Archive for July 28th, 2010

It seems like an eternity ago when Luca Ascoli at Eurostat wrote to our very own Bill Keating at the CSO to provide the “preliminary” view of the treatment of NAMA bonds in relation to our national debt. And of course the decision was that NAMA bonds would not be added to government debt. It was only October 2009 when Eurostat wrote their letter but it might be worth revisiting the basis on which the judgement was made, and to examine what changes have taken place to Eurostat’s assumptions. In overall terms Eurostat saw the potential for losses at NAMA as low and gave the following in support of its conclusion:

1. “The presence of market investors is reassuring (those providing 51% of the equity of the SPV)” To what extent can the SPV investors be classed as “market investors”. Remember that all we know is that each of the following three groups has invested €17m into the NAMA SPV – an overall total of €51m which gives them 51% of the NAMA SPV equity. However we do not know what the anti-money laundering folk would call the “Ultimate Beneficial Owners” of the investments. Also although the final terms of the investment have not been published, they were previously reported have offered poor returns with risk.

(a) Irish Life Investment Managers “the asset management arm of Irish Life & Permanent plc. ILIM manages money on behalf of a wide range of clients from large multinational corporations, charities and domestic companies. Currently managing assets of in excess of €30bn”

(b) New Ireland Assurance “As part of the Bank of Ireland Group, New Ireland is backed by the Group’s resources and expertise. New Ireland is one of the leading life assurance companies in Ireland, providing for the future of hundreds of thousands of customers with easy to understand life assurance, pension, savings and investment products.”

(c) “group of clients” of Allied Irish Banks Investment Managers “is an autonomous, independently managed investment manager.  We specialise in the provision of discretionary investment management on behalf of a diverse client base.  AIBIM has been managing investment portfolios in Ireland, the U.S., Europe and Asia since 1966.”

2. “The price paid for the loans of banks are calculated from the value of assets already written down by the banks and then a 30% haircut is then applied on these book values. This so-called “LTEV – long term economic value”is paid for the assets which is assessed individually by the experts. The current market value is 15% lower than the LTEV but Irish authorities believe that under the current conditions the market values for properties are artificially low”. I wonder if this is an echo of the record-yield-levels-indicating-the-market-has-bottomed-out nonsense that Brian Lenihan was ill-advisedly spewing out last September 2009. Both commercial and residential prices have continued to tank in the State and even though there has been a modest recovery in the UK where supposedly one third of NAMA assets are located, it in no way offsets the disaster-zone that is Irish residential and commercial property today. Indeed the EU’s own benchmark (ie central or base) scenario used in its recent stress test of the banks was that there would be a decline in 2010 of 14% and 13% respectively in commercial and residential in the State and further declines in 2011. Eurostat must now know that NAMA has chosen a Valuation Date of 30th November, 2009 by reference to which NAMA is valuing assets. Eurostat must also be aware of the recent NAMA Business Plan and the fact that the plan is now to make a €1bn NPV profit, compared with €4.8bn last October 2009 when the letter was written.

3. “An important additional element – which Eurostat understands will shortly be introduced into the legislation – is a levy to be imposed on participating banks if the SPV were to have losses at the end of the operating period. The Irish authorities confirmed that under the new proposal, the participating banks have to pay a tax surcharge on their operating profits until the loss on the SPV is recouped.”  This important new element was given effect in the NAMA Act under section 225. However in practice given that Anglo, INBS and EBS make up the majority of the loans being transferred to NAMA and any SPV loss will be applied proportionately to the banks and given that Anglo, INBS and EBS will only survive with State-aid then in practical terms any loss the SPV makes will not be recoverable. So what do Eurostat make of this “important additional element” now?

It may be academic of course given our coaches and four drive through our budget deficit to GDP and debt to GDP requirements under the Stability and Growth Pact but in the interests of transparency should Eurostat not revisit its decision?


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The report and accounts for 2009 are published today in two parts – part 1 and part 2. In brief the DDDA turns in a loss of €23m for the year on top of a loss of €226m for 2008. The Irish Glass Bottle site bought for €412m by the Becbay consortium in which the DDDA has a 26% share was worth a total of €50m at the end of 2009 according to Lisney valuers, a valuation that has not changed at all since the end of 2008 – see page 20 PDF of part 2. This must be one of the very few Irish development sites not to lose value in the 12 months to the end of 2009! Lisneys are on NAMA’s valuation panel. Even though the valuation of the IGB site has remained constant, the DDDA has revalued other property downwards by €9m (from €43m to €33m approx). And that €50m valuation on the IGB site is subject to a few assumptions that might be far from being certainties. This is what the note to the financial statements says (page 43 PDF from part 2).

“The key assumptions used in the valuation as at 31 December 2009 were:

(a)The Draft Poolbeg Planning Scheme will be approved by the Minister for the Environment, Heritage & Local Government without undue delay and there will be no significant alterations in the adopted plan.

(b)The proposed scheme of development will comply with the density and use guidelines, as set down in the Draft Poolbeg Planning Scheme.

(c) no onerous soil contamination issues exist on the site.

(d) The standard inputs used in preparing the residual development appraisal, such as, inter alia, construction costs, rents, yields and estimated sales prices, are as at the valuation date, 31 December 2009.

The independent professional valuation report concluded that the market value of the Irish Glass Bottle development site as at 31 December 2009 was €50 million (2008: €50 million). The Authority has recognised its relevant share of the gross assets and gross liabilities of Becbay Limited as at 31 December 2009, resulting in a share of net liabilities of €75.1 million (2008: €74.7 million)

being reflected in the consolidated balance sheet.”

Loans associated with the IGB site continue to drain €4.4m interest from the DDDA each year. Furthermore Becbay still has ongoing operating costs of which the DDDA’s share is €0.4m per year so in total the IGB site continues to suck just under €5m from the State each year. Some other nuggets of misery from the report

1. The former chief executive, Paul Maloney, was paid €121,000 for 7 months work in 2009 and then a further €128,000 as payment in lieu of notice bring his remuneration to a total of €249,000 for the year.

2. The DDDA acknowledges legal issues facing it but “believe that these will be successfully defended and will not result in material liabilities for the Authority” – I wonder what Bernard McNamara would make of that.

3. The DDDA made an operating loss on continuing activity of €7m for the year.

4. Legal fees of €1.143m were incurred during the year on top of the €5.648m incurred last year. Marketing fees were €0.6m this year compared with €3m last year.

For a more detailed analysis of Becbay including the latest accounts, see here. For a detailed history of the Irish Glass Bottle site, see here

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