Archive for September 29th, 2010

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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