Archive for August 23rd, 2010

NAMA has just confirmed that it has completed the transfer of the second tranche of loans and that the haircut applied to Anglo’s component of the tranche (€6.75bn) was 61.93%. Here is the final overview of tranche 2.

The information released today regarding the second tranche tells us that the Long Term Economic Values is 9.78% above the Current Market Value or of loans, down from 11% in the first tranche and telling us that NAMA needs a marginally smaller recovery in the property market than implied by tranche 1 to break-even on loans on which it needs foreclose. Remember NAMA is due to deliver the second Quarterly Report at the end of September 2010 which might contain further information. The Finance and Public Service Committee has committed to getting the NAMA CEO to attend a hearing soon after the Committee returns from the summer recess at the start of September, a few weeks before the Oireachtas returns. Also Anglo are due to make a statement by 31st August 2010 on its first half year performance (though if AIB’s recent half year report is anything to go, don’t bank on Anglo disclosing very much with respect to the either the remaining tranches of NAMA loans or indeed the residual NAMA loans – in its half year report two weeks ago AIB was projecting an 18% haircut on its remaining tranches despite running up 42% and 48% haircuts in tranches 1 and 2 respectively).

So what does tranche 2 tell us about NAMA? Very little with respect to the finances of NAMA – it has been said that INBS’s large 72% haircut in the second tranche was a result of taking hits on development land in Ireland and that future tranches would perform better, particularly those located in the UK. As regards Anglo, Mike Aynsley said in the Independent on Sunday last that “it [the haircut] depends on the mix of, and the number and the volume of, loans that are associated with the land”. So despite the haircuts in tranche 2 being higher than in tranche 1, you can’t necessarily project that on future tranches – the haircuts might be higher or lower. Though that won’t stop some commentators broadcasting their own jeremiads on the NAMA banks capitalization needs. NAMA is still predicting that it will transfer €81bn of loans though it’s not clear if this accounts for AIB’s sale of its UK operations or Anglo’s recent agreement to possibly withhold €2-4bn of US and UK loans. Page 13 of the detail of the Tranche 1 &2 transfers tells us that tranche 2 had more UK loans than tranche 1. That is worrying because the UK has experienced a modest recovery in residential and commercial prices since last November 30th, 2009 – NAMA’s Valuation Date. NAMA has now taken over loans on 48 hotels.

One thing tranche 2 does tell us is that NAMA is falling behind schedule. At the start of April 2010, the Irish Times who were displaying familiarity with NAMA at the time, were saying the second tranche should have transferred by “the end of May or early June”. At the Oireachtas hearing in April 2010 the NAMA CEO said the tranche 2 transfer would be complete in the “second quarter”. Why the delay? NAMA is not saying but it is a fact that on 19th July, 2010 NAMA confirmed it had completed tranche 2 for the other four banks and then went on to say that ““due to the amount of paperwork involved in the process”” there were delays with Anglo. So what about the remaining tranches – 13 in all if you take what was said at the NAMA Oireachtas hearing in April 2010. NAMA has been given until the end of February 2011 by the EU to complete the transfers but ultimately that is an artificial deadline and may be extended. However it should be remembered that the principle underpinning NAMA is that it cleans the banks of a class of loans, many of which are toxic, so that there can be clarity as regards the finances of the banks, and that the banks can consequently attract market capital and can return to lending to “viable businesses and households”. Delays at NAMA delay the achievement of that objective.

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Reinforcing the recent message from the IAVI that sales volumes picked up in Q2, 2010, the latest mortgages statistics from the Irish Banking Federation show that both total volumes and values picked up ion Q2, 2010 compared with Q1, 2010 though the value of an average new mortgage fell. The IBF represents lenders responsible for “well in excess” of 95% of the Irish residential mortgage market. Here are the volumes with an analysis of the volumes compared with the peak, Q1 of 2010 and Q2 of 2009.

And here are the values, again with a comparative analysis at the bottom.

And finally here are the average values for mortgages in the different categories

What do the latest figures tell us?

(a) Volumes of “real” mortgage lending (as opposed to top-ups or remortgages) are up 17% in the quarter with first time buyers up an impressive 27%. Buy to let mortgages continue their steep decline. Top-ups and remortgages are up 5%.

(b) Volumes are still at a very low level, 86% off the peak and 38% off a year ago.

(c) Values have grown in the quarter but not at the same rate as volume. The average first time buyer mortgage has fallen from €202k in Q1 to €193k in Q2. Whether this reflects houses prices is unclear as statistics on the level of deposit are not published. If the deposit level has stayed constant then it would show that average first time buyer prices had fallen 4.3%.

(d) The average value of a mortgage for movers has fallen from €248k to €235k, a 5.3% drop but again because deposit information is not available it would not be safe to say that translates directly into a house price drop of 5.3%.

(e) The value figures showing an increase in the second quarter lend credibility to recent claims by the Independent Mortgage Advisers’ Federation reported by the Sunday Tribune that residential mortgage lending in the State in 2010 will be 35,000 loans worth only €6bn, down by a quarter from the 46,000 loans worth €8bn in 2009. To the end of June 2010 there were 14,781 new mortgages worth €2.5bn. In November 2009, the user 2Pack on the http://www.thepropertypin.com forum was predicting €6bn total mortgage lending in 2010 .

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There are two newspaper pieces today on Anglo’s second tranche which the Anglo CEO, Mike Aynsley, said yesterday would be transferred in the weekend just gone. In the Irish Times, Barry O’Halloran asserts that Anglo’s second tranche has an €8bn nominal value and a 60% haircut, this according to Barry means than NAMA is paying “slightly less than €4.8 billion” for Anglo’s second tranche. God knows whether the €8bn and 60% are accurate but if they are, it would mean NAMA was paying €3.2bn for Anglo’s second tranche – not €4.8bn. Elsewhere Barry tells us that Anglo’s discount of 60% was higher “than the average discount applied to the debts owed to the other banks” – if Barry is talking about tranche 2 then that is correct as the average discount applied to the second tranche of loans for AIB, BoI, EBS and INBS was 47.46% (Barry says 48%) though of course INBS had a discount of 72.4%. Barry also tells us that “Nama is taking over all property-related loans worth more than €5 million owed to the five banks involved.” Of course NAMA is taking over land and development loans and “associated loans”, if your loan with the NAMA bank is purely investment property and you don’t have land and development loans you stay outside NAMA, and NAMA is taking over ALL such loans from INBS and EBS regardless of value, the €5m minimum applies to AIB,BoI and Anglo only (see page 8 of the draft NAMA Business Plan). Not a great day on the accuracy front for the Irish Times.

Emmet Oliver at the Independent seems to be more on the ball and he asserts Anglo are transferring €7bn in the second tranche with a haircut of 61%. Again God knows if the €7bn and 61% is right but at least Emmet has calculated that applying a 61% haircut to €7bn will give you a payment to Anglo of €2.73bn. Emmet says that NAMA should issue a release today or tomorrow confirming the transfer.

Elsewhere both papers say that NAMA CEO, Brendan McDonagh, has written to the CEOs of the five NAMA banks seeking better co-operation in respect of future tranches – Mike Aynsley at Anglo, Colm Doherty at AIB, Richie Boucher at Bank of Ireland, Fergus Murphy at EBS and Gerry McGinn at INBS. Now this is confusing because the NAMA CEO told the Oireachtas Joint Committee on Finance and the Public Sector in April 2010 (in response to a memorable question from Deputy Arthur Morgan who asked the NAMA CEO when he was going to tell the banks to “piss off!” because of delays in providing loan information)

“On due diligence, the Deputy understood why there were issues regarding tranche 1 and asked when we would tell the institutions to give us the information rather than ask them nicely for it. It is no longer the time to do that. Under Part 6 of the National Asset Management Agency Act we have the power to issue directions. Last weekend we issued directions to the institutions in which we set out that they have to give the information relating to tranche 2 onwards in a certain format which will allow us to get through the process much more easily.”

Part 6 of the NAMA Act is wide ranging but is it still not sufficient to compel the banks to provide information in a timely manner? And will a letter be more effective?

In terms of future tranches, Emmet Oliver says that NAMA will relax its information requirements. That is worrying and carries an implication that NAMA may not be in full possession of the facts on a loan when valuing the loan and the fear would be that NAMA will overpay for the loan. Emmet claims that the letter from NAMA’s CEO to the banks says that tranche 3 should transfer in September, tranche 4 in October, tranche 5 in November and tranche 6 in December and “it is possible a small number of the loans will still have to be transferred early in 2011, but the amount of loans involved at that stage will be small.”Again this is confusing because the last time the NAMA CEO made reference to a number of tranches was at the Oireachtas hearing in April 2010 when he said there were then 15 tranches.

“Deputy Flanagan asked about the total number of tranches. We will try to condense it to about 15 overall.”

Is NAMA going to fail to meet the EU imposed deadline of February 2011? More important than this artificial deadline that can in any case be varied even if it treads on some egos is the fact that delays at NAMA mean delays at banks getting full access to credit markets and being able to lend to “viable homes and businesses”.

And lastly we learn from both newspapers that NAMA has appointed Deloitte to be its internal auditor. Take a look at NAMA’s tenders and it seems that they have not updated that tender with Deloitte’s appointment. In NAMA’s first Quarterly Accounts it revealed that it had paid more than €2m to Pricewaterhouse Coopers for secondment of staff – it was the single largest expense by reference to a company in the Quarterly Accounts yet there was no tender for the secondment. Is NAMA getting sloppy?

UPDATE: 7th September, 2010. NAMA has confirmed (effective 26th August, 2010) that Deloitte and Touche has been appointed to the internal audit role in NAMA.

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