Archive for August 10th, 2010

The short answer is –  we don’t know, there are too many unknown variables but the likelihood is that the capitalisation announced today including the future available €1.473bn will be sufficient to enable a haircut in the 59-67% range which will probably not surprise anyone. However that assumes that the capitalisation announced today will be swallowed up entirely by Anglo’s NAMA loans. What about Anglo’s non-NAMA portfolio and indeed what about the seed capital for Anglo’s proposed good bank? This entry examines the capitalisation announced today and shows that it is likely to cover a haircut of 59-67% but the entry will also examine the non-NAMA portfolio and will conclude that the €24.494bn already “temporarily” approved by the EU is likely to be several billion short of Anglo’s needs.

So, first of all the NAMA loans. Here is an overview of the current position and forecast.

The assumption is that all of the recapitalisation approved in 2010 has gone (and will go in future) to shore up the NAMA losses. This would indicate a 67% haircut for tranches 3 onwards if the entire amount approved by the EU today (€10.054bn) is applied to NAMA loans. If Anglo don’t need the €1.473bn between now and the transfer of the final tranche then the haircut goes down to 59%. Neither % would be surprising. Anglo announced last Friday that they had agreed with NAMA that between €2-4bn earmarked for NAMA may not transfer – Anglo didn’t expand on the nature of these loans, good, bad etc. If €4bn of perfect quality loans (ie without any provision for impairment) were withheld from NAMA and the capitalisation announced today was again applied 100% to shore up NAMA-loan losses then the haircut could rise to 86%. That would be surprising but good to know that Anglo had enough capital to weather that level of loss, as long as it didn’t have losses elsewhere.

So what about the non-NAMA Anglo loans. Unfortunately unlike listed banks, Anglo has not released a half year statement so the latest information from Anglo is from the 2009 Accounts which cover the 15-month period up to 31st December, 2009. At that point Anglo (from page 10 of the report) had a non-NAMA loan portfolio totalling €35.9bn with a provision for impairment of €4.9bn (13%). Now Anglo doesn’t issue half year accounts but other banks do. AIB, RBS (parent of Ulster Bank) and Lloyds (parent of Halifax/Bank of Scotland) all issued their half year results last week. AIB’s accounts looked like fantasy eg their projection of 18% haircuts on future tranches even though tranche one had a haircut of 42% and tranche two a haircut of 48%. AIB’s provisions in respect of non-NAMA loans which will be everything from personal loans through to residential mortgages to commercial lending including lending for property, seemed to be very low compared with Lloyds Irish operation. It also seems that Lloyds is out of the intensive care unit whereas AIB is still vulnerable. I do not consider Halifax/Bank of Scotland to have been any worse than Anglo in terms of lending practices and they may indeed have been far better. I do not have a breakdown of Halifax’s/Bank of Scotland’s loan portfolio but do know that it contains residential mortgages which are generally understood to have smaller impairment than commercial lending. I therefore think that adopting the impairment %s in Halifax’s/Bank of Scotland’s half year accounts and apply them to Anglo’s non-NAMA portfolio are likely to underestimate the level of Anglo’s loss. Nonetheless I think the results are of interest because they indicate a minimum level of loss with the non-NAMA portfolio in Anglo. And they show that Anglo would need to take an additional €1.7bn of losses, but again that is probably on the low side.

And lastly, we have the Anglo restructuring itself which envisages a good bank and bad bank. The good bank is reported to need €2-3bn of capital to get things going. Unlike the NAMA and non-NAMA losses that seed capital should be recoupable but it will need to be found and it seems that the State is the only viable source.

Now there are various assumptions peppered through the above examination of Anglo’s loans and Anglo may make profits from certain operations (eg they made a paper profit in recent times of €1.8bn approximately by buying back €2.4bn of debt for €0.6bn – something banker Peter Mathews has suggested was only a short term profit as in the long run the debt might have been redeemable for far less). However it would seem that while the capitalisation announced today will be sufficient to shore up the residual losses in Anglo once the NAMA loans transfer out, it will not be sufficient for non-NAMA losses which I think conservatively will be at least €1.7bn above the level provided for in the 2009 accounts. In addition if Anglo gets the green light for restructuring then it will need €2-3bn of seed capital. So an additional €4-5bn in additional funds for Anglo is quite possible (though the €2-3bn of seed capital should be recoupable). It would seem that Anglo will need at least €26.2bn that will be unrecoverable plus another €2-3bn of seed capital.

UPDATE: 12th August, 2010. Central Bank governor Patrick Honohan tells Britain’s Telegraph that “if it hadn’t been for them [Anglo] the losses would have been manageable. The net cost to the Irish state of recapitalising the banks is €25bn, or 15pc to 16pc of Irish GDP. It is nearly all the result of AIB [Anglo Irish Bank in this context].” Is there an implication that the losses are no longer manageable – indeed what does “manageable” mean in this context; it echoes , though perhaps contradicts, a statement by the ESRI that the recap costs *were* “manageable”. The cost estimate of €25bn is low compared to independent experts and commentators who are suggesting that Anglo alone may cost over €30bn.


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This blog has been keeping close track of progress with implementing the House Price Database announced in last year’s Renewed Programme for Government amidst loud calls from consumers, auctioneers and politicians. Since last October, 2009 there has been little visible progress – there was talk of a working group in March 2010 but that didn’t appear to have had a serious purpose, regular questioning from politicians in the Oireachtas was effectively stonewalled by Housing Minister, Michael Finneran. But today, the Minister for Justice and Law Reform, Dermot Ahern has provided a statement which is possibly the first tangible sign of progress.

Mr Ahern states that he will amend the Property Services (Regulation) Bill 2009 and possibly the Data Protection Act to provide for the HPD which will be administered by the National Property Services Regulatory Authority. The legislation is promised “in the next Dail session” so that will be the Autumn session which will begin at the end of September 2010 and end in December 2010.

The detail of the amendment to the Bill has not yet been published but there seems to be a commitment to make the information publicly available. Of course the devil may well be in the detail – how far back will records go? will it be possible to find out who owns a property even if it has not been subject to a recent sale? how will information be made available?

You can find all the latest developments on the House Price Database at this dedicated page under the ABOUT tab.

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McInerney “close” to financing deal

Embattled property group and NAMA-bound developer, McInerney, is reported today, to be close to securing an equity injection from US-based global investment management company, Oaktree Capital Management. McInerney is reported by the Irish Independent to have debt of €236m including €111m owing to NAMA financial institutions, Bank of Ireland and Anglo Irish Bank, according to the Irish Times. Some of McInerney’s debts are expected to transfer to NAMA later this year.

Oaktree Capital Management is likely to be a new name for many here though they have reportedly $76bn of assets under management globally with $29bn in what is classed “distressed debt”.

It was economist and apparently recently-appointed NAMA advisor, Peter Bacon, who pointed out in his defining paper “Proposal for a National Asset Management Agency” last year that it is a feature of many Irish property companies that they are generally not publicly quoted and have limited recourse to equity funding. McInerney is of course publicly quoted and indeed as at 24th March 2010 according to its annual report it had a rich mixture of financial investors (see below) which it may have considered tapping for finance before sitting down with Oaktree.

Commerzbank AG 14.0%
Merrill Lynch International 10.0%
Credit Suisse Internatinal 7.3%
Odin Fund Management 5.8%
Barry O’Connor 5.1%
Bri Tel Fund Nominees Limited 4.9%
Norwich Union Life Assurance 4.8%
Quinn Direct Insurance Limited 4.6%
Standard Life 3.6%
JP Morgan Chase and Co 3.4%
Irish Life Investment Managers 3.2%
Credit Agricole Chevreux 3.1%

It might be surprising if this was the last you heard of Oaktree Capital Management in the context of Irish property. Given the private-ownership nature of many of Ireland’s property companies and given the distressed state of the property market with limited conventional credit available, we can perhaps expect to see a lot of new players taking stakes in our property companies.

UPDATE: 16th August, 2010. The Irish Times reports that McInerney may be about to apply for examinership and will seek to write down the value of its loans with banks, including NAMA banks. The article claims to quote from a Bloxham Stockbrokers note which says “This application is the first to contest a Nama ban which bars banks from writing down loans going to Nama or loans connected with the agency”.

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