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Archive for May, 2012

(The new properties added in April 2012, click to enlarge)

NAMA has today published its now regular monthly list of properties subjected to foreclosure action – the list shows NAMA foreclosed properties at the end of March 2012. The full list is here, the list of new properties added is here, and you will find previous editions of the monthly list which was first launched in July 2011, here. It is hoped to have the list in a spreadsheet format shortly, available here.

 

You should read the full list of NAMA’s terms for accessing the lists here. But in summary, this is what you’re looking at:

(1) Real estate property subject to loans in NAMA to which receivers have been appointed. The receiver’s website is shown against each property.

(2) This is all the real estate foreclosed sorted by country, and then region.

(3) Not all of the property may be for sale.

(4) Contact the receiver with enquiries or expressions of interest in the first instance. Only pester NAMA if you’re not getting any response from the receiver and make allowances for receivers being busy with queries, particularly after a new release of foreclosed property.

(5) If you think there are mistakes on the list, contact NAMA.

Comment and analysis here shortly.

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This morning, the Central Bank of Ireland (CBI) has released its monthly snapshot of the state of Irish banks focussing on deposits and lending. The data covers the period up to 30th April 2012 and shows that during the month of April 2012, deposits by ordinary households and businesses actually increased substantially at the so-called “covered” or State-supported banks – essentially the two pillar banks, Bank of Ireland and AIB, and also Permanent TSB. The increase of €3.7bn from €103.9bn in March 2012 to €107.6bn in April 2012 was the biggest monthly increase since before the bailout in November 2010. Deposits are now back at May 2011 levels which is indeed very positive but are still down €17bn from October 2010, the month before the IMF/EU bailout. Private sector deposits fell at covered banks in the past 12 months by €0.6bn from €108.2bn to €107.6bn, but most of that fall took place in May/June 2011 when the intensifying Greek crisis undermined confidence across the PIIGS countres. After four months of modest rises and with a €1.2bn increase in March 2012 and €3.7bn in April 2012, I think it is fair to say there are tentative signs of stabilisation and growth. The CBI commentary on the figures is here and the main source for the increase is “repurchase agreements” at “Other Financial Intermediaries”.

The CBI doesn’t provide an analysis of deposits at the covered banks – about the only analysis it doesn’t provide – but in terms of all banks operating in Ireland including foreign and IFSC banks, Irish household deposits decreased by €83m in April, which brings such deposits to €92.0bn, the same as the June 2011 level. Total deposits from all sources in all Irish banks fell €5bn in April, mostly as a result of a decline of €6bn by Monetary Financial Institutions (MFIs, see below).

This morning has also seen the publication of the fourth “Deposits trends” note by the Department of Finance which confirms what the CBI is saying, and it shows retail deposits at the covered banks increasing by €2bn in April 2012 and such deposits now stand at €151bn. These figures include deposits at overseas operations of Irish banks eg the Bank of Ireland/Post Office joint venture in the UK. However the Department does say that one half of the increase in the month is from deposits at Irish branches. So again, the bouquet is positive, and should be welcomed as good news.

Here is the full set of deposit statistics for the different categories of bank operating in Ireland.

First up is the consolidated picture for all banks operating in Ireland including those 450-banks based in the IFSC which do not service the domestic economy.

Next up are the 20 banks which do service the domestic economy and include local subsidiaries of foreign banks like Danske, KBC and Rabobank. There is a list of all banks operating in Ireland here together with a note of the 20 that service the domestic economy.

And lastly the six State-guaranteed or “covered” financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS – Anglo and INBS have now been merged to form the Irish Banking Resolution Corporation, IBRC)

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank ofIreland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outside Europe)

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A judgment in Dublin’s High Court which was delivered on 29th March 2012 but only published yesterday throws detailed light on the financial affairs of Limerick solicitors (and developers) Paul O’Brien and Denis McMahon.

The case itself is of peripheral interest, it involves companies in which Paul O’Brien – pictured here with former taoiseach Brian Cowen – was formally a principal and these companies were suing three individuals over a property deal in Clonmel. The Paul O’Brien companies, Greenband Investments and Mount Kennett Investment Company had receivers appointed by NAMA earlier this year.MountKennett and Greenband are both said to face liquidation, “an event said to [be] highly likely” according to the judgment.

Both companies had originally been represented by Limerick law firm, McMahon O’Brien in which Paul O’Brien and Denis McMahon were partners, and the case is noteworthy for awarding costs to the law firm so that Messrs O’Brien and McMahon might financially benefit from the judgement though it is left open to NAMA to seek to recover anything paid to that law firm.

The judge seems to criticise a Paul O’Brien-related company for not making clear during the course of proceedings that the company had in fact sold its interest in a property, a matter which the judge seems to feel to have been significant.

The judge also seems to criticise NAMA’s receivers for pursuing a matter which might not make economic sense, though the judge acknowledges that timing issues might have been at play to offset the warranting of such criticism.

An affidavit placed before the court by the NAMA receivers indicates that Paul O’Brien owes NAMA €287,778,118 and has assets worth only €86,991,591 indicating that he is in negative equity to the tune of €200m. And that Denis McMahon owes NAMA €35,500,499 and has assets of €21,692,000 indicating negative equity of €14m. Together both men owe NAMA €323,278,617.

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The Nationwide Building Society has this morning published its UK House Price data for May 2012. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £166,022 (compared with GBP £164,314 in April 2012 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 10.8% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of March 2012 being GBP £166,022 (or €207,378 at GBP 1 = EUR 1.25) is 32% above the €157,360 implied by applying the CSO April 2012 index to the PTSB/ESRI peak prices in Ireland. The average home in Northern Ireland in Q1, 2012 was worth €168,347, according to the University of Ulster/Bank of Ireland survey.

With the latest release from Nationwide, UK house prices have risen 2.0% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 817 (because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK, small changes in UK residential have a negligible impact on the index) meaning that average prices of NAMA property must increase by a weighted average of 22.3% for NAMA to breakeven on a gross basis.

According to the UK’s Office for Budget Responsibility which independently monitors and comments on the UK economy, house prices are projected to fall by 0.4% in 2012 before increasing by 0.1% in 2013, 2.5% in 2014 and 4.5% in 2015 and 4.5% also in 2016.  UK inflation remains elevated at an annualized 3.5% in March 2012, and is set to be close to 3% in 2012 – remember that UK inflation has increased by over 15% since their peak whereas in Ireland inflation has been subdued and is one third of that – the UK has pumped GBP0.3tn of “quantitative easing” into its GBP1.5tn economy. UK interest rates may increase later this year to combat inflation – the base rate has been 0.5% since February 2009.The UK economy is projected to grow by an anaemic 0.8% in 2012 in real terms, close to our own Department of Finance’s projection for Ireland at 0.7%.

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Above, artists impression of characters from the Spanish banking world that might become familiar to us over the coming months – Miguel “Los Dedos” Fingleton and Juan Fitzcaraldo

It was our own Minister for Finance, the late Brian Lenihan who said of the crisis confronting Ireland in November 2010 on the eve of the first bailout “I had fought for two and a half years to avoid this conclusion. I believed I had fought the good fight and taken every measure possible to delay such an eventuality and now hell was at the gates” Today it seems that Spain has finally arrived at the same staging post with its 10-year bond at record highs of 6.7%, with turmoil in its banking and bank regulation system, and with the ECB being distinctly unhelpful. Presumably the ECB is drafting a letter along the same lines as the one served on Brian Lenihan in November 2010, reminding Spain of the unprecedented assistance being graciously provided by the ECB to Spanish banks and warning that should Spain do anything to threaten bondholders then the ATMs might or might not be working next week.

Spanish funding requirements – how much and when?
Spain needs funding under three headings (1) for its deficit (2) to repay maturing debt and (3) to bailout its banks. The latest forecast from the EU is that Spainwill have a 6.4% deficit in 2012 meaning it will need find €64bn in its €1tn economy to fund the gap between this year’s income and expenditure. What about deficits for 2013-2015? Spainexpects to get back to a balanced budget by 2014 but it’s not looking promising, so easily add another €50bn for 2013-2015 deficits. The maturity profile of Spain’s €800bn of debt is difficulty to come by, but it has reportedly  €118bn of maturing debt that needs to be refinanced before the end of 2012 – add say €80bn times three for 2013-2015 and it needs €358bn under this heading. As for the banks, who knows, and indeed who knows how much further Spanish property prices have to decline but the betting on here is that the sub-25% decline from peak is not the end of that story and that unprovisioned losses of about €250bn might be lurking in the books of Spanish banks. All of this comes to over €700bn.

Spanish bond yields
Today the 10-year bond reached a record of 6.7% which was equalled last November 2011 on the eve of the announcement by the ECB that it would pump colossal amounts of cash into the EuroZone banking system, a promise fulfilled in December 2011 and February 2012 when €1tn of lending for 3-years at 1% was hosed around Europe. There is no magic number which compels a country to seek a bailout – in Ireland’s case our 10-year bond was at 6.9% at the start of November 2010 when Ireland sought its first bailout and Portugal’s 10-year bond yield was 8% on the eve of its bailout. This has led some to conclude that 7% is the magic number, but in truth it could be less than that, especially given that the existing European Financial Stability Fund is lending to Ireland,Greece and Portugal at 3.5%. Why would Spain accept a situation where it paid 6.7% for its bonds when it might potentially access EFSF funding for 3.5%? Of course even at notional rates above 7%, a country might prefer to borrow small amounts in order to avoid reputational costs and conditionality that would accompany any bailout.

The Spanish banks
The last fortnight has seen a flurry of activity to help shore up Spanish banks which are widely believed to be harbouring nasty undisclosed losses stemming from the collapse of the property boom which was as much a feature of Spain’s economy of the 2000s as Ireland’s, yet so far Spanish residential property is down less than 25% from peak (compared to 50% in Ireland) and Spain’s paltry billions of bailout funding offered to its banks from its so-called FROB are dwarfed by the €68bn – equivalent to 45% of our GDP and over 50% of our more representative GNP – which the Irish bank bailout has so far cost. In Ireland Sean Fitzpatrick, the former chairman of Anglo, and Michael “Fingers” Fingleton, the former boss at Irish Nationwide Building Society have become the poster boys for our failed banks, but do we think the accusations of greed and incompetence against Irish bankers will not be reproduced as the Spanish crisis unfolds?

The ESM
The European Stability Mechanism (ESM) is set to come into existence in July 2012, that is, in five weeks time. This is a year earlier than originally planned. Minister for Finance Michael Noonan advises that the ESM will be the main funding source for new applications from July 2012. If Ireland votes “Yes” tomorrow and if the Government ratifies the ESM Treaty by the start of July – something thrown into doubt by the apparent commitment by the Government not to ratify the ESM Treaty until Deputy Thomas Pringle’s court case to force a referendum on the ESM Treaty is heard in June – then we will be providing the ESM with €254m in July. The ESM was to have initial paid in capital of €80bn which would allow borrowing up to €500bn but if Spain does in fact need a €700bn bailout then we may need accelerate our contributions. And remember we may be on the hook for €11.145bn or more if lending from the ESM to bailout countries is defaulted on, as with Greece.

(Graphics above produced by Japlandic.com, contact here)

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Reporting this morning in the Irish Examiner suggests that another developer has received NAMA’s approval and joins a small band of developers currently working with the Agency. Bovale Developments, the company controlled by the Bailey brothers from Roscommon, Michael and Thomas – or plain old Mick and Tom – owns substantial land-banks in and around Dublin and in an audit statement to accompany unpublished accounts for what is a private company which is reported today, it is stated that NAMA has approved Bovale’s business plan. The Bailey brothers were controversially implicated in the Flood Tribunal of having made payment to disgraced Fianna Fail politician Ray Burke in return for planning permission favours. It was alleged that Michael Bailey paid IR£ 40,000 to Ray Burke and when asked by an associate whether or not a receipt might be forthcoming, is said to have replied with the immortal words “will we fuck”

On the basis of the reporting today, the Drowned and the Saved of the NAMA Top 30 developers is being updated below.

 

It should be said that NAMA has approved business plans for other developers, eg the Grehan brothers, Ray and Danny, but has subsequently taken high-profile enforcement action, so business plan approval is not necessarily a guarantee that there won’t be a falling out in the future. And it seems that Bovale is far from healthy with unquantified losses reported for the years ending June 2010 and June 2011, and the audit statement makes clear that the company’s liabilities exceed the company’s assets.

The NAMA Top 30 above is a list of developers suggested by newspaper reporting and there has not been any confirmation or denial by NAMA that any individual or group is amongst the largest-scale borrowers at the Agency. There has also been reporting which indicates NAMA is working with developers not categorised above, eg Gerry Gannon whose 49% share in the K Club was recently sold to Michael Smurfit and Castlelands Construction which was recently reported to have sold a 450-acre land-bank beside Cork city for €7m. NAMA is understood to have funded the development of residential property at the Dun Laoghaire golf club which is controlled by the Cosgraves. Just a fortnight ago, it was reported that NAMA was funding the development of the Charlestown shopping centre in Finglas which is reportedly controlled by Bovale. And on the negative side, NAMA has taken possession of an art collection formerly belonging to Noel Smyth, though the Square shopping centre in Tallaght which is Noel’s flagship Irish development has received support from NAMA. The Courtney O’Reilly receivership relates to involvement in Bernard McNamara’s Radora Development and its development at Elm Park.

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If you ask the Government what it has done to deal with this country’s debt, particularly the debt arising from the €68bn* bank bailout, you will get a three-part response. Firstly the Government claims to have saved the State €10bn through negotiating a reduction in the bailout interest rate from about 6% to 3.5% last July 2011, secondly the Government has saved €5bn by negotiating deals with subordinated bondholders at the state-guaranteed banks and thirdly the Government negotiated a deal whereby the €3.1bn payment of the Anglo Promissory Note in March 2012 was deferred.

On the first you might rightly point out that the interest rate reduction was secured on the shirt-tails of Greece’s woes and that Ireland had to give corporate tax concessions for the reduction, something Portugal didn’t have to provide even though Portugal got the same interest rate reduction on its €52bn EU bailout (Ireland’s EU bailout is €45bn).

On the second, the Government has indeed saved us €5bn on subordinated bondholders. Having said that, Fianna Fail and the Greens saved us €10bn on subordinated bondholders up to March 2011, so all the Government did was continue the same programme of negotiations. And indeed the Government was met with more legal challenges, some of which are still ongoing eg the Fir Tree case in New York.

But on the third, it seems that you will shortly be able to say “what deal?”. Remember the outline of the “deal” was that NAMA would temporarily pay the promissory note in March until Bank of Ireland had ratified with its shareholders a deal whereby it would loan IBRC the €3.1bn for a year, after which the Government would seek to get the bond markets or Troika to fund the payment. The Minister for Finance, Michael Noonan issued a Direction to NAMA to provide the temporary loan for a period of up to 90 days. In fact NAMA loaned IBRC the €3.1bn for 60 days which expires on 30th May, 2012 – that’s today and it looks as if “the deal” is now in tatters.

Bank of Ireland was to have held an Extraordinary General Meeting to approve the Bank of Ireland board’s nod to the Government that it would provide temporary lending. 53 days after the announcement of the “deal” in the Dail by Minister Noonan, there is still no notice of any such EGM. And today, NAMA’s loan runs out.

Will NAMA renew its €3.1bn loan for another 30 days to an institution which is bust? Where the planned source of funding – Bank of Ireland – is showing no signs of agreeing to provide that funding? All for a total interest return of 2.35%? Or will NAMA do what it should have done in March and seek a judicial review of the Direction, have its board, particularly the non-Irish former-IMFer, Steven Seelig, speak out about political intereference? Minister Noonan’s Direction issued on 29th March, 2012 told NAMA to extend facilities to IBRC for up to 90 days which expires at the end of June 2012, so the betting is that NAMA will renew for 30 days its loan “on commercial arms-length terms” to one of the most bust banks in history, with serious doubts that NAMA will get repaid at the end of June.

It’s funny that even An Taoiseach Enda Kenny has gotten involved in the Quinn shopping centre machinations inKiev,Ukraine where there are accusations of “raidering” whereby the €50m shopping centre is being stolen from beneath Anglo’s noses. And we hold our noses at the corruption in Ukrainian courts and business generally. And yet here in Ireland, we have the farce of Minister Noonan “raidering” NAMA’s coffers to support a deal which looks as if it is coming off the rails, and which may substitute €3.1bn of cash in NAMA’s books with a doubtful loan to IBRC. “Classy” as the Americans would say. It certainly tarnishes the three accomplishments of reducing the debt burden, about which the Government is so proud.

*So far the Government has pumped €62.8bn of funding, cash and promissory notes, into the six state-guaranteed banks, AIB, Anglo, Bank of Ireland, EBS, Irish Life and INBS plus NAMA has paid €5bn in state aid to the banks in acquiring its loans

UPDATE: 30th May, 2012. The Sunday Business Post website is reporting that a NAMA spokesperson told Bloomberg News that the loan from NAMA to IBRC has been extended to the end of June 2012. No further information on the extension is provided.

UPDATE: 31st May, 2012. Bank of Ireland issued a circular announcing the EGM yesterday afternoon. The Bank’s board is recommending acceptance for four reasons, the margin, the benefit to the wider economy, protections and a guarantee of repayment from Minister Noonan. There is NO MENTION of the fact that the Irish government bond repayable on 18th April, 2012 is presently paying 4.62%. So the “protections” which have not yet been disclosed in detail may account for the difference between the 2.35% that Bank of Ireland is earning versus the 4.62% it could get on the open market. The “protections” are described as follows : “The Agreement contains several provisions which protect the Bank against market, liquidity and credit risk. These features include early termination provisions, daily margining requirements and protections in the event that the Bank is unable to fully finance the purchase of the Bonds under the standard ECB open market operations.” The EGM is set to take place on 18th June, 2012 and reporting suggests that NAMA has extended its loan to IBRC until 20th June 2012. Bank of Ireland is set to loan IBRC €2.83bn based on the ECB discounting the value of the collateral by 5.5% (this is not quite clear because the bonds were to have had a face value of €3.5bn) but it will seemingly mean IBRC has to rustle up €180m from its own cash to add to the €2.83bn to pay NAMA back its €3.06bn. Curiouser and curiouser…

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“The perception of Irelandexternally is very positive. We have taken the right decisions and are moving in the right direction. We would not be in the position we are in right now if we had not gone down the NAMA road” NAMA chairman Frank Daly speaking to the Financial Times about the application of a NAMA-type solution toSpain’s banking woes

When Ray Kroc was opening his first franchised McDonald’s fast food store in 1955, how could he have imagined that it would grow to over 30,000 stores today. The simple format of basic tasty food worked worldwide and backed up by sound management, the company is one of the most successful in the world. Last night as I read NAMA chairman Frank Daly’s comments provided to the Financial Times about the prospect of Spain adopting a NAMA-type model to sort out its banks, there was a momentary flash of Ireland starting a new service industry which could be franchised and exported across the globe. And there might be something in that, but first of all Spain will need to decide if the NAMA model is suitable for its intensifying problems.

The recent background to Spain’s problems is that its general economic difficulties with deficit, economic growth and unemployment are being exacerbated by problems in its banking system, seemingly caused by losses on loans to the property sector. There is a blogpost on here which examines Spain’s property and banking sectors and concluded that the country appears to have a similar profile to Ireland, but unlike Ireland its property market hasn’t been resolving itself with price declines of just over 20% compared with 50% here, despite similar levels of over-construction and the conclusion was that its banks may be sitting on losses akin to those uncovered in Irish banks, losses which if shouldered by the Spanish people would lead to the Spanish debt:GDP equalling that of Italy, Portugal, Ireland – around 120%.

This blogpost sets out 10 questions that Spain might ask itself before adopting a NAMA-type solution to its banking problems.

(1) What banks need to be NAMAed? Spain has a highly developed banking system with international, national and regional banks. If the Spanish government is to take control of certain banks, it makes sense to have the relevant assets of all of those banks transferred to NAMA. In Ireland we have NAMA with a current portfolio value of just over €25bn competing with IBRC, a 100% state-owned bank with €17bn of loan assets which is also running down its loan book in the same time frame as NAMA. So, in addition to duplication of effort, we have competition for sales and resources between state-owned agencies, which in turn compete with banks outside the State’s control eg Ulster Bank, Bank of Scotland (Ireland)

(2) How big are the losses in the banks? In Ireland there was an initial assumption that the losses on property lending were only 30% whereas in fact, it turns out that they were more than 60% – NAMA paid 43c in the euro for loans, but a recent report by the Comptroller and Auditor General claims NAMA overpaid by 20%. If the losses are too great in any individual bank, then NAMA may not be suitable for that bank.

(3) What is the limit of losses that can be shouldered by the nation?Ireland has so far shouldered €63bn to bailout our banks which represents 40% of our GDP. In addition we found out last week that NAMA had provided €5bn of state-aid to the banks, so the true cumulative current cost of our bank bailout is €68bn and if the mortgage crisis explodes or deleveraging proves more difficult than expected, then that may well grow. So Ireland’s debt:GDP of 120% in 2012 is one third due to bank debt. Many economists believe this debt is unsustainable and will need be restructured or defaulted on. Spain has debt:GDP of  over 70% but that is forecast to rise to over 80% this year. If it takes on the same proportional amount of debt as Ireland did to rescue its banks, its debt could balloon to 120%. If Ireland had known that its 25% debt:GDP in 2007 would balloon to 120% in 2013, then it is likely that as a society, other solutions would have been pursued.

(4) What activity are the losses associated with? In the UK they had losses with banks investing in US subprime mortgages. In Ireland we had banks over-lending to various domestic property sectors. NAMA is suitable where is there is uncertainty or doubt over the value of problem assets. For example if the problem was exposure to sovereign debt, then that should be quite easy to calculate, but with property lending, the value of the loan may be a direct function of the present value of the property and that can be difficult to ascertain and unless there is a NAMA process, potential investors and lenders may be deterred from working with banks whose assets have doubtful value. Also it will be no good to deploy a NAMA scheme to a small subset of assets which are of doubtful value. NAMA needs to be part of a campaign which ensures banks are substantially relieved of doubtful assets and are recapitalised to an extent that they act to support the economy.

(5) How competitive is your legal, accounting, insolvency and property professional services? NAMA is spending a fortune on Irish professional services which are amongst the most expensive in Europe. NAMA’s costs are expected to be €1.4bn over its lifetime which represents less than 5% of the assets it initially acquired.

(6) Are prices still falling, when will the bottom be reached and what will the declines have been at that stage? In Ireland’s case it was hoped that late 2009 would have been the bottom of the property cycles and that NAMA could easily nurse distressed lending and the underlying property for a short period before disposing of these assets at prices above what had been paid. Yield analysis was notoriously deployed to demonstrate that the Irish property markets were at, or were close to, the bottom. As it happened, yield analysis was inappropriate to an economy in extreme distress, and since late 2009, both residential and commercial property has declined by 20%-plus. The consensus is that we are a year off the bottom for residential property and possibly less for commercial property. But this means that 2.5 years into NAMA’s life, the Agency is nursing huge losses and the Comptroller and Auditor General said last week that it would be a challenge for NAMA to break-even by 2020. NAMA’s ultimate loss will be shouldered by the nation, so that has to be taken into account when deciding how much is too much debt.

(7) Will the valuation process be credible? Here’s where there might be a franchising opportunity for NAMA. Its valuation process was approved by the European Commission which has also approved the detail of one third of NAMA’s acquisitions. Without intending any disrespect to the Greek people generally, I don’t think there would be a lot of trust in a Greek NAMA because of the perception of political corruption. What about a Spanish NAMA?

(8) Will the political structures allow NAMA to operate independently? If NAMA can’t place trustworthy values on the assets it acquires or is prevented from acting naturally to manage its assets, then you risk exacerbating distortions which can have unhealthy economic effects eg undermining property transactions. Of politicians get to own or control substantial amounts of assets, then experience tells us that we don’t always get corruption-free outcomes.

(9) Will the assets acquired by NAMA lead to unhealthy distortion in the marketplace? In Ireland, NAMA has acquired €6-7bn of commercial property lending in a market which was only worth €0.5bn in 2011. So NAMA has a dominant position in that market. The Agency has seemingly decided to generally hold its Irish commercial assets, which means the market is awaiting an artificially-removed-from-the-market loanbook to come back onto the market, and that anticipation encourages a stagnation of the market with expectations of price drops when supply increases.

(10) How robust is your legal system? In Irelandthere have been three challenges to the NAMA legislation, the first taken by developer Paddy McKillen was partly successful in Ireland’s Supreme Court and practically meant that NAMA did not acquire Paddy’s loans. The second was taken by David Daly but that seems to have been settled when David refinanced his loans out of NAMA and the legal matters at issue never got an airing or judgment. The third was taken by Treasury Holdings which has been given permission to pursue a judicial review of NAMA’s dealings with its loans and that hearing has yet to take place. If your legal system has holes in it, then wealthy developers and others will line up to take pot-shots at NAMA.

There are alternatives to NAMA. If the losses are too great, then all NAMA will do is crystallise colossal losses and unless there is a plan to provide adequate funding to replenish the capital lost through the NAMA process, then other options such as winding up insolvent banks need to be considered. The British solution was to throw extra cash at the banks to tide them over what was considered a temporary crisis, but if the crisis persists then the banks are still left with assets of doubtful quality which will act to deter investment and lending to banks, which in turn will lead to credit restrictions and the spancelling of economic growth. The perspective on here is that a NAMA-type solution has its place in the Spanish example, but it should sit alongside winding-up banks and temporary extraordinary assistance.

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Contrary to common perception, NAMA doesn’t have the overweening dominant position in Ireland’s residential property market that is commonly ascribed to the Agency. Sure, it is associated with 9,200 rented homes which makes it a very significant player in the residential rented market, but has only 4,000 partly completed homes in addition, so in a market with 2m dwellings, with 290,000 vacant dwellings of which 60,000 are holiday homes and where it is estimated there is a national overhang of 80-100,000 dwellings, that is, an excess over long term average vacancies, NAMA’s presence in the residential market is significant but it is not dominant.

Unlike in the Irish commercial market, where NAMA has acquired €9.25bn of loans secured by commercial property – the €9.25bn is the NAMA acquisition price as at November 2009 and it is estimated on here that the underlying commercial property is worth €6-7bn today. In a country which saw less than €0.5bn of commercial property transactions last year, NAMA’s latent influence on the commercial property market is indeed dominant.

And these loans need to be managed and ultimately resolved by 2020 when NAMA has to pay back its bonds and wind down. That’s eight and a half years away but already there is anxiety about the timing of disposals in the Irish market. And unfortunately for NAMA, it is not alone in the market, and other players may pre-emptively pull the rug from underneath NAMA. The latest mega-block of loans to come on the market is the AIB so-called “Project Kildare” reported by the Financial Times yesterday. Seemingly worth €675m at par value, the loans might only be worth less than half that today in Ireland, a market where commercial property has already fallen 65% from the peak in 2007, and despite the stimulus package in the last Budget announced in December 2011, prices still seem to be sliding according to the two commercial property indices from Jones Lang LaSalle and SCSI/IPD..

The sale process for Project Kildare is being run by Morgan Stanley, according to the FT.Elsewhere Lloyds Bank is offloading €360m of commercial property loans under its “Project Prince” scheme and Ulster Bank is making slow progress in the sale of a €1bn portfolio first announced on here in March 2012. Meanwhile IBRC has a €17bn portfolio of loans including commercial real estate loans it needs dispose of within the next six years. Bank of Ireland and AIB have both substantial 2014 deleveraging targets which will see even more commercial property loans come onto the market. So we’re all set on the supply side of the market, the question is who will buy all of these assets? NAMA announced last week that it expects to make €2bn of staple finance available on its commercial assets, and the view on here is that all of this will be offered in Ireland.

NAMA is understandably upbeat about the prospects for a stabilisation or recovery in Irish commercial prices, but with €6bn-plus of commercial property loans under their belt, they would say that wouldn’t they. NAMA has prioritised the disposal of non-Irish property/loans, but sooner or later, it will need confront this elephant on its books.

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If Carlsberg did property collapses…then you would expect the collapse in the value of residential property prices in the Republicof Irelandbetween 2007 and today to be close to tops. After all, that is what the league table of Reinhart and Rogoff’s global property busts tells us. Adjusting the figures below which are from 2009 to 2011, theRepublic ofIreland would be in second place after Hong Kong 1997-2003.

The Republic’s bust has seen property decline 49.9% from peak in nominal terms, that is taking the actual settled price in 2007 and the actual settled price today. In real terms, taking into account the fact that inflation should have pushed up the price of our property by 1.9%, our residential property has declined 50.8%. Which is a colossal decline, and the betting is that nationally we have further falls in prospect.

But over the Border in Northern Ireland, there’s an underappreciated phenomenon unfolding with prices there having declined by 54% in real terms. This morning the quarterly University of Ulster/Bank of Ireland house price series has been released and it shows that the average settled selling price of a home in Northern Ireland in Q1, 2012 was GBP 134,560 (€168,347) which represents a decline of 1.9% from the previous quarter and a decline of 46.3% from the peak of GBP 250,400 (€313,274) in 2007.

On this side of the Border, the publication last week of the Central Statistics Office monthly residential property price index showed that prices here have decline 49.9% from peak and given our peak price of €313, 998 according to the PTSB/ESRI index, that indicates national prices here today of €157,360. So the nominal decline in the Republic is greater than inNorthern Ireland, which might be expected.

But if you consider inflation in the Republic is a mere 1.9% since the peak whilst in the UK it is a staggering 16.7%, the real decline in the Republic is 50.8% and in Northern Ireland, it’s 54% which would appear to be world record, at least according to the Reinhart and Rogoff league table.

Given that Northern Ireland doesn’t have a major problem with vacant property unlike the Republic – its vacancy rate is 7% which is pretty much in line with international norms whilst ours is 14%; given that Northern Ireland has an unemployment rate of 6.8% which is one half of ours and given their banks are no worse and are probably in better condition than ours, isn’t it truly remarkable that their property crash is worse than ours?

Of course in the Republic we have oversupply but there is suspicion that it is being withheld from the market by banks and developers who don’t wish to crystallise losses on loans. Although our mortgage arrears problem has become a crisis with 15% of mortgages in arrears or restructured, and with one in 13 mortgages in arrears for more than six months, there is massive forbearance on this side of the Border with repossession rates on defaulting mortgages running at a level of less than a quarter that of Northern Ireland. It is likely our draconian bankruptcy regime and forbearance is preventing repossession and sale of homes whose mortgages are unsustainable. Our banks aren’t lending for new mortgages as revealed a fortnight ago with just 2,200 new mortgages for home purchase approved in Q1, 2012.

Elsewhere theNorthern Ireland survey shows that transactions in the quarter remained at a low level of 925, down from 960 in the previous quarter. The authors of the report – Professor Alastair Adair, Professor Stanley McGreal and Dr David McIlhatton – said: “We consider the generally weaker market in the first quarter of 2012 reflects a lack of confidence arising from the poor performance of theUK economy, with buyers still deferring decisions because of economic uncertainty, rising bills and concerns about job security.” Hmmm, what’s the outlook on this side of the Border.

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