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Archive for September 7th, 2010

Whilst Anglo is wrecking havoc on the country’s credibility and creditworthiness with our 10-year bond yield back in January 2009 territory, let us not forget what is happening with that other basket case the Irish Nationwide Building Society (INBS).

Unlike Anglo, INBS does not produce interim accounts. And in S&P’s recent downgrading of Ireland’s credit rating there was no focus on INBS as Anglo and NAMA stole the show. So to an extent it has been flying beneath the radar for the last month or so. Without an interim report we can’t get to see what fantasy provisions it is making for its remaining NAMA and non-NAMA loans even though in the second tranche,  INBS’s NAMA loans were worth less than 30c in the euro (that is, NAMA applied a 72.4% haircut).

Whilst the bailout estimate for INBS has been tiddly compared with Anglo it is still worth noting that it grew from €2.7bn in March 2010 and May 2010 to an estimated (and interpreted) €3.2bn in August 2010 when the respected and formidable Central Bank governor Patrick Honohan told an audience in Beijing “thus, Anglo may impose a net cost to the Government of about €22-€25 billion, to which can be added about €4 billion mainly to cover one small building society” Mr Honohan declined to elaborate to the Irish media what he meant by €4bn and the Irish media assumed he meant that EBS’s mooted €875m bailout estimate could be deducted from the €4bn to give you a present estimate of €3.125bn (or €3.2bn rounded) as the bailout cost of INBS. I’m not so sure because below is the summary of INBS’s capital position at the end of 2009 together with two loss scenarios for the remaining NAMA loans – one at 58% (the haircut in tranche 1) and one at 72.4% (the haircut in tranche 2). Although INBS has a relatively small non-NAMA portfolio of €2.6bn before provisions which is dominated by relatively secure residential mortgages there is still nearly €700m of commercial property lending in the non-NAMA residue which had a provision of only 21% at the end of 2009.

Scenario 1 assumes INBS’s tranches 3 onwards will suffer a 58% haircut and that the non-NAMA commercial loans will also suffer a 58% loss. The 5% provision for residential lending in the non-NAMA portfolio at the end of 2009 is maintained.

Scenario 2 assumes INBS’s tranches 3 onwards will suffer a 72.4% haircut and that the non-NAMA commercial loans will also suffer a 72.4% loss. The 5% provision for residential lending in the non-NAMA portfolio at the end of 2009 is maintained.

The two scenarios above show a net bailout cost of INBS of between €3.8-4.9bn. If there is to be an INBS good bank then additional seed capital will be required and other recoupable injections may also be needed. The INBS restructuring plan was submitted to the European Commission at the end of June 2010 – a month after Anglo’s. It is unclear what proposal was recommended by the government or when the EU will respond. As I say, amidst all the turmoil with Anglo it is being mostly forgotten.

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Ulster says no to NAMA

Or at least several developers are reported by the Irish Independent today as considering a legal challenge to NAMA to prevent loans being acquired. The un-named developers are reported to be considering the UK’s extensive Human Rights Act as a basis for their challenge. NAMA is to take over €5bn of loans at face value relating to a reported 150 developers in Northern Ireland. So far €360m of loans have been taken over in tranches 1 and 2 relating to NI.

Belfast-man Paddy McKillen is of course the first developer to fight NAMA in the courts and his case is scheduled to begin at the start of October 2010 (for all the latest news on the Paddy McKillen v NAMA case together with the background, click here). It is not clear why developers in general would be reluctant to have loans transferred to NAMA which has a €5bn development pot to help finish out projects and has the standing in the property market to attract substantial third party investment.

The Independent’s report comes just a fortnight after Northern Ireland Finance and Personnel Minister Sammy Wilson heaped praise on NAMA. Mr Wilson  apparently is being given access to, and potentially a say over, NAMA’s operation in Northern Ireland to a degree which might be unlawful on the other side of the border where strict anti-lobbying rules apply to politicians.

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