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Archive for January, 2013

This is a first.

NAMA was reportedly in the High Court yesterday where it was trying to get receivers appointed to….three items of jewelry owned by wife of developer John McCabe. Mrs McCabe or Mary, was the subject of a €20m judgment late last year, and NAMA wants the jewelry – said by Mary to be worth €140,000, but said by NAMA to be worth far more than this – to be used to help pay down this €20m judgment.

The three items of jewelry comprises, according to the Independent, an 8.38 carat (presumably diamond) ring, a necklace and a bracelet. Below is a chart showing the actual sizes of various carats – 8.38 is big.

CaratsAreAGirlsBestFriend

The redoubtable Judge Kelly was presiding, and he accepted NAMA’s case and Jim Hamilton of BDO was appointed receiver to the three items of jewelry. NAMA had claimed that unless it had receivers appointed, the jewelry might not otherwise be available to the Agency to set against the €20m judgment.

The McCabes, father John and Mary and family were subject to a barrage of law suits from NAMA last September 2012 in Dublin’s High Court. There had apparently been some shady business where a Middle Eastern company that was supposed to be helping refinance the loans to John’s company but instead pocketed an advance fee and in October 2012, NAMA obtained judgments of €270m against the McCabes amidst allegations of assets being placed beyond NAMA’s reach, and within that €270m judgment, Mary was hit with €20m.

John McCabe was one of the most successful developers during the Celtic Tiger years and was reportedly one of the ten customers of Anglo who comprised the Maple 10 , who were provided with loans by Anglo to buy part of Sean Quinn’s stake in Anglo.

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“On the issue of the involvement of the former head of the Shareholder Management Unit, the officer went on holidays to Australia on 12 December, 2012 and did not return to the Department until January 14th, 2013 at which time he tendered his resignation and in accordance with normal practice will not take up duty in the banks for another two months. Hence there is effectively a cordon sanitaire in operation for three months in this instance.” Minister Noonan in the Dail this week

The Shareholder Management Unit in the Department of Finance has 25 staff and a budget of €4.2m in 2013. 10 of the 25 staff at the Unit are on secondment from the National Treasury Management Agency. The Unit is responsible for the management of our stakes in the banks – we own 15% of Bank of Ireland and hold €1.5bn of preference of preference shares, we own 99.8% of AIB/EBS, we 100% own Irish Life, we own 99.5% of Permanent TSB, we own 100% of IBRC, which manages the legacy business of Anglo and Irish Nationwide. The Unit is also believed to look after NAMA.

Until recently, Michael Torpey was the head of the unit, but on 16th January 2013, he was appointed to a senior position at Bank of Ireland and will take up his position there by the end of March 2013. On 9th January 2013, the Department of Finance announced the sale of €1bn of so-called “Contingent Capital Notes” in Bank of Ireland. The disposal of the €1bn took many by surprise – it was announced on the morning of 9th January that the Government was inviting bids and in the afternoon, it was announced that a sale had taken place.

It is an odd transaction, and it appears that it was Bank of Ireland and NOT the Government which picked up most of the costs of the sale. Strange really, if you hold shares in Glanbia, you normally wouldn’t expect Glanbia to pick up the tab if you sold those shares. Minister for Finance Michael Noonan repeatedly refuses to provide detail on the sale, and says that Bank of Ireland’s decision making and fees are confidential.

The appointment of the head of the Shareholder Managament Unit raised eyebrows – here was someone who, since August 2011, has been knee-deep in the entrails of our banking sector.

So a key question of the sale of the €1bn of CCNs is “how involved was Michael Torpey”?

The response from  Minister Noonan seems to imply that Michael Torpey was not involved in the sale at all. Michael went on holidays on 12th December 2012 (14th December, according to a previous statement by the Government). Not only did he go on holidays but he went on holidays to Australia, on the other side of the world. He didn’t arrive back until 14th January 2013 – five days after the sale of the €1bn Bank of Ireland CCNs.

Do you believe Michael Torpey had no involvement in the sale? So on 9th January, this poor man in Australia might have flicked on the financial news on TV or picked up the Financial Times or read some of the Irish press online, and found out about the sale of €1bn of our stake in Bank of Ireland in that manner? He’d be lucky not to have a heart attack!

Pull the other one, Minister Noonan.

And to the notion that Michael Torpey was the other side of the world and therefore couldn’t have been involved in the sale, Michael Dundee taught us in the 1980s that the Aussies do have phones.

The parliamentary questions and responses used as a source for the above, are shown below.

Deputy Pearse Doherty: To ask the Minister for Finance in view of the fact that he is the owner of 15% of the ordinary shares in Bank of Ireland, and owner of preference shares most recently valued at €1.473 billion, if he will confirm if the recent disposal by him of €1 billion Contingent Capital Notes was in the interests of Bank of Ireland; and if so, if he will provide the basis for this position..

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide the overall costs incurred by Bank of Ireland in the recent disposal by him of €1 billion contingent capital notes..

Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm the date on which the €1bn billion contingent capital notes were first offered to the market.

Deputy Pearse Doherty: To ask the Minister for Finance following the recent disposal of €1bn contingent capital notes, if he received advice as to the optimum period over which the CCNs should have been marketed before any sale was closed; and if he will make a statement on the matter.

Deputy Pearse Doherty: To ask the Minister for Finance following the recent disposal of €1bn contingent capital notes in Bank of Ireland, if he will outline the involvement in the disposal, of the former head of the Shareholder Management Unit in the Department of Finance, (details supplied); and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: I propose to answer questions 220, 221, 222, 223 and 224 together.

As announced by my Department on January 9th, the State was successful in disposing of its entire €1 billion holding of Contingent Capital Notes (CCN’s) in Bank of Ireland (BOI). The transaction was a very positive outcome for the State on a number of levels. It will enable us to reduce our indebtedness, it has had a positive impact on investor sentiment and it has also helped to underpin the value of our remaining banks investments. The transaction also reflects positively on Bank of Ireland, as will any further such disposals by the State in the future. Exit by the State over time from its bank investments is Government policy and the eventual separation of the State from the banking sector is an objective for which there is strong support across the political spectrum.

As I have stated before, the sale was managed by officials in the Department’s Shareholder Management Unit, with many years’ experience working in financial markets. Having established at the outset that there was sufficient demand to secure an underwriting position from the investment banks, the date the CCN’s were offered to the market was January 9th, 2013 the day the book build process began. In response to your question on the optimum period of marketing for the CCN’s, it is important to recognise that Bank of Ireland had been active in the market in both November and December raising €1.0bn through the issuance of an Asset Covered Securities (ACS) bond and €250m of subordinated debt. This meant that investors were fully up to speed with the bank’s investment proposition by the time the State looked to execute its own transaction.

On the issue of the involvement of the former head of the Shareholder Management Unit, the officer went on holidays to Australia on 12 December, 2012 and did not return to the Department until January 14th, 2013 at which time he tendered his resignation and in accordance with normal practice will not take up duty in the banks for another two months. Hence there is effectively a cordon sanitaire in operation for three months in this instance.

Finally I have been informed by the Bank that they are not in a position to provide the costs incurred in the recent disposal of the CCN’s as it is commercially sensitive.

Deputy Pearse Doherty: To ask the Minister for Finance the number of staff in the Shareholder Management Unit in the Department of Finance and the cost of the SMU in full year 2012 and the budgeted cost in full year 2013.

Deputy Pearse Doherty: To ask the Minister for Finance the present number of staff in the Shareholder Management Unit who are seconded to the SMU from the National Treasury Management Agency and if he will set out in bands of three months the number of secondees and their duration of secondment from the National Treasury Management Agency to the SMU..

Deputy Pearse Doherty: To ask the Minister for Finance the number of persons presently working in the Shareholder Management Unit in the Department of Finance who are not employees of the Department of Finance or secondments from the National Treasury Management Agency..

Minister for Finance, Michael Noonan: I propose to answer questions 65, 66 and 68 together.

The number of staff in the SMU is 25. Of this number, 10 are on secondment from the NTMA and 10 are Department of Finance employees. The secondment of NTMA employees is not time limited as the NTMA Banking Unit was seconded to my Department for so long as is required by the Department to fulfil its functions in respect of the banking sector. The remaining staff in the SMU are on secondment from AIB. The term of their engagement finishes, on average, in May 2013.

Nine NTMA employees were initially seconded to the SMU in August 2011. Additional secondments since then have been, at my request, to increase the number of staff in the SMU and/or replace staff who resigned from the NTMA.

The costs of the SMU, borne by the Department of Finance in 2012 were €3.6m and the budgeted cost for 2013 is €4.2m.

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Most of you are probably thinking that NAMA has completed its acquisition of loans and is now exclusively dealing with its asset management phase. You’d be wrong. There are some legacy matters outstanding with the acquisition of €74bn of par-value loans for which NAMA paid €32bn.

NAMAdelaysTranches

Cast your minds back to February 2010 when the European Commission approved the NAMA scheme. It was a term of the approval that the valuation of each loan acquired by NAMA was to be verified by the European Commission. There was nothing at all controversial about this requirement, and as NAMA got into its acquisition of loans, the European Commission appeared to be approving the valuations promptly.

In May 2010, NAMA completed the acquisition of its first tranche of loans, apparently relating to the Top 10 borrowers, which had a book value of €15.3bn. This acquisition was approved by the European Commission in August 2010, just three months later.

NAMA completed the acquisition of its second tranche with a par-value of €11.9bn in August 2010, and again, approval from the European Commission was forthcoming three months later in November 2010.

NAMA merged tranches 3 and 4 together which had a par value of €19.2bn and NAMA completed the acquisition of these tranches in June 2011. NAMA completed the acquisition of its fifth and final tranche in March 2012 with a par value of €27.6bn. These three tranches have not been approved by the European Commission, and given the 19-month period that has elapsed since June 2011, you might think there was cause for worry.

So what is the hold-up, and should we be justified in being worried?

This week in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to provide an explanation for the delay. Below is the response which is utter gibberish. You might want to look at the response from Minister Noonan eight months ago, which also said the approvals were expected “shortly”.

The full parliamentary question and response are shown below:

Deputy Pearse Doherty: To ask the Minister for Finance if the European Commission has approved the valuations and transfers of loans from the participating institutions to the National Asset Management Agency, that were the subject of tranches three and four which had a book value of €19.2 billion and were transferred to NAMA in June 2011 and tranche five which has a book value of €27.6 billion which was transferred to NAMA in March 2012; if the European Commission has not provided its full approval; and the reason for the delay.

Minister for Finance, Michael Noonan: I wish to re-assure the deputy that there has been no delay in dealing with the final tranches of loans acquired by NAMA.

The deputy maybe aware that following the completion of NAMA’s due diligence of acquired loan assets, the Financial Regulator of Ireland carries out its own independent validation of the transfer process. This was also done in the case of the earlier tranches and is in line with European Commission guidelines designed to ensure that there is full transparency in relation to state aid. I am advised that in relation to the final tranches this validation work will be concluded shortly and at that point my Department will be in a position to apply to the European Commission for its full approval.

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So, the Government is considering selling off certain rights over the national forestry lands. And predictably, there is great debate about the sell-off. The IMPACT trade union commissioned economist-for-hire Peter Bacon to produce a report examining the effect of the sale on employment. And the proposed sale which is expected to generate between €400m and €600m will be subject to all sorts of scrutiny, questions in the Dail, debate across the media before a dedicated unit of the NTMA called NewERA sells the rights later this year in a transparent manner which will instill confidence that we achieved the best price.

Fine.

But what about the €100bn of state asset disposals in the last three years that have attracted little political or public oversight? €100bn? Yes.

In the Dail this week, the Minister for Finance Michael Noonan has confirmed that Bank of Ireland, Allied Irish Banks and Permanent TSB – three of the six state-guaranteed banks – have “deleveraged” to the tune of €53bn between December 2010 and 30th November 2012. Or to put it another way, they have sold loans, assets and businesses worth €53bn in less than three years. And what about the other banks – Anglo, Irish Nationwide in particular. Minister Noonan didn’t say but at 31 December 2010, Anglo had €30bn of book-value-after-provision loans and loans for resale and derivatives, and by mid 2012, this has shrank to €16bn in the books of IBRC which combines Anglo and Irish Nationwide – in other words, there had been about €14bn of disposals which will no doubt include the €6.6bn US loan book sold in late 2011.

And remember these figures will exclude the majority of transfers to NAMA and it is estimated on here that about €45bn of the €74bn of NAMA acquisitions were completed by November 2010. And NAMA has to date recorded disposals of €6.9bn in asset disposals which, given NAMA paid just 43c in the euro for its loans and property prices have continued to decline in Ireland, might represent €15bn of par-value loans disposals.

These figures will also exclude the €1bn sale of Bank of Ireland Contingent Capital Notes announced on 9th January 2013, they will exclude whatever sale price is achieved for Irish Life, which is apparently set to be sold to Canadian company, Great West-Lifeco for a price close to €1.3bn. The figures exclude the sale of 35% in Bank of Ireland to a group of North American investors. In addition we have cut deals with subordinated bondholders at our banks whereby we paid them €12bn for bonds which had a face value of €26bn.

But no matter how you cut it, the above are state assets and their sale dwarves the €600m harvesting rights at Coillte, the €175m-odd disposal of our stake in Aer Lingus and the €1bn that might be generated from the sale of bits of Bord Gais Energy or the ESB.

And what happens when attempts are made to hold the Government to account? We found out late last year when the Opposition tried to get answers about the sale of €660m of loans in AIB. It was all confidential. How about the two sales of 17% in NAMA? Again it’s confidential. The €1bn of Bank of Ireland CCNs took place in a morning, and Minister Noonan is not telling us if he had advice about the optimum period in which to market the CCNs. Nor is he telling us why Bank of Ireland is absorbing most of the costs of the transaction when on the face of it, the Government is the beneficiary of the sale. He’s certainly not telling us how many tens of millions are being paid to advisers and consultants who provide various services. And he frequently distances himself from the activities of banks in which he is the sole shareholder or where he controls more than 99% of the shares.

A fortnight ago, Fianna Fail asked Minister Noonan to examine a proposal to have an external review of the massive disposals that are happening every single week. Minister Noonan said he wasn’t convinced of the merits of that proposal. This week, Sinn Fein sought information on the disposal of loans at NAMA and the banks. Again, it is all confidential.

The text of the questions and responses are shown below.

Deputy Sean Fleming: To ask the Minister for Finance if he will commit to an external expert examination of the asset disposal programme undertaken by the State supporter banks to ensure that taxpayer interests are being protected; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: As you will be aware as part of the Central Bank’s Financial Measures Programme 2011 the three PLAR banks are required to deleverage c.€70bn of assets by 31 December 2013. Of this they were required to actively dispose of c.€34bn of assets. Each bank agreed comprehensive deleveraging plans to achieve these deleveraging requirements. The CBI has identified the PCAR haircuts within which the banks are required to deleverage their non-core assets with the over-riding safeguard that fire-sales of assets beyond these haircuts are to be avoided.

Both BOI and AIB are currently on track to achieve their Year-end 2013 deleveraging targets. Ptsb’s programme has been largely postponed pending the EC’s decision on its Restructuring Plan. IBRC is subject to an EC Restructuring Plan which requires it to work out its balance sheet over time, including where possible via disposal of loan books.

To achieve this, each of the banks established dedicated non-core units focused on managing sales processes and are required to report quarterly to the Central Bank which monitors their progress in achieving their deleveraging programmes. Each bank has a deleveraging/transaction committee to govern, monitor and oversee its deleveraging plans. Representatives from my department and the Central Bank attend the meetings of those committees, as non-voting observers. My department has established a Deleveraging Review Committee to oversee and monitor the operation of the institutions’ deleveraging committees and to refer transactions that give rise to financial stability considerations to the Central Bank for joint consideration. Additionally, each quarter, the banks and the Authorities meet with and update the External Partners (IMF/EU/ECB) as to the progress of the banks deleveraging plans including asset sales. There is significant external oversight.

In most instances the banks have also employed expert professional sales advisors to assist in ensuring that the sales processes undertaken maximise sales proceeds. These processes are conducted under strict confidentiality rules to ensure the economic position of the banks, and by extension the taxpayer as majority or part owner, is fully protected. As referred to above, the Deleveraging Committees and the main boards of the banks must approve all material sales conducted by the banks.

To date significant progress has been made. Total deleveraging achieved across government supported banks was €66.5bn as at 30 October 2012. Deleveraging to date has been achieved within average planned assumed discounts. Remaining deleveraging is anticipated to be achieved through run-down and work-out of non-core loan books over time. The asset disposal programmes have largely completed.

The on-going progress in deleveraging and deposit gathering activities has seen BOI make further progress towards improving its Loan to Deposit (LDR) ratio, reducing from 136% at June 2012 to less than 130% in November 2012. Similarly, AIB’s LDR reduced to less than 120% at the end of October (including loans held for sale) from 125% at end of June.

I am not convinced at this juncture in the Programme that value would be obtained for the State/taxpayer in conducting an external examination of the asset disposal programmes given the significant level of oversight to date, significant progress achieved so far and the expectation that the capital absorbed as part of the deleveraging programme will not exceed that assumed in the 2011 Financial Measures Programme undertaken by the CBI.

I will however be kept informed through my officials of on-going progress at each of the banks to ensure that remedial action, if required, can be taken to ensure that the State/taxpayer’s investments are protected.

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide in tabular form, the par value of loans sold by Anglo Irish Bank in 2008, 2009, 2010 and 2011; the amount realised by territory for the South of Ireland, the North of Ireland, Britain, USA and other international regions; and the number of loan books, portfolios and individual loans to which the sales related..

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide in tabular form, the par value of loans sold by Irish Nationwide Building Society in 2008, 2009, 2010 and 2011, the amount realised by territory for the South of Ireland, the North of Ireland, Britain, USA and other international regions: and the number of loan books, portfolios and individual loans to which the sales related..

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide in tabular form, the par value of loans sold by Irish Bank Resolution Corporation in 2011 and 2012, the amount realised by territory for the South of Ireland, the North of Ireland, Britain, USA and other international regions: and the number of loan books, portfolios and individual loans to which the sales related..

Deputy Pearse Doherty: To ask the Minister for Finance in tabular form, the par value of loans sold by Bank of Ireland in 2008, 2009, 2010, 2011 and 2012, the amount realised by territory for the South of Ireland, the North of Ireland, Britain, USA and other international regions and the number of loan books; portfolios and individual loans to which the sales related..

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide in tabular form, the par value of loans sold by Allied Irish Banks in 2008, 2009, 2010, 2011 and 2012, the amount realised by territory for the South of Ireland, the North of Ireland, Britain, USA and other international regions; and the number of loan books, portfolios and individual loans to which the sales related..

Deputy Pearse Doherty: To ask the Minister for Finance in tabular form, the par value of loans sold by the Educational Building Society in 2008, 2009, 2010, 2011 and 2012, the amount realised by territory for the South of Ireland, the North of Ireland, Britain, USA and other international regions; and the number of loan books, portfolios and individual loans to which the sales related..

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide in tabular form, the par value of loans sold by Permanent TSB in 2008, 2009, 2010, 2011 and 2012, the amount realised by territory for the South of Ireland, the North of Ireland, Britain, USA and other international regions; and the number of loan books, portfolios and individual loans to which the sales related..

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide in tabular form, the par value of loans sold by the National Asset Management Agency in 2010, 2011 and 2012, the original covered bank to have provided the loan; the amount realised by territory for the South of Ireland, the North of Ireland, Britain, USA and other international regions; and the number of loan books, portfolios and individual loans to which the sales related.

Minister for Finance, Michael Noonan: I propose to take Questions 227, 228, 229, 230, 231, 232, 233 and 234 together.

The sale of loan portfolios is a commercial matter for the management and the Board of the Institutions. I have a limited role in this function.

The sales prices for various portfolios and individual loans are a matter of confidentiality between the parties. It is normal course of practice that sales processes are conducted under appropriate confidentiality constraints in order to protect the interests of all parties.

It is the responsibility of the Board of Directors of each institution to ensure that adequate and appropriate disclosures are provided regarding financial position and performance. Therefore, such disclosures are provided through the financial statements of each institution in the context of the needs of those users and the particular business activities and risk exposures of the Institutions. To this end, the institutions provide detailed disclosures in their Annual Reports, trading statements, interim management reports, press releases and Pillar III regulatory return disclosures. The Institutions have also, where applicable as part of their investor relations programmes and Stock exchange requirements, produced detailed loan sale disclosures to which the deputy may wish to refer.

In particular, as relates to NAMA, the disclosure of additional information other than what is publically available would contravene Section 99 and 202 of the NAMA Act and adversely affect the competitive process and the agency’s objective of achieving the best outcome for the taxpayer.

Deleveraging of the Banking system has progressed well. Deleveraging of €53.1bn has been achieved by Allied Irish Banks (AIB), Bank of Ireland (BOI) and Permanent TSB from 31 December 2010 to 30 November 2012. Individual losses on loans have not been disclosed by the banks due to commercial sensitivities and confidentiality of information, however the Pillar Banks where disposals have been concentrated, have disclosed that overall cumulative discounts incurred have been within PCAR assumed discounts. From a capital perspective, the loss incurred on the divestment of these assets is broadly offset by a reduction in the level of risk weighted assets.

The on-going progress in deleveraging and deposit gathering activities has seen BOI make further progress towards improving its Loan to Deposit (LDR) ratio, reducing from 136% at June 2012 to less than 130% in November 2012. Similarly, AIB’s LDR reduced to less than 120% at the end of October (including loans held for sale) from 125% at end of June.

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NationwideBSJan13Summary

The Nationwide Building Society has published its UK House Price data for January 2013. 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 162,245 (compared to GBP 162,262 in December 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). UK prices are flat over the the past 12 months and are now 12.8% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of January 2013 being GBP £162,245 (or €189,470 at GBP 1 = EUR 1.1648) is 19% above the €159,291 implied by applying the CSO December 2012 index to the PTSB/ESRI peak prices in Ireland.

NationwideBSJan13Detail

With the latest release from Nationwide, UK house prices have decline 0.3% 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 781 (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 28.0% for NAMA to breakeven on a gross basis.

According to the Nationwide this morning, the outlook for 2013 is subdued but recent developments in the provision of credit may lift activity slightly

“While activity in the housing market remains muted by historic standards, there have been tentative signs of a pick up in activity in recent months.  The Funding for Lending Scheme has achieved some success in bringing down mortgage rates, with some signs of a pick up in lending activity.”

The UK economy is suffering difficulties almost every bit as challenging as those in the EuroZone and Ireland. Sure, they have their own currency and they’ve printed GBP 300bn of it in an economy with a GDP of 1.5tn, to help inflate their problems away. And yet they appear poised for a triple dip recession.  In December 2012, the UK’s independent Office for Budget Responsibility published its latest fiscal outlook which forecasts GDP for 2012 at -0.1%, 1.2%, 2.0%, 2.3%, 2.7% and 2.8% (but as with all economic forecasts in the long term, all forecasters forecast a peachy outlook). Deficit:GDP is forecast as -5.7%,-4.6%,-3.7%,-2.8%,-1.4% and -0.4% between 2012-2017. Debt:GDP is forecast at 90.3%, 93.5%, 96.3%, 97.4%, 96.6% and 94.4%. Inflation is forecast at 2.8%,2.5%,2.2% for 2012-2014. It expects residential prices to increase 0.7%/ 3%/ 3.8%/ 4%/ 4% in 2013-2016 and commercial property to change -2.1%, 1.0%, 3.1%.3.6%, 3.9% and 3.5%  in 2012-2017.

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“We will amend the rules to ensure that no senior public servant (including political appointees) or Minister can work in the private sector in any area involving a potential conflict of interest with their former area of public employment, until at least two years have elapsed after they have left the public service” Fine Gael/Labour Programme for Government March 2011

Fine Gael and Labour came to power with a programme for government which promised to strengthen safeguards to prevent state employees with privileged access to confidential information and policy, from quitting to work in the private sector where they might expect to be enriched by virtue of formerly privileged access. This followed a decade of so-called “revolving doors” which is a misnomer because it is used to describe one-way traffic where senior civil servants including secretary generals at government Departments left for lucrative positions in the private sector

What the programme for government promised was a so-called “cooling off period” of “at least two years” in the case of “senior public servants including political appointees” In recent months, we have learned that not all employees of the Government are civil servants – no, staff at the National Treasury Management Agency and NAMA aren’t for example, despite employees in these two agencies having access to the most commercially sensitive information in the State.

So what is the Government doing to tackle the potential for both perceived and actual conflicts of interest, when such staff leave the employ of the State?

Well, it seems there is an honour system where such staff are covered by a range of legislation – Official Secrets Act and NTMA Act mostly – which forbids them from disclosing or using their insider knowledge. This must mean that quite senior executives must be fighting every fibre of their being to resist exploiting their knowledge. And it must be a great temptation because after all, it will generally be impossible to prove that the departing state employee has broken the rules. Yes, Enda Farrell at NAMA was just dumb in creating an electronic trail for his alleged leaking of loan details, but how difficult would it have been to memorise details of the most significant loans? And how could it be proven that the knowledge was exploited?

The former Head of the Shareholder Management Unit in the Department of Finance Michael Torpey quit in January 2013 and will be working at Bank of Ireland in a very senior position by the end of March 2013. Is Michael supposed to suppress his colossal inside knowledge of not just Bank of Ireland, but also his knowledge of the other two competing pillar banks AIB/EBS and Permanent TSB. And will Michael also suppress his knowledge of Minister for Finance Michael Noonan’s position on policies and strategy, not just for BoI but AIB and PTSB. The official position is yes, that he must indeed forget about what he knows, and indeed, he must suppress any urge to share information or act upon it. It should be as if Michael hasn’t been working at the Department of Finance for the past two years.

So far in 2013, nine staff have quit the NTMA and none are covered by senior civil servant cooling off periods. In the past eight months alone, at least three NTMA staff have moved to positions in Irish banks.

If the Official Secrets Act and the NTMA Act were sufficient to stop conflicts of interest arising with departing NTMA staff, then why impose a cooling off period at all on any civil servant, just get them to sign the Official Secrets Act and let them off straightaway. How would that be any different to how NTMA staff are treated?

Minister Noonan belief in the potency of the Official Secrets Act and NTMA Act to stop conflicts of interest is as fantastical as that little memory eraser stick in Men In Black. But in 2012, this is the sort of drivel spouted by our Minister for Finance.

Parliamentary questions this week reveal the Minister’s faith in the honour system as well as outline the treatment of civil servants.

Deputy Pearse Doherty: To ask the Minister for Finance further to the appointment that he announced and welcomed, of the former head of the Shareholder Management Unit (details supplied) to a position at Bank of Ireland, if he will set out the assessment that has taken place in his Department of their knowledge of the workings of Allied Irish Banks and Permanent TSB acquired in his former position; and if this knowledge may give Bank of Ireland an unfair advantage in Irish banking sector competition..

Deputy Pearse Doherty: To ask the Minister for Finance further to the appointment of the former head of the Shareholder Management Unit, to a position at Bank of Ireland, (details supplied), his views, as the holder of 99.8% of the shares in Allied Irish Banks, on any damage to the prospects of AIB occasioned by the appointment.

Minister for Finance, Michael Noonan: I propose to answer questions 225 and 226 together. On the issue of the involvement of the former head of the Shareholder Management Unit, the officer went on holidays to Australia on 12 December, 2012 and did not return to the Department until January 14th, 2013 at which time he tendered his resignation and in accordance with normal practice will not take up duty in the banks for another two months. Hence there is effectively a cordon sanitaire in operation for three months in this instance.

All civil servants are subject to a number of confidentiality clauses, these also apply to NTMA staff seconded to the Department. I can confirm that the official has signed the following documents:-

(1) Official Secrecy and Integrity Circular15/1979

(2) Freedom of Information Circular 7/98

(3) Official Secrecy: Budget Preparations Circular 27/95

(4) Software Use, Acquisition and Management Policy Office Notice 04/02

(5) Department of Finance Information and Communications Technology Usage Policy

Summary Office Notice 01/2006

All these give further protection around the confidentiality of information involved.

Deputy Pearse Doherty: To ask the Minister for Public Expenditure and Reform the current practice enacted for senior civil servants transferring from public sector roles into the private sector which may contain conflicts of interest; if there is a cooling off period; and the timeframe for that period..

Minister for Public Expenditure and Reform, Brendan Howlin: I propose to take questions 355 and 356 together.

The information requested by the Deputy relating to the requirements applying to senior civil servants taking up employment outside of the Civil Service in the circumstances set out in the Deputy’s question, can be found in section 20 the Civil Service Code of Standards and Behaviour which is available at the Standards in Public Office Commission’s website ( http://www.sipo.ie.).

Civil servants who hold positions which are “designated positions” for the purposes of the Ethics Acts are prohibited, within twelve months of resigning or retiring from the service, from accepting an offer of appointment from an employer outside the Civil Service or an engagement in a particular consultancy project, without first obtaining approval from the Outside Appointments Board – in the case of officers at and above Assistant Secretary level or the appropriate Secretary-General / Head of Office otherwise.

This would apply where the nature and terms of such appointment or engagement could lead to a conflict of interest.

Applications are considered by the Outside Appointments Board on the basis of determining whether or not a clear conflict of interest exists.  The Board can either approve the take up of an appointment, the acceptance of an engagement, attach conditions or recommend against the appointment.  The composition, operation and reporting arrangements for the Board are set out in section 21 of the Code.

Officers must also continue to observe the restrictions imposed by the Official Secrets Act 1963. Departments and Offices are required under the Code to monitor the acceptance of outside appointments by civil servants and former civil servants.

Significant progress has been made in developing my proposals for the regulation of lobbying in relation to the commitment included in the Programme for Government referred to in the Deputy’s question.  The consultation process undertaken on this commitment was based on the OECD Principles for Transparency and Integrity in lobbying which recommend that it may be necessary to impose a ‘cooling-off’ period that temporarily restricts former public officials from lobbying their past organisations.

My proposals in this area – which draw on the Outside Appointments Board model applying to senior civil servants – will be published following consideration by Government as part of the General Scheme of a Regulation of Lobbying Bill.

The relevant OECD principles also highlight the requirement for countries to consider establishing restrictions for public officials leaving office to address other potential conflict of interest situations that could arise.  It is planned that these other elements of the Programme for Government commitment which also arise from the recommendations contained in the final report of the Mahon Tribunal will be addressed through the proposed reform of the legislative framework for ethics which is currently underway.

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For the general audience, this might be a bit of a narrow subject to start our “Noonan’s Day of Nonsense” but it really exemplifies the gibberish now being deployed by our Minister for Finance, Michael Noonan in dealing with matters in his brief.

In outline, the NAMA Act stops NAMA selling assets to defaulting developers.  The prohibition is there for political reasons that we can all readily appreciate – it just looks unfair to see a developer whose losses on loans have been transferred to the shoulders of society generally, then going on to buy assets at a steep discount from NAMA and getting back in the saddle as if nothing had happened. At this point, people usually ask how a defaulting developer can afford to buy any asset, and there are plenty of answers, but for now, just imagine a developer who has gone off to the UK, obtained a 12-month bankruptcy and is now back with newly-earned money, or for a second example, imagine the developer is buying the asset with his wife whose independent wealth was lawfully unaffected by her husband’s loans.

Many of you might say the prohibition should remain, as that is the fair thing to do. And who knows, that might be right. But wouldn’t you like to know how much the prohibition is costing us. If, over NAMA’s lifetime, the State loses €2m as a result of the prohibition, we might say that was money well spent because it promotes a more cohesive society. But what if the State loses €2bn from the prohibition? Should that change our views?

But regardless of views, shouldn’t we at least know if the NAMA prohibition on sales to defaulting developers is costing us €2m or €2bn? Then, we can have a debate about the rational economics and the politics and effect on society.

When Minister Noonan was asked what the cost was to NAMA a couple of weeks ago, he replied

“As NAMA is not permitted to sell assets to borrowers in default, neither I nor NAMA are in a position to assess the potential foregone profit (if any) if NAMA were permitted to sell assets to borrowers in default.”

This despite the NAMA chairman last year saying

“It might not be popular to say it but, for example, the restriction in the Act which bars us from selling assets back to a defaulting debtor is a restriction that does not apply to any other body in the same business or space as us. I do not know if that will be a problem in future but it is something we must consider”

So, approaching the problem from another angle, in the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked Minister Noonan to estimate the cost of applying the prohibition to Irish Bank Resolution Corporation, a bank which we 100% own and which is winding down a loan book which is of the same order of magnitude as NAMA’s. Unlike NAMA, IBRC has currently no prohibition whatsoever on selling assets to defaulting debtors.

And this is the gibberish from Minister Noonan

“Any sale that does involve a bid from a connected party to the original borrower or to party with an existing equity interest is subject to elevated and multi-faceted governance approval processes.  In all cases, the clear objective is to achieve the highest possible recovery.”

The Fianna Fail finance spokesperson Michael McGrath also broached the subject with Minister Noonan and asked if Minister Noonan saw merit in abolishing the NAMA prohibition on sales to defaulting debtors, to which the response was.

“I do not believe there is merit in such a course of action at this time as I consider it appropriate that NAMA has put procedures in place to deal with this issue.”

Our Minister for Finance, ladies and gentlemen!

The full parliamentary questions and responses are shown below.

Deputy Pearse Doherty: To ask the Minister for Finance in view of the fact that he is the sole shareholder in 100% of the shares in the Irish Bank Resolution Corporation, if IBRC allows defaulting debtors to buy back assets; if he will provide an assessment of the losses that IBRC would potentially incur if it were to prohibit the sale of assets such as loans and underlying security such as real estate property, to defaulting debtors..

Minister for Finance, Michael Noonan: I have been advised that it is not possible to compile the type of information requested by the Deputy. The overriding mandate of IBRC is to maximise the recovery of loans on behalf of the State and to wind down over time.  It is Bank policy that the execution of any asset or loan disposals is conducted on a competitive open market basis and in accordance with prevailing market norms for the asset class and jurisdiction. An impartial process is assured through the appointment of independent professional agents or brokers to conduct the sales process.

I have been informed that the vast majority of asset and loan disposals are transacted with independent third parties. Any sale that does involve a bid from a connected party to the original borrower or to party with an existing equity interest is subject to elevated and multi-faceted governance approval processes.  In all cases, the clear objective is to achieve the highest possible recovery.

Deputy Michael McGrath:  if the National Assets Management Agency has requested a lifting of the restriction on it selling properties back to defaulting debtors; if he sees merit in such a course of action; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: NAMA has not requested a lifting of the restriction on it selling properties back to defaulting debtors. I do not believe there is merit in such a course of action at this time as I consider it appropriate that NAMA has put procedures in place to deal with this issue.

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NAMA’s litigation department is having a slow start to the new year with only the second application made yesterday in Dublin’s High Court. The applicant is National Asset Loan Management Limited represented by Beauchamps solicitors. The respondent is named merely as “Mary Kelly” and, as is usual with recently-filed applications, there is no solicitor on record. The case reference is 2013/277 S.

Although Ireland has a very expensive judicial system, it is not possible for third parties to get details of applications, so we don’t know which “Mary Kelly”, NAMA is suing, nor do we know the gripe or the remedy sought by NAMA. We found out in NAMA’s report and accounts for Q3,2012 that it has in the past made applications merely to seek rectification of a mortgage and charge. So we have no idea who the “Mary Kelly” is, but knowing how some of you out there think, it might be worth saying that Paddy Kelly’s wife is Maureen and Paddy’s son, Simon Kelly’s wife is Joanna.

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 court cases, not even to confirm the identity of respondents.

This is the second application by NAMA in the Dublin High Court in 2013 and there has yet to be an application against NAMA this year. Last year, NAMA initiated about 40 cases in the High Court and was on the receiving end of about 10.

 

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Back in November 2012, we examined the mystery of why one of Ireland’s allegedly richest men, Denis O’Brien was not in NAMA. After all, he had huge – “systemic”, some might say – borrowings at a NAMA bank and he has dabbled in property. Denis isn’t the only mystery -  Sean Quinn has €2.9bn of borrowings with Anglo and famously, has amassed a property portfolio.

Today, we find out that Denis is now buying NAMA property directly from NAMA. Nothing major for the time being, it seems, as the Irish Times reports that Denis has just paid €1m for two adjoining warehouses on the quays in south Dublin Docklands, riverside buildings that seem destined to be transformed into restaurants to serve this bustling commercial area of Dublin. And good luck to him with the development.

Now, Denis was none too pleased when the Sunday Independent reported on his borrowings with Anglo, or IBRC, though the Sindo did stress that Denis “has not missed an interest payment and is considered the bank’s best-performing large borrower” The paper stopped short of reporting if the loans were performing or were in breach of any loan covenants including Loan to Value covenants, but it should be stressed that there is no evidence whatsoever that there is any such non-performance or breach. The paper went on to report that Denis was “understood to be hoping” to reduce his borrowings at Anglo to €300m in 2012 – there was no word of borrowings, if any, at other NAMA banks.

Of course, by remaining out of NAMA, Denis is free to buy NAMA assets even if – and to stress, there is no evidence of this at present or of there being a prospect of it in future – he were to be in default on his loans.

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Noonan’s Day of Nonsense

Tomorrow is 31st January, 2013, and there will be a special “Noonan’s Day of Nonsense” on here, where some economic and governance issues will be examined, issues on which our Minister for Finance Michael Noonan has recently made pronouncements tantamount to gibberish,  There’s a temptation to label 31st January generally “Noonan’s Day of Nonsense” and to keep track of the Minister’s failings over the forthcoming year, but that might be tempting fate into preserving the Minister in his position for another year.

Increasingly, the Minister, who will be 70 years of age in May 2013, seems uninterested in delivering on his democratic duties in providing transparency to actions taken in his name. He is inconsistent, evasive, at times ludicrous and all the while, billions are being spent and transacted at his ultimate behest, and when called to account on what is happening to our money and its governance, he spouts complete gibberish.

And this is the man most practically responsible in the State to deliver a debt deal which will encompass the promissory notes.

Now it is true that we are in the middle of an economic crisis, and as we have seen in other countries, the limits of democracy can be curtailed in the name of the common good during such turbulent times. It should also be recognized that Fine Gael is still riding high in the polls and at 26-28% most recently, you have to be impressed at how resilient that party has emerged from a very difficult budget and the already substantial stock of divisiveness over the abortion debate. It is just over a year to the next significant elections, local and European, so the calculation might be that any middle finger given to the organs of democracy in 2013 might be forgotten by June 2014.

But do we really have to put up with this drivel?

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