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Archive for February 13th, 2013

“What was the legal bill picked up by NAMA in the Paddy McKillen case? How much did that case cost NAMA? I want the cost involved including the amounts paid to advisers and experts, the division of employee time, and the amount that NAMA contributed to Paddy McKillen’s costs. Who is responsible in the delegates’ view for NAMA losing the case? Who was responsible for taking the view that a decision had been made validly at NAMA on the transfer to NAMA of Mr. Paddy McKillen’s loans before the agency had even been incorporated? Has anyone at NAMA or any of its advisers faced penalties as a result of the losses incurred in the Mr. Paddy McKillen case which it has been speculated cost between €2 million and €4 million?” Deputy Pearse Doherty grilling NAMA in September 2011

Last weekend’s press in Ireland reported that Paddy McKillen still has about €300m of personal borrowings with Irish Bank Resolution Corporation, or “IBRC” plus about €550m of corporate borrowings, and the race is now on for Paddy to refinance his loans out of IBRC before NAMA gets its paws on them in the middle of 2013.

You will recall that Paddy fought tooth-and-nail to prevent his loans going into NAMA. He launched the first high profile case against the Agency in Ireland, challenging the NAMA Act and employed a range of experts including a Nobel prize-winning economist, Joseph Stiglitz. Paddy comprehensively lost his case at the High Court at the end of 2010 but obtained a fast-tracked appeal to the Supreme Court where technically he beat NAMA to a score-draw but as NAMA subsequently decided not to acquire Paddy’s loans, Paddy would probably claim a victory. And in any event, the Supreme Court awarded Paddy his costs, with NAMA footing the bill. That was in April 2011 and we are now two months shy of the second anniversary.

Back in 2011, the informed speculation amongst the media was that NAMA was facing a €7m legal bill. It came as a surprise in an Oireachtas hearing in September 2011, that the NAMA CEO was unable to provide the costs. Brendan McDonagh responded as follows:

“The Deputy asked about the Paddy McKillen case and the costs relating thereto. I remind members that the case in question involved five key issues. We won the case in the High Court but when it was appealed to the Supreme Court we did not. The first of these five key issues is the implied right to fair procedures. The Supreme Court clarified that there is such an implied right. The right in question is not expressly written into the Act but the Supreme Court clarified the position. The second key issue we raised was the timing of the decision, to which I will return. The third issue related to State aid and it was found that NAMA was not in breach of State aid. The fourth issue concerned the area of constitutionality and it was found the NAMA Act was constitutional. The fifth issue concerned whether there were relevant or appropriate considerations and the Supreme Court did not rule on that because it said it was a moot point. On the four points it ruled on, it ruled with NAMA and the Attorney General on some of them, as a number of issues involved constitutional points. NAMA’s side won on two of the four issues and Mr. McKillen’s side won on two of the issues.

The Deputy raised the issue of costs involved in that case. We are still waiting for the costs on McKillen’s side to be submitted to us and the matter will go to the Taxing Master in terms of seeking to reduce them. The costs on the NAMA side were not significant because we did a good deal of the work through the Attorney General’s office and the Chief State Solicitor’s office and, with the agreement of the Attorney General, we only used external counsel and legal firms where necessary.”

Yesterday in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked Minister for Finance Michael Noonan for an update, and remember we’re almost two years on from the Supreme Court decision. The response from Minister Noonan was that costs have not been agreed or taxed, and that therefore there is not a cost available.

In the UK, Paddy was ordered to pay some €25m of legal costs to the Barclay brothers and others last September 2012, and it is understood that Paddy has already paid a contribution to these costs, despite being given the right to appeal the relevant High Court judgment. At least Paddy knows that he has some costs forthcoming in Ireland, when the legal costs in the case two years ago are eventually finalized.

The full parliamentary question and response is here.

Deputy Pearse Doherty: the legal costs incurred by the National Asset Management Agency in its case in the High Court and Supreme Court in 2010 and 2011 against a person (details supplied) and which concluded at the Supreme Court in April 2011.

Minister for Finance, Deputy Michael Noonan: The case referred to was taken by the person against NAMA, Ireland and the Attorney General. I am advised by NAMA that, as costs in this case have not been agreed or taxed at this point, the information sought by the Deputy is not currently available.

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PTSBLogo

The title is sarcastic really, you’re not going to learn very much.

As is now standard form in Ireland where drunks vote through draconian laws with colossal economic ramifications in the dead of the night, where clowns who oversee €3.7bn errors in the national accounts get promoted to Europe, where one minister seems to be doing his level best to undermine our meat sector, where another is suing a paper over a picture in a midnight bar on Budget week, and another still is suing a paper over what must be the only daub of mud thrown at him in the last year that isn’t true and where the most formidable judge in the land make decisions without access to the laws upon which he is ruling and where state employees take up senior positions in private sector companies which only days previously they had intimately overseen;

As is standard form in such a country, today we bring you details of the disposal of a massive tranche of state assets at the end of 2012, when Permanent TSB, the bank which we now 99.5% own sold car loans and other corporate assets in a deal which netted the tax payer €287m. The loans seemingly had a written-down value in PTSB’s books of €351m, so you, the tax payer shouldered a loss of €64m on that one transaction – nearly three years worth of respite care grants.

In the Dail yesterday, the Minister for Finance Michael Noonan fielded a series of questions on the transaction from the Sinn Fein finance spokesperson, Pearse Doherty, but really Minister Noonan just batted them away without disclosing anything like the level of detail to give assurance or confidence that the taxpayer wasn’t disadvantaged in the transaction.

So here’s what Minister Noonan won’t tell us (1) the full identity of the buyers (2) the loss on the transaction (3) the identities of the third parties engaged in the transaction and the fees paid (4) the recent trading results of one of the operating units which had 82 staff which was sold to its management. We do find out that the sale was to parties identified by PTSB and wasn’t open to the wider market.

It’s depressing.

The full parliamentary questions and responses are below.

Deputy Pearse Doherty: further to the statement by Permanent TSB in November 2012 confirming that it was selling loans with a value net of provisions and write-offs of €351m at February 2012, if he will identify the beneficial buyer of these loans.

Minister for Finance, Michael Noonan:  I am informed by Permanent TSB that the majority of the loan assets of Permanent TSB Finance Limited and the entire loan assets of Blue Cube Personal Loans Limited were sold to Consumer Auto Receivables Finance Limited in late 2012. In addition, a small portfolio of largely corporate loans was sold by Permanent TSB Finance Limited to a third party global bank. I am informed by Permanent TSB that the terms of the sale preclude it from providing additional information without the consent of the other parties.

Deputy Pearse Doherty: further to the statement by Permanent TSB, confirming that it was selling loans with a value net of provisions and writeoffs of €351m at February 2012, in return for consideration of €287m, if he will confirm the loss that was booked by PTSB on the transaction; if he will outline the process undertaken by PTSB to dispose of the assets in order to maximize the return on the transaction; and if he will provide a schedule of the recipients, fees, and costs incurred by PTSB on the transaction.

Minister for Finance, Michael Noonan:  I am informed by Permanent TSB that the loss booked on disposal is subject to audit and will be published in the Bank’s Annual Report which is due to be published in March 2013. Permanent TSB advises that a competitive sales process was undertaken, facilitated by the Bank’s corporate finance advisors. The Bank has informed me that over 20 parties were initially invited to express their interest in acquiring the assets and that multiple bidders were maintained through each stage of the process. I have been informed by Permanent TSB that ultimately exclusivity was offered to the bidder whose offer maximised the return to the Bank. Permanent TSB informs me that the total fees payable to all advisors, for services provided over a 14 month period will be disclosed in the Annual Report.

Deputy Pearse Doherty:  further to the statement by Permanent TSB, confirming that it was selling two operating units to management for nominal consideration, if he will provide an outline of the valuations undertaken by PTSB of the two units so as to ensure the sale price was adequate; if he will provide the sales, operating profit, impairments and net profit after tax for the two units for each of the past five years; and if he will further provide the balance sheet for each of the units at 31 December 2011.

Minister for Finance, Michael Noonan:   I am advised by Permanent TSB that the sale price achieved after a detailed process was recommended by the financial advisers and approved by the Boards of Permanent TSB Finance and Permanent TSB. I am informed by Permanent TSB that the remaining information sought is commercially sensitive. Permanent TSB advises that the financial impact of the sale will be reflected in the Annual Report due to be published in March of this year.

Deputy Pearse Doherty:  further to the statement by Permanent TSB, confirming that it was selling two operating units to management for nominal consideration, if he will confirm the number of staff employed at both units and the number of staff being transferred to the buyer of the units; if he will confirm if any redundancies have resulted from the transaction; and, if so, the number and cost of such redundancies.

Minister for Finance, Michael Noonan:   As I previously stated in response to PQ 53111/12 Permanent TSB has advised me that there are 82 employees employed at the two operating units and that all of the staff are being transferred to First Citizen Finance Limited. Therefore no redundancies have resulted from the transaction.

Deputy Pearse Doherty:  further to the statement by Permanent TSB, confirming that it was selling loans with a value net of provisions and writeoffs of €351m at February 2012, if he will provide an outline of any other imminent disposals by PTSB.

Minister for Finance, Michael Noonan:   I am advised by Permanent TSB that no loan book disposals are envisaged by it at this time.

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This afternoon, the Department of Finance has published a range of documents subsequent to the Budget 2013 announcements in December 2012 which will be of interest to you. The documents are available here.

The audience on here will be interested in Real Estate Investment Trusts (REITs) which are given legal effect by section 25A of the 2013 Finance Bill, and it looks as if we have REITs now, as long as you can convince the Revenue Commissioners that your REIT arrangements comply with the terms of the Finance Bill, terms which on first reading seem straight-forward and expected.

You will also be interested in the newly-announced exemptions to the so-called “Local Property Tax” which kicks in from the middle of 2013 and which will be levied at 0.18% of your property value up to €1m and 0.25% on any excess over that. In 2013, there is a 50% discount.The new exemptions are for charities, the disabled and for property damaged by pyrite, a material which contaminated some buildings and which is liable to expand over time and cause cracking.

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Potential purchasers of the two NAMA loan portfolios currently on the market – the €810m Project Aspen loans of David Courtney and the €230-330m of Project Club loans of Eamon Duignan – may be interested to know that NAMA may provide finance to prospective purchasers.

It was confirmed in the Dail yesterday that NAMA is now offering staple finance – or “vendor finance” – to purchasers of its loans. Up to now, it was believed that NAMA was restricting the offer of such finance to its buildings, but this revelation means buyers can get access to cheap finance – estimated to be priced at 3-4% – to cushion the upfront cash requirements.

NAMA published a guide to its vendor finance at the start of January 2013 – available here and mostly reproduced below (click to ENLARGE). It doesn’t mention loan sales.

VendorFinanceNAMA

So, we now have a situation where NAMA might have acquired €810m of loans from the banks for €250m and is total selling the loans to a buyer who might pay €90m up front, and will pay NAMA 3-4% per annum on the balance of the purchase price and will pursue the borrowers. The purchase might also conceivably circumvent NAMA’s “no sale to debtors” rule, but in any event will manage the loans in much the same way as we expected NAMA to manage such loans. Why did we have to create an expensive dog like NAMA, only to have to bark ourselves?

There is a burgeoning loan business in Ireland at present, and below is a selection of recent transactions.

LoanSales

The Sinn Fein finance spokesperson Pearse Doherty was questioning the Minister for Finance Michael Noonan on the matter. The full parliamentary question and response are here.

Deputy Pearse Doherty: if he will confirm if the National Asset Management Agency provides so-called staple finance or vendor finance to purchasers of its loans, as opposed to purchasers of its real estate property.

Minister for Finance, Michael Noonan: NAMA advises that vendor finance may, on a case by case basis, be made available as part of the sales process relating to both qualifying assets and loans. NAMA advises that it has published an information guide on vendor finance, which is available on the NAMA website, http://www.nama.ie, to which the Deputy may wish to refer for further information.

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Richard Curran, brother of Noel Curran, director general of RTE, an organization which made a €70m loss in 2011 (deficit of €17m and loss on pension fund of €50m) and which is reportedly set to declare a deficit alone of €50m in 2012, on Monday this week fronted an hour long programme on the basket case formerly known as Irish Nationwide Building Society (INBS), in which goateed, hat-wearing, €1m bonus-keeping Michael Fingleton was the CEO. The programme is available via the RTE Player here.

INBSCommercialLoans

I should start out by saying that there is much sympathy on here for Michael Fingleton. Why?

If Paul Coulson had failed to sell the Irish Glass Bottle site in Ringsend for €412m in 2006, where would Paul be today? Well, today, having sold the 25-acre dump for €412m, he is in fact one of Ireland’s richest men, having gone on an acquisition spree post-2006 which most recently included the purchase of the US operation of global packaging company, Saint Gobain, for USD 1.7bn. Meanwhile NAMA has had receivers appointed to the Glass Bottle site and today, is struggling to rent it for €750,000 per annum. So Paul is “Jack the Lad”, lucky to have sold when he did, and doubtless a talented businessman to boot.

Michael Fingleton was on the same track as Paul, but unfortunately was in a train behind. In 2007, Michael did in fact try to sell INBS and had gotten as far as a €1bn bid from Icelandic bank, Landsbanki, when the global financial crisis began, first caused by problems with exposure to sub-prime mortgage lending in the United States. I wonder does Michael today obsess with “what if”. Because if the sale had completed at the €1bn level, Michael would be “Jack the Lad”, hailed as a business titan, and probably one of Ireland’s richest men.

But it was not to be, and Michael must these days put up with being door-stepped by RTE’s David Murphy and must feel harassed at the constant blame disproportionately directed at him. To listen to the news, you would think that Michael personally stole his €1m bonus in 2009, but that was approved by the board operating under the auspices of then-finance minister Brian Lenihan.  Ditto goes for the expenses, the nights at the Dorchester in London, the presents to Gerry Gannon and others, who were amongst the bank’s biggest clients, generating 10s of millions of euros in interest each year (until the crash).

INBSGerryTheHat

Maybe RTE should do a special on a certain national broadcaster, one which is racking up €50m annual losses whilst continuing to pay its staff salaries of over €500,000? And unlike INBS which falls into the realm of archeology at this stage, that certain national broadcaster is a financial disaster right NOW.

DogWhistle

Special mention should go to Tom Lyons – pictured above – of the Sunday Independent who contributed heavily to the programme and who will be bringing out his own book on INBS in the Spring. Well done to him on his research and for making the INBS story accessible, though there was some amusement as Tom’s voice became highly pitched as he described the worst excesses of lending at INBS. Probably, only dogs caught everything he was saying, and perhaps for our blood pressure, it is better so.

Probably of most interest to the audience on here will be the Top 30 borrowers who in December 2006 amounted to €5bn of loans in INBS which then had loans of about €10bn total. The Top 30 were listed on the RTE programme and there has been an attempt on here to match companies to individuals – note that the individuals in the right-most column were NOT named by RTE. Some companies weren’t found which might mean they were not registered in Ireland or the UK, and many developers used companies incorporated in jurisdictions like Luxembourg, Delaware, British Virgin Islands, Gibraltar etc. The Top borrower was actually Stephen Conway who is connected to Galliard and Safehaven Limited which together had €411m of loans at the end of 2012, practically all in the UK, one would imagine.

Top30

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