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“These are challenging times for the whole banking sector in Ireland, not just for the domestic banks. KBC Ireland is an important provider of credit to the Irish housing market and as the Deputy rightly points out the Bank has extended some €14 billion of credit to the Irish economy.” Minister for Finance Michael Noonan on 23rd April, 2013

This morning KBC Ireland, one of the few non state-owned retail banks operating in Ireland, released its management statement for the first three months of 2013. There is a separate presentation to analysts here and Ireland is detailed on pages 62-64. Here’s what we learn:

(1) Loss after tax and impairment provision of €77m in Q1,2013 compared with €148m in Q1,2012

(2) Mortgages in arrears have risen from 17.5% of the principal residential loanbook at the end of 2012 to 18.1% today.

(3) Mortgages in arrears have risen from 29.2% of the buy to let loanbook at the end of 2012 to 30.6% today.

(4) Impairment charges of €300-400m are expected in 2013, compared with €547m in 2012 and €525m in 2011. Impairmentr in Q1,2013 were €99m compared with €195m in Q1,2012 and €87m in Q4,2012.

(5) Retail deposits rose by €0.3bn in Q1,2013 – including from 5,000 new accounts – bringing the overall total of deposits to €2.7bn

(6) Post-provision loans are €14.0bn down from €14.3bn in 2012 compared to €15.7bn in 2011. [UPDATE 17th May 2013. The KBC presentation didn’t show the post-provision loans, just the par value, the % non-performing, and the % of non-performing taken as a provision. I have worked out the detailed after provision value below which is €13.98bn, which is €345m down from the €14.325. When you deduct the €99m increased provision for losses in Q1,2013, the net reduction in lending is €246m.

The view on here is KBC faces colossal challenges, and with an injection of Belgian blood onto the Irish board this year and after a cumulative €1.055bn bailout from the Belgians, you would wonder how long KBC is to operate here.

Minister Noonan might note that KBC is providing €14bn of net after impairment credit to the Irish economy, but the trend is obvious with deposits growing strongly attracted by high deposit interest rates, loans being reduced and corporate funding from the Belgian parent being reduced. Will a point arrive when KBC cuts its losses.

KBC sucked [UPDATE 17th May 2013] €0.546bn out of the Irish economy in Q1,2013, comprising an increase in deposits of €0.3bn and a net reduction in loans of €0.246bn. That compares with €2.3bn sucked out in 2012. KBC is steadily reducing its parent company exposure to Ireland, thanks to redeeming loans and attracting more deposits. It is a bank to watch closely.

BrianMcEnery

If you were asked to name the NAMA board, you’d probably struggle beyond Brendan McDonagh the CEO, Frank Daly the chairman and John Mulcahy the head of asset management. But there’s a former IMF mission chief there also, Steven Seeling, not to mention a former county manager William Soffe, former KPMGer Eilish Finan and the board’s most recent appointment Oliver Elingham who got the call from Minister for Finance Michael Noonan last month.

And then there is Brian McEnery, an accountant who is a partner in accountants and receivers Horwath Barstow Charleton in Limerick. Brian was appointed in December 2009 , a full 13 months before General Election 2011 where Brian was director of elections for Limerick-man Michael Noonan who is now of course the most important minister in this administration. Brian’s is chair of NAMA’s audit committee and his term on the NAMA board is set to expire in December 2013.

Last week, Minister for Health James Reilly announced that Brian has been appointed chairman of the Health Information and Quality Authority, HIQA – the organization that monitors standards of health care.

The former CEO of the NTMA and now Government-nominee to the board of AIB, Michael Somers made headlines a fortnight ago when he claimed that increased regulation was leading to international banks to hand back their licenses and exit from Ireland, taking their business and contribution to the economy with them. The comments were interpreted by a cartoonist in one newspaper with a helicopter emblazoned with “Goldman Sachs” taking off from the IFSC building beside Bus Aras bus station, with the Famine memorial in the foreground and some choice words about bankers and their pay, which was also cited by Michael as a reason for deterring recruitment and activity in state-owned banks.

But is there any truth to the claim?

This week in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to give detail on the number of banking licenses that had been given back. In terms of wholesale banking operations of the type we would associate solely with the IFSC, the number has declined from 30 in 2010 to 22 today, a decline of 8 or 27%.

Alas, Michael Somers didn’t provide detail on the regulation which IFSC banks found unpalatable, and there might be other reasons for the exodus, but it seems undeniable that there has been a steady decline in wholesale banks since 2010.

The parliamentary question and response are here:

Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm by year for each of end of 2010, end of 2011, end of 2012 and currently, the number of extant banking licenses issued to banks operating in the International Financial Services Centre; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: The total number of credit institutions registered in Ireland is 437. A full list of authorised credit institutions is available on the Central Bank website at http://registers.centralbank.ie/DownloadsPage.aspx.

It is difficult to clearly demarcate which banks participate in international financial services activity based solely on location in the International Financial Services Centre. The Central Bank has identified the key international financing operations which it considers to be IFSC type banking activities i.e. wholesale institutions carrying out non-retail banking activity. The number of wholesale institutions licensed for non-retail banking activities on 31 December 2010 was 30; on 31 December 2011 there were 26; and on 31 December 2012 there were 24. The current number of wholesale institutions licensed for non-retail banking activities is 22.

Take Paddy McKillen, pictured below right.

DrownedAndSaved

In 2010 and 2011, he fought tooth-and-nail in Dublin’s High Court and Supreme Court to stop NAMA acquiring his loans. In the end, the Supreme Court judges decided that NAMA could acquire Paddy’s loans but would have to consult with him beforehand. Despite swearing blind at the High Court that Paddy’s loans were “systemic”, NAMA abandoned the fight and decided not to acquire Paddy’s loans which remained at IBRC and Bank of Ireland.

Lucky for Paddy.

Because right now, Paddy has been given a window to refinance his IBRC loans – estimated to be €300m of personal loans and €550m of corporate loans. To refinance his loans, Paddy must repay them 100% and Paddy has been having a whinge through the press recently that IBRC is not accepting his most generous offers which are almost equal to what Paddy owes. Paddy’s window to refinance at 100% expires soon; originally, the liquidator at IBRC was going to have the loans valued by the end of May 2013 and they would then be offered to the market, unless they had been refinanced at 100%. That valuation of the IBRC loans by USB and PwC due at the end of May, seems to have slipped but regardless, it will be a matter of weeks when the un-refinanced loans are offered to the market.

Why is Paddy lucky? Because, even after his refinancing window closes, he will be able to bid for his own loans, and if his bid is the highest and if the bid is in excess of the independent valuation, then Paddy will be able to acquire his loans at a discount. So IBRC into which we have shoveled €34bn will be selling its loans to the market, and if the borrower is the highest bidder for those loans then the loans will be sold to the buyer at a discount, or in other words, the borrowers will receive debt forgiveness or a debt writedown.

To illustrate, if Paddy has personal loans of €300m today, he can refinance these today at 100%, that is pay IBRC €300m and any outstanding interest and fees. After the refinancing window closes, then IBRC will offer Paddy’s loans to the market and say the highest bid is €200m and this is in excess of the market value of the loans, then they will be sold to that bidder regardless of who that bidder is. If it’s Paddy, then he gets €100m of debt forgiveness, no questions asked.

Contrast that with NAMA which is prevented by the NAMA Act from selling assets back to debtors below their par values. So, if a NAMA debtor owes NAMA €300m and offers NAMA €200m for them, and if NAMA markets the loans and €200m remains the highest bid, then NAMA can NOT sell the loans to the NAMA debtor. Which brings us to Sean Reilly (pictured top above, left) who happens to owe NAMA about €300m according to press reporting. Sean is prevented by the NAMA Act from having an interest in buying these loans. The best Sean can do is show some leg to potential investors and try to get them interested in bidding for the loans, and the best Sean can hope for is to act as a consultant after the loans have been sold to someone else.

Minister for Finance Michael Noonan is clueless about all of this, he doesn’t know how much the NAMA proscription is costing NAMA and by extension the State. He also doesn’t know why there is one rule for IBRC disposals and another entirely for NAMA’s.

What an eejit, and given he is being advised by the Department of Finance on these policies, what a bunch of eejits are employed there.

The Minister was responding to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty. The response must count amongst the most nonsensical you’re ever likely to see.

Deputy Pearse Doherty: To ask the Minister for Finance the reason the Irish Bank Resolution Corporation borrowers will be eligible to buy their own loans at less than par value when such loans over €10m are offered to the market imminently, but that borrowers at the National Asset Management Agency are precluded by the NAMA Act from buying their own loans at below par value..

Minister for Finance, Michael Noonan: As previously advised, independent third parties are being engaged to independently value the loan assets of IBRC (in Special Liquidation). There is an obligation on the Special Liquidators to ensure that assets of IBRC are sold at a price that is equal to or in excess of the independent valuations that are being obtained. A process is currently being finalised that ensures that maximum value is extracted from the loan sales. The Special Liquidators are responsible for putting in place a liquidation process which fulfils their obligation under the IBRC Act and where applicable the Companies Acts.  It is a matter for the Special Liquidators to determine what bidders constitute qualifying bidders for the purposes of the sales process.

The protocol which is in place for the disposal of the IBRC assets is guided in a specified manner as the Special Liquidator will only be holding the assets for a limited period of time. Any assets that are not sold to third parties for a value higher than the independent valuations will be sold to NAMA at that price. Assets that are transferred to NAMA will then be subject to the protocol according to the NAMA Act 2009.

It is the objective of NAMA in any loan sale to achieve its commercial mandate of obtaining the best financial return on behalf of the State. In accordance with the NAMA Act procedures have been put in place by the Agency to achieve these objectives.

“It’s hard to make a man understand something when his livelihood depends on him not understanding it” Upton Sinclair

DBRS

How do ratings agencies make money? It may come as a surprise to some of you that ratings agencies get paid by companies to rate their debt and prospects. Which inevitably places ratings agencies in conflict between their desire to be retained to provide an assessment on one hand, and on the other the need to provide independent credible assessments to the market. But that’s how the business works, and the world’s biggest ratings agencies show no sign of withering away, despite the opprobrium heaped on them after failing to identify looming crises in American sub-prime mortgage lending and European bank debt.

The three main ratings agencies will be familiar to most of you – Standard and Poor’s, Moody’s and Fitch. A fourth ratings agency, Dominion Bond Rating Service (DBRS) might not be a household name but it seems to get disproportionate reference by the NTMA when pointing to how healthy our prospects are. DBRS recently produced an assessment of NAMA, covered here. Whilst it undoubtedly contained useful and factual information, for example the three year accounts analysis, its opinions on NAMA were eyebrow raising in their positivity.

DBRS said of NAMA that it has assembled a “talented team” with “deep experience” and with “the necessary skills to extract the best possible return from the loans and underlying property assets”. DBRS went on to say “NAMA has developed a robust and efficient infrastructure that allows NAMA the flexibility to develop individual responses to each debtor that bests maximizes the returns “

We find out today that although NAMA picks up some of the costs of the ratings agencies generally who rate NAMA’s bonds, that NAMA itself directly pays only one of the ratings agencies and guess which one? Yes, it’s DBRS! How much does NAMA pay them for their handsome compliments? Alas, that is confidential.

The information was revealed in the parliamentary question and response below:

Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm the sums paid by the National Asset Management Agency to each of the ratings agencies Fitch, Moody’s, Standard and Poor’s and Dominion Bond Rating Service in each of 2010, 2011, 2012 and to date in 2013..

Minister for Finance, Michael Noonan: Rating agency costs relating to NAMA are, in the main, paid by the NTMA as part of its overall sovereign rating programme.  NAMA directly bears the cost arising from the rating of NAMA Bonds by Dominion Bond Rating Service (DBRS).  NAMA advises that the terms of its agreement with DBRS are commercially sensitive and of a confidential nature.

SDNAMAsubpoenaed

So far, the bankruptcy in Sean Dunne’s bankruptcy case has sought to subpoena three companies and individuals – Credit Suisse, People’s United Bank and an employee of the property company Bruce Shaw called Andy Smyth. Today, the trustee, Richard Coan has made a fourth application for a subpoena and this latest application is seeking to have NAMA questioned on 28th May 2013 about matters relating to Sean Dunne’s bankruptcy.

You may have gotten the impression that NAMA was Sean Dunne’s sole creditor, but in fact Ulster Bank rivals NAMA for title of biggest creditor and the bankruptcy trustee has a duty to all of the creditors.  The trustee is seeking to question NAMA under a provision of the US bankruptcy code known as a Rule 2004 Examination which allows the trustee to question NAMA under oath and seek documentation.

The justification for subpoenaing NAMA is given by the bankruptcy trustee in the following terms

“the National Asset management Agency has information relevant to the assets of the Debtor and/or transfers made by the debtor. The National Asset Management Agency may have other information relevant to the administration of the bankruptcy estate of Sean Dunne.”

Sean Dunne’s creditors meeting has been postponed to 29th May 2013, so it would seem that NAMA can kill two birds with the one (airline ticket) stone by submitting themselves to the bankruptcy trustee on 28th May.

The full application for an order, which is likely to be approved by the judge, is here.

It says something about how atrocious Irish property companies are in that they have all singularly failed to replicate anything like the success of Allsop Space property auctions, and it really makes you wonder if they’re so dumb that they can’t operate a large scale auction, then how dumb are they in their provision of other services? How competitive are their valuations? How efficient are they at marketing? How good is their research?

Today saw the 11th Allsop Space auction in Ireland, and it was another stunning success with 88% of the Lots on offer sold at or after the auction. Although there were 126 Lots originally, 10 were withdrawn prior to today, two were sold prior to today which is a new development, and three were sold after the hammer came down with the reserve not reached. The success rate calculated on here is 88%. The total realized was €12,620,500 excluding the “Sold Afters” which was an average of 34% above the maximum reserves of €9,400,000.

Here are the results, you will find the links the Lot details here.

AllsopSpace15May13

The auction was again packed and at 3pm this afternoon, there were a few seats available but not many, the view here is that about 2,000 attended. There was a protest outside the Shelbourne Hotel at the start of the auction and there appeared to be more security in evidence than previously.

Two Lots were sold prior to the auction which is a new development and a request for comment has been made to the Allsop Space director of auctions, Robert Hoban, as previously Allsop Space had stressed that it would not sell Lots before the auction.

The maximum reserves of the 126 Lots was €16.3m and given the Maximum Reserves of the Lots sold today was €9.4m, that confirms that some of the unsolds were big. The 60 apartment development in Cavan whose Maximum Reserve was reduced today from €1.5-1.7m to €1.3-1.5m still didn’t sell. Nor did the period house on 51 acres in Murroe in county Limerick which has a reserve range of €425-450,000 but only reached €405,000 today.

Our friend Carol Tallon at Buyers Broker Ltd wasn’t tweeting highest prices for unsold Lots today so the above results are a little less useful than usual.

Other than that, a polished performance from Allsop Space; Gary Murphy was the master of ceremonies as usual, and although there was a dispute on one Lot, there was no significant protest from the floor today. Further analysis later, but there were actual residential yields there today of well over 10%, which indicates that residential prices may still be in for a correction, that or rents are set to reduce in some areas.

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