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Archive for August 27th, 2010

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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