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Archive for December 11th, 2012

The regular audience will recall the uproar in August 2012 when the Sunday Times reported that a former NAMA employee, Enda Farrell had, with his wife Alice Kramer (Alison Kramer) bought a house in Lucan that belonged to a NAMA developer Thomas Dowd and paid €410,000 in November 2011 for the house on 2 acres. The first question, the very first question, was whether NAMA had received a fair price for the property. NAMA immediately defended itself by saying that it had obtained independent valuations – that is, more than one valuation, and at the time there was a suggestion of two independent valuations and the purchase price of €410,000 was in line with the valuations – so there was no need for the public to worry, the property had not been sold to a NAMA insider at below cost.

On 24th October, 2012 the NAMA CEO and chairman appeared before the Oireachtas Committee on Finance, Public Expenditure and Reform and predictably were quizzed about the transaction.  During the hearing there was reference to “one independent valuation” and the NAMA chairman Frank Daly was asked to provide details of that valuation, but sidestepped the question by claiming that he didn’t know if he was legally entitled to share the valuation. So the plural “independent valuations” in August 2012 had been downgraded to “one independent valuation”

But given the focus on the price paid, and the valuations obtained by NAMA, we were all a little surprised when two weeks ago, NAMA published its internal report into the matter , which merely said

“The Form A provided details of the sales process to date and an opinion as to the current market value of the Property from a local estate agent which recommended that the  NAMA debtor accept the offer of €410,000.”

So the “two independent valuations” in August 2012 which had been downgraded to “one independent valuation” at the committee hearing had now became one “opinion”.

In the property business, we like to know at least three attributes of any valuation, when the valuation was undertaken, the value (obviously!) and the basis for the valuation. And for property values, you oftentimes get a range of values, so a valuer might say the property is worth “between €50,000 and €65,000” and sometimes when a property is very difficult to value, that range can be quite large. So in the case of the property in Lucan which was a renovation or development project being sold in a market which was very thin with few mortgages, the range could well be €100,000, for example €410,000-510,000 and indeed the range could be even greater. And an “opinion” is not the same as a “valuation”! A “valuation” is a professional piece of work which sets out the basis for the valuation and provides evidence, for example with sales of similar properties. An “opinion” can be “off the top of my head, the property is worth around €400,000”

But what we wanted to know was the price obtained by NAMA really in line with the valuations. Today in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked for details of the valuations and was told by the Minister for Finance Michael Noonan  “I do not intend to go beyond the extensive information that NAMA, based on legal advice, has already made publicly available on this matter” So did NAMA sell the property cheaply to one of its own employees at the lower end of a range and did it really obtain a valuation.

If NAMA did sell at the low end of a range, then the next question would be whether Enda Farrell had knowledge of the valuation ranges which would have given him an advantage over someone who didn’t know the valuation. It seems however that NAMA wants to draw a line under the matter completely.

NAMA sold the property in Lucan without ever putting it on the open market, so the €410,000 price was not tested with independent bids from the market. NAMA now puts most of its property on the open market, though there are exceptions.

But Minister Noonan isn’t allowing the probe of the matter. And remember this is all our money, on the basis that the sale price on the property went to settle a loan owed by the NAMA debtor – it is possible the sale price was more than the loan outstanding but in most cases, that is not true when property generally has decline 60-70% from peak.

The full parliamentary question and response is here.

Deputy Pearse Doherty:  To ask the Minister for Finance further to publication by the National Assets Management Agency of a report into the purchase of a property under its control by a former employee, if he will provide details of the two independent valuations of the property which NAMA previously claimed had been undertaken; specifically the dates of the valuations and the valuation amounts or ranges..

Minister for Finance, Michael Noonan : I do not intend to go beyond the extensive information that NAMA, based on legal advice, has already made publicly available on this matter.

On 27th November, NAMA published, in line with the commitment by the NAMA Chairman at the recent meeting of the Joint Oireachtas Committee on Finance, Public Expenditure and Reform, the detail of a report by its internal auditors, Deloitte, on the transaction. This report outlines the sequence of events relating to the transaction, the disclosure requirements imposed on NAMA staff under the NAMA Act 2009 and associated codes of practice, and the key recommendations made by Deloitte, all of which have been accepted by the NAMA Board and which now have been implemented.

The Deputy will also be aware that the NAMA Chairman provided considerable detail on the transaction at that recent meeting of the Joint Oireachtas Committee on Finance, Public Expenditure and Reform.

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“BB [Barclay Brothers] have now been told that the bank has chosen a path to work consensually with you rather than to deal with them, I understand they are not happy.” and “Please keep that confidential I cant have board positions like this leaking out” Two text messages reportedly sent by the chief executive of IBRC, Mike Aynsley to developer Paddy McKillen in January 2012

In London, the battle for control over the three Maybourne hotels in central London, continues to rage. Paddy McKillen gets his opportunity to present his appeal case in February 2013, this is the appeal against the August 2012 judgment in London’s High Court which dismissed Paddy’s application to have the Barclay brothers’ acquisition of control of loans owed by Derek Quinlan in the hotel group declared unlawful.

The legal ins-and-out get very complicated but at its root, the billionaire 77-year old Barclay twins are trying their damnedest to take control of the company which owns the three hotels, Claridge’s, the Connaught and the Berkeley. This is brutally simple – one set of rich folks is tenaciously pursuing the acquisition of prized assets.

Paddy, on the other hand, has had a significant 35%-odd share in the group for nearly a decade, has overseen some redevelopment of the hotels and wants to hold onto his stake or get what he thinks is an adequate price for his stake. Again, this is brutally simple – Paddy, also a wealthy man, wants to protect his wealth.

What complicates the whole business is that the hotel group was acquired with a whole series of bank loans and that there were a number of shareholders. The Barclays – no relation to Barclays Bank, they’re businessmen who own the Telegraph newspaper and Ritz Hotel in London – have been buying up stakes from shareholders, which is also simple.

But they have also been buying loans which are either secured on stakes in the business or on the business generally. They bought €800m of loans from NAMA in September 2011. They also acquired control over loans advanced to Derek Quinlan which were secured on Derek Quinlan’s shares in the hotel group though there is dispute over whether control over Derek’s loans is tantamount to control over the shares. It gets complicated!

But a new front has opened up. The Barclays are trying to buy the loans that IBRC gave to Paddy McKillen, loans which are secured on Paddy’s stake in the hotel group. But IBRC has been rebuking the Barclays’ approaches which were apparently first made in December 2011. And we learn in today’s Irish Times that Paddy has some €300m of “personal debt” loans from IBRC and the Barclays are still trying to buy it. It is unclear what % of shares in the hotel group owned by Paddy are subject to the €300m loans, it is intimated that the €300m of loans are secured on 13.3% of the shares, which would be a little over a third of Paddy’s present stake in the group.

It is also unclear what the Barclays are offering for the loans which have a face value of €300m but it is intimated that they are offering €150m or 50c in the euro, but there are strings and incentives which blur that number.

What is interesting is the statement in today’s Irish Times report “The €150 million for the Coroin security equals the amount accepted by the National Asset Management Agency when it sold a 13.3 per cent security on Coroin shares held by financier Derek Quinlan to Malaysian investors, JQ2, the Barclays have argued”

The implication is that the Barclays are offering the same price to IBRC for a stake in the hotel group as NAMA was offered and which NAMA accepted. So why would IBRC hold out for more?

The apparent answer is that in addition to the €300m of personal loans given by IBRC to Paddy McKillen, there is an additional €1.3bn of loans given to Paddy’s companies by IBRC and the concern seems to be that the prospects for getting the €1.3bn back from Paddy’s companies will be diminished if these personal loans are sold.

Which is curious, because we remember that in the case that Paddy took against NAMA in Dublin’s High Court back in 2010, we had the CEO of IBRC or Anglo as it was then known, Mike Aynsley producing a statement for Paddy which said that all his loans were performing and that Anglo objected to Paddy’s loans being transferred to NAMA.

But now, apparently, we have a position where IBRC is demanding more for Paddy’s personal loans than NAMA deemed reasonable in the case of Derek Quinlan’s loans. And we seemingly have IBRC changing its position on Paddy’s loans compared with its position at the High Court in 2010 – it would surely have cast the High Court case in a different light if Anglo were to have suggested that certain loans mightn’t be recovered if the Maybourne loans were sold. We also have the perception of an inappropriate chumminess between IBRC’s Mike Aynsley and Paddy McKillen which was alluded to in the context of the text messages shown at the top of this blogpost, which were aired in open court in London earlier this year, though Mike Aynsley recently defended those texts at an Oireachtas committee hearing by saying

“There was nothing untoward in any way about the approach to Mr. Paddy McKillen to advise him of the board’s decision. We were going through a process, of which Mr. McKillen and the Barclay brothers’ representatives were aware, which culminated in a submission to the board and its approval of the maintenance of a process of consensual restructuring of Mr. McKillen’s loans rather than the sale of a portion of these to the Barclay brothers. When we came out of those meetings, my colleague Mr. Richard Woodhouse was given the authority to contact the Barclay brothers to inform them of the decision. I attempted to call Mr. McKillen but, of course, could not get hold of him. He does not do e-mail so I sent him a text. It was as simple as that. The reminder to him, following it up, was simply that this was a board decision and that it was a bank-client relationship that should not be divulged, as we were aware at the time that he was in litigation with the Barclay brothers. It was inappropriate, we felt, that he went to the press with that. Of course, it ultimately came out during the discovery process in that litigation. That is all there was to it.”

Today’s report which suggests IBRC is holding out for more than NAMA accepted for shares in the group may reignite the controversy and suspicion of IBRC’s relationship with Paddy. And because IBRC is 100% owned by us, we all have an interest in what is going on. It should be said that we seem to just get the Barclays’ side of the story in today’s Irish Times, but the question stands -

“Why is IBRC demanding a premium to sell Paddy McKillen loans to the Barclay brothers?”

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