0% growth in house prices this year and next, then 2%, 3% and 5% in the following years – that’s too optimistic say the banks : McInerney’s examinership bid to be decided on Monday

McInerney, one of the country’s oldest housebuilders, was back at the High Court yesterday in its bid to secure examinership for its Irish operations. It is being opposed by Bank of Ireland and Anglo who together with non-NAMA bank KBC make up €114.5m of the €236m of debt owed by the group. It is suspected that NAMA is behind the banks’ opposition to the examinership though interestingly a report in today’s Independent claims NAMA is neutral even though NAMA has rights to approve bank actions on NAMA-bound assets and has effective control over Bank of Ireland and Anglo’s treatment of the loans? Strange.

McInerney secured an interim examinership on 26^th August, 2010 with the appointment of joint interim examiners William O’Riordan and Declan McDonald of PricewaterhouseCoopers over McInerney Homes, McInerney Construction (Holdings) Limited, McInerney Contracting Limited and McInerney Contracting Dublin Limited.. However it will be on Monday next when the company will learn if the courts are willing to grant full examinership which would afford the company protection from creditors for 70-100 days whilst it works through its difficulties. McInerney claim that 100 jobs depend on getting examinership.

Yesterday McInerney outlined its plans to the High Court judge Mr Justice Frank Clarke through the capable senior counsel John Hennessey. It is reported by RTE that the plans projected prices in the State to remain flat for the remainder of this year and next and then for there to be 2%, 3% and 5% growth in the three succeeding years. The equally capable Rossa Fanning represented the BoI-Anglo-KBC banking syndicate and RTE report that the banks claim McInerney plans are too optimistic. RTE’s reporting suggests that this is referring to the price projections.

With inflation turning positive, it would seem plausible that the banks are saying not only that prices in real terms in 2015 will be less than today but that this is an optimistic assessment of the future. And at the same time we have the controller of the banks, Minister for Finance Brian Lenihan claiming we are at the bottom and we have NAMA, whose success is predicated on buying loans at the bottom.

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AIB sells Polish unit, but what about the UK operation with €3.2bn of mostly performing NAMA loans?

Yesterday came the bittersweet news that AIB had sold its Polish subsidiary Bank Zachodni for €3.088bn to Spanish banking giant Santander. Bittersweet because the Polish operation has been described as the jewel in the AIB crown and was centrally placed in an economy that is playing economic catch-up with neighbouring Germany having been spanceled with communism for 50 years – a few months ago I visited the city of Lodz (pronounced Wutch) where Dell is relocating from Limerick and the city is being transformed at an astonishing pace and I got there on a train that would put our own network to shame – in many visible ways the country is thriving.  But as regards the AIB Polish operation, two years ago the bank was apparently worth €4bn – at least the €3.1bn price achieved today is seen as being a good price, according to the Irish Times. I’m not so sure.

It is not known if there were any NAMA-bound loans in Bank Zachodni. The recent six months Interim Statement from AIB didn’t refer to any which was a little strange as there has been, and still is some significant Irish property development going on in Poland – take a look at the members of the Irish Chamber of Commerce in Poland (and a couple of years ago there were even more), and it is peppered with property development companies. On the other hand the Interim Statement did flag €3.2bn of loans in the UK operation which would have been NAMA-bound but were expected to move out of NAMA’s reach with the sale of the UK operation in September 2010. There was no update on the progress of that sale in the press release yesterday though the Irish Times is saying that AIB group managing director Colm Doherty has said that there was “a lot of interest” in AIB’s stake in MT and the UK banking division. UPDATE: Brendan McDonagh tells Radio Kerry that 0.5% approximately of NAMA’s portfolio of loans are in respect of property in Eastern Europe. Poland would probbly say they’re part of Central Eastern Europe but that’s beside the point. The question is did Bank Zachodni have NAMA qualifying loans and if it did why were they not transferred to NAMA.

There is still no comment from NAMA as to why it is allowing €3.2bn of what are assumed to be mostly performing loans to slip from NAMA’s control (the assumption as to the “performing” characteristic is based on the relatively low 6% provision for losses on the UK loans in the 2009 accounts and the fact that both commercial and residential property in the UK have shown signs of growth since the start of this year). Does NAMA not issue statements when large tranches of much needed performing loans are sold beneath its nose.

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NAMA processes just two business plans nearly six months after the first loans are transferred. And this time it can’t blame the banks.

If the Irish Times report of the NAMA CEO’s speech at the Cantillon School of Economics in Tralee yesterday is accurate (I see that NAMA has not posted his speech on the nama.ie website which seems to be a departure from past practice), then there would appear to be some concerning delays in the NAMA operation and this time I don’t think they can blame the usual whipping boys, the banks.

Remember that the first tranche finally transferred on 10^th May 2010 and indeed NAMA (just about) completed the transfer of INBS and EBS in the first tranche before the end of March 2010. The first tranche famously encompassed the loans of the Top 10 Developers. Some of the developers may have had loans from all five NAMA institutions – AIB, Anglo, BoI, EBS and INBS, others may have had loans with less (this is just stating the obvious). The developers had 30 days from the date of transfer of their loans to produce their business plan – actually they had several months because they would have known since the end of 2009 that they were going to NAMA and that NAMA would be seeking a business plan. However 30 days gives you a maximum of June 10^th, 2010 for submission of business plans.

Let’s remind ourselves of what Brendan told the Oireachtas Joint Committee on Finance and the Public Service in April 2010

“We have already held meetings with many of the borrowers whose loans have been acquired as part of tranche 1. Each borrower will have to submit a comprehensive business plan in accordance with NAMA’s template, within 30 days of being acquired. The individual borrower’s viability will then be rigorously assessed over the coming two to three months as part of the business plan review process. We are willing to engage with an open mind with our acquired clients, but we require full disclosure of all material information and we will not waste time with borrowers who do not wish to co-operate or who have not yet accommodated themselves to the current realities of the property market.”

and

“Tranche 1 loans are very complex and have intricate legal structures but based on having business plans submitted by borrowers at the start of May, we will spend two or three months assessing them and hope to be ready to move on plans that are not viable by September.”

and

“The Deputy may say we are taking a very tough line by asking them to produce a business plan within one month. Those borrowers are in full possession of knowledge of their portfolios in terms of the amount of money they have borrowed and the sites they have.”

And yet the Irish Times says “Mr McDonagh added that the agency was still negotiating business plans with the 32 largest property developers whose loans it had acquired, and would also take action directly against them if it proved necessary. To date, Nama has processed the business plans of two of the largest developers. They now had six weeks to indicate if they would co-operate. “Borrowers are being given a short period of time to decide if they are going to play ball. After that we will consider enforcement action,” he said.”

So at least three months after the first business plans were due NAMA has “processed the business plans of two of the largest developers”. It is not clear if it is these two developers who are the subject of the following sentence about being given a “short period of time to decide if they are going to play ball”. But for the sake of argument (and giving NAMA the benefit of the doubt), what is being said is that just two developers out of 32 have had their business plans processed by NAMA.

NAMA will have 1500 business plans to process. Of course the later developers will be smaller and that should tend to mean their business plans require less processing. But even so, just TWO BUSINESS PLANS. It is not clear what the term “processed” means but it may mean that NAMA has clarified and verified the business plan’s contents and has agreed a course of action (reject, foreclose, sell, develop, manage, mothball, lease or demolish).

NAMA has, probably with justification, blamed the wicked banks for delays in providing paperwork to enable NAMA to complete the due diligence of the loans it is transferring. Banks are an easy target. What next? NAMA will blame the developers for not providing business plans? It seems incredible that five and a half months after the first loans transferred that just two business plans have been processed. Are there internal managerial problems in NAMA?

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