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Archive for September 13th, 2010

Against the odds I would have said, RTE are reporting that McInerney has been granted examinership but with strings attached. In the High Court today, the judge Mr Justice Frank Clarke said that he wanted the company to return on 4th October, 2010 and at that stage the judge will consider whether or not to terminate the examinership. The interim examiners were William O’Riordan and Declan McDonald of PricewaterhouseCoopers – it is unclear if these are the “final” examiners.

NAMA banks Anglo and Bank of Ireland along with non-NAMA bank KBC, who altogether as a syndicate are owed a reported €114.5m had opposed the application for examinership.

The McInerney examinership has been covered several times on here, for example here (McInerneys assumptions versus the banks) and here (McInerney’s case for examinership) and here (McInerney’s half year results) and here (NAMA and examinership) and here (McInerney and Oaktree).

UPDATE: 14th September, 2010. The Irish Times reports that William O’Riordan of PricewaterhouseCoopers, one of the two joint interim examiners has been confirmed as the examiner. The five companies subject to the examinership are McInerney Homes Ltd, with a registered address at Cleaboy Business Park, Waterford and four related companies: McInerney Holdings Public Limited Company; McInerney Construction Holdings Ltd; McInerney Contracting Ltd and McInerney Contracting Dublin Ltd. The examinership is  to run to the “end of November” 2010 according to the article though very surprisingly it doesn’t mention the critical 4th October, 2010 milestone which might see the early termination of the examinership.

UPDATE: 14th September, 2010: Barry O’Halloran in the Irish Times has an altogether more informative piece on McInerney’s future and suggests that Anglo-BoI-KBC may end up with an equity stake in McInerney post-examinership in a part debt-for-equity swap arrangement. Oaktree, the American venture capitalist and sometimes buyer of distressed assets is said to be more interested in the UK operations (which are not the subject of the examinership process) though the Irish assets are seen to have “long term value”.

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There can be no denying that the government wants to put a line under the final cost of rescuing our banking system, though there are naturally enough disagreements about the methods proposed. Since the announcement last week of the wind down of Anglo following the rejection by the EU of the second restructuring plan, commentators are questioning why we need another asset management company in addition to NAMA.

In yesterday’s Sunday Business Post, Senator Dan Boyle of the junior coalition partner Green Party is reported to be against the position apparently advocated by former head of the National Treasury Management Agency, Dr Michael Somers, at the Fine Gael think-in last week in Waterford. Dr Somers apparently criticised the duplication of costs and function of NAMA and the new Asset Recovery Bank (ARB) proposed as being one leg of the new Anglo split – Dr Somers apparently feels that one asset management recovery agency is enough. Senator Boyle, the chairman and finance spokesman of the Greens is reported as rejecting the criticism and his main arguments seem to centre on NAMA’s present scope. It is asserted that NAMA is only dealing with land and development loans worth more than €5m.

It seems to be accepted by Senator Boyle that this is not in fact the case as NAMA is dealing with sub-€5m loans from INBS and EBS and the record of NAMA’s breakdown of the loans in tranches 1 and 2 show that NAMA is taking over a large volume (more than €15bn-plus in tranches 1 and 2) of non-land and development loans under the “associated” loans heading.

Instead it would seem that absorbing Anglo’s ARB is seen at this stage as an unnecessary complication as the government makes its dash to give certainty to the cost of the financial crisis. Of course absorbing the ARB into NAMA may impede NAMA’s focus in acquiring its schedule of loans. However remembering  that one of NAMA’s main aims was to cleanse the banks of loans with doubtful value so that the banks could access funding from sources that might otherwise be concerned with the true value of the banks, won’t an ARB with €38bn of loans with true values seemingly accepted by Alan Dukes to be worth 50% of that level simply continue the uncertainty in the banking sector generally, and impede a return to normal lending.

Shouldn’t the cost of an “unnecessary complication” be set against the prize of getting a credible cost of the financial crisis whilst at the same time avoiding an obvious duplication?

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It is one of the paradoxes of NAMA that politicians in the State are forbidden from lobbying the agency and yet across the border, NAMA has set up a Northern Ireland advisory committee which has close links with the Northern Ireland government. Double standards and an uneven playing field? Perhaps.

But that doesn’t stop the amusement to be had in observing politicians here expressing views on NAMA but clipping them so that they don’t veer towards the characterisation of lobbying. It has indeed been amusing to watch Willie O’Dea and Mary Hanafin twist and turn in trying to express their views on property that will be controlled by NAMA – in Mary Hanafin’s case it is still unclear whether she had her much trumpeted meeting with NAMA to try to resolve the problems of zombie hotels and threats to “long established family hotels”.

The Sunday Business Post yesterday reported that a report has been prepared by the government though it is unclear if it was in fact prepared by the Irish Hotels Federation and Failte Ireland, Anyway it seems it is being branded as a Mary Hanafin Department of Tourism, Culture and Sport report. The Tribune say that it will help NAMA in the disposal of property.

NAMA of course is a private agency, 51% owned by private investors and NAMA’s objectives are selfishly narrow in that NAMA is to focus on getting a return for the taxpayer (and implicitly, to blazes with any wider economy considerations that conflict with the narrower objectives). It will be interesting to see if NAMA pay any heed to recommendations of this as yet unpublished report.

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Whilst Anglo CEO, Mike Aynsley is reported by Simon Carswell in the Irish Times on Saturday last as estimating the cost of the new proposal for Anglo at between €25-28.5bn, Alan Dukes never said it would be €39bn. This entry examines what Alan Dukes did in fact say.

Alan Dukes appeared on Vincent Browne’s programme on TV3 on Thursday last 9th September, 2010. Other guests included independent banking consultant Peter Mathews, a former Icelandic finance minister and Donal Brennan of the Irish Left Review. The exchange that gave rise to the €39bn starts at 22 mins 20 seconds into the programme and the initial exchange went something like this:

Vincent Browne: What is Anglo going to cost us?
Alan Dukes : The latest ministerial announcement requires the Central bank and the rest of us to come up with by the end of this month the best forecast we can make of what the total expected losses will be in Anglo. And that requires us to have foreknowledge of the kind of haircut on the assets that are going be transferred into NAMA and a corresponding judgement /assessment of the losses that we can expect on that part of the remaining loanbook in Anglo that is in problem (sic) and an estimation of what we would have regarded as the base for the good bank of whether those loans will continue to perform as we think.

What followed was a like a good old wild west verbal shootout. And looking at the three participants, Vincent Browne, Alan Dukes and Peter Mathews put me in mind of western characters, the worthy, toiler of the land, honest Vincent Browne, the “aah shucks” decent skin Alan Dukes and the suave banker Peter Mathews – stick a Stetson of varying brim sizes on all three and you might see what I mean. The two other guests might have been wearing prairie bonnets as they were merely bystanders to the exchanges. Anyway Vincent, Peter and Alan were firing figures at each other like crazy, mixing up billions and millions, rounding in an unconventional way (€38bn became €30bn) and attributing different meanings to the same terms (performing loans pay interest according to Vincent, Alan says they comply with the loan agreement which of course might permit rolled up interest). Now the precise derivation of the €39bn was 60% of €40bn (reverse calculated by taking €70bn of total loans, which in itself was a rounding, and deducting Alan Dukes’ rounded down €30bn for non-NAMA) plus 50% of the non-NAMA €30bn. So a €24bn loss for the NAMA loans and a €15bn loss for the non-NAMA loans.

From the €39bn you would presumably deduct the €6bn of existing Anglo capital giving you a net bailout of €33bn. You will see from the programme that Alan Dukes was concerned that whatever estimate was produced at the end of this month (September, not October) would be credible and wouldn’t be subject to the drip drip of a further billion here, a further five billion there as time went on. He wanted the estimate to err on the conservative side. It would be unfair also to say he asserted the Anglo losses would be €39bn but he didn’t deny that figure when it was fired at him by Vincent. Peter must feel vindicated to a degree because this level of losses is the same as his forecasts for some time.

So what is the difference between Mike Aynsley’s €25-28.5bn and Alan Dukes’ €33bn (ie gross losses less the Anglo capital base)? Difficult to say. Alan Dukes was talking in rounded terms and he said himself he was erring on the conservative side. There may be gains if bondholders are negotiated with – Anglo made a paper profit of over €1bn last year by buying back bonds at below their face value. Whatever analysis takes place between now and the end of September, I hope will also closely examine any residual exposure to Anglo from its derivatives.

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According to Laura Noonan at the Irish Independent today it was always the government’s plan to shut down INBS. Given that INBS is responsible for some 10% of NAMA’s entire loanbook at face value (that is, €8bn out of a loanbook of €80bn), how will the government impose a levy on INBS should (again God forbid) NAMA make a loss?

This is the same question asked here in more detail of the Anglo restructuring proposal yesterday. The answer is probably that the government had hoped that by kicking the question of losses at NAMA into the long grass – that is, to be confronted if the eventuality arose after 7-10 years after which times the banks would be hale and hearty. Except increasingly it looks as if there won’t be an Anglo or an INBS or even an EBS to levy. Of course NAMA’s base scenario is a positive net present value of €1bn but in one of its two other scenarios it realises a minus net present value of €0.8bn. And the €0.8bn is after the NAMA subordinated debt is dishonoured.

So how will a levy be imposed on the banks? The NAMA Act (section 225) is clear that the levy will be imposed pro-rata on the banks so the State can’t simply decide BoI will shoulder 100% of any NAMA loss. And remember the classification of NAMA’s bonds off the State’s balance sheet was predicated on NAMA not making a loss.

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