Archive for July 9th, 2010

Above is one of history’s most famous examples of altering the past, the erasure of Comrade Yezhov shown in the picture on the left who had fallen foul of Comrade Stalin. One minute, he’s there. The next, it’s as if he never existed.

Cast your mind back to 30th March, 2010 when NAMA had issued its first announcement in respect of tranche 1. Thanks to the folks at www.irisheconomy.ie where the release was extensively debated and in particular to user zhou_enlai who actually saved a copy of the release, we still have that release from 30th March, 2010 here. Now the 30th March, 2010 release stated that the Anglo numbers were subject to audit. Fair enough, you would expect those to possibly change and indeed they did, and when Anglo’s first tranche was completely transferred by 10th May, 2010, NAMA produced another press release which made reference to Anglo. So what’s the problem? NAMA went back and changed the figures in the 30th March, 2010 release – see the changed release here, in particular the costs to be recharged to the institutions and the values for the Long Term Economic Value and Current Market Values of the Anglo loans transferred. The figures were changed in significant ways and this is examined below.  Why? In fairness to NAMA, it was clear to suggest on 30th March, 2010 that the Anglo figures were “subject to audit” but they changed by billions between March 30th (when the first Tranche was to be completely transferred) and 10th May, 2010.  suggest NAMA made very significant calculation errors. Below the changes to costs and LEV and CMV calculation  are examined. Again the original document is here and the changed document is  here.

The change to the data is confined to Anglo whose data went from (on 30th March, 2010) a loan value of €10bn, a LEV of €6.55bn, a CMV of €5.85bn and consideration of €5bn to (on 10th May 2010) a loan value of €9.25bn, a LEV of €4.31bn, a CMV of €3.86bn and consideration of €4.1bn. In other words the CMV of Anglo’s loans went from 58.5% on 30th March, 2010 to 41.7% on 10th May, 2010. Remember this was after the banks had submitted their first valuations in December, 2009 and NAMA had three months to pore over the numbers to the 30th March, 2010. The CMV of Anglo’s loans changed by more than €2bn from 30th March, 2010 to 10th May, 2010. These are very significant changes indeed, and yet NAMA’s press release in May 2010 announcing the completion of Anglo’s first tranche made no reference whatsoever to the changes to LEV or CMV.

Due diligence and enforcement costs (recoverable from the financial institutions) have gone down from €2.788bn to €2.3bn, ie a change of €488m. The first loans went from a gross value of €16.03bn on 30th March, 2010 to €15.28bn on 10th May, 2010. It is still not clear how the NAMA calculation relates to the LEV Regulation which states

“8. The standard discount rate that NAMA shall apply in the calculation of the long-term economic value of all bank assets is 5.25 per cent (made up of 5 per cent to provide for enforcement costs, and 0.25 per cent to provide for due diligence costs, incurred or likely to be incurred by NAMA over its lifetime in the discharge of its functions).”

In the changed press release, NAMA say the calculation of the enforcement cost of €2.190bn is (8.27/15.3 [sic, on the detail sheet the total loans is shown as 15.28] * 81 * 5%). Whilst the small calculation error of €2m is not significant, more significant is that the way in which the calculation is structured.

Regardless of the reason for the changes, NAMA did not announce the changes or corrections at any time, which by itself would be curious. However there was a storm of speculation when the first tranche information was released, see irisheconomy.ie here for an example. This blog contacted NAMA to ask for an explanation and received a response here. So even in a peripheral way, NAMA were aware of public concern with the calculations. In that case, wouldn’t you expect NAMA to publicise the fact it was making significant changes to a former press release and to offer an explanation? After all this is not Stalinist Russia where the past is just erased.


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Further to the entry on here recently of the Galway County Council creating six new millionaires by paying landowners €75,000 per acre to acquire their land for a new road (with the average agricultural value of land in the State being  €6-10,000),  now it’s the turn of Limerick County Council who have made one lucky landowner a €10.4m-millionaire and have greatly enriched others. How? By paying an average of €127,000 per acre of land acquired for road building.

So how much has this recent failure to adopt the Kenny Report (which FF and FG  ostensibly support, but have never implemented when they had the chance) cost the State? Taking agricultural land to be worth €10,000 an acre (the upper range of current prices) and uplifting that by 25% as recommended by the Kenny Report would have meant a price of €12,500 per acre was paid for each of the 442 acres acquired in Limerick. As the actual price paid worked out at €127,828 that means the State overpaid (again by reference to the recommendations in the Kenny Report) to the tune of €50,975,000.

Another key recommendation of the Kenny Report was the creation of an House Price Database that Housing Minister, Michael Finneran is still prevaricating over.

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Has anyone ever seen Bertie Ahern and NAMA CEO, Brendan McDonagh in the same room at the same time? No? Because in an interview with the Irish Times today, the NAMA CEO is using language in a way not seen since Bertie’s expert displays which left his audience wondering where one sentence began and the next started, and where you  had to rely to on the man’s generally affable demeanour to sense what he meant (in much the same way a dog would comprehend what his owner meant). This is what the article has to say about performing loans, one of the key parameters in the NAMA Business Plan:

“One senior banker said Nama and the institutions may have had differing interpretations of what constituted a performing loan last year. Some lenders regard a loan where the terms and conditions are being met as being performing or “not in default” even if there is no interest coming in on the loan.

This is the case for many land and development loans where the interest is rolled up until the project is completed and sales of the finished properties begin.

However, McDonagh was clear that income-generating loans related to the €30 billion in associated loans, which are primarily secured on investment properties, linked to the €50 billion in development loans the agency was buying. …

Mr McDonagh said some loans – on top of the 25 per cent that were generating income – were yielding some, if not all interest due, but Nama was still assessing this.”

And then with a masterly command of Bertie-esque language, the NAMA CEO says

“Twenty-five per cent is cashflow generating – the rest has some cashflow generating,”

So a €100m loan with a 5% interest but with a loan agreement allowing the roll-up of interest so that there is presently no cash flow – this loan is operating fully within its agreement terms but it is not cashflow generating this year but there is no reason to expect it won’t be next year when the loan contract requires repayment but it will not be included in the 25%?

A €100m loan with a 5% interest but which pays €4,999,999 is in breach of its loan terms (for non-payment of €1) and is not included in the 25% but in the “rest” that “has some cashflow generating”?

Until there is a definition of “performing loan”, and according to the article there are different definitions even amongst professional bankers, and until NAMA produce the usual financial statements you would expect in a business plan the issue may remain shrouded in deliberate mystery.

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