered another hammer blow to investor confidence.

February

Property developer Sean Dunne borrowed a further €500m from a group of Irish and international banks to fund the development of his controversial €3bn Ballsbridge skyscraper complex. Ulster Bank, Kaupthing Singer Friedlander and another Irish financial institution all agreed to lend Dunne the money. Blue-chip estate agents, Lisney, revealed they had swung into the red last year with a loss after tax of €140,293.

Despite the emerging chaos in the property markets the banks were still riding relatively high. On February 21, AIB closed at €13.80, Anglo Irish Bank finished at €8.84, while Irish Life & Permanent closed at €10.20 and Bank of Ireland traded at €9.50. What many would give to be back at those levels now.

In perhaps a sign that recession was on the way Guinness reversed years of decline and announced that sales of its stout rose 3 per cent in Ireland in the second half of 2007. "'Guinness is back in the black' is the headline for me," quipped Michael Ioakimides of Diageo Ireland.

Investors and banks had to write off €820m in the Dublin specialist lender International Securities Trading Corporation (ISTC), making it the largest cash loss in Irish corporate history. Some of the State's wealthiest businessmen, investors and leading international banks were owed €878m by ISTC, which earned profits by borrowing money in the international markets and lending it on to banks. However, the company only had assets worth €57.8m, leaving investors and bankers facing massive losses.

March

The near-collapse and bail-out of Wall Street investment bank Bear Stearns raised fundamental questions about the value of bank shares. While the collapse in Anglo Irish Bank's share price began in earnest with billions being wiped off its value on successive days

Kerry's newly installed chief Stan McCarthy executed his first major acquisition in a drive to double the food group's annual sales to €10bn with a €165m deal to buy out the consumer food brands owned by Reox, the Diarygold spin-off.

Building materials giant CRH made its first foray into India with a €290m deal, buying 50 per cent of Hyderabad-based My Home Industries, one of the biggest cement producers in south India.

Mobile operator 3 Ireland pulled out of discussions with Eircom over a planned bid for its €800m Meteor business.

Former Kerry group boss Denis Brosnan spent over €65m to buy the upmarket muesli maker Dorset Cereals -- described as the brekkie of choice of Britain's "chattering classes".

April

CRH chief Liam O'Mahony's pay rose to more than €2.79m from €2.66m in 2007 -- but at the same time its share price fell to €23.85 at the end of 2007 from €31.54 at the beginning of the year .

FBD, the listed insurance company, rejected a €1.2bn takeover approach from Dutch giant Eureko.

Tullow Oil looked set to realise €45m from the sale of 10 drilling blocks in the North Sea to Venture Production, an Aberdeen-based oil and gas company.

Heineken reiterated its determination to take control of Cork brewer Beamish & Crawford as part of its joint takeover with Carlsberg of Beamish parent Scottish & Newcastle.

The European Central Bank woke up to the fact that global financial turmoil could have a real impact on eurozone economies. However, it was still not ready to cut rates.

Utility and waste management specialist NTR bought a 51 per cent holding in Phoenix, Arizona-based Stirling Energy Systems (SES), which is developing solar-powered electricity generation plants, for €63m. It also took a controlling stake in Wind Capital Group, a Missouri-based wind farm operator. Closer to home in Germany it incurred a loss of up to €35m on the closure of its German bio-diesel unit.

Royal Bank of Scotland, owner of Ulster Bank and First Active here, had a huge rights issue in an attempt to beef up its balance sheet.

IAWS chief executive Owen Killian was by far the best-rewarded chief executive in 2007. The bagel baker landed a €10.15m package, according to the latest annual report.

May

Ulick McEvaddy, co-founder of air refuelling company Omega Air, landed a five-year $250m contract to refuel the Tornado fighter jet fleet of Britain's Royal Air Force.

The Sunday Independent revealed that an unencrypted laptop owned by the Financial Regulator had been stolen in 2005.

Aer Lingus predicted a half-year loss as economic gloom and oil price rises started to hit its bottom line. Meanwhile, Ryanair won the subsidised Dublin-Kerry contract from under the nose of Aer Arann.

Brian O'Reilly, a senior director of financial giant UBS warned that Irish banks would be forced into a new rights issue and would have to deal with a lot of uncertainty. David Drumm, now former CEO of Anglo Irish Bank, dismissed his views, claiming "there is no requirement for Anglo to raise capital".

DCC's Jim Flavin resigned over the fallout from the insider trading case regarding the sale of shares in Fyffes taken against the group in 2000.

June

The family of Social Affairs Minister Mary Hanafin invested in Reservoir Resources, an oil exploration firm with interests in onshore prospects in southern England.

Cengage Learning, a division of Barry O'Callaghan's Education Media and Publishing Group was sold for €482m in cash.

As it was revealed that Airtricity founder Eddie O'Connor created the greatest number of millionaires in Irish corporate history through its €2.2bn sale, he ploughed €30m into new wind energy firm Mainstream Renewable Power, and later sold a 15 per cent stake to Barclays Capital.

Bank of Ireland and Ulster Bank began to increase the numbers of staff working in their debt management departments.

The $80bn Carlyle Group, one of the world's most powerful private equity funds, confirmed that it was looking at buying distressed Irish property assets. It later emerged as a member of the Mallabracca consortium, which was more recently considering investing in the banks.

Noticeable declines in sales of breakfast rolls, big-screen TVs and DIY goods began to emerge at Retail Excellence Ireland as the recession started to bite.

July

Iberdrola, Spain's second largest utility, bought a 22.6 per cent stake in Irish oil and gas explorer Petroceltic for $55m.

Irish explorer Conroy Diamonds and Gold struck a one million ounce deposit of gold at Clontibret, Co Monaghan.

McDonald's saw a spike in job applications from Irish people for the first time in nearly a decade.

Tullow Oil boss Aidan Heavey cashed in a €37m bonus on the back of a healthy share price and rising oil production in its huge Jubilee field in Ghana and its three oilfields in Uganda.

CIE, semi-state parent of Dublin Bus, Bus Eireann and Iarnrod Eireann, lost €406m in 2007, despite an €800m State subsidy.

August

IAWS became a €2.7bn food group after acquiring Swiss baker Hiestand.

Tesco upped its advertising budget to nearly €4m in May and June in a bid to fight off competition from Aldi and Lidl. It later fought back by launching a new cashsavers range of products.

Oman Investment Fund, a sovereign wealth fund controlled by the Middle Eastern country's government, snapped up a 50 per cent stake in Derek Quinlan's Jurys Inns hotel chain for €200m.

As torrential rain hit the country, loss adjusters GAB Robins said flood damage claims could reach €100m.

Ion Equity announced plans to invest tens of millions in creating a new chain of premium budget hotels under a new brand called Pillo Hotels.

Kingspan bought US panel maker Metecno for €75m, while Eirgrid bought Northern Ireland grid operator SONI for €30m.

The Competition Authority blocked Kerry Group's €165m acquisition of Breeo Foods.

September

September opened with the US government bailing out mortgage giants Fannie Mae and Freddie Mac. Both firms had been brought to their knees by the collapse in the US housing market. With soaring losses rapidly eroding their capital Uncle Sam had no alternative but to act to save the pair, which between them own or guarantee almost half of the $12 trillion US mortgage market.

On September 7, US Treasury Secretary Hank Paulson announced that the Federal Government was pumping up to €100bn each into Freddie and Fannie. It also took an 80 per cent stake in both institutions and replaced both of their chief executives. Irish Government, please note.

Wall Street investment bank Lehman Brothers was not so lucky. In what quickly turned out to be a disastrously misplaced piece of free-market bravado, the US authorities allowed it to go bust on September 14.

Lehman almost brought the international financial system down with it. Merrill Lynch quickly agreed to be bought by Bank of America while the mighty Goldman Sachs had to go cap in hand to Warren Buffett for an emergency cash transfusion.

On September 17, British bank HBOS collapsed into the arms of its rival Lloyds TSB after the HBOS share price fell by 40 per cent on one day.

Across the Atlantic the White House was forced into a humiliating U-turn and announced a giant $700bn bailout for the US banks. Despite opposition from Republican congressman the package finally cleared the House of Representatives.

The international banking crisis finally reached this country on September 29 when Irish bank shares lost a third of their value in a single day. With investors dumping the shares and the threat of a run by nervous depositors on one or more of the Irish banks rapidly increasing, the Government was forced to act.

After a night of crisis talks the Government announced it was extending an unconditional two-year guarantee of the deposits and bonds of the Irish banks. While the deposit guarantee removed the threat of a run it did nothing to address the underlying problem, a chronic lack of capital. As a result bank lending dried up as October wore on.

October

In the UK, after having denied the severity of the problem for several weeks, PM Gordon Brown and Chancellor Alistair Darling moved decisively on October 8 announcing a £500bn rescue package for the UK banking system, in which the government took major stakes in both RBS and Lloyds/TSB.

On the same day the ECB finally bowed to the inevitable when it cut eurozone interest rates by 0.5 per cent as part of a programme of rate cuts by the world's central banks.

On October 14, Brian Lenihan unveiled his maiden budget, which had been brought forward by seven weeks in response to the deepening economic crisis. Why did he bother? Apart from burdening the economy with a further €2bn of taxes it did nothing to tackle runaway public spending but incurred the wrath of every pensioner in the country by scrapping medical cards for the over-70s. A rapid climbdown on the medical card issue was followed by a series of further embarrassing retreats which quickly made a nonsense of the Government's budgetary arithmetic.

On October 21, developer Michael Taggart became the first high-profile casualty of the property downturn when his firm Taggart Holdings was placed in administration. Three days later Sean Quinn sensationally stepped down as chairman of Quinn Insurance when it was disclosed that the insurer had made an unauthorised €288m loan to another Quinn Group firm.

November

On November 6, the ECB cut interest rates once again by a further 0.5 per cent to 3.25 per cent. Implicitly conceding that it had got it totally wrong when it raised rates in July, ECB president Jean-Claude Trichet signalled that there would be further rate cuts to come.

Then on November 24, UK Chancellor Alistair Darling further upped the pressure on hard-pressed Southern retailers when he cut the British VAT rate by 2.5 per cent to just 15 per cent. After Brian Lenihan increased the Irish VAT rate to 21.5 per cent, the yawning 6.5 per cent cross-border VAT gap and the euro climbing to record highs against sterling led to five-mile long tailbacks of Southern-registered cars on the Newry bypass at weekends.

December

December opened with Ryanair renewing its efforts to take over Aer Lingus. However, this time around Ryanair was offering just €1.40 a share, only half of what it was prepared to pay two years ago.

Once again Aer Lingus boss Dermot Mannion rejected Michael O'Leary's overtures. Stand by for plenty of fun and games out at Dublin Airport in the New Year.

On December 2 the Department of Finance published Exchequer returns showing an €8bn deficit for the first 11 months of the year. With the full-year deficit now likely to be close to €9bn the New Year budgetary arithmetic was already obsolete a full month before 2009 had even begun.

Two days later an increasingly desperate ECB cut interest rates yet again, this time by a record 0.75 per cent. With even the mighty German economy now in recession, Trichet's earlier inflationary fantasies have given away to a belated recognition that interest rate cuts are needed to avert economic Armageddon.

Heineken announced it was closing the Beamish brewery in Cork, with 120 jobs gone.

Then on December 18, Sean FitzPatrick sensationally resigned as chairman of Anglo Irish when it was revealed that he had concealed €87m of loans from Anglo by temporarily transferring the loans to Irish Nationwide a few days before Anglo's year-end and moving them back again after the start of Anglo's new financial year. Seanie was followed out the door by Anglo chief executive David Drumm.

This finally brought the Irish banking crisis to a head. On December 21, the shortest day of the year, the Government bowed to the inevitable and agreed to pump €7.5bn into AIB, BoI and Anglo.

With the share prices of the Irish-owned banks having fallen by a further two-thirds since the deposit guarantee had been announced 12 weeks earlier, the truth is that the Government didn't have any choice. However, with the bad debts of the Irish-owned banks likely to be a multiple of €7.5bn, stand by for further bank bailouts in the New Year.

- Jane Suiter, John Reynolds and Dan White