Archive for February, 2010

Today I send out a plea to the EU to ensure counselling support is at hand for its team that will oversee individual NAMA transactions. We learned in David McWilliams’ book “Follow the Money” how German Chancellor, Angela Merkel was dumbstruck when she learned of the lack of regulation surrounding Deutsche Pfandbriefanstat,  Depfa (Dublin based and Irish regulated bank) which was taken over by the German mortgage giant Hypo Real Estate and which cost the German state and banks over €50bn to bail out.  Well if Ms Merkel was dumbstruck at that how will German valuers on the EU oversight team feel when they see the NAMA valuations.

Below are two properties presently for sale on DAFT, Ireland’s number 1 property website (by number of properties for sale). One is an apartment in Ballsbridge, Dublin –  one is an apartment in  Charlottenburg-Wilmersdorf , Berlin (central Berlin beside the Tiergarten). Both are 70metres, non-ground floor, non-penthouse, in good condition. Both are situated in their capital’s prime market. The Dublin apartment is on the market at €475,000 . The Berlin apartment is on the market at €75,000. Quick! Smelling salts for the German valuers….

And how about Europe’s number 2 economy, France? How will their valuers react to NAMA’s valuations. Again I show two properties presently on the market on DAFT. Both are houses in rural locations. The Irish one is in Leitrim (widely seen as having a vast surplus of property and a positively rural location in respect of Dublin, Cork, Galway and Limerick) is in a development, has 6 bedrooms and costs €425,000. The French one is in Bretagne, has 6 bedrooms overall in a substantial period property which includes 2 bedrooms in a separate gite and has mature grounds and costs €190,800. Quick! Smelling salts for the French valuers…

Above are two exemplars of how our Irish residential property  compares with our neighbours in Europe though they do illustrate the extreme positions – a Cushman & Wakefield report referred to on this blog this week shows that our Dublin offices are still more expensive than Frankfurt doesn’t augur well for our commercial valuations. Will German and French valuers accept property valuations from an economy in Europe that is a PIIGS with a brief history of boom and a meagre industrialised base? I’m not going to denigrate the Irish economy any further but suffice it to say we are not in the same league as the French and Germans. The French in the past have been particularly dismissive of the Irish economy claiming that our Corporation Tax Rate (12.5%) is unfair competition. Ms Merkel perhaps views us at Liechtenstein on the Liffey. Regardless it will be interesting to see the reactions of the EU oversight team.


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The operation of NAMA in respect of valuation is going to be intensely interesting for a number of reasons. On one hand you have the valuation expertise in NAMA,  perhaps personified in its head of portfolio management,  John Mulcahy. On the other hand you have valuers engaged by NAMA who represent the great and good in the property business. And in this mutated Brave New World you have on a third hand the valuers representing the banks. We understand that NAMA’s method of operation includes NAMA’s valuation being presented to the banks and the banks having a week to accept or reject the valuation. Yes it may well be that different valuers may arrive at different valuations!

What makes this interesting for me is that NAMA, being a government body,  presumably has access to the the actual transaction values through the Land Registry, something not available to the bankers. Also NAMA’s valuers which include high street estate agents like DTZ SherryFitzgerald will presumably also have access to the Register. So the next time DTZ SherryFitzgerald are representing a seller, they will know with certainty what the market is currently bearing. A distinct advantage for NAMA valuers, no?

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Have a quick read of Simon Carswell’s piece on NAMA in today’s Irish Times. Look at the detail – the first loans will now be transferred by 5th March 2010, the first amounts will be : “Allied Irish Banks is moving more than €3 billion in the first wave, Bank of Ireland over €2 billion, Irish Nationwide just shy of €1 billion and EBS building society about €150 million.”

Very detailed information and where does he get this insider information from? The last update from NAMA was about their senior appointments a couple of weeks ago and before that a statement in November 2009. NAMA is getting off to a very bad start where select media seem to know what’s going on ahead of politicians and the general property and financial markets to which NAMA is very important.

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First it was HBOS, today Postbank (the JV between An Post and BNP Paribas) have announced that they will close by the end of the year, again restricting choice and competition in the retail banking market. Yes we thought NAMA might stifle competition and with it bring higher interest rates and higher fees. Chairman of the Postbank Board Thierry Schuman cited a number of factors including the ‘unprecedented circumstances’ in which the financial services sector finds itself contributed to the decision. Who will be next?

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The Decision is now published.

It’s Saturday morning and 24 hours after the Statement (the Irish Examiner report this morning that the Decision  “should be [published] in a matter of weeks”) and we still await Decision N725/2009 becoming available so we can see the detail of this morning’s EU approval, one sentence from the Statement is beginning to cause alarm as it relates to reviews by the EU of individual transactions and says quote:

“These individual reviews will include a claw back mechanism in case of excess payments.”

These reviews have the potential to negate the purpose of NAMA which was to clean up the banks’ balance sheets. If there is a risk of a review and a further claw back then that doesn’t give you a clean balance sheet – it gives you a balance sheet with contingent liabilities, akin to what they have at present. This post will be updated as the Decision becomes available or further clarity is provided.

Whilst we haven’t yet seen the full decision Mr Lenihan made statements in respect of some of the Decision detail as follows, quoted in the Irish Times:

“Mr Lenihan said the valuation methodology set out in the regulations would be amended to take account of the Commission’s decision, with a higher remuneration risk margin and higher enforcement costs applied.

“There will however be a reduction in the interest rates used for loan discounting purposes. In overall terms the proposed valuation methodology which the Commission has endorsed is broadly as originally proposed by Government,” he said.

Responding the lackadaisical performance of banking stocks in Dublin yesterday : “They didn’t really benefit from that, as there are still too many unknowns,” one broker said, explaining that EU approval was more or less expected. Has the valuation methodology substantially changed and does the clawback undermine the purpose of NAMA by clouding banks’ balance sheets even after the transfer of loans?

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Almost a year after the government invested €7bn from the National Pension reserve Fund in Bank of Ireland and AIB and more than a year since the government nationalised Anglo costing €4bn we find today that the credit environment continues to deteriorate. The rate of decline is accelerating with the adjusted figures showing credit to non-financial corporations fell by 4.3 per cent in the year ending January. The annual decline in December was 3.1 per cent, while November recorded a fall of 2.7 per cent.

Is it not about time that the Opposition demanded metrics by which the government’s actions can be judged?

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The decision !

Decision published 9th April 2010.

I am presently awaiting the EU statement which will be available under the case number N725/2009 in the State Aid Register on the DG Competition website once any confidentiality issues are resolved. I will post a link here as soon as it becomes available. Here is the EU Statement announcing the decision.

Of note from the Statement is that the NAMA loans including rolled up interest are now being talked about as €80bn and not €77bn and also we have confirmation for the first time that only 5 banks have applied to be included in NAMA by the deadline of 19th February, 2010 – they are

Anglo Irish Bank, Allied Irish Bank, Bank of Ireland, Irish National Building Society and Educational Building Society

Of note also is the reference to oversight on individual loan transfers – perhaps Senator Regan has gotten a concession after all!

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Bank of Ireland shares continued to sink this morning and at 9.30am were trading at €0.989. On Monday last the government (or more specifically the National Pension Reserve Fund) received 184,394,378 ordinary shares in Bank of Ireland representing the amount of the 2010 preference share dividend divided by the average share price in the 30 trading days prior to and including 19 February 2010. Of course this was in lieu of a cash dividend from BoI because the EU has not yet approved the government’s restructuring and financing plans for Irish banks. I seem to recall that in December 2008 we were sold the €3.5bn purchase of BoI 8% preference shares on the basis that the return was a very healthy one for the Irish taxpayer. Well today our divident of 184.4m shares are worth €182bn, we have a significant shareholding in the bank and I do not think people generally expected us to be in this position.

Let us hope that NAMA yields more desirable results.

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The man from Del Monte says….YES !!!!

Well, we probably won’t know for a few hours though some media outlets are saying early next week is possible, but I thought you might want to take a look at the man himself, Joaquin Almunia, EU Competition Commissioner (since November 2009) and formerly Financial and Economic Affairs Commissioner with which hat he oversaw the creation of NAMA so no conflict of interest there then! Approval granted at 10.30am – more to follow!

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We hear today that two of the State’s most prominent developers during the boom years, Bernard McNamara and Jerry O’Reilly are valuing assets in their books at 2006 levels which to many people will look, to say the least, optimistic. These two developers will have loans transferred to NAMA, it is expected and there will no doubt as you would expect from two competent businessmen be tough negotiation positions put forward to NAMA as to values.

With respect to loans to developers in general (and this is not a comment on the two individuals above), it is to be hoped that NAMA is prepared to have teeth to pursue repayments and enforcement of personal guarantees even if it means hauling in tax advisers and the like to find where offshore Special Purpose Vehicles and contingency funds and Trusts are located. Let’s remember that the developers may be near broke at present but they are not idiots.

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