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Archive for August, 2012

It was the top price residence sold in 2006 at €31m, and today it on the market with an asking price of just €5m. Gortanore, the 2,500 sq ft house on 3 acres of prime development land in upmarket Foxrock, south Dublin was bought by David Arnold’s D2 in 2006 and was the €31m was the top price paid for a residence in that year. Like that other white elephant, the €58m Sean Dunne-associated Walford on Shrewsbury Road, the purchase of Gortanore was followed  by a fraught planning application, fiercely opposed by locals. Eventually permission was granted for the demolition of the house and the construction of a mixed use development with  37-apartment, shops, office space with 90 car-parking spaces.

O’Mahony Pike, the architects for the scheme, had attracted criticism from Foxrock residents who said that the design was out of keeping with the Edwardian style that made up the original neighbourhood.

The plans were met by 52 local objections. Despite this, Dún Laoghaire Rathdown County Council granted permission to demolish the house and outbuildings and build 37 apartments in three blocks with a gym and conference room, shops and commercial space at street level, and 90 car-parking spaces, 84 of which are at basement level. The apartments, on the edge of Foxrock village, are 1,800-3,000sq ft  in size and are designed to have a full-time concierge. A development of apartments with similar aspirations was built close-by by Sean Dunne at Hollybrook, also on Brighton Road.

Industry sources suggest the existing plans are unbuildable in the current climate, and that the permission will, in any event, presumably expire next year.

Loans on some of David Arnold’s property did get acquired by NAMA, for example One Warrington Place in Dublin 2 which went on to be NAMA’s first staple finance sale. Loans on other properties stayed with the original lender, for example the Woolgate Exchange in London whose cGBP300m sale recently fell through and No 23 Saville Row in London’s West End, the sale of which for GBP 210m (€270m) was announced by UK commercial property portal CoStar.co.uk today.

The joint agents for Gortanore are Jones Lang LaSalle (listing and brochure here) and local agent Daphne L Kaye (listing here). The current €5m asking price was originally on the latter agent’s listing but this has since been removed and replaced with “price on application”

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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 31st July 2012 and shows that during the month of July 2012, deposits by ordinary households and businesses increased slightly 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 €0.4bn from €104.6bn in June 2012 to €105.0bn in July 2012 continues a trend of stabilising private sector deposits at the covered banks, and over the past year such deposits have increased by €2.4bn. Deposits are now back at May/June 2011 levels though are still €20bn lower than in October 2010 on the eve of the IMF/EU bailout. The CBI monthly commentary doesn’t appear to be available yet.

The CBI doesn’t provide an analysis of private sector 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 fell by €119m in July, which brings such deposits to €92.0bn, the same as the July 2011 level. Total deposits from all sources in all Irish banks declined by  €24.9bn in July with the main cause being a €25bn decline in deposits by Monetary Financial Institutions and the CBI has been asked for a comment.

The Department of Finance last week published its “Deposits Trends” series for July 2012 which showed, according to the Department “deposits at the Covered Banks rose by €1.5bn (1.0%) month-on-month to €154.4bn. This represents an increase of €14.3bn to €154.4bn since reaching a low-point of c. €140bn in July 2011. This demonstrates depositor confidence in the strength of the banking system following its successful recapitalisation last year” These deposits include deposits at overseas branches, in particular at the Bank of Ireland/British Post Office, so they are of limited use, but trend indicates positive 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 outsideEurope)

UPDATE: 31st August, 2012. The CBI commentary on today’s figures is here. There is no comment yet on the €25bn decline in MFI deposits.

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The Nationwide Building Society has this morning published its UK House Price data for August 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 £164,729 (compared with GBP £164,389 in July 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). After three months of price declines, the Nationwide is describing this morning’s results as surprising given the continuing recession. The Nationwide provides comments on the seasonally adjusted figures, which show a 1.3% rebound in August. Prices in the UK are now 11.5% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of August 2012 being GBP £164,729 (or €207,641 at GBP 1 = EUR 1.2605) is 33% above the €156,517 implied by applying the CSO July 2012 index to the PTSB/ESRI peak prices in Ireland.

With the latest release from Nationwide, UK house prices have risen 1.2% 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 803 (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 24.5% 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 has now come down below 3% per annum despite being elevated since the banking crisis in 2007, overall inflation in 2012 is set to stay close to 3%  – remember that UK inflation has increased by over 16% 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 and another GBP50bn has recently been announced. 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 officially 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%.  However both the Bank of England and the Confederation of British Industry have recently projected nil growth or recession in 2012.

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The drip-drip analysis of the results of Census 2011 – taken on the night of Sunday, 10th   April 2011 – continues with the Central Statistics Office (CSO) this morning releasing further information on our housing. Some of the information has emerged previously, but there is both additional detail published this morning as well as totally new information. The CSO’s press release is here and the report itself is here.

Possibly the most striking change in Irish residential property between the previous census in 2006 and Census 2011 was the surge in households renting their accommodation rather than purchasing it. Whilst the overall population of the State grew by 8% between 2006 and 2011, the number of households paying rent to private landlords grew by a staggering 120% from 145,317 to 320,319 – overall renting households increased by 47% from 323,007 to 474,788 but the increase in local authority/housing association renting was much less than the increase in private landlord renting. Research into reasons behind this phenomenon would be interesting, but a mortgage credit drought, declining house prices, rocketing unemployment and an economy which shrank by 10% will all have played a part.

What is just as fascinating on here is the assumption on the part of some that the renting phenomenon evidenced in 2006-2011 was temporary and will be reversed as soon as economic conditions stabilise. There seems to be an assumption that there is some ingrained social need in Ireland to own property. But there was once also a need to be guided by the Church, to be deferential to banks and politicians and to generally acquiesce with the groupthink emanating from Dublin 2/4. Whilst the spurt in the number of households renting might indeed reverse when the economy stabilises, the trend might also continue with a generation still warned off owning property by the experience of the last decade.

Here are the highlights of today’s report:

 

 

 

General

  • Population of 4,581,269 in 2011 up from 4,239,848 in 2006
  • 1,994,845 dwellings in the State up from 1,769,613
  • 1,649,408 households in the State, up from 1,462,296
  • Average household size of 2.73, down from 2.81
  • 56,000 households comprising just visitors or residents temporarily absent
  • 289,451 vacant dwellings in 2011 up from 266,331 in 2006
  • Of the vacant dwellings, 59,395 are holiday homes up from 49,789
  • 474,788 households renting in 2011, up from 323,007
  • Households renting from private landlords increase by 120% from 145,317 in 2006 to 323,007 in 2011
  • Home ownership falls sharply from 74.7% in 2006 to 69.7% in 2011

Vacant dwellings

  • Excluding holiday homes, there were 230,056 vacant dwellings in 2011
  • 168,427 were houses and 61,629 were apartments
  • Dublin has 17,597 vacant houses and 25,333 vacant apartments
  • Longford has 3,758 vacant dwellings, one of the lowest number in the State
  • Cork has 25,987 vacant dwellings, with nearly 20,000 OUTSIDE Cork city
  • Limerick has 9,661 vacant dwellings, with over 7,000 OUTSIDE Limerick city
  • Galway has 15,364 vacant dwellings, with 11,792 OUTSIDE Galway city
  • Mayo has 12,000 vacant dwellings, Donegal 13,000 but Leitrim has only 4,000
  • The vacancy rate including holiday homes is highest in Leitrim at 30.5%

Holiday Homes

  • 59,395 in April 2011 up from 49,789 in 2006
  • Donegal has highest number of holiday homes at 10,636
  • Cork, Kerry and Wexford also have large numbers of holiday homes
  • 777 holiday homes in Dublin
  • Laois has lowest number of holiday homes by county at 149

Rented accommodation

  • 474,488 households renting
  • 130,000 renting from a local authority
  • Households renting from private landlords increase by 120% from 145,317 in 2006 to 323,007 in 2011
  • Average weekly rent is €166 with private landlords, €59 for local authorities
  • Average weekly rent with private landlords fell 7.6% (or €14 per week) between 2006 and 2011
  • Average weekly rent with local authorities rose 0.3% (or 20c) between 2006 and 2011

Mortgages

  • 583,148 households have mortgages (the Central Bank says there are over 750,000 mortgage “accounts” on principal residences, the difference is being investigated)
  • There has been a decline in mortgaged households of 10,000 since 2006
  • 459,805 mortgaged households are described as “at work”
  • 50,792 are described as being “unemployed”
  • 72,551 are described as being “not in labour force”

Foreigners

  • There are 42,724 Polish households in 2011 compared with 18,667 in 2006
  • Over 40,000 Polish households rent, with 1,820 mortgaged households
  • There are 50,506 British households in 2011 compared with 46,277 in 2006
  • Over 31,000 British households own their home
  • There are 36,304 EU Accession households excluding Poles
  • There are 15,840 African households, up from 13,200 in 2006
  • There are 21,646 Asian households, up from 14,517 in 2006

Lifestyle

  • 1,051,942 households have broadband connection
  • 426,096 households are not connected to the internet
  • Only 26,952 households are not centrally heated
  • 2,555 households have no sewerage facility
  • Nearly 500,000 households have their own septic tank or individual treatment system
  • 161,532 households have their own water source

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This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for July 2012. Here’s the summary showing the indices

  • at their peak (various months in 2007 depending on type of property and location)
  • the NAMA valuation date (November 2009)
  • 12 months ago (July 2011)
  • the start of this year (end December 2011)
  • last month (June 2012)
  • this month (July 2012)

The CSO’s indices are Ireland’s premier indices for mortgage-based residential property transactions. The CSO analyses mortgage transactions at nine financial institutions : Ulster Bank, Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank of Ireland group), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The indices are hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first-time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The indices are averages of three-month rolling transactions.

Cash transactions: Unfortunately, this month the CSO has not published information on the overall size of the residential property market, nor the cash/mortgage split. It is hoped that it will be available in September 2012. It is understood that the CSO has started to receive data from the Revenue Commissioners which shows all individual residential property transactions, but the data is still being validated and tested. Why is this information so important? Because at present, the CSO analyses mortgage-based transactions only, and cash-based transactions may be of a different nature, with the perception being that they will value property at a lower level than mortgage-based transactions. Personally I am skeptical because if, as some commentators suggest, residential property prices are in fact down 60% nationally from peak, then this would indicate the cash-based component has fallen by dramatically more than the mortgage-based component. In fact if cash comprises 50% of the market, and the average decline is 60% and the mortgage-based component is down just 50%, this indicates the cash-based component is down a staggering 70% which seems unlikely – what mortgage company valuer will value a property at 50% from peak, if he knows that there are significant numbers of cash transactions at 70% from peak?

Separately we are now expecting the Property Regulatory Services Authority will introduce the new House Price Database in September 2012. In Northern Ireland, last week they introduced a residential property price index based on all transactions.

As for the key questions:

How much does property now cost in Ireland? The CSO deliberately doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, in Dublin in April 2007 at €431,016 and outside Dublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI prices as sound and comparable to prices captured by the CSO series, then these would be the average prices today:

Nationally, €156,157 (last month €155,916, peak €313,998)

In Dublin, €184,584 (last month €185,225, peak €431,016)

Outside Dublin, €142,316 (last month €141,900, peak €267,987)

I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series, as represented by its historical indices, closely correlates with the performance of the CSO indices.

What’s surprising about the latest release? Prices nationally have risen for the second time since September 2007 – yes there have been a few flat months, but this is the second month after May 2012,  since the boom that prices have actually increased, albeit by just 0.2% in one month. The increase however was outside Dublin – Dublin houses fell by 0.3% in the month and Dublin apartments fell by a staggering 3.9% in the month.

 Are prices still falling? No, prices are up 0.2% nationally after a decline of 1.1% in June, the blip increase of 0.2% in  May following a decline of 1.1% in April 2012, it was flat in March 2012 which followed a 2.2% decline in February 2012, 1.9% monthly decline in January 2012, 1.7% decline in December 2011, 1.5% decline in November  2011, 2.2% decline in October 2011, 1.5% decline in September 2011 and 1.6% decline in August 2011.

How far off the peak are we? Nationally 50.3% (52.6% in real terms as we have had inflation of 4.9% between February 2007 and July 2012). Interestingly, as revealed here, Northern Ireland is some 53% from peak in nominal terms and 59.5% off peak in real terms. Are forbearance measures by mortgage lenders, a draconian bankruptcy regime and NAMA’s (in)actions distorting the market? Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?

How much further will prices drop? Indeed, will prices continue to drop at all? Who knows, I would say the general consensus is that prices will continue to drop. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please drop me a line if you think there are any omissions].

What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. Residential prices in Ireland are now down 30.9% from November, 2009.  The latest results from the CSO bring the index to 803 (24.5%) meaning that NAMA will need see a blended average increase of 24.5% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index calculated from mortgage-based transactions. Ireland does not yet have a publicly available register of actual sale prices, but one is finally expected at the end of September 2012 – read the latest on the House Price Register here. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here). In addition Phil Hogan’s Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end to which the transactions relate, and which is not hedonically analysed – it is next to useless.

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What did the bailout Troika ever do for Ireland? They’ve already given us the Fiscal Advisory Council which independently pronounces on whether or not the Government’s plans will help meet our budget targets. You can wave goodbye to the days of Charlie McCreevy and the “if we have it, we’ll spend it” approach. You can largely wave goodbye to cynical giveaway budgets on the eve of elections. The Fiscal Council might have gotten off to a rocky start in 2011 when the Government ignored the recommendation for a bigger budget adjustment, but with the legislative backing of the Fiscal Responsibility Act, you can expect the Council to come into its own in the run-up to Budget 2013.

Next month, we’ll have the House Price Database of all residential property prices from the start of 2010 – that’s the Database that has been called for, ever since the Kenny Report in 1973. The idea of a Database proposed by Judge Kenny in 1973 was universally supported by Fianna Fail, Fine Gael and Labour but somehow, in forty years whenever they were in office, they failed to introduce it until Ajay and the boys and girls from the Troika came onto the scene.

By the end of this year, we should have a reformed personal insolvency regime which tries to bring Ireland into the 20th century, and who knows, if we have honest and effective debates in the Oireachtas, we might even get a regime fit for purpose for the 21st century.  Thanks to Klaus and Craig and the other good people in the Troika, we’ll no longer have draconian 12 year bankruptcy periods but something which tries to balance the needs of borrower and lender.

And in 2013, Ireland will have a central credit registry which will keep track of all your loans, and how well you’re repaying them. It might sound Big Brotherish but it is part and parcel of modern developed economies. It should make getting credit easier for deserving borrowers with a good credit history, and it should stop (mostly our) banks making bad loan decisions. You can wave goodbye to loans being given the nod, just because of cosy rounds of golf with the bank official, it will come down to the brass tacks of what you owe and how well you deal with your debt. And you can thank Istvan and his associates for pushing us to it.

The Bill to create the credit registry will be published in September 2012, but yesterday the Government gave us basic details. The registry will be operated by the Central Bank of Ireland, and will try to capture all commercial and personal credit transactions, so that prospective new lenders can check to see if you – whether “you” are a business or a consumer – can afford a new loan. There is no facility for Joe Public to check other people’s credit standing, but there will presumably be a facility for Joe Public to verify the accuracy of their own standing.

NAMA will be one of the lenders whose information on borrowers will be collated by the CBI, and indeed lending by local authorities will also be captured. The bulk of the information is likely to come from the banks and credit unions.

Another Troika innovation.

And lastly, in defence of the Troika which is likely to receive a lot of political flak in the next four months in the run-up to Budget 2013. Remember we have a colossal gap between what we generate in tax and what we spend on welfare and public services. That gap is not the fault or creation of the Troika, but closing the gap is what the country needs and what the Troika is overseeing. As the Memorandum of Understanding makes clear, the Irish government still has sovereignty and can change proposals in the Memorandum as long as the budget gap is closed. So whether it’s property tax, water charges, PRSI, medical cards or whatever else comes on the agenda in the next four months, our government can make adjustments and substitute different measures as long as they generate the same financial result.

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A recurring theme on here is that NAMA does not have the significant control over Irish residential property commonly attributed to it ,with just 13,000 homes subject to NAMA loans in a country with 2m homes, 300,000 of which are vacant and a country with an overhang of excess property over long-term averages of 80-100,000 homes. NAMA has 8 years to work out its loans, so the annual impact on our residential market is not likely to be significant.

However, NAMA is likely to have a dominant role in commercial property, with €6-7bn of Irish commercial property securing its loans. Remember our commercial property market was worth just €500m last year, and looks set to be worth even less this year. NAMA is the player in Irish commercial property. So it is a little surprising that it doesn’t attract more scrutiny in this area, and we don’t come across more criticism like that reported here today.

Today, Fianna Fail TD for Longford-Westmeath, Robert Troy has accused NAMA of being responsible for the closure of the Harvey Norman furniture store at the Lakepoint shopping centre in Mullingar. The store closed last Sunday with the loss of 22 local jobs, and there doesn’t seem to be much hope of transferring the workers to other stores nationally.

Having met with the Harvey Norman boss for the Irish chain, Deputy Troy (pictured above) says that it was the €200,000 annual rent which led to the store closure and job losses, and he has harsh words for NAMA, accusing the Agency of refusing to engage with the retailer which, it is claimed, made “five concrete proposals” to deal with the high rent bill.

NAMA did launch an initiative last December 2011 to deal with requests from commercial tenants facing serious difficulties caused by high rents. Indeed the latest from NAMA is that it has approved 97% of the 149 requests for rent reductions that it has received, and rejected just 4 requests.

NAMA was asked for a comment on the TD’s comments today, but has not responded at time of writing.

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We love the blame game in Ireland, and perhaps over the summer break, we might have gotten out of practice, so here’s something that might refresh the rage.

The question “is NAMA working” is frequently asked, and in truth, the jury is still out as we monitor how NAMA is managing its assets.

But we can say at this point that the NAMA scheme, or the NAMA design, has failed.

Because of the very high haircuts imposed on loans acquired by NAMA, both Anglo and INBS – which represented the sources of 60% of the loans acquired by the Agency – have become unviable as financial institutions and are being run-down.

As for the other three NAMA financial institutions – AIB, Bank of Ireland and EBS – the €30bn of loans acquired by NAMA were such a tiny fraction of those institutions’ €250bn loan portfolios, that the NAMA process has made diddly-squat difference to their risk profiles. What NAMA actually did was made a bad situation worse, and in all likelihood contributed to the circumstances in 2010, when the market lost faith in our banks, which ultimately led to the Troika bailout.

What is unforgivable is the reckless absence of validation of true loan values before NAMA was formed in 2009, validation which would have shown that the NAMA design couldn’t work. What is sinister is the Wikileaks evidence that there was some private validation which showed the loans were in worst condition that publicly acknowledged, but that validation was never published. “True” loan values will be a moveable feast of course, and as the property market declined, so did the value of those loans, but there doesn’t appear to have been any consideration in 2009 of the consequences of the loans being so badly impaired that even after the NAMA process, the banks would fail and would need massive bailouts.

We saw last week with the publication of the half-year accounts for IBRC – the name of the company formed from the merger of Anglo and INBS – that even after NAMA had extracted €44bn of loans from Anglo and INBS, what remained at IBRC were over €28bn of loans, mostly commercial property with a staggering 66% of the loans impaired. IBRC is closing its residual INBS branches, is not generating any new business and is winding down its loans and operations before 2020. As far as IBRC is concerned, NAMA has done nothing but hasten its descent into its zombified state. In fact, if NAMA hadn’t existed then we wouldn’t have run up eye-watering legal and other professional fees in valuing loans and transferring them from IBRC which after all is 100% state owned, to NAMA which is also 100% state owned. IBRC’s €44bn of loans transferred to NAMA represent 59% of NAMA’s total loan acquisitions.

AIB transferred €19bn of loans to NAMA for which it received €9bn. According to the AIB annual report for 2009, AIB had a total loan portfolio of €123bn. EBS, which has now been merged with AIB, transferred just €0.8bn of loans to NAMA for which it received €0.4bn. According to the EBS annual report for 2009, EBS had a total loan portfolio of €17.2bn. Bank of Ireland transferred €10bn of loans to NAMA for which it received €6bn. According to the Bank of Ireland annual report for 2009, Bank of Ireland had a total loan portfolio of €106bn.

In other words, €30bn was transferred from AIB, EBS and Bank of Ireland out of a total loan portfolio of €246bn. NAMA carefully valued these loans and paid €16bn for them. So the banks received nice clean cash equivalent funds but they had to crystallise large losses. If NAMA had not existed, these banks would be managing those loans today, would be obtaining cash advances from the ECB secured on these loans and would be offering them for sale and generally working out the loans. What NAMA has done is impose a massive administration and cost burden on these banks, forced them to crystallise losses now and deprive the banks of a portion of their stock-in-trade to generate profit and cash flow. If NAMA had not existed, it is hard to see how the operations of these banks would have been disadvantaged today.

It is a fact that deposits at AIB and Bank of Ireland, and non-NAMA bank Permanent TSB, have stabilised and since July 2011, in fact have gently grown. But would depositors have been deterred by AIB/Bank of Ireland having €30bn of property development loans of doubtful value in the context of nearly €250bn of total lending? Given the mortgage crisis that intensified after the NAMA transfers, and the fact that AIB and Bank of Ireland are both heavily exposed to mortgage lending, you would have to challenge the notion that it was the removal of the fraction of loans that went to NAMA, that stabilised the banks and inspired the confidence amongst depositors to stop withdrawing funds. The evidence suggests that it was in fact the stress-testing of the banks in March 2011, followed by massive recapitalisation and the intensive oversight by the bailout Troika, particularly the ECB that boosted depositor confidence. Not the NAMA process.

The NAMA process has transferred an additional €5.6bn in state aid to the banks, state-aid which is mostly represented by the long term economic value premium which the NAMA scheme involved. We, the public are on the hook for this state aid which is additional to the €64.1bn pumped into the banks. NAMA’s early years are proving challenging with loans declining further in value, and you would have to say that in 2012, we cannot be confident that NAMA will break even by 2020, the short to medium term outlook in particular is challenging. The NAMA scheme may have removed a modicum of doubt over the value of the banks, but there has been a transfer of doubt onto the shoulders of the nation, as we wait to see how NAMA performs.

So who do we blame? The late Minister for Finance Brian Lenihan was the minister who approved the NAMA scheme and it was he who led the legislation through the Oireachtas and then defended the Agency from its inception in December 2009 until his departure from government in February 2011. A man for whom there is justifiably a lot of regard, the fact remains that NAMA and the preceding bank guarantee are his legacies. And whilst Brian Lenihan might have sadly shuffled off this mortal coil, his boss, Brian “we are not fucking nationalising Anglo” Cowen deliberately vanished from the national stage in February 2011 but the buck stopped with him.

We can certainly blame the Secretary General at the Department of Finance during 2009, David Doyle and his deputy Kevin Cardiff (picture above) who was subsequently promoted to Secretary General in February 2010 where he clocked in until his ignominious exit/glorious promotion at the start of 2012. Kevin Cardiff might be best remembered for being at the helm when the €3.6bn error in the national accounts was uncovered, but far more serious was the Wikileaks revelation/claim that he had hinted to the US ambassador to Ireland, in early 2009 that the ultimate discount on loans transferred from the banks to NAMA might be 50%, instead of the 30% that was publicly discussed. With a property market still tanking some months later at the end of 2009, it should have been obvious that the discount would have been nearer 60%, at which point, the banks were mostly rendered zombified and in need of substantial further bailouts. And consequently, the NAMA scheme could not have worked.

We can probably blame Minister Lenihan’s special adviser from March 2009, Dr Alan Ahearne (picture above), who, after his adventure at the Department of Finance, returned to lecturing at the National University of Ireland in Galway, and at the same time was ennobled with an appointment to the board of the Central Bank of Ireland. Earlier this year, Dr Alan penned an article for the Independent in which he attacked critics of NAMA, accusing them of moving the goalposts, which was rich when that is precisely what Dr Alan does by advancing as his main justification for NAMA, the saving to the State of working out €75bn of loans over a longer period of time than would otherwise have been allowed under the Troika-mandated deleveraging targets. The problem with Dr Alan’s contention is, back in 2009 when NAMA was conceived, there was no Troika, it only arrived on the scene in November 2010. Dr Alan deserves to be stoned if he is suggesting he had the prescience in 2009 that the country would enter a bailout programme in late 2010 which would involve the mandatory sale of bank of assets. Furthermore it is eminently arguable that it was NAMA’s crystallisation of losses in the banks in March to May 2010 when the first tranche was transferred, which ultimately forced this country into a bailout. Instead of 30% haircuts, we had 60% haircuts and the markets were justifiably spooked with concerns about the remaining loans, particularly commercial property.

And lastly we can probably blame Peter Bacon, the economics consultant who was the darling of the last administration but more recently seems to have fallen from favour, with his Treasury Holdings-sponsored report not doing anything to recover his fortunes. In April 2009, Peter produced a report “Proposal for a National Asset Management Agency” – note that just the abridged version of the report is in the public domain – which addressed €80-90bn of lending in the banks, but failed to address the difficulties that would be caused if the discount on the loans was too severe. Peter’s report did recommend that all doubts be removed on the capital adequacy of banks but only dealt with a quarter of the extant lending, and we now have issues with the residual property lending that NAMA left in the banks, not to mention the residential mortgage books. Of course hindsight is a terrific advantage but looking back at the report today, it is still surprising that no consideration was given to the depth of the hole that NAMA could leave behind in the banks after crystallising losses.

The distinction between the NAMA project and the organisation NAMA should be made. The NAMA organisation has done the job assigned to it in the NAMA scheme, though the jury is still out on how well it is doing that job. It is the NAMA scheme that was wrongly designed, and the singular failure was not validating the loan losses at any early stage. If NAMA had not existed, then we would have avoided colossal administrative costs and time, there is strong evidence we would have avoided a bailout and consequent deleveraging of banks at the behest of the Troika, we would not have the risk of the NAMA operation on the nation’s finances and we would have banks whose expertise was in loan workouts, managing the loans today.

The NAMA design or NAMA scheme did not work.

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It was on the 24th and 25th of July 2012 that NAMA had receivers appointed to companies controlled by Derek O’Leary and Reginald Tuthill, and yesterday in Dublin’s High Court, the Agency lodged an application against some of their companies and also against Messrs O’Leary and Tuthill as individuals.

The case reference is 2012/3264 S and the respondents named are (1) Sandyford Forum Developments Limited (2) Blackthorn Securities PLC (3) Maycombe Developments Limited (4) Stuart Tuthill and (5) Derek O’Leary. As is usual with recently-filed applications, there is no solicitor on record for the respondents.

The applicant is National Asset Management Limited which is represented by Dublin solicitors Beauchamps.

In the past, NAMA has taken legal action against individuals to enforce personal guarantees or to secure personal judgments, but it should be stressed that we do not know if either of these objectives lies behind the current application. NAMA generally doesn’t comment on individual legal cases.

So far this year, NAMA has launched 21 separate actions in Dublin’s High Court and has been on the receiving end of six.

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The view on here is that IBRC will eventually be merged with NAMA; it may take some time – months or years – but it is complete nuts to maintain two 100% state-owned agencies doing precisely the same job – IBRC might still be classed as a bank, but for the purposes of the following it is regarded as a state agency whose sole shareholder in the Minister for Finance, Michael Noonan.

A merger might be too challenging a task in 2012, but by 2020 when both NAMA and IBRC are scheduled to wind down, it seems implausible that we would still have two agencies with an inefficient duplication of costs, dysfunctionally competing with each other rather than combining their talents to take advantage of best individual practices and to compete with non-state-owned asset management companies.

But which agency should take the senior role in any merger?

You might start out by asking which agency is presently doing the better job in managing its assets, but sadly neither NAMA nor IBRC publishes sufficient information to allow you make a reliable overall assessment. You can glance off some peripheral aspects of both agencies’ published accounts, like non performing loans, and you might conclude IBRC is doing a worse job than NAMA because the rate of deterioration in its loans is worse than NAMA’s. You might also note the €247m profit delivered by NAMA in 2011 and compare that to the €935m loss at IBRC, but the view on here, is that both agencies are hiding a veritable hornets nest of problems in the way they account for loan impairments and NAMA’s €235m tax credit in 2011 doesn’t fool anyone. But overall, you just don’t have enough information to meaningfully conclude which agency is doing better with managing its assets.

And what about costs? NAMA and IBRC are managing loan portfolios of a similar magnitude, though NAMA’s net-of-provisions total of €26bn is greater than IBRC’s €19bn. What does stand out is the fact that NAMA’s operating costs are less than half those of IBRC’s – in 2011 NAMA racked up €128m of operating costs (see above extract from the 2011 annual report) compared to €320m at IBRC (see below extract from the 2011 annual report). For 2012, NAMA has published a forecast of its costs at €194m for this year, and IBRC’s actual H1,2012 costs of €129m indicate that its total costs for 2012 will be down from 2011.

There might be many reasons for the disparity, but there is a sneaking feeling on here that NAMA’s CEO Brendan McDonagh is better at keeping a lid on costs, though he has the advantage of building an asset management company from scratch whereas IBRC’s CEO Mike Aynsley inherited a company in late 2009 which had well-documented poor lending practices and may well have had poor cost control as well, with legacy contracts which couldn’t be avoided. Also, the fact that NAMA’s budgeted costs for 2012 declined from €242m in its projections last September 2011 to €194m this February 2012, may have been due to rigorous cost control, but past experience tells us that NAMA just didn’t scrutinise the costs sufficiently.

In trying to compare operating costs between NAMA and IBRC, what does become obvious is that we have far greater transparency from NAMA. Remember that NAMA produces quarterly reports and accounts, as well as an annual statement and projection of costs, not to mention an annual report. NAMA is summoned to Oireachtas committees every six months (on average) and if you review parliamentary questions, you’ll see that NAMA is subjected to far more frequent and intrusive scrutiny. Despite both IBRC and NAMA being 100% state-owned, doing the same job with similar employee numbers and the same ballpark value of assets, the truth is that we have very little scrutiny of IBRC’s operations, and this would be another reason to merge the two agencies together.

Last week when IBRC reported its results for the first six months of 2012, it claimed that it had undertaken a “cost management exercise” which has led to savings. There is no obvious mechanism at present whereby best practice in NAMA and IBRC is being shared. Our doddering Department of Finance is unlikely to have the nous to examine costs across both agencies, but commonsense tells us that one agency or the other will have better practices or contracts in specific areas. But given the sensible likelihood of an eventual merger, perhaps we can prod the powers that be to start examining costs now – with a combined total of operating costs in 2012 of €400-500m, it would be astonishing if savings couldn’t be achieved.

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