Archive for August 3rd, 2010

News today that Paddy McKillen has at last made the sale of that Bond Street property on which pesky Bank of Ireland had previously put the kibosh. The Irish Times had reported previously in relation to Paddy’s judicial review application: “Mr McKillen claims the loans are “fully performing” and their transfer will have “a seriously detrimental impact” on the value of the underlying properties. For example, he said he planned to sell an investment property on Old Bond Street in London for €18.2 million last May, but when he went to enter a contract on the deal he was told by Bank of Ireland that the sale had to be approved by Nama, even though the loan on the property had not yet been acquired by Nama.”

Well NAMA finally seems to have agreed the sale and Paddy has got his €18.2m which is being described as “exceptional”. The company that sold the freehold in the building on Bond Street was Metrospa Limited which is one of the 15 companies joined with Paddy in his application for a judicial review. And with news that the Maybourne group is close to securing finance from the US property company Westbrook Partners and one other unnamed property trust, one wonders whether there will be any NAMA-eligible loans by the time the application for the judicial review is finally heard. So Paddy may well keep his assets away from NAMA. Certainly bad news for NAMA as they are increasingly depending on performing loans to avoid having to go cap in hand back to the Department of Finance for yet another handout. Being deprived of €800m-plus of Paddy’s performing loans will hurt.


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EU approves Tranche 1

News today that the EU has approved the transfer of the first tranche of loans to NAMA. The transfer of the first tranche was of course concluded on 10th May, 2010 so it would seem EU approval can take three months or so. This approval will of course be welcome news for NAMA.  Of note in the release is the statement “The Commission also continues to rely on the commitments of the Irish authorities to ensure that NAMA does not lead to undue distortions of competition”  – I wonder what the EU make of the increase in State-aid being paid to the banks via valuations of property by reference to the 30th November, 2009 when the evidence is that prices have continued to fall after this date. The full text of thepress release is

“The European Commission has authorised, under EU state aid rules, the transfer of the first tranche of assets to the Irish National Asset Management Agency (NAMA). The Commission found this transfer to be in line with the approved scheme (see IP/10/198) and with its guidance on the treatment of impaired assets (see IP/09/322). In particular, the transfer satisfies predefined transparency and disclosure requirements, the assets fulfil the criteria for participation in the scheme and their valuation complies with the requirements of the Commission’s guidance and results in adequate burden sharing. The Commission also continues to rely on the commitments of the Irish authorities to ensure that NAMA does not lead to undue distortions of competition. The Commission has therefore concluded that the transfer of the first tranche of assets to NAMA represents an appropriate means of remedying a serious disturbance in the Irish economy and as such is compatible with Article 107(3)(b) of the EU Treaty.”

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The unplanned and sometimes-buccaneering approach to dealing with the banking crisis is again highlighted by the EU’s publication of its Decision in respect of the injection of €2.7bn into Irish Nationwide Building Society. The Decision states that “The Commission regrets that Ireland put the aid in question into effect, in breach of Article 108(3) of the Treaty on the Functioning of the European Union.” It is referring to the fact that the Minister for Finance gave assurances to INBS on 22nd December, 2009 which constituted unsanctioned state-aid and although approval was subsequently given by the EU to an injection into INBS, it is not forgotten that the Minister for Finance acted in an unlawful manner absent that approval. Last month, it was noted in the EU response to the first Anglo restructuring plan that the MfF also broke state-aid rules by providing written assurances to Anglo on 22nd December, 2009. Breaking state-aid laws twice is not just regretful as stated by the EU, it creates unease about other aspects of the way in which the crisis is being managed. Although the MfF contacted the EU contemporaneously with the giving of the assurances in December, 2009 the fact that such huge exposures to the Irish taxpayer were created without a period of domestic consideration, not to mention EU approval, is worrying.

The INBS Decision itself doesn’t provide a great deal of new information and indeed much of the information that is redacted from the Decision is now in the public domain following the publication of the 2009 INBS accounts and recapitalization events of March – May 2010. The one aspect that is of interest is the claim and implication that the €2.7bn would be a commitment and the actual injection would be less particularly when INBS loans are shipped over to NAMA and the capital requirements on INBS’s residual loan book reduced. There appears to be no mention of addressing the substantial (and by reference to the 2009 INBS accounts impairment provisions, previously unrecognized) losses in INBS created by the transfer of loans to NAMA, not to mention impairments on the non-NAMA loanbook. What the EU think of the 72.4% haircut on INBS’s tranche 2 is not known but I would guess that the feelings would go beyond diplomatic “regret”.

As far as INBS is concerned, it was required to submit a restructuring plan to the EU by 22nd June, 2010. The other basket case, Anglo, was required to submit its restructuring plan by the end of May 2010, and its CEO has stated that he expected an initial decision “by the end of July or beginning of August [2010]”. NAMA is on the record at the Independent regarding the delay to the Tranche 2 Anglo loans – the delay is  “due to the amount of paperwork involved in the process. A spokesman for NAMA said yesterday [19th July, 2010] said there was no other reason for the delay.”. The delay in the transfer of the estimated €8bn nominal value loans from Anglo with a predicted 55% haircut has been examined on here before, for example here and here, and it is difficult to see how Anglo would not need a further injection to offset the effect of the substantial losses on tranche 2 to its capital base.

And by the way, the Decision on Anglo’s injection CXX/2010 would appear not to have been published yet (four months after the Decision) though it is likely that much of the Decision is covered in the response to the first restructuring plan. UPDATE: It would appear that the reference to CXX/2010 in the press announcement of the Decision is incorrect and that the Anglo capitalisation decision is contained in the response to the first restructuring plan.

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