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Archive for November 21st, 2012

Last week in the Dail, Sinn Fein tried to get a straight answer to a straight question from Minister for Finance Michael Noonan – did the stress testing of the banks which cost us €30m in fees in the beginning of 2011 identify and include the pension deficit at AIB  which was recently plugged with €1.1bn of assets, thanks to the taxpayer. The response last week was lampooned on here – the 534 word response did have buried in it “the capital base and capital requirements of the PCAR banks were assessed under PCAR and included in this assessment was forecast deductions for defined benefit pension deficits” but there was no indication if the €1.1bn deficit had or had not been identified.

This week, the Sinn Fein finance spokesperson Pearse Doherty followed up that response and was told in a roundabout way that the information is confidential.

So did the Central Bank and its expensive consultants make a giant boo-boo in the stress tests in 2011. After all, the Central Bank has got form, it underestimated the senior bonds at EBS by €941m in April 2011. At the time, the Central Bank blamed EBS for the cock-up but how competent is the Central Bank if it can’t read a balance sheet and check that senior bonds at a relatively small institution come to a total of €1.991bn compared with the €1.05bn that was originally reported. And let’s not forget that the Central Bank has been bricking it with the introduction of new Personal Insolvency legislation lest it allow truly bankrupt individuals to actually declare themselves bankrupt, and instead we have a nearly useless Insolvency Bill where banks will act as gatekeepers who can approve or reject individuals’ bids for bankruptcy. It seems that the Central Bank has become a hostage to fortune to its stress testing in 2011 and it has declined to explain what criteria it used in its base and adverse scenarios when forecasting losses resulting from bankruptcy.

The Central Bank, or rather Minister Noonan gave a very curt response to Sinn Fein’s follow up question – “I have been informed by the Central Bank of Ireland that it is unable to disclose this information due to the provisions of Section 33AK of the Central Bank Act 1942.” It seems that Section 33AK is in fact a vast 2,500-word section inserted into the Central Bank and Financial Services Authority of Ireland Act 2003 which is reproduced at the bottom of this blogpost*

The full parliamentary question and response are here:

Deputy Pearse Doherty:  To ask the Minister for Finance further to Parliamentary Question No. 207 of 13 November 2012, where he stated that included in the Prudential Capital Assessment Review is an estimate of defined benefit deficits under both base and adverse scenarios, if he will set out in respect of Allied Irish Banks, the estimated financial quantum of defined benefit scheme deficits estimated for 2011, 2012, 2013 and 2014 in both the base and adverse scenarios..

Minister for Finance, Michael Noonan:  I have been informed by the Central Bank of Ireland that it is unable to disclose this information due to the provisions of Section 33AK of the Central Bank Act 1942.

* 33AK.—(1) (a) This subsection applies to the following persons:

(i) the Governor and every former Governor;

(ii) every Director and every former Director;

(iii) every member, member’s deputy appointed under paragraph 4 of Schedule 3, former member’s and former member’s deputy who had been so appointed, of the Regulatory Authority;

(iv) the Chief Executive and every former Chief Executive;

(v) the Consumer Director and every former Consumer Director;

(vi) the Registrar of Credit Unions and every former Registrar of Credit Unions;

(vii) every other officer or employee and every other former officer or employee of the Bank;

(viii) every person who is or was formerly employed as a consultant, auditor or in any other capacity by the Bank or any constituent part of the Bank.

(b) A person to whom this subsection applies shall not disclose confidential information concerning—

(i) the business of any person or body whether corporate or incorporate that has come to the person’s knowledge through the person’s office or employment with the Bank, or

(ii) any matter arising in connection with the performance of the functions of the Bank or the exercise of its powers,

if such disclosure is prohibited by the Rome Treaty, the ESCB Statute or the Supervisory Directives.

(2)  (a) If requested by the Bank, the directors or those charged with the direction of a supervised entity shall, in accordance with paragraph (b), inform the Bank on the extent of any disclosure duly made by or on behalf of them or the entity to any authority, whether within the State or otherwise.

(b) Where a request is made under paragraph (a), the directors or those charged with the direction of a supervised entity shall give to the Bank all the information so requested that is in their possession or under their control, within—

(i) 30 days of receipt of the request, or

(ii) such longer period as the Bank may allow when making the request or subsequently.

(c) In responding to a request for information under this subsection, the directors or those charged with the direction of the supervised entity concerned shall exercise due diligence and shall not, by any act or omission, give or cause to be given to the Bank false or misleading information.

(3)  (a) Subject to subsection (1)(b) and paragraph (b), the Bank shall report, as appropriate, to—

(i) the Garda Síochána, or

(ii) the Revenue Commissioners, or

(iii) the Director of Corporate Enforcement, or

(iv) the Competition Authority, or

(v) any other body, whether within the State or otherwise, charged with the detection or investigation of a criminal offence, or

(vi) any other body charged with the detection or investigation of a contravention of—

(I) the Companies Acts 1963 to 2001, or

(II) the Competition Act 2002 , or in so far as any commencement order under that Act does not relate to the repeal of provisions of the Competition Acts 1991 and 1996, which would otherwise be subsisting those Acts,

any information relevant to that body that leads the Bank to suspect that—

(A) a criminal offence may have been committed by a supervised entity, or

(B) a supervised entity may have contravened a provision of an Act to which subparagraph (vi) relates.

(b) Paragraph (a) does not apply where the Bank is satisfied that the supervised entity has already reported the information concerned to the relevant body.

(c) Information contained in a report under paragraph (a) may only be used by the body to which it is addressed for the purposes of—

(i) the detection or investigation of a contravention of a provision of an Act to which paragraph (a)(vi) relates, or

(ii) any investigation which may lead to a prosecution for a criminal offence and any prosecution for the alleged offence.

(4) (a) In relation to a supervised entity, where the Bank identifies information—

(i) which it believes is or is likely to be material to an authority concerned with the enforcement of any law, and

(ii) which it believes it is unable, due to the provisions of subsection (1)(b), to disclose to that authority, and

(iii) in respect of which it is not satisfied that the information has been disclosed to that authority by the directors, or those charged with the direction, of the supervised entity,

then, the Bank shall issue to the directors or others duly charged with the direction of the supervised entity a document, to be known as a Disclosure Issue Notice, and the notice shall—

(I) specify the name of the authority concerned, and

(II) identify the information that the Bank has identified as causing it to issue the Disclosure Issue Notice.

(b) The Bank shall advise the authority concerned when a Disclosure Issue Notice is issued.

(c) Where a Disclosure Issue Notice is issued in respect of a company to which section 158 of the Companies Act 1963 applies (which relates to the directors’ report), the directors’ report shall comply with subsection (6B) of that section.

(5) Subject to subsection (1)(b), the Bank may disclose confidential information—

(a) required for the purposes of criminal proceedings, or

(b) with the consent of the person to whom the information relates and, if the information was obtained from another person, that other person, or

(c) where the Bank is or was the agent of a person — made to the person as the person’s agent, or

(d) to an authority in a jurisdiction other than that of the State duly authorised to exercise functions similar to any one or more of the statutory functions of the Bank and which has obligations in respect of nondisclosure of information similar to the obligations imposed on the Bank under this section, or

(e) to any institution of the European Community because of the State’s membership of the Community, or to the European Central Bank for the purpose of complying with the Rome Treaty or the ESCB Statute, or

(f) to an approved stock exchange, within the meaning of the Stock Exchange Act 1995 —

(i) in respect of member firms of the exchange for the purpose of monitoring compliance by member firms with stock exchange rules or with conditions or requirements imposed by the Bank, or with both, or

(ii) where the Bank considers it necessary to do so, either for the proper and orderly regulation of stock exchanges and their member firms or for the protection of investors, or for both, or

(g) to a financial futures and options exchange, within the meaning of section 97 of the Central Bank Act 1989 , whose rules have been approved by the Bank under Chapter VIII of the Central Bank Act 1989 —

(i) for the purpose of monitoring compliance by the members of that exchange with those rules or with conditions or requirements imposed by the Bank, or with both, or

(ii) where the Bank considers it necessary to do so for the proper and orderly regulation of futures and options exchanges and their members, or

(h) to—

(i) an inspector appointed under the Companies Acts 1963 to 2001, or section 57 of the Stock Exchange Act 1995 , or

(ii) a Committee appointed under section 65 of the Stock Exchange Act 1995 , or

(i) to a body that is a competent authority for the purpose of Council Directive 93/22/EEC of 10 May 1993 or Council Directive 93/6/EEC of 15 March 1993, or

(j) to an approved professional body—

(i) for the purpose of monitoring compliance by investment business firms with rules or with conditions or requirements imposed by the Bank, or

(ii) where the Bank considers it necessary to do so for the proper and orderly regulation of investment business firms, or

(k) to—

(i) a Committee appointed under section 74 of the Investment Intermediaries Act 1995 , or

(ii) a person nominated or approved of by a supervisory authority in accordance with section 51(2) of that Act, or

(iii) an inspector appointed by the Court under Part VIII of that Act, or

(l) to a product producer in respect of investment business services or investment advice provided by a restricted activity investment product intermediary who holds an appointment in writing from the producer under section 27 of the Investment Intermediaries Act 1995 , or

(m) to an officer of statistics (as defined by section 20 of the Statistics Act 1993 ) in connection with the collection, compilation, analysis or interpretation of data relating to balance of payments, national accounts or any other financial statistics prepared for those purposes, or

(n) for the purpose of complying with section 57 (2) or 57A(3) of the Criminal Justice Act 1994 , or

(o) to the Comptroller and Auditor General that is required for the performance of that officer’s functions or to a person employed in the Office of the Comptroller and Auditor General, or

(p) to an auditor to whom section 6H applies, or

(q) to the Minister for the Environment and Local Government in connection with that Minister’s functions under the national housing programme with respect to a mortgage lender, or

(r) to the Investor Compensation Company Limited, or to a subsidiary of that company established by the Bank in order to provide administrative services to that company, or

(s) for the purposes of the hearing of an appeal by the Appeals Tribunal, or

(t) for the purpose of complying with a requirement imposed under section 33AM or by or under any other law, or

(u) where the Bank is in receipt of information from an authority in a jurisdiction other than the State duly authorised to exercise functions similar to one or more of the statutory functions of the Bank, made with the permission of that authority, or

(v) to a liquidator, examiner, receiver or any other person or body involved in the liquidation or bankruptcy of a supervised entity in relation to that entity, in accordance with the Supervisory Directives, where applicable, or

(w) to the auditor of a supervised entity in relation to that entity, in accordance with the Supervisory Directives, where applicable, or

(x) to any body established under law for the purposes of overseeing auditors, in accordance with the terms of the Supervisory Directives, where applicable, or

(y) to the Director of Corporate Enforcement for the purpose of any investigation under Part II (as amended) the Companies Act 1990 , or to an officer of the Director for the purposes of the Director’s functions and in accordance with the terms of the Supervisory Directives, where applicable, or

(z) to the Minister in accordance with the terms of the Supervisory Directives in relation to the Minister’s responsibility for legislation on the supervision of supervised entities or to an inspector, appointed by the Minister and acting on the Minister’s behalf, or

(aa) in accordance with Article 25(7) of Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field, to a body which has the function of providing clearing or settlement services for one of the State’s markets where necessary for the performance of its functions, or

(ab) in accordance with the terms of Council Directive 92/49/EEC of 18 June 1992 in respect of insurance undertakings, to bodies which administer compulsory winding up proceedings or guarantee funds, where necessary for the performance of their functions, or

(ac) in accordance with the terms of Council Directive 92/96/EEC of 10 November 1992 in respect of assurance undertakings, to bodies which administer compulsory winding up proceedings or guarantee funds, where necessary for the performance of their functions, or

(ad) to the Pensions Board that is required for the performance of its functions, or

(ae) in summary or collective form, such that individual persons or bodies cannot be identified, in legal proceedings where a supervised entity has been declared bankrupt or is being compulsorily wound up, but only if the information disclosed does not concern the business of any person or body which, to the knowledge of the Bank, may be, or has been involved in attempts to rescue that supervised entity at any stage, or

(af) if the Bank is satisfied that the disclosure is necessary to protect consumers of relevant financial services or to safeguard the interests of the Bank, or

(ag) if the disclosure arises in relation to—

(i) the operations of the Bank in any financial market, or

(ii) the issue by the Bank or the European Central Bank of legal tender, or

(iii) the pursuit by the Bank of the objectives set out in section 6A of the Central Bank Act 1942 , or

(ah) to a Tribunal of Inquiry established under the Tribunals of Inquiry (Evidence) Acts 1921 to 2002, or

(ai) to the Revenue Commissioners in relation to their functions in a manner such that no supervised entity can be identified, or

(aj) to the Registrar of Friendly Societies that is required for the performance of the Registrar’s functions.

(6) Any person or entity to whom confidential information is provided under subsection (3)(a) or (5) shall comply with the provisions on professional secrecy in the Supervisory Directives in holding and dealing with information provided to them by the Bank.

(7) The Bank may, for the purposes of subsection (5)(d) or otherwise, require from a supervised entity any information for the purposes of the Bank assisting an authority to which that subsection relates, but the Bank may only require such information where the information requested is, in the opinion of the Bank, to assist the authority in the carrying out of its regulatory functions.

(8) A person who—

(a) contravenes subsection (1)(b), or

(b) contravenes paragraph (a) or (c) of subsection (2), or

(c) fails to comply with section 158 (6B) of the Companies Act 1963 , for the purpose of a Disclosure Issue Notice issued under subsection (4),

commits an offence and is liable—

(i) on conviction on indictment to a fine not exceeding €30,000 or to imprisonment for a term not exceeding 5 years, or both, or

(ii) on summary conviction to a fine not exceeding €3,000 or to imprisonment for a term not exceeding 12 months, or both.

(9) Notwithstanding anything to the contrary provided for by or under any enactment, where in the opinion of the Revenue Commissioners, or such officer or officers of the Commissioners as they may from time to time designate for this purpose, there is information which may relate to—

(a) the commission of an offence, or

(b) a failure to comply with an obligation,

under the designated enactments or the designated statutory instruments, then the Commissioners or that officer shall disclose the information to the Bank.

(10) In this section—

‘approved professional body’ has the meaning given by section 55 of the Investment Intermediaries Act 1995 ;

‘product producer’ has the meaning given by section 2 of the Investment Intermediaries Act 1995 ;

‘restricted activity investment product intermediary’ has the meaning assigned to it by section 26 of the Investment Intermediaries Act 1995 ;

‘Supervisory Directives’ means—

(a) Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000,

(b) Council Directive 93/22/EEC of 10 May 1993,

(c) Council Directive 85/611/EEC of 20 December 1985,

(d) Council Directive 92/49/EEC of 18 June 1992,

(e) Council Directive 92/96/EEC of 10 November 1992;

‘supervised entity’ means any person or body in relation to which the Bank exercises functions under the designated enactments or the designated statutory instruments.

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The Northern Ireland finance and personnel minister, Sammy Wilson has this morning released the residential index and property price series for the three months ending 30th September 2012.

In summary, prices declined 1% in Q3, 2012 which represents a slowing in the rate of decline, prices are down 12% in the year to the end of September 2012 and overall since the peak in 2007, prices are down 55%. Given UK inflation generally since the peak in 2007 is 18%, the real decline in Northern Ireland is estimated to be 62%, which as far as can be determined on here, makes the Northern Ireland residential property crash to be the worst in the world.

Minister Wilson puts our own administration to shame. Although we finally saw the launch of the property price register at the end of September 2012, we still don’t have any index though commercial players like DAFT.ie may fill that void. (The Republic of) Ireland’s official residential property index remains the CSO monthly series which is based on mortgage transactions only, which appear to represent about 50% of the market apparently.

Elsewhere in the release, we learn there were 3,400 residential property transactions in Northern Ireland in Q3,2012. Our own Property Price Register reveals there were 6,258 during the same period here. Relative to the 800,000-odd houses in Northern Ireland compared to the 2m in the Republic, the figures confirm that there are, relative to total housing stock, more transactions in Northern Ireland.

The recent trend with residential property prices in the Republic has been stabilization and gentle rises, in Northern Ireland, it appears the pace of decline is slowing, but will it is curious that the real decline in Northern Ireland stands at 62% compared with 51% in the Republic.

The Northern Ireland index was launched in August 2012 – read the blogpost here.

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“I can make the pub work at €15,000 rent but not €30,000 — no publican is that good” Publican Eoin Quinlan of Quinns pub in Drumcondra, the pub has now finally closed at the behest of the Irish Bank Resolution Corporation (IBRC)

The fate of businesses struggling to pay rent on commercial premises may depend on the landlord, or more particularly, the bank providing the landlord with loans.

Last December 2011, when Minister for Finance Michael Noonan dropped the clanger that this government was abandoning its commitment to reform commercial property leases so as to outlaw Upward Only Rent Review clauses, the Minister did announce that NAMA was coincidentally introducing a new policy to deal with commercial tenants of premises subject to its loans. If the businesses could demonstrate to NAMA that their survival was at risk because of high rents, then NAMA would in principle facilitate a reduction in rent. Since then NAMA has had over 150 approaches from commercial tenants and appears to have approved rent reductions in 95%-plus of cases, reductions totaling €6m per annum.

So, if you happen to be a commercial tenant whose landlord is in NAMA, you have some potential remedy if struggling to meet your rent payments. NAMA is for all intents and purposes a state agency. NAMA has a policy on rent reductions and it is available here.

IBRC – the name of the bank created by the merger of Anglo Irish Bank and Irish Nationwide Building Society in 2011 – is also a state agency because Minister Noonan is the shareholder of 100% of the shares in IBRC. But IBRC doesn’t have a policy, and commercial tenants like Eoin Quinlan, the landlord for 25 years at Quinns pub in Drumcondra, Dublin who has finally closed his doors, with €250,000 of rent arrears. IBRC says that it will entertain requests from landlords, but not tenants. After being prodded in the Dail, Minister Noonan says he is now consulting with IBRC to see if they might adopt the same policy as NAMA. But it seems that will be too late for Eoin Quinlan.

Minister Noonan is the shareholder in 99.8% of the shares at Allied Irish Banks, AIB.  And AIB doesn’t even get involved in such matters, leaving the relationship between tenant and landlord entirely with the landlord and not intervening. And Minister Noonan seems not to have any plans to change this state of affairs.

So, if you are a commercial tenant whose landlord has borrowings from a State agency, you should be praying that you’re lucky enough to have a landlord who is in NAMA. At least then, there is a policy to address problems with meeting the rent. If your landlord is in IBRC, then you are less protected and if you are in AIB, you are on your own.  Shouldn’t Minister Noonan need a lottery licence for allowing this state of affairs.

The policies across the three institutions was set out by Minister Noonan in response to parliamentary questions from the Sinn Fein finance spokesperson Pearse Doherty in the Dail yesterday. These are the full responses and questions.

Deputy Pearse Doherty:  To ask the Minister for Finance if he will provide the policy adopted by the National Asset Management Agency with respect to reducing rents to commercial tenants, who are facing financial distress, of buildings under the control of NAMA borrowers or its receivers..

Minister for Finance , Michael Noonan :  The National Asset Management Agency approves requests for rent easement or abatement from its debtors where a tenant demonstrates that the rent payable under a lease is in excess of current market levels and that the viability of a business is, as a consequence, threatened. By end-October 2012, the Agency had received 273 rent abatement applications through debtors/receivers: 210 had been approved, 4 were refused, 9 were non-Agency or otherwise inapplicable and the remaining 50 were under review at that point.  159 applications have been received since the Agency’s Guidance Note on Upwards Only Commercial Leases was published last December.   Since the start of the year, NAMA has approved cumulative rent reductions through debtors/receivers of over €6 million bringing the total rent savings to date since inception of this initiative to approximately €9.7 million with a further €3.4 million currently under review.  NAMA proactively works through debtors/receivers to facilitate rent abatements where the contractual rent is in excess of prevailing market rates and where, as a consequence, the viability of tenant businesses is undermined.

NAMA’s Guidance Note on Upwards Only Commercial Leases is available on its website, http://www.nama.ie.  The Agency engages with industry representative bodies in the retail sector to promote understanding of the Guidance Note and its applicability.

Deputy Pearse Doherty:  To ask the Minister for Finance if he will provide the policy adopted by the Irish Bank Resolution Corporation in which he is the sole shareholder of 100% of the shares and on the board of which he has seconded a person (details supplied), with respect to reducing rents to commercial tenants, who are facing financial distress, of buildings under the control of Irish Bank Resolution Corporation borrowers or its receivers.

Minister for Finance, Michael Noonan :  The overriding mandate of IBRC is to maximise the recovery of loans on behalf of the State and to wind down over time. The underlying approach of the Bank is to work constructively with each borrower on an individual basis.

I have been advised that the tenancy arrangements for commercial properties, financed by IBRC, are principally governed by contractual lease agreements between the borrower (or receiver) as landlord and the lessee (tenant). In circumstances where IBRC receives a request from a borrower (or receiver), to add its consent to an amendment to lease terms, agreed with the lessee, typically a payment concession in terms of a lower rent or a rental holiday, the Bank will undertake a thorough review through its multi-faceted credit processes. This will include a comprehensive assessment of the individual tenant’s financial profile and underlying business circumstances, in order to assess fully their ability to meet their existing contractual obligations.

I have asked IBRC to review NAMA’s policy guidance on upward only rent reviews to see if IBRC could implement this policy guidance or a variation of this policy guidance and I understand that this matter is currently under consideration by the Bank.

I should also note that the person referred to has not been seconded to the board of IBRC but to the bank’s senior management team as the Head of Market Solutions.

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide the policy adopted by Allied Irish Banks in which he is the shareholder of 99.8% of the shares and is responsible for the appointment of persons (details supplied) as public interest directors on that Bank’s board, with respect to reducing rents to commercial tenants, who are facing financial distress, of buildings under the control of AIB borrowers or its receivers.

Minister for Finance, Michael Noonan :  I am informed by AIB that it is committed to operating its business activities on a commercial basis as the bank seeks to protect its economic interests. As such, the bank approaches each particular situation on a case by case basis to ensure the appropriate outcome is achieved. In the case of commercial properties, the legal relationship that exists is typically between the borrower and the commercial tenant. As such AIB does not typically have remit to intervene in this contractual relationship directly. However, where the bank does become involved in restructuring individual cases AIB will examine and explore options with its borrowers with a view to structuring the best long term economic outcome given current economic conditions for all parties.

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