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Archive for August 18th, 2010

With NAMA apparently now examining the first developer business plans, with suggestions that decisions might be taken as early as next month on the backing of schemes and developers, can we expect a barrage of public relations initiatives to make sure NAMA know that certain developers are better than others? Given the finite funding available for completing projects (NAMA has a cap of €5bn though it can augment that with third party investment) will there be some jostling outside the submitted business plans to impress NAMA?

Today we get a piece from Emmet Oliver in the Independent on Joe O’Reilly. There is practically nothing in the article that you wouldn’t have known already but the article concludes

“Dundrum Town Centre is the largest shopping centre in the country and will be one of the largest in Europe if a second planned phase gets built. Mr O’Reilly’s association with such a large asset puts him in a strong position with NAMA negotiators. While Mr O’Reilly has interests in development land, most of his assets are not speculative in nature and are fully leased out with cash flow coming in”

So there you have it NAMA – Joe O’Reilly is the man behind large assets, Emmet Oliver thinks that should put him in a strong position with you and furthermore his assets are not speculative and fully leased out with cash flow coming in. Now why don’t you prioritise him for your €5bn development pot?

You can probably expect similar articles on other developers in the coming weeks.

UPDATE: 22nd August, 2010. Next up we have the folks behind the Millennium Park in Oberstown near Naas in Co. Kildare. Oberstown Developments which is understood to be controlled by developers Paddy Sweeney, Tom Considine and Gerry Prendergast has lodged some worrying accounts for the year ending May 2009 which show that the value of the site bought for €315m was then estimated at €218m though there is a suggestion that is nigh impossible to value the site in the current market.  Gerry Prendergast gets his pitch in for NAMA telling the Sunday Business Post that the project can create employment and attract multinational companies – “he would do everything he could to ensure that Nama got paid first out of whatever emerged.”

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First we had a draft business plan from NAMA which was widely criticised for its lack of clarity and its optimism as to the level of performing/non-defaulting loans. At the time it was labelled “draft” and subsequently the NAMA CEO who was the interim managing director of NAMA when the draft plan was produced described the draft plan as being for “illustrative purposes”. And then we received a non-draft business plan in July 2010 that was threadbare on information but did show a deterioration in the finances at NAMA. NAMA roundly blamed the banks for the information provided for the draft plan and whilst NAMA didn’t call them liars, NAMA’s chairman Frank Daly did say “”a lack of awareness and denial . . . was prevalent” and “The information given by banks did not turn out to be the reality.”, all of which served to mis-direct away from NAMA the responsibility and ownership that is normally associated with a business plan. And indeed even for the latest business plan it is unclear where the buck stops if the perfidious banks have gotten their projections wrong again – does it stop with Brendan McDonagh, the NAMA board or the Department of Finance? Who owns the NAMA plan and is ultimately responsible for its delivery?

Now we have the banks who appear to be lining up to inform us that they can’t predict their performance for the next six months with any real degree of reliability because they don’t know how NAMA will value their loans. This is after a NAMA Act, a Long Term Economic Value Regulation, an EU Decision, the setting of the valuation date at November 30th, 2009 and most importantly the practical experience of valuing and transferring more than 20% of the loans, dealing with disputes with NAMA (NAMA disputed 25% of the first tranche valuations) and the EU giving its approval to the tranche 1 valuations – after all of that, it seems the banks are still in the dark as to what the remainder of their NAMA-bound loan books are worth. Of course you might suspect that banks are sending a message to the government and NAMA that if the haircuts are too severe the banks will need further injections of capital. And for Anglo, INBS, EBS and possibly AIB that might be true. Bank of Ireland’s recent half year accounts were probably the most open and assuring about future NAMA haircuts. But let’s put the speculation about economic blackmail aside for a minute.

Last week the EU approved a further recapitalisation of Anglo (after Minister for Finance Brian Lenihan had broken State-aid rules for the third time in less than 12 months by injecting €8.581bn into Anglo in June 2010 without EU approval). The latest approval brings to €24.494bn the amount “temporarily” approved by the EU for NAMA (€4bn in Summer 2009, €10.44bn in March 2010 and €10.054bn in August 2010) with both the EU and government stating that the final figure will depend on NAMA discounts. Then we had AIB’s first half accounts which conveniently didn’t account for the second tranche of NAMA loans or the €0.5bn additional loss thereon (additional to the AIB provision) and for future NAMA loans was estimating a 18% haircut when the haircuts on the first two tranches were 42% and 48%. Again AIB said that the future haircuts would depend on NAMA. And yesterday our Central Bank governor went to the other side of the world to break the news to us that INBS may cost us up to €4bn (compared with the €2.7bn estimate previously) – the media seem to be doing their own calculations with deducting a recap for EBS of €875m from the €4bn to come up with €3.125bn but it’s not totally clear where either that quantum or that assumption comes from – others have predicted that INBS alone may need upwards of €5bn. Again the Central Bank governor is saying that the final figure for INBS will depend on the NAMA valuations.

So are the banks professionally incapable of projecting their NAMA losses or is their ignorance mere brinkmanship to avoid the need for further recaps or possibly in Anglo’s and INBS’s case the crystallisation of a decision to shut them down?

And a last point – the Irish Independent today ascribes some comments to Patrick Honohan “The Central Bank governor also described Anglo Irish Bank’s loan losses as “astonishing” and pointed out that they amounted to more than 40pc of the bank’s entire portfolio.” At 31st December, 2009 Anglo had a loan portfolio of €72bn against which it had €15.02bn of impairment provisions. At 31st December, 2009 Anglo had capital of €4.17bn (after €12.3bn of injections from the State). If the level of losses is indeed 40% of €72bn, ie €28bn and given the EU approvals of €24.494bn and ignoring any other profit or loss then Anglo will end up with capital of €2.584bn – coincidentally the Sunday Times has estimated the seed capital needed for Anglo NewBank (good) will be €2-3bn. Fantastic. Here are the calculations:

If however the losses are over 40% take a look at the resultant capital

41%            €1.784bn

42%            €1.084bn

43%            €0.384bn

44%            -(minus) €0.316bn

45%            -(minus) €1.016bn

It will not take a lot for Anglo to be back with the begging bowl – indeed if the losses go to just 41% then Anglo will probably need to be back anyway for seed capital for its NewBank. Seed capital would probably be recoupable over the long term but it would still be require a commitment in the short term.

When will someone take ownership and responsibility for the cost of the bail-out?

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