Archive for July 19th, 2010

The Second Tranche – details emerge

Although missing Anglo’s loans, NAMA has confirmed that it has now transferred the second tranche in respect of the other four financial institutions – AIB, BoI, EBS and INBS.  Here are the details – note Anglo is an estimate. Excluding Anglo the average haircut has been 48%.


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In what has been arguably the most significant threat to the NAMA project – Paddy McKillen’s application for a judicial review of NAMA’s dealings with his loans – the latest, reported by RTE,  is that the Commercial Court has apparently accepted the case and it has been set down for a substantive hearing on 12th October, 2010. UPDATE: 22nd July, 2010 The Irish Times reports that, by mutual consent, the hearing date has been brought forward to 5th October, 2010.

The case has the potential to blight NAMA’s efforts to build relationships with developers and third party investors, who may see NAMA as a temporary fixture. It would be interesting to establish whether the case affects the transfer of Paddy McKillen’s loans (and of course Paddy is a substantial shareholder with Derek Quinlan in Coroin, the holding company for the Maybourne group of hotels which includes Claridges, the Connaught and the Berkeley hotels). According to RTE “Senior Counsel Michael Cush for Mr McKillen said he did not see the proceedings as a full frontal attack on NAMA”. Whilst not suggesting the case involves brinkmanship on Paddy McKillen’s behalf, if NAMA put on hold the transfer of loans because of litigation, this could act as a green light to other developers to attempt litigation and to strike deals with banks to have loans redeemed before NAMA gets its hands on them.

Remember you can find the background to the case and latest news at the Paddy McKillen v NAMA tab.

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As far as the new NAMA Business Plan is concerned, the Dail failed completely in its role of protecting democracy and oversight. The Plan was published at 5pm on Tuesday 6th July, 2010. There was no debate of the new Plan in the Oireachtas over the following two days and a small number of questions from Opposition TDs were met with non-answers. The Dail then upped sticks for the Summer recess and will come back sometime at the end of September.

So no chance in the Dail to deal with the uncontested absence of information in the new Business Plan, to seek to better understand the risks of NAMA making a loss, to understand the nature of those €14bn of derivatives assumed by NAMA, to understand NAMA’s strategy to hoard, dispose, demolish. To understand assumptions as to default rates, performing loans and interest rate projections. To understand why the previous Plan was so out of kilter with current information. To understand who takes responsibility for this current Plan. A complete failure of democracy in the Dail.

Committees however continue to function in July.  And the Finance and Public Service Committee will meet this week on Wednesday 21st July to deal with  “NAMA and the banking crisis”, the first time NAMA has been specifically addressed by this Committee since 13th April, 2010 when the NAMA and NTMA CEOs were grilled. Now the NAMA CEO refused to discuss the content of the new Business Plan in April, constantly batting away questions saying it would be published in June after the NAMA Board had approved it. So you might expect the Committee would have gone to any length to secure the NAMA CEO’s presence at the hearing this Wednesday? And who will be the sole guest attendee at the hearing? Peter Matthews, former banker and present commentator on NAMA.

Nothing against Peter Matthews at all, his views of NAMA making a loss of €10bn or so are well known, through public meetings and interviews he has tried his best to warn of the risks with NAMA. However he is no more privy to the detail behind the numbers in the NAMA plan than the rest of us. He can give views on the contingent liabilities of derivatives but since NAMA relies on Societe General and HSBC for derivative valuation and financial advice respectively, what will Peter know that NAMA doesn’t? Peter, like the rest of us, doesn’t know the profile of NAMA cashflows (which could be a big negative and still return a positive NPV), he doesn’t know what NAMA means by a performing loan, he doesn’t know the loan default assumption and his views on hoarding, disposing and demolition are no better informed than most of the public’s.  So why book Peter Matthews? Or more specifically why has Brendan McDonagh’s attendance not been demanded by the Committee?

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Maeve Dineen at the Independent reports today that there has been a delay with transferring Anglo’s second tranche (previously reported to comprise €8bn of the €13bn being transferred) and the reason: “a delay in processing all the information required by NAMA for each loan being transferred”. Let’s look at Anglo’s books again, starting with the 2009 accounts. If the tranche 1 haircut of 55% is applied to €8bn of loans in tranche 2, then Anglo will be left with a residue after the tranche 2 transfer of over €18bn of loans and a provision of less than €3bn (14%). Of course if the reports that the Financial Regulator forcing banks to face up to losses in their non-NAMA loans are correct then Anglo may well have other substantial write-downs on the remaining €36bn of its loan book.

The EU approved a limited injection of €10.44bn of capital by the government into Anglo in March 2010. So far €10.3bn has been injected under this decision (which is completely separate to the €4bn injection last year). So if Anglo is forced to recognize another €4.4bn of losses when tranche 2 is transferred, that may well lead to a need for another immediate injection.

The EU Decision makes it clear that the EU was unhappy with Brian Lenihan’s unauthorized commitment to provide State-aid to Anglo in December 2009 and also that the approval contained in the Decision was in respect of €10.44bn only. Should any further injection be required there would need to be communication with the EU – whether that is merely notification or a more serious application for approval is unclear. The EU of course have had the revised Anglo restructuring plan since the end of May 2010 and it is likely that extra recapitalizations have already been flagged. And to recap, at this point the government has put €10.3bn of the €10.44bn limit into Anglo.

As discussed here last week, there is a tipping point for State-aid at which the EU will intervene. For NAMA’s operation that point may not have arrived yet but for interconnected Anglo, could the EU be considering an intervention now?

UPDATE: 19th July, 2010. With Moody’s downgrading Ireland’s sovereign debt (and consequently NAMA’s bonds) from Aa1/negative to Aa2/stable and stating ” Overall, the recapitalization measures announced to date could reach almost EUR25 billion (equivalent to15.3% of Ireland’s 2009 GDP) — and Moody’s expects that Anglo Irish Bank may need further support. “, that places Moody’s at odds with the Minister for Finance who was saying 3 days ago at the launch of the NTMA report that “I am confident that the cost of saving Anglo Irish and Irish Nationwide will be €23bn to €25bn and the taxpayer will not lose anything with AIB and Bank of Ireland.” Let us hope the EU is carefully considering that Anglo restructuring plan.

UPDATE: 20th July , 2010. Emmet Oliver at the Independent reports that NAMA said yesterday that the delay with Anglo’s second tranche was “due to the amount of paperwork involved in the process”, according to Emmet, and more importantly “a spokesman for NAMA said yesterday said there was no other reason for the delay” – so no issues with EU approval it would seem. Interestingly when Simon Carswell at the Irish Times contacted Anglo, their spokeswoman refused to comment on the reason for the delay.

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