Archive for August, 2010

Yesterday in a preview of the Anglo report, five NAMA-related issues were outlined. Here’s what we found out from the report itself today.

1. NAMA-bound loans. Although it is quite convoluted to work out, the following would appear to be the present position for NAMA-bound loans though before the reclassification of the €1.2bn of loans to which Anglo claim NAMA has agreed (Page 10 of the report).

Anglo is accounting for a 34.3% provision for losses on tranches 3 onwards which compared to the experience of the first two tranches which saw an average discount of 58% looks like fantasy. Anglo state clearly in several places that “iIt should be noted that impairment provisions under IFRS are not a predictor of NAMA valuation discounts on transfers”. Effectively Anglo are hiding behind IFRS 9 and avoiding the recognition now of likely losses on the remainder of the NAMA tranches.

There is some interesting detail on the tranches transferred upto June 30th (all of tranche 1 and a fraction of tranche 2) on page 11 which shows, for example, that 6% of the loans transferred to NAMA received nil consideration.

2. Non-NAMA-bound loans. For the first time there is a considerable amount of detail on the non-NAMA loans contained in note 35 on page 66 of the report. It should be noted that the majority of loans transferred by Anglo in tranches 1 and 2 were associated property loans (ie non land and development). Given the 58% average haircut I would suggest that the Anglo provision on commercial property of 14% is utterly inadequate. I am sure others will work through the detail of the loans shown and the provisions but it seems to me that if the provisions on commercial property were to be increased to 40%, then along with the increased losses on NAMA loans that will need to be recognised in the next half year, Anglo will need a cumulative net bailout in excess of €30bn.

3.Reclassification of NAMA loans: Whilst Anglo CEO Mike Aynsley was talking about €2-4bn of NAMA-bound loans being reclassified two weeks ago, it would appear from the Anglo press release today that the figure is €1.2bn (footnote one on page one of the release). No further detail appears.

4. Redemption of NAMA-bound loans. There would appear to have been nil redemptions which is partly re-assuring as it means that Anglo has not been selling loans for less than par. The mystery of Bank of Ireland’s €4bn redemption between late 2009 and early 2010 remains and should be dealt with by NAMA’s audit of the banks later this year to ensure all eligible assets have been transferred.

5. Paddy McKillen’s loans : Incredibly Anglo’s dispute with NAMA about the eligibility of Paddy’s loans doesn’t get a mention at all. Incredible because Paddy’s loans should be financially significant to Anglo given that they’re supposed to be performing and of good quality.They could have made nearly 10% of the Newbank loan portfolio. Strange indeed that there is no mention of the dispute. Remember you can find the background and all the latest news on the Paddy McKillen judicial review proceedings under the Paddy McKillen v NAMA tab.

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Page 1 of the Anglo half year report issued today has a table of contents. Page 2 has some contact information for Anglo. And it was when I got to page 3 today that I started to suspect that we were in for a grand display of spin. For the first item and graph on page 3 shows the commercial property capital values graphs for Ireland, the UK and the US. They chose the IPD index for Ireland which had a 5% drop in H2, 2010 as opposed to the Jones Lang Lasalle graph which would have shown a 6.7% decline – a small difference to be sure but representative of the approach taken many times in the report. The second graph on page 3 shows the spread between 10-year government bonds (Ireland versus Germany) and despite the report being signed yesterday the 31st August, 2010, no mention is made of recent record spreads and the supposed cause for the record high yield spreads  : Anglo!

Anglo’s new-ish Chairman, Alan Dukes who took over from Donal O’Connor on 14th June, 2010 is first off to bat for Anglo from page 4. His second and third sentences “I am acutely aware of the Board’s mandate to run the Bank in the public interest and in a manner that minimises the cost to the taxpayer. Everything that we do is with that objective in mind and it is the overriding priority of all parties involved.” blithely ignores the deliberate non-co-operation of Anglo with the Office of Corporate Enforcement and Anglo’s attempts to stop NAMA taking over badly-needed performing loans – both events taking place or continuing after Mr Dukes took up his post.

Next up we have the loss for the six months itself – €8.2bn. We don’t know if that is an Irish record. Anglo’s report in 2009 was for 15 months – the six months from Oct 2008 – March 2009 produced a loss of €4.1bn and the subsequent nine months threw up a loss of €8.6bn to give an overall loss for the 15 months of €12.7bn – but we can guess that €8.2bn is a record. However if we examine the level of provision made against both NAMA and non-NAMA loans, then it wouldn’t be unreasonable to add another €5-10bn to that loss figure (see below). Truly frightening.

We are then treated to some spiel on the preferred restructuring option for Anglo and surprise, surprise the €250,000 chairman (who to be fair apparently volunteered a €100,000 reduction to bring his annual fees to €150,000) and the reputedly-paid €0.5m CEO argue for a perpetuation of Anglo through a Newbank (capital “N” because that’s what the new bank has been called in the recent submission to the EU for restructuring). Now the restructuring finances are commercially confidential, dontchaknow but it seems that they seek to justify their Newbank split on a number of grounds including on the basis that “it offers the prospect of participation in the reconstruction of the banking sector while safeguarding the stability of the Irish financial system and it provides credible options for the Government to exit by way of a future sale with a potential return for the taxpayer” – the financial impact of these features wouldn’t be commercially confidential and I would dearly love to see the workings.

Next the Chairman’s report tells us that the Minister for Finance upped the promissory note last week but later on we learn that he gave a commitment to Anglo on 30th June 2010 to shore up its capital. That letter on June 30th, 2010 was of course unlawful absent EU approval of additional State-aid. However we wouldn’t expect anything as vulgar as that little peccadillo to be highlighted in a report that constantly refers to the “Shareholder” ie the State as if it were a deity.

The Chairman does tell us that with respect to the accounts “it is important to remember that impairment provisions under IFRS are not intended to predict loan discounts on transfer, which are calculated on a different basis”. Fair enough, compliance with IFRS 9 on loan impairments is not mandatory until 2013 but Anglo fails to include any up to date estimate of overall losses. And at this stage, Anglo is not fooling anyone. We’re like the patient with some new exotic but fatal disease and we’ve researched the disease to the extent that we know about as much as the doctors – in other words, if Anglo won’t use its expertise and experience to project its future loan losses, there’s no shortage of people who will do just that.

The CEO’s review is remarkable for completely omitting the shambles that was the first Anglo restructuring plan submitted to the EU in November 2009 during which time, the CEO Mike Aynsley was in charge. Mr Aynsley tells us that commercial property values have dropped by “more than 50%” – indeed they have – almost 58% to the end of June 2010 according to the IPD index with falls accelerating in the second quarter. He tells us that the UK commercial has improved  “having risen by 15% from the mid 2009 nadir” – that statement is spot-on accurate but take a look at the IPD press release which confirms the 15%, it goes onto say “UK commercial property capital appreciation has eased to its slowest quarterly growth since Q3 last year” and the outlook in the near term in the UK is not good – the recent EU bank stress test base scenario was that commercial prices in the UK would grow by 2% in the 12 months of 2010. However such qualification would only interfere with the Anglo optimism. At least Mr Aynsley does confirm “on 30 June 2010 the Minister wrote to the Chairman to confirm his commitment to increase the principal amount of the promissory note to ensure the Bank had sufficient capital to continue to meet its regulatory capital requirements.” though again it would have been vulgar to point out that the Minister did give the commitment without EU sanction. He concludes with an overview of the options for Anglo’s future and he argues for the Newbank split – well, he would, wouldn’t he?

There is an interesting footnote to the CEO’s review with respect to “legacy” matters and “as part of the review the Bank will have to examine a substantial amount of historical customer loan documentation before it can reliably estimate the amount of any liability that arises to customers who may have been adversely affected.” So some Anglo customers might be getting demands for under-calculated interest. The review deals with the period “period prior to July 2004” so there might be some shocks in store. UPDATE. 1st September, 2009. Simon Carswell at the Irish Times interprets this “legacy”matter to mean that Anglo customers may have been overcharged and may be due a refund and indeed a further aticle by Simon Carswell today seems to confirm that it is Anglo who might face a bill of €50m for overcharging interest on loans.

Overall though, the CEO and Chairman duo put in a Trojan effort in portraying Anglo in its best light and to be fair to them they are in their posts for a relatively short time trying to sort out a catastrophe that they had no hand in creating. But they are hardly the most independent participants in the Anglo saga and so we certainly shouldn’t rely on their recommendations for Anglo’s future. As Upton Sinclair once said “It’s hard to make a man understand something when his livelihood depends on him not understanding it”

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Having perused the Anglo first half year report, you could be forgiven for concluding that now that Mike Aynsley has taken over, Anglo has cast off its old practices and is now a paragon of good management with a clear and accurate assessment of its finances and prospects. This is the same Mike Aynsley who became CEO in September 2009 and oversaw the submission in November 2009 of a restructuring plan to the European Commission. In returning the plan to Anglo in March 2010 requiring a re-submission in May 2010, the Commission described Mike Aynsley’s plan as lacking detail and prompting doubt in its credibility and wrote off as overly optimistic the claim that Anglo Newbank could be generating €1.2bn per annum in profits by 2014!

Having quickly reviewed the half year report (press release is here and the report itself is here), there would appear to be a lack of detail and credibility in some statements including financial statements. There will be a detailed report here later today on the significance to NAMA of the Anglo half year report but for the time being it appears that Anglo is maintaining a 34.3% provision for losses on the €19.582bn of NAMA-bound loans after tranche 2 (note the €19.582bn may decrease by €1.2bn as a result of reclassification but that doesn’t detract from the provision %).

It would appear that if Anglo were to maintain a 58% provision on tranches 3 onwards (see earlier entry today for the derivation of 58%) then that would require an additional loss at this point of €4.6bn. Anglo appear to be hiding behind the International Financial Reporting Standards (IFRS) for valuing loans though I can’t see anywhere (including management commentaries) where they project losses using their best estimates. The implication is that the bail-out costs will be several billion in excess of €25bn.

Here are the NAMA numbers (there is an assumption that the new “collective provision” for all losses on both NAMA and non-NAMA loans is allocated on a pro-rata basis by reference to the face values of the NAMA and non-NAMA loans)

There will be a more considered and detailed update here later today.

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It seems that Anglo will be releasing its first half 2010 results at 11am this morning. The speculation in the Irish press is that a loss of over €4.1bn will be announced. This entry examines why the losses should be over €10bn, but are unlikely to be reported at that level.

Yesterday we got a flavour through a Freedom of Information request (which was subject to an appeal to the Information Commissioner) made by the Irish Times of the attitudes and machinations at the Department of Finance in April 2009 when the IMF was examining the condition of the Irish banking system. “I’m not sure that it would be helpful to have Anglo talk up their capital requirements. Perhaps a word with DOC [Anglo’s then chairman Donal O’Connor] could temper this” is what one Department official wrote in an email reported by the Irish Times. A year and a half later with the EU wavering over its decision on the future of Anglo, it is likely that the new Anglo chairman, Alan Dukes together with Anglo’s CEO, Mike Aynsley will be more acutely aware than ever of the consequences of “talking up their capital requirements”.

Remember the bloodbath that was the 2009 Anglo report (for the 15 month period to the end of December 2009) which saw losses of €12.7bn and a State injection of capital of €12.3bn? Well those results, horrendous as they were, only booked losses on Anglo’s loans at what now appears to be fantasy levels.

At the end of 2009, Anglo reported €35.6bn of NAMA-bound loans at face value against which Anglo booked a cumulative provision for losses of €10.1bn (28%). Anglo’s first tranche of loans was transferred to NAMA in May 2010 with a gross value of €9.25bn and a loss of €5.1bn (a 55% haircut). Anglo’s second tranche was transferred only last week (and therefore after the half year cut-off of 30 June 2010 but you would have thought it was a material post period event). The second tranche had a gross value of €6.75bn and a loss of €4.18bn (a haircut of 62%). The average haircut in tranches 1 and 2 was 58%. In the absence of argument to the contrary shouldn’t the provision on the remaining tranches, totaling €19.582bn also be set at 58%? That being the case, Anglo will need book losses of €10.52bn on the NAMA loans alone.

The non-NAMA loan book is even more interesting than the NAMA stuff because it has not been subjected to the rigour of a partial valuation exercise by a third party (not to mention the EU) as has been the case with NAMA loans. The Financial Regulator, Matthew Elderfield, had some strong words at the start of this year about banks recognizing the reality of the recoverability of its loans. Sadly it would seem that there has been little practical effort to force banks to confront the true scale of losses on their non-NAMA portfolio and this lack of application may sow seeds of doubt in the financial standing of our banks. At the end of 2009 Anglo had €36.5bn of non-NAMA loans against which it had booked a cumulative provision of €4.9bn (13.4%). If the paperwork, lending practices, security and decline in asset values of these loans are similar to the NAMA loans you would expect a substantially larger provision, but will that be reflected in the results at 11am today?

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With Anglo Irish Bank Corporation Limited (“Anglo”) poised to report its results for the first six months of 2010 tomorrow, there is speculation that it is likely it will report losses in excess of the €4.1bn for the equivalent period last year. And these losses will be on top of the €12.7bn losses reported for the 15 months to the end of 2009. This entry examines areas of the Anglo half year report that are likely to be relevant to the NAMA project.

1. Losses on NAMA-bound loans. If Allied Irish Banks’ (AIB’s) first half results for 2010 are anything to go by, this area of reporting may be a damp squib. AIB merely reported the actual loss on the first tranche of NAMA loans which were transferred in April 2010 with a 42% haircut. For the remaining loans they simply put in place a haircut that equalled 18% after tranche 2 which transferred in July 2010 with a haircut of 48% was excluded. This AIB forecast haircut of 18% for tranches 3 onwards was ridiculed as fantasy against an average haircut for tranches 1 and 2 of 45%. Anglo’s haircut in tranche 1 was 55% and tranche 2 was 62% with a weighted average over the two tranches of 58%.

2. Losses on non-NAMA-bound loans. At the end of 2009, Anglo had €36.5bn of non-NAMA loans with a cumulative provision against losses of €4.9bn. It seems that the majority of these loans were related to property which is not eligible for transfer to NAMA (non-land and development loans, land and development loans for less than €5m). The Financial Regulator earlier this year shook a stick at banks to start recognising the reality of the condition of their loan books, though there has been precious little evidence that he carried through with his threats. The Irish Times today reveals that a Department of Finance official suggested in relation to an IMF review of Anglo that “I’m not sure that it would be helpful to have Anglo talk up their capital requirements. Perhaps a word with DOC [Anglo’s then chairman Donal O’Connor] could temper this”. So again, don’t expect a wall of losses to be announced here, particularly against the backdrop of the EU presently considering Anglo’s future and both the management of the bank and the DoF apparently pushing for a viable Newbank for the good loans and a residual asset management company for the bad loans. An entry on here today asked if NAMA should be taking over all commercial property loans which would reduce Anglo’s loanbook to below €10bn.

3. Reclassification of NAMA loans. Anglo CEO, Mike Aynsley, said in an interview with RTE on August 6th, 2010 that €2-4bn of what would have been NAMA-bound loans secured on assets in the UK and US may not now transfer to NAMA and he further indicated that NAMA was agreeable to this. The UK and US have, in the main, performed better than Ireland in this financial crisis and the fear would be that these loans are of good quality and performing. NAMA can ill-afford to lose such loans so the detail of why they might be reclassified will be of interest.

4. Redemption of NAMA loans. Bank of Ireland famously saw its NAMA-bound loan book drop from €16bn in September 2009 to €12bn at the start of this year. This was attributed to loans being redeemed. Of course there is nothing untoward about loans being redeemed at 100% of their face value, that after all is generally the prerogative of any borrower. The concern is that loans were redeemed below their face value but possibly at more than NAMA would pay. You would expect section 71(2) of the NAMA Act to have prevented such shenanigans. However it will be an area to watch out for.

5. Anglo’s protests regarding the classification of Paddy McKillen’s loans. As the dirty laundry surrounding Paddy McKillen’s loans gets set for an airing at the Commercial Court in five weeks time, it will be interesting to see what Anglo has to say about the formal protest it made about Paddy’s loans being transferred. It was revealed in July 2010 that Anglo had invoked the dispute procedure in the NAMA Act to object to Paddy’s loans being transferred, even though NAMA apparently  told Paddy’s representatives that there was no such objection! As Paddy’s loans are reported to be performing and Anglo (like NAMA) needs all the performing loans it can lay its hands on, it will be interesting to hear the status of the dispute as it will be material to Anglo’s (and NAMA’s) future.

Of course the focus tomorrow may be on Anglo’s overall future with the 5-year orderly shut-down option getting increasing prominence. That is of course the more important matter but until Anglo’s future is resolved the above small matters will be relevant to the NAMA project.

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No some will groan, it should be wound down immediately, it shouldn’t even be allowed its current scope, it will only put more of our money at risk. This entry highlights a paradox in NAMA’s operation to date and examines an extension in NAMA’s role.

From the outset NAMA was designed to take a certain class of loan from the books of banks operating in Ireland, on the basis that these loans were as a class, toxic – of either bad or indeterminate quality (some of the loans will be top quality but they’re still part of a class that is in overall terms, toxic). That class of loan was “land and development”. Now from the start it was recognised that some borrowers would have taken out loans for “land and development” but would have additional lending for all sorts of things, some of which had nothing to do with property eg art collections, helicopters but others were property related eg investment property, mortgages on their own property. These loans given to these borrowers “associated” with the “land and development” were also to transfer to NAMA. So when NAMA produced it’s draft Business Plan in October 2009, it was projecting (page eight) that €49.4bn of the then €77.1bn loans would be for “land and development” and €27.7bn would be “associated” loans. An eligible loan regulation was published in 2010 which set out in some detail the loan assets that NAMA was to take over.

But take a look at the loans that NAMA has taken over in tranches 1 and 2, totalling €27bn  – out of what is now projected to be a final total of €81bn. Of the €27bn, only €7.1bn relates to “land and development”. The rest relates to completed property ab initio. The June 2010 NAMA Business Plan says on page 23 that investment property is expected to make up 30% of the final NAMA portfolio total. That would mean that of the remaining €54bn of loans only €4.3bn related to investment property which feels wrong (by the way I am drawing a distinction between land and development and all other commercial property – the remaining commercial property is investment property in my terms).

And why was NAMA designed to only take one class of property loan and not others unless they were associated? Because land and development loans were seen to be most impaired, most toxic and most likely to jeopardise Irish banks. And indeed Savills are now saying that development land in Ireland is now down between 75-90% from peak. However that was the view back in early 2009. Since then the capital value of commercial property has continued to drop like a stone. Between the end of March 2009 and the end of June 2010 Irish commercial capital values have dropped by 24% with no end in sight and we are now off some 58% from peak values – see table below for the SCS/IPD quarterly capital falls and the effect on a base of 100 at the end of March 2009 and also the peak to date drop.

The components of the SCS/IPD index are shown in this report from IPD in June 2009 (page 30). It is Dublin-city and -county focussed but 5% of the property assessed is provincial and this index is one of the two adopted by NAMA in its Long Term Economic Value Regulation (the other is the Jones Lang Lasalle index which shows a similar profile).

So the question now is – based on the fact that commercial values have dropped significantly since NAMA was designed and that more than 70% of NAMA’s tranche 1 and 2 relate to non- “land and development” loans, should NAMA’s scope be expanded to include all commercial property? Or to ask the question another way – if NAMA’s scope is not extended to include all commercial property then won’t banks still have a significant toxic loanbook after NAMA transfers, and won’t banks still be unable to access finance?

As was shown here last week in a rough analysis of the non-NAMA loanbook there would appear to be €71bn of non-NAMA commercial property loans with only €7bn of provisions for losses against them. So if NAMA were to take over these loans, NAMA would need double in size (from €81bn to €152bn) but all other processes would remain. The time taken to value and transfer loans would extend, and NAMA would need be a bigger organisation. If NAMA doesn’t extend its scope then the risk is that its role will be in vain, it may mitigate slightly the toxicity of certain banks but there will still be a black-hole of commercial property loans which will deter the risk averse financial markets.

I leave you with one thought courtesy of Brendan O’Connor in yesterday’s Independent. The Americans have changed totally, and modified elsewhere, their approach to dealing with this financial crisis. They have done so with openness and confidence. By contrast there has been precious little refinement of our own approach to confronting the crisis. Is there a fear that any change will spook the markets and undermine the image of sure-handedness and commitment in our approach? That should not be the case and we should not avoid review and modification of our strategy and tactics if that’s what current experience tells us.

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Two of the most common questions asked about NAMA is who’s in it and what property is NAMA now in charge of. Given that NAMA has not publicly confirmed the name of any debtor (or developer to you and me), it has been left to informed media speculation and the odd confirmation from the debtor themselves of their involvement with NAMA to build a picture which you can see under “The Developers” tab. This entry examines the assets.
Firstly it should be said that NAMA is taking over loans in the first instance, not the underlying assets though even from the start NAMA will have a say in how the assets are treated. Should developers default on their loans then NAMA’s control will grow perhaps to outright ownership of the assets.

We don’t have specific information on the precise identity of the assets but NAMA has provided aggregated information on the first two tranches transferred from the five financial institutions totalling some €27bn at face value. Of course we know from the EU Decision in February 2010 that NAMA will be taking over loans secured by “art, share portfolios, wine collections; helicopters and life insurance policies.” but in the main the loans are secured by property of one category or other.

One of the confusions about NAMA is that its primary objective is to take over  “land and development” loans. This was because the assets securing “land and development” loans were seen as being the most highly impaired following our property crash. What confuses is that people think this means NAMA is taking over all property loans. But NAMA was not primarily intended to take over investment property loans for example (loans to buy completed hotels, offices, shopping centres, warehouses, student buildings for example – note the word completed, if they were still being built then they would be classed as development). And the additional confusion is that NAMA is allowed take over “associated loans” of developers who have an eligible development loan. So take Paddy McKillen for example, it is claimed that he has a very small €5-10m development loan but that the bulk of his loans (over €800m) relate to what might be classed investment property (the Maybourne group of hotels that include Claridges, the Berkeley and Connaught is the main recipient of loans). Paddy as we know is fighting NAMA but NAMA’s position is that all of his loans should be absorbed. Two other sources of confusion are that NAMA is only taking over the loans of five Irish financial institutions (Anglo Irish Bank, Allied Irish Banks, Bank of Ireland, the Educational Building Society and Irish Nationwide Building Society) so even if a developer has an eligible development loan with another bank operating in the State, that loan will not be absorbed by NAMA. And lastly NAMA has a minimum limit on the value of loans being absorbed but that minimum limit of €5m per loan only applies to Anglo, AIB and BoI – there is no minimum for EBS or INBS.

So how does NAMA end up with wine collections and helicopters? Generally in one of two ways – loans were obtained by developers for their purchase and the same developer has an eligible “land and development” loan with a NAMA bank or these assets were pledged as part of personal guarantees given by developers on eligible loans from the NAMA banks.

So, what do we know about NAMA’s assets and where they’re located. The first table below analyses the loans in the first two tranches by type of asset. As you can see NAMA has taken over “Land and Development” of some €7.1bn out of a total of €27.1bn – so much for NAMA’s primary aim to take over “land and development” loans, at least on the basis of the first two tranches. The other loans relate to completed homes ready for sale, investment property and hotels. Confusingly it is understood that the hotels are investment property as it is rumoured that most of the value of the hotels in tranche 2 relates to an operating UK hotel chain. We don’t know a lot about the final expected profile of loans but NAMA said in their June 2010 Business Plan that investment property would make up 30% of the final portfolio. A question to be asked at this stage to NAMA is why, if their raison d’etre was to take over land and development loans, why less than 30% of their portfolio is land and development. A more general question is, if NAMA is mostly taking over completed property (housing, hotels, investment property) then why are we leaving €36bn of commercial non-NAMA loans, much of which is property related in Anglo?

The next table shows the geographical spread of the assets underpinning NAMA loans. The draft Business Plan breakdown and the consequences of the statement in the June 2010 Business Plan that the profile of tranche 1 (which didn’t include any Northern Irish loans) would be the same as the profile of the final portfolio are shown alongside the tranche 1 and 2 data provided by NAMA.

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The Irish Examiner reports today that Knight Frank Ireland are concluding that prices have stabilised and indeed have risen slightly according to their first ever half-yearly report into agricultural prices in the State saying that prices have risen on average from €9,678 an acre in 2009 to €10,131 an acre in the first half of 2010. If you examine the Knight Frank report for 2009 you will see that the figures then were distorted by the sale of 1,540 acres at Fanore in Co. Clare for €1,157,000 (€750 an acre). Removing that one sale from the figures leaves the remaining average for 2009 at €11,236. Given that there appear to be no distorting sales in the first half of 2010, you could say that on a more accurate basis that prices have dropped by 9.8% in the first six months of this year – hardly a stabilisation.

According to the latest report from Knight Frank, there is still some considerable variance in the price of agricultural land throughout the State with prices as low as €7,039 an acre in the North-west and as high as €16,139 an acre in the Dublin and surrounding areas.

Earlier this year, in May 2010 the Independent reported that prices were stabilising at the €6-10,000 per acre level depending on location. Scant comfort to NAMA if they do need demolish estates and return them to agricultural use though NAMA might be more concerned at the reported cost of demolishing a single house – €42-50,000.

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Anglo has transferred a cumulative total of €16bn of its NAMA-bound loans in tranches 1 and 2, leaving an estimated €20bn in its remaining tranches if the estimates in NAMA’s revised Business Plan and accompanying tranche 2 detail are correct (what introduces some doubt is the claim two weeks ago by the Anglo CEO Mike Aynsley that €2-4bn of NAMA-bound loans in the UK and US may be “reclassified” in agreement with NAMA).

If tranches 1 and 2 are anything to go by, NAMA will in future pay Anglo a Long Term Economic Value (LEV) premium of 10-12% of the current market value of the loans. So if €20bn is still valid as the face value of the remaining Anglo loans and they have a current market value of 45% of their face value, then NAMA will be paying €0.9-1.1bn above the current market value of the loans. That is a substantial sum of money to be gifting a bank whose future is being debated as we speak at the EU with a European preliminary view on the future of Anglo due in weeks.

The perpetual murmurs of disquiet about Anglo have grown substantially in volume this week. Standard and Poor’s downgrade of Ireland’s credit rating was predicated in part on their assessment of the increased cost of bailing out Anglo at €35bn. Last week in Beijing the Governor of the Central Bank broke the news that “Anglo may impose a NET [my emphasis] cost to the Government of about €22-€25 billion”. A net cost of course could be a gross cost of €35bn with €10bn recouped over time (eg through sale of a government stake in Anglo’s Newbank, redemption of NAMA bonds at face value rather than the accounting value which might assume a large discount). Trinity College economics professor Constantin Gurdgiev repeated his view that Anglo could incur losses of “€33bn in mid-range case, rising to €38.6bn in the worst case scenario”. It is not clear if these losses equate to a net cost to the State as there may already be provisions for these losses and Anglo has a (small) capital base. Today in the Irish Times, former Ulster Bank chief economist Pat McArdle suggests that, in an attempt to improve Ireland’s credit rating “we could try to give greater certainty regarding the Anglo bailout cost, possibly by postponing all other transfers to Nama until Anglo is taken care of.” Other calls this week came from the domestic politics (FG’s Finance spokesman, Michael Noonan calling for a debate at balance sheet level to assess the different options for Anglo) and the Financial Times editorial which today says “it is time to staunch the bleeding. As Irish state guarantees near their expiry date, some banks will not be able to refinance their balances. The government should prepare insolvent banks for forced debt-for-equity swaps, which would instantly recapitalise the banks in question and cap the government’s exposure”. This blog has expressed concerns about the non-NAMA losses at Anglo and whether these are being realistically assessed at present.

Last weekend NAMA paid Anglo a LEV premium of €270m on its latest tranche of loans, a considerable gifted sum in normal times but small in comparison with the expected €1bn of LEV premiums on the remainder of Anglo’s NAMA loan book. Has the tipping point now come whereby Anglo’s future is consensually decided (consensus impedes speed of action but the sums involved have grown to state of war proportions for the Irish state)? And until Anglo’s costs are clarified, should NAMA put the transfer of future loans on hold as these future transfers will involve the State paying substantial sums in excess of the true value of the loans.

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News today that NAMA Top 10 developer, Treasury Holdings (fronted by Richard Barrett and the colourful Johnny Ronan) has suspended interest payments due by group company, Real Estates Opportunities PLC (REO), on convertible unsecured loan stock (CULS) which falls due at the end of August 2010.

REO of course is possibly best known for the Battersea Power Station. And to add to the drama, there is no news yet on the planning application to redevelop the site – planning permission was expected to be granted in August (this month!).

In REO’s statement today they say that “significant progress has been made towards agreeing the shape of a consensual financial restructuring with the informal adhoc committee that is now being discussed with the Company’s other lenders” and “taking account of the status of negotiations, the Company has determined that the interest payment due to the CULS holders on 31 August 2010 will not be made”.

NAMA and Lloyds are two of REO’s biggest lenders.

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