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Archive for September, 2010

When NAMA presented its draft Business Plan in October 2009, it showed that NAMA intended purchasing €77bn of loans (at par value) for €54bn. In the June 2010 Business Plan this has changed and NAMA was then planning to purchase €81bn of loans for €40.5bn. With the statement from the Minister for Finance this morning which sets outs the estimated haircuts on remaining tranches and with the news that Bank of Ireland now intends transferring a total of €10.1bn of loans to NAMA (down from €16bn in 2009 and €12.2bn as recently as last month), it seems that NAMA will in fact be spending approximately €34bn buying loans with a par value of €79bn – here are the workings:

Note that the Minister did not provide a forecast for the haircut on remaining INBS NAMA loans. I have used 65% which is a simple average of the haircuts in Tranches 1 and 2. Also the Minister referred to a “final” haircut of 60% for EBS and it is not clear if he was referring to an overall average for all tranches or just the haircut on the remaining tranches.

That NAMA’s purchase costs have come down from €54bn to €34bn in less than 12 months is, I think, a colossal change. It signifies that NAMA is paying less for the loans than was originally planned. More importantly it signifies greater losses at the banks (€20bn of additional losses). It also means that our friends at S&P and elsewhere can revise downward their estimate of State debt relating to NAMA (though unfortunately they will be revising upward the cost of bailing out the banks). It should also reduce the risk of the NAMA project being loss-making.

UPDATE: 1st October, 2010. The Minister’s announcement yesterday that the increase in the threshold of NAMA-eligible loans at BoI and AIB from €5m to €20m will reduce the total par value of loans going to NAMA by €6.6bn – BoI apparently accounts for €2.1bn and AIB accounts for the remaining €4.5bn. Reflecting that reduction in AIB’s loans means that NAMA is not forecast to spend less than €32bn in buying loans – see below for the analysis.

Emmet Oliver in today’s Irish Independent citing “bank sources” suggests that the “final” discount (interpret as discount on remaining loans) to apply to INBS’s loans will be 75%. Factoring that discount into the calculations suggests that NAMA will be paying €31.13bn for the loans. Here are the workings:

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As I write this entry this morning, the yield on Irish 10-year bonds is showing as 6.66% and indeed the devil may be lurking in the detailed workings which support the estimates published this morning. At this point there are a few concerns:

1. Anglo’s remaining €19bn of NAMA loans (at face value) are to be transferred to NAMA by the end of October 2010. We are still waiting for a NAMA reaction to this morning’s announcement by the Minister for Finance, Brian Lenihan and joint statement from the Central Bank Governor Patrick Honohan and Financial Regulator Matthew Elderfield but it seems that the third tranche has been abandoned – that’s the one that was expected to transfer by “the end of September 2010”. Including Tranche 3, Anglo was going to transfer €20.6bn of loans (€9.25bn T1, €6.75bn T2 and €3.6bn in T3) so the implication is that NAMA can undertake due diligence and value some €15bn of Anglo loans in the next 30 days – and Anglo is the bank with poorer loan and security documentation. Frankly it doesn’t appear realistic. But will any subsequent revision to the values materially affect the position? Difficult to say though the EU may reject the valuations outright as not being to the standard approved in the application for EU approval and the relevant EU Decision.

2. Whilst Patrick Honohan has attempted to spread the responsibility for today’s estimates far and wide – “relying on advice from NAMA”, the NTMA, Anglo management, “third party analysis”, ultimately this is a Patrick Honohan production. And to a large extent he has an impossible task in predicting future losses. As anticipated in an entry on here last weekend he has adopted the approach taken by the EU in stress testing its main banks over the summer by adopting a base case and adverse scenario. The application of these two scenarios to the NAMA loans is reasonably straightforward – the remaining €19bn of NAMA-bound loans at Anglo are expected to suffer a 67% haircut and in the adverse scenario a 70% haircut, though the difference of 3% is NAMA’s estimate of the margin of error in the 67%. However the non-NAMA loan loss estimates are to a large extent shrouded in mystery – coming from a mysterious and unidentified independent third party (I’m guessing it wasn’t Peter Mathews!), Anglo management (they’re the people who produced a laughable restructuring plan for the EU in November 2009 and who also predicted total Anglo losses at €10-13bn in March 2010) and the “CEBS base case loss rates”. Will anyone accept these sources as sufficiently credible to accept today’s announcements as final?

3. Whilst today’s announcements cursorily dealt with Anglo’s loans, what about assumptions on derivative losses, bondholders burnings, NAMA bond discounts, NAMA subordinated debt discounts and other potential areas of profit or loss.

4. With respect to INBS, omitted from any of the announcements is the estimated haircut or discount on future NAMA bound loans and there is little detail to support the €5.4bn that is going into INBS (€2.7bn in May and €2.7bn imminently). However €5.4bn is within the ranges previously openly discussed by commentators as the probable level of capital needed by INBS.

5. Allied Irish Banks PLC (AIB) was famously required to come up with €7.4bn of capital by the end of 2010 and in order to achieve that target, AIB was to sell its Polish operation (Bank Zachodni), its US operation with regional lender M&T Bank Corporation and its UK operations. The Polish sale has been achieved subject to shareholder approval but there seems to be delay with the remaining two disposals, particularly the UK operation which as recently as August was predicted to be sold in September 2010. Any shortfall in the €7.4bn capital was to prompt either a public issue by AIB or a further State injection. We learn today that the Central Bank estimate that AIB needs a further €3bn of capital (€10.4bn in total but that will reduce by €2.5bn if the Polish transaction is approved). So the State could be on the line for up to €7.9bn of additional capital if the US and UK sales are delayed or fail and AIB does not seek a public issue. An additional issue with AIB is whilst the haircut now being adopted by the Central Bank for future AIB tranches (60%) is high compared to the weighted average on Tranches 1 and 2 (48.5%). However there is no suggestion that non-NAMA loans have been subjected to any realistic assessment of likely losses and remember that AIB has an estimated €48bn of non-NAMA commercial lending of which about a third relates to property. So could AIB’s losses be far from final?

6. Bank of Ireland: A couple of days ago on here we looked at the Bank of Ireland loans to McDaid Developments (Ireland) Limited – GBP £42m of loans that are reported to be exposed to 85% losses. Although Bank of Ireland has been top of the class in Tranches 1 and 2 with the lowest haircuts (36.2% weighted average) and the statements this morning apparently confirmed that BoI was alright for capital even with a 42% discount, is 42% enough? Also, like the other banks, BoI seems to have been less than realistic in reporting its non-NAMA losses. So is capital requirement of BoI at the already invested €3.5bn final?

7. The Educational Building Society (EBS): This is a tiddly building society and its loan book is dominated by relatively good performing residential mortgages. Its weighted average haircut in Tranches 1 and 2 was 37.9%. Apparently the estimates today used a “final” EBS haircut of 60% and that no further capital is required (beyond the near €900m already announced presumably). Whilst EBS might not be final (and concerns have been recently raised here about its provisions), because it didn’t extensively lend on commercial or development property, its losses will be limited. So although it might be back for further capital, it is likely to be in the €ms.

So the purpose of today’s announcements was to bring finality and certainty to the cost of the financial crisis. In absolute terms, it most certainly doesn’t do that. But is the information published sufficient to address the concerns of lenders to Ireland? The yield on 10-year bonds is 6.6% so the announcements have not immediately had the desired effect. My guess is that the announcements don’t go far enough and there is unlikely to be any significant fall in lending costs and that indeed they may rise once the horror of the estimated final NAMA haircuts sink in.

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From the Minister for Finance Brian Lenihan’s statement this morning.

1. Loans of less than €20m not being transferred in respect of AIB and BoI (€5m remains for Anglo and presumably the no-lower-limit remains for INBS and EBS)

2. NAMA debtors to drop from 1500 to 850

3. NAMA to abandon tranches, replaced with one remaining tranche per Participating Institution (PI – AIB, Anglo, BoI, EBS, INBS)

4. Anglo tranche to be transferred by end of October 2010

5. Loan-by-loan due diligence to continue

6. EU consulted and advised – no mention of approval

7. Loss of sub-€20m loans at AIB and BoI to reduce NAMA portfolio from €80bn at par value to €73.4bn

8. Large increases in estimates of haircuts remaining tranches – Anglo 67%, AIB 60%, BoI 42%, EBS 60%, INBS – not shown (why?)

9. Separate to the Minister’s statement, Bank of Ireland are reported to be now forecasting total NAMA-bound loans at €10.1bn which compares with €16bn in October 2009 and €12.2bn as late as August 2010. Why has the total apparently reduced and does it signify performing loans again slipping through NAMA’s fingers.

10. Laura Noonan reports in the Irish Independent that NAMA will now look after the top 150 borrowers who owe €50m or more – apparently this has been confirmed by a NAMA spokesperson.  I guess Capita will now be looking after 700 borrowers (down from 1,400 just a day ago).

Updates and analysis here later.

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UK House Prices up 0.1% month on month

The Nationwide Building Society has this morning published its UK House Price data for September 2010 together with its more detailed Quarter 3 House Price Review. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £166,757 (compared with GBP £166,507 in August and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Interestingly the average house price at the end of September 2010 being GBP £166,757 (or €193,438  at GBP 1 = EUR 1.16) is only 4% below the €201,364 which the Permanent TSB/ESRI said was the average nationally here at the end of June 2010.

With the latest release from Nationwide, UK house prices have risen by 2.5% since 30th November, 2009 the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued.

Recent forecasts for the UK housing market have not tended to be good. Whilst Capital Economics has produced yet another headline-grabbing prediction of a 25% decline in the next 2-3 years, most commentators are suggesting an easing of prices. The EU bank stress tests published at the end of July 2010 suggested a base case of no change in UK residential prices in 2010 which would mean an 2.87% fall in prices between now and the end of the year. The UK economy is showing surprising resilience – figures in August 2010 showed GDP grew by 1.2% in the second quarter and the British Chamber of Commerce in August forecast the economy would grow by 1.7% in 2010 and 2.2% in 2011. However savage cuts are in prospect for the UK’s public service and in October 2010 these cuts will be outlined in some detail, supply has been bolstered by the abolition of HIPS (akin to BER certs) in June and which had cost about £300. Mortgage lending in the UK fell in August 2010 as did the number of homes sold.The Royal Institution of Chartered Surveyors (RICS) have also suggested that more sellers are returning to the market but that there are fewer would-be buyers, suggesting declines are in prospect.

UPDATE: 7th October, 2010. With the sensational headline “largest monthly decline on record” the Halifax today produced its September 2010 numbers which saw a fall of 3.6% though this brings the Halifax into line with the modest annual increase shown by rival the Nationwide Building Society.  The Nationwide generally produces its numbers before the Halifax each month and is the source for the UK residential data at the top of this page.

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The Central Bank has issued a joint statement by the Central Bank Governor, Patrick Honohan and Financial Regulator, Matthew Elderfield, two of the more respected men in the Irish regulatory system and relatively new appointments (September 2009 for Patrick and January 2010 for Matthew). The statements deal with the costs of bailing out Irish banks.

It is not clear if the €29.3-34.3bn for Anglo is a gross cost (with some of it being recouped in the future) or a net cost (ie the gross capital required might be more but some will be recouped giving a net of €29.3-34.3bn).
With Allied Irish Banks plc (AIB), the €3bn is additional to the €7.4bn capital that the bank needed raise by December 2010. Given that there are severe doubts that the bank could have raised the €7.4bn itself without tapping the State to make up the shortfall, then the likelihood is that the State is going to have to pony up €3-6bn for AIB (no word on the sale of the UK operations and the US MTN sale seems to have stalled).

There is reference in the press release to an accompanying statement. And the devil will be in the detail. This entry will be expanded later today when the “accompanying statement” is published.

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If the timetable for NAMA’s first quarterly report and accounts is anything to go by, then it would seem that the second quarterly accounts will be made public on 6th or 7th of October, 2010 having been delivered by NAMA to the Department of Finance by close of business tomorrow. The first quarterly report and accounts covered the period up to 31st March 2010 and given the first loans, which totalled, just €270m transferred to NAMA on 29th March, 2010 there wasn’t a great deal to report in terms of NAMA’s core operations – though there is an entry on here dealing with what appeared to be the more interesting or important aspects of that first report. This entry examines areas to look out for in the second report.

(1) Performing loans. It says something for the lack of transparency at NAMA that six months after the first transfers of loans, there is not even a general public consensus on the term “performing loan” – is it a loan being repaid in accordance with its contract (which might involve rolling up interest) or is it loans that are repaying interest as it is accrued? Regardless according to NAMA, the % of performing loans predicted in the October 2009 draft Business Plan was 40%, this had fallen to 33% by April 2010 and was 25% in the June 2010 Business Plan. Regardless of definition, performing loans will be key to NAMA generating a positive cash flow in the early days and not relying on the good people in Upper Merrion Street for more hand-outs.

(2) Derivative losses: In just two days to the end of March 2010, NAMA managed to make a loss of €1.4m on derivatives it had taken over from the banks. It has been frustrating in the extreme to see politicians like Joan Burton seeking to get assurances or explanations from the Minister for Finance as to the potential exposures on NAMA’s derivatives. If further losses are reported in this quarter’s reports, that clamour for explanation might grow to the extent that NAMA needs address the issue publicly.

(3) Professional fees: I don’t think people generally realise the extent of the vast army of firms providing services to NAMA. 64 firms of solicitors in Ireland alone, another 8 in the UK, 30-odd valuation companies,  the outsourcing giant Capita and individual organisations providing a host of other services. It is truly immense and so also are the fees. NAMA was expecting to have operating costs of €240m in its first year of operation. Has €60m been spent in the second quarter and if so, who has benefited?

(4) Staff costs: Two weeks ago, the former head of the NTMA, Dr Michael Somers justified salary confidentiality in an interview with Simon Carswell in the irish Times : he “was asked “endless times” about how much he and his staff were paid. He refused, he says, claiming this would have increased the agency’s pay bill, as employees on individually negotiated deals would have sought more, to match their colleagues’ pay”. NAMA’s salary costs might be more apparent if a note to the accounts is produced to the same level of detail as any normal PLC, ie salaries, benefits and employees might assist with seeing what the average salary and benefits at NAMA are.

(5) Repayments of capital: By the end of June 2010, NAMA had taken over loans at about €20bn face value (€16bn in Tranche 1 and a portion of Tranche 2). Surely some capital was repaid.

(6) Has NAMA made a profit or loss: NAMA managed to make a loss of €7m in the period up to the end of March 2010. This was due to paying €2.5m to PwC for advice, €1m to Capita/the banks for managing the loans, €2.2m for costs recharged from the NTMA, €0.5m for tax,legal and other financial advice and €1.4m as a loss on derivatives partly offset by foreign exchange gains of €0.5m. During the second quarter NAMA should have had some income to offset its costs and it shouldn’t have start-up costs and would have limited secondment costs. I would doubt that it reports a profit but any loss should be modest.

(7) Interest received: Surely on the €20bn of loans acquired up to the end of June 2010, some interest was paid. And if it was, how much and at what rate. NAMA has previously given us to understand that the average interest rate payable by borrowers is ECB + 2% (that is 3% per annum).

(8) Other income received: Has NAMA taken control of rent rolls or car parking receipts? Probably not as it was only raised as an issue by NAMA after the end of June 2010. But if it has will NAMA provide details?

(9) Working capital advances to developers: NAMA received €250m as a recoupable advance during May 2010 from the Exchequer (which is apparently repayable in October 2010 according to Minister for Finance Lenihan). What was this used for? There would not have been any interest payable commitments in the period (these occur in September and March). Some developers might have needed advances to maintain developments – the last time I visited Treasury Holdings Battersea Power Station site in London, there were security guards and some maintenance work was taking place. Where this €250m went will be of immense interest though unfortunately the level of detail in the report and accounts might disappoint.

(10) Breakdown of loans received: How many loans were bought for zero consideration. Just as interesting, how many were bought with practically no haircut whatsoever.

(11) Is NAMA making a profit on due diligence? This probably seems a bizarre question but remember that NAMA is entitled to deduct 0.25% of loan values for due diligence and a further 5% for enforcement. Earlier this year the Irish Times was claiming that NAMA might make a profit of €25m this year because it might underspend its due diligence costs. The accounting at NAMA whereby income from banks for due diligence is capitalised and then offset against actual expenses made this impossible to decipher in the first quarter’s report. Will this report be any clearer? Surely if there is good news in that NAMA has made a profit from this area, then NAMA should make that clear at least in a note to the accounts.

(12) How are developer loans and interest receivable shown. In the first quarter’s report, the price that NAMA had paid for the loans and not the face value of the loan was shown eg if NAMA acquired a €77m loan for €54m then NAMA was showing the €54m as owing. This gave rise to accusations that NAMA would not pursue borrowers for more than NAMA was paying for the loans and that NAMA was therefore bailing out borrowers. Even more worrying was that NAMA appeared to be calculating interest receivable on the purchase price (ie the €54m above) and not the face value of the loans. NAMA can change its accounting treatment and show the loans with a €77m face value and a provision for losses of €23m and the same with interest receivable. IFRS 9 allows NAMA to account for loss provisions in this way and in that way write-offs will be apparent and the public will feel it has greater confidence in NAMA’s transparency.

And lastly here are two subjects that will probably not be reported

(13) Conflicts of Interest. if a member of the NAMA Board has a material interest in a matter before the Board as set out under section 30(2) of the NAMA Act, then that interest must be advised to the Board. The Board must record the interest and may refer to the disclosure in the Quarterly Report. It is within the discretion of NAMA to refer to the disclosure and NAMA must juggle unhealthy public attention now with the consequences of the information eventually leaking out later. NAMA did not report on any conflict of interest in the first quarterly report and the betting is that they will not in subsequent reports, even if there have been recordings of conflicts. Again this is a discretionary disclosure on NAMA’s part. Of wider interest will be conflicts of interest between amongst staff and third party providers of services. These were supposed to be captured in a NAMA register of interests and in the tendering process but again, they will in all likelihood not be made public. A couple of months ago, the Mail on Sunday carried a dramatic story on NAMA’s Head of Portfolio Management, John Mulcahy and his relationship with businessman and sometimes developer Paul Coulson. An innuendo from the story was that might have been some conflict of interest but the story was inconclusive and was apparently abandoned by the Mail.

(14) Legal cases. Paddy McKillen and 15 of his companies launched a judicial review application on 1st July, 2010 – just outside the reporting period for this quarterly report. So next week when the quarterly report is published it is likely to be forgotten by daily briefings from what promises to be one humdinger of a case at the High Court where Paddy is challenging NAMA’s right to take over his loans. NAMA itself has launched one legal action (though it is the subject of three separate applications at the High Court) against developer Paddy shovlin and his sometimes partners Anthony Fitzpatrick and Patrick Fitzpatrick reported here in the Independent. The applications were made by NAMA at the start of August 2010 and therefore will also not be included in this report. There is a third legal case where NAMA is listed as an interested party where Clare developers, John Flanagan and Gerard Lillis are contesting the appointment of NAMA Board member Brian McEnery as a receiver to their companies. There is an additional strand to their case where they are seeking a declaration that Anglo and NAMA are “amenable to judicial review”.  There are no other cases involving NAMA at present in the Irish courts except for the above three.

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Or more accurately €2.4bn of face-value loans secured by undeveloped land. And before you start translating that into 0.4m acres at GBP £5k/acre remember that this land would probably have been valued with development potential when the loan was first secured. Nonetheless it is a very significant amount of property, and is to be but part of the NAMA portfolio in Northern Ireland.

Peter Stewart who chairs the NAMA Northern Ireland Advisory Committee was in action in Belfast earlier today where he delivered a speech to the Northern Ireland Economic Conference at the Culloden Hotel. He provided unprecedented public information on NAMA’s activities in Northern Ireland and given the scale of NAMA’s activity, it is now clear why NAMA has been so attentive to the sensibilities of the good people of Northern Ireland – NAMA is going to be the owner of loans secured by very substantial amounts of property there. Peter’s speech is available here and a press release from NAMA giving an overview of Northern Ireland is here.

Peter revealed that NAMA now expects to take over €4bn (GBP £3.35bn, according to when Peter did the exchange translation at GBP1 = EUR 1.19) of loans secured by assets in Northern Ireland. This is almost €1bn less than had previously been mentioned in the context of Northern Ireland and the explanation apparently is that the €5bn related to Northern Ireland developers but some of their loans relate to property outside of Northern Ireland – I wonder were there any developers in the State with loans on property in Northern Ireland and if this is included in the €4bn? Also does this mean that the 67% of loans that are supposed to be in the State might relate in part to foreign assets? This doesn’t quite make sense to me and the concern always with any reduction in loans being acquired by NAMA is that good quality performing loans are being let slip away.

And for the first time there is a breakdown of the loans as follows

Investments                   - €1.2bn (GBP £1bn)

Undeveloped land          - €2.4bn (GBP £2bn)

Property and land

(party developed)         – €0.4bn (GBP £0.35bn)

With investment transactions running at about GBP £200m per annum in a normal year, it looks like NAMA has upto five years worth of loans. Of course property may have declined from when the loans were acquired but nonetheless NAMA has a colossal portfolio of investment property securing its loans.

Whilst Northern Ireland does not have the same issues at the State with an overhang of vacant property (and a population which is remaining flat in the short term at least), Peter did explain that some land would be returned to agricultural use.  And that like with investments, NAMA’s portfolio would account for a number of normal years of transactions.

Peter didn’t refer to the reports earlier this month that a group of Northern Irish developers were considering going to court to avoid NAMA dealing with their loans.

Peter made it clear that NAMA has a long timeframe in which to manage its loans and that there will not be firesales or hoarding. As with previous NAMA presentations, the agency appears to be going out of its way to reassure the community that it will manage the loans in a way which will not be harmful to the Northern Ireland economy and indeed given that there is up to €5bn of NAMA development funding available, NAMA’s presence could be extraordinarily beneficial at a time when property lending is generally in the doldrums.

UPDATE: 31st January, 2011. Deputy First Minister, Martin McGuiness has informed the Stormont Executive that NAMA has now acquired the GBP 3.35bn (€3.953m) referred to above. It is likely to be the case that NAMA acquires even more loans in Northern Ireland as it now moves to acquire sub-€20m exposures at AIB and Bank of Ireland.

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How to earn money from NAMA

It is unclear exactly how much NAMA is spending on staff and contract services. The draft Business Plan suggested it was €240m in the first year and €2.6bn over the 10-year expected life-span. On 29th, September 2010, Minister for Finance Brian Lehihan told the Oireachtas that NAMA would spend €215m on third party contracts in 2011 – “Details in relation to the breakdown of these fees will be published in the NAMA quarterly reports. I am advised by NAMA that fees payable by NAMA will be approximately €215m for 2011 and are expected to decline significantly as the portfolio reduces”. The June 2010 Business Plan gives even less detail than the draft but suggests that the figure might be €1.6bn over 10 years. Regardless it’s a lot of spondoolicks – €240m equates to 5,000 people at €48,000 each per annum. This entry examines how you might get your ticket to the gravy train (though it should be stressed that NAMA has vigorously defended the value-for-money terms under which it has engaged employees and services).

(1) Employees (including directors)

Recent statements from NAMA have suggested that by the end of this year the agency will have 100 or so employees including nine board members (including the NAMA and NTMA CEOs). The fees of the chairman, Frank Daly, have been confirmed at €170,000 per annum and the six other members are reported to be paid €50,000 a year. The NTMA CEO John C. Corrigan was reported last week to be paid €490,000 as a basic salary and has a bonus arrangement that could see him earning an additional 80% which would give a theoretical maximum of €882,000 – it is not clear if any part of his costs are charged to NAMA. It is not known how much Brendan McDonagh earns but the Sunday Tribune in June 2010 claimed he earned more than €500,000. Whilst salaries and benefits at NAMA are not published there has been informed speculation that the pay is good, for example Shane Ross recently claimed the pension benefits at NAMA were “gold-plated”.

(2) Work for the National Treasury Management Agency (NTMA) and provide services. NAMA occupies the same building as the NTMA and buys in these services

(a) finance

(b) IT

(c) treasury

(d) market risk

(e) communications

(f)  HR

(g) office service

Salaries at the NTMA are confidential. The former head of the NTMA, Dr Michael Somers justified this confidentiality in a recent interview with Simon Carswell in the irish Times : he “was asked “endless times” about how much he and his staff were paid. He refused, he says, claiming this would have increased the agency’s pay bill, as employees on individually negotiated deals would have sought more, to match their colleagues’ pay”. Dr Michael himself earned a cool €1m in 2008, his last year as head of the NTMA.

(3) Work at NAMA banks on NAMA loans

Graham Emmet, NAMA’s Head of Lending said in the UK last week that there were some 400 staff at the NAMA Participating Institutions (the PIs – AIB, Anglo, BoI, EBS and INBS) working on NAMA business. Of course some of these will be working on due diligence connected with the transfer of loans to NAMA and once that activity is concluded later this year or early next year, some of these people will be without NAMA-related jobs. That said, NAMA will only look after the top 100 borrowers and the remaining 1400 will be managed in the banks so the banks will need some staff to deal with NAMA loans though it is unclear how many will be employed directly by the banks and how many will be employed by NAMA’s loan services provider, Capita.

(4) Tendered contracts

At the outset NAMA was being very transparent in advertising for services. Its contracts were available through the State’s e-tendering system and NAMA were very clear (if sometimes a bit tardy) with stating the services required and the firms awarded the contracts.

As examined here earlier this week, it seems incredible that NAMA is not engaging help with managing and disposing of properties given the immense size of the NAMA portfolio. With NAMA’s 100 and the banks’ 400 and Capita be able to manage €40bn of loans and underlying assets?

(5) Untendered NAMA contracts

It is unclear who undertakes NAMA’s Public Relations though Gordon MRM seem to have spoken on behalf of NAMA on at least a couple of occasions (here and here). UBS appear to be overseeing the recently announced €2.5bn euro commercial paper programme. Recently the NAMA CEO said that local auctioneers would be involved in the disposal of NAMA property – there has been speculation on here recently (UK and Ireland) that that process has already begun and if that speculation is founded then how were the auctioneers selected?

(6) Secondment fees

In the first NAMA Quarterly report and accounts for the period ending 31st March, 2010, NAMA had spent €2.45m on secondment fees with Pricewaterhouse Coopers. PwC staff helped with the setting up of NAMA at the end of 2009 and start of 2010 apparently. There was no public tendering for these services.

(7) Advisers/”briefers”

Darling consultant to the public sector, Peter Bacon, was described as an adviser to NAMA in the literature promoting the Business and Finance  “Corporate Restructuring Summit 2010” event this month. Of course Peter was responsible for a report which recommended the NAMA project in 2009 but the claim that he is now an “adviser” was nonetheless interesting.

The Independent does a bit of a puff-piece today on Frankie Whelehan, hotelier and man behind Choice, Clarion and the Gibson hotels in the State and some Comfort Inn hotels in Germany. The article claims that Frankie briefs NAMA on the market. That’s a new term to me in the context of NAMA – a “briefer”. It is not totally clear if Frankie gets any reward from NAMA for his briefing services, I would guess he does but could be wrong.

Does NAMA advertise or competitively tender for “advisers” and “briefers”, and if so where?

(8) Beneficiaries of the NAMA development pot

The NAMA Act allows NAMA to have up to €5bn outstanding for working capital and development. The betting is that NAMA will go up to this limit quite soon and in fact has recently launched a €2.5bn euro commercial paper programme for short-term financing with details of medium term financing to be published in quarter 4 of 2010.

So there appear to be quite a number of ways in which money can be made from NAMA, and the above excludes profits available from trading in NAMA loans or property, a subject that will be examined here soon.

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Yesterday the BBC’s Business Editor Robert Peston (the laid-back voice of the British recession) was in town where he seems to have found time for a few of the key players in the financial architecture as we confront a pretty difficult week on bond markets and with a final Anglo estimate due not to mention Tranche 3 of NAMA’s loans.

He had a 2 ½ minute piece with the NAMA Chairman Frank Daly in what looks like the hallway on the upper floors of Treasury Buildings. There’s nothing of note in the interview, it’s aim seems to have been to project a broadly-in-line business-as-usual position to international media. A few items

(1) Frank says that the transfer of the NAMA tranches should be complete by the end of 2010.

(2) Frank blames the bankers and developers “equally” for the crisis

(3) He still predicts NAMA will take on €80bn of loans

Now Robert says in his written piece that he “asked its chairman Frank Daly if its spending mandate of 80 billion Euros will be enough or will it be forced to buy even more bad loans”. That’s not quite how the interview went where it was more about asking Frank for his prediction of the total value of loans to be acquired. A recurring theme on here is that NAMA banks will have some €70bn of commercial property loans (ie non-residential mortgage lending on property) after NAMA has completed its transfers. Although these loans may not be as toxic as “land and development” loans they are still pretty poisonous and there is a lingering question whether these residual loans will be a drag on banks’ ability to attract funding once NAMA has completed its process. Should NAMA’s scope be expanded? It’s a question that has been asked on here before. The government seems more concerned at getting NAMA to complete its original remit and might seen any expansion of scope as an “unnecessary complication”.

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Sometimes I despair at the public sector – compare the websites of two State bodies, the recently formed Credit Review Office and NAMA. News this morning from the Independent that the former body has received 20 applications in the past 6 months from business borrowers denied loans at the NAMA banks – 20 applications! NAMA of course just manages €40bn-odd of loans and assets, employs directly and indirectly 500 people and an army of third party firms and will run up €200m of operating expenditure this year. The former organisation’s target audience is small-scale businesses, the latter’s includes some of the world’s biggest property funds. No wonder some developers don’t want to be associated with the NAMA brand!

Putting aside the fact that NAMA’s website looks like it was designed and coded by senior infants, there appears to be one glint of brightness with the news that the Credit Review Office (CRO) has received only 20 applications since it was set up in March 2010 from small and medium sized businesses, including sole traders and farmers, who have been denied loans at NAMA Participating Institutions (PIs – AIB, Anglo, BoI, EBS and INBS). On the face of it, this would seem to indicate that small and medium sized enterprises (SMEs) are finding it easier to access credit.

What reinforces the feeling that credit conditions for SMEs are improving was the report yesterday from the Irish Small and Medium Enterprises Association Limited (ISME) that confirms that credit is more forthcoming (though it must be said that the improvement is marginal). ISME which claims to have 8,500 members polls members quarterly and in its latest report published yesterday, claims that

(1) 42% of companies who applied for funding in the last three months were refused credit by their banks, compared to 55% in the previous quarter (though compared with 42% in October 2009.

(2) 25% of respondents had requests/demands for a change in their banking facilities, down from a consistent 32% in the three previous quarters.

(3) 83% of firms outlined that the banks are making it more difficult for SMEs to access finance which represents a consistent 1-2% increase each quarter since October 2009

The CRO was set up pursuant to section 210 of the NAMA Act. Whilst we are in the middle of the NAMA process, it is worth stepping back to see the woods from the trees. NAMA exists to cleanse banks of a class of loans which have particularly suffered with the Irish property crash and to replace those loans with cash-exchangeable NAMA bonds which could then be used to lend to viable homes and businesses in the State. That is the NAMA principle. Subsequent to the passing of the Act, the government set up the CRO (there is a very helpful explanation of the role of the CRO from the Department of Finance here). In addition to the commitments encapsulated in the NAMA Act the government has made a commitment to make €3bn apiece available through Bank of Ireland and AIB to SMEs each year in both 2010 and 2011.

Now it should be said that lending to business generally has shown a marked decline – the latest from the Central Bank which covers the period to the end of May 2010 shows a worrying contraction in lending to non-financial businesses with overall outstanding lending to non-financial corporations down nearly 20% in just five months from January 2010 to May 2010.

So it would seem that businesses overall are accessing less credit than previously but that applications for credit for viable businesses is improving. The disharmony between the two is presumably the result of the economy continuing to contract. So possibly a victory for NAMA in the sense that credit is finally coming through for viable businesses but a Pyrrhic victory in the sense that there are fewer viable businesses out there seeking credit.

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