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Archive for October 15th, 2010

Minister for Tourism, Culture and Sport, Mary Hanafin, continues her delicate waltz with NAMA that charts a course that on one hand prevents her from falling foul to NAMA’s anti-lobby rules and on the other, gives voice to the hotel sector whose health and prosperity she seems determined to protect. This has been the subject of several entries on here before which have examined the anti-lobbying rules, the uneven playing field between the State and Northern Ireland and the overall crisis facing parts of the hotel sector at present.

Just over a week ago in the Oireachtas, she replied to a question from FG’s Joe Carey on her dealings with NAMA and the hotel sector. Here is the exchange.

Deputy Joe Carey asked the Minister for Tourism, Culture and Sport the steps she will take and the timeframe envisaged in dealing with both the National Assets Management Agency and bank-operated hotels; and if she will make a statement on the matter.

Minister for Tourism, Culture and Sport (Deputy Mary Hanafin): I have been encouraging NAMA to take a strategic approach to the hotel sector, to build up its own expertise in this area and to consult with sectoral interests, including the Irish Hotels Federation (IHF) whom I have met on several occasions on this subject. I note that NAMA has recently appointed a senior official to help deal with this aspect of its loan portfolio. I intend to meet NAMA over the coming weeks to discuss overall policy in relation to the tourism industry, but not specific cases. In regard to the actions of banks, Section 66(1)(a) of the NAMA Act, 2009 was included to ensure that applicant institutions continue to service loans in the same manner as a prudent lender. If the Deputy, or anybody else, is aware of any specific instances where participating institutions in NAMA are not adhering to the requirement of the Act they should bring the matter to the notice of the Minister for Finance.

And yesterday she told the Oireachtas that she met with NAMA on Monday last 11th, October. The Irish Times is reporting that she now believes NAMA will control 60-70 hotels, down from 100 previously though how many have dropped out as a result of the increase in NAMA’s threshold on exposures from €5m to €20m (applies to AIB and BoI only – €5m remains the limit for Anglo and INBS and EBS have no limit) has not been made public. NAMA, she says, is not subsidizing loss-making hotels nor does it intend to. The IHF seem to have expanded their lobbying in recent times and “excessive local authority charges” are now on the political agenda. Minister Hanafin met with NAMA’s CEO Brendan McDonagh, NAMA Chairman Frank Daly and other senior executives (presumably including Patrick Ryan, recently recruited at NAMA to develop a hotels strategy).

There are 900-odd hotels in the State so NAMA will still wield some considerable power in the sector. The IHF has recently said that as many as 100 hotels may go to the wall by Christmas and that the sector is facing a crisis with over-capacity and unsustainably low room rates. The recent departure of Bank of Scotland from lending in Ireland has also come as a blow to the sector. Whilst not downplaying the seriousness of the circumstances facing the hotel sector, I have noted in 2010 a few company results which show decent profits (for example here and here and here). So it is to be hoped that Mary’s encouragement of NAMA’s strategy doesn’t distort the market.

UPDATE: 19th October, 2010. The full text of Mary’s exchanges in the Oireachtas is now available, though nothing significant is added to the above. I found the following part of her statement amusing “I had the opportunity earlier this week to have a useful exchange of views with the chairman,
the chief executive and other senior executives of NAMA on how their operations may impact on the hotel and overall tourism sectors. I was accompanied at the discussions by senior officials of my Department and Fáilte Ireland. I should stress that the engagement with NAMA was at
an overall policy level and was not related to any specific enterprise or borrower.” So Mary wasn’t lobbying and she has witnesses to prove it, so don’t even bother making a complaint to the Gardai.

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On 30th September, 2010 the Minister for Finance Brian Lenihan made a statement as part of the wide-ranging attempt that day to provide clarity, certainty and finality on the cost of rescuing the banking system. The Minister’s statement addressed the NAMA discounts on the loans remaining to be transferred and in respect of BoI he stated “to date the Bank has transferred €3.75bn of loan assets to NAMA at an aggregate discount of 36%. While the final tranche of NAMA loans may have a higher discount of up to 42%, the Central Bank has confirmed that the bank has sufficient capital to meet the PCAR standard to accommodate this increase”. This estimated discount of 42% on BoI’s remaining tranche of €6.85bn approximately of loans (after deducting the €5-20m exposures) raised eyebrows – after all AIB’s discount was increasing from 45% weighted average in Tranches 1 and 2 to 60% and EBS’s was increasing from 38% to 60%. Why was BoI insulated from the poor quality lending on smaller exposures, particularly when that week a Northern Ireland development company, McDaid Developments (Ireland) was reported to be burdening Bank of Ireland with an 85% loss on lending of GBP £42m. So the 42% estimate raised eyebrows and the speculation on here was that there were machinations to prevent BoI crystallizing losses so that the last remaining major Irish bank would stay out of state control.

On Wednesday this week, the MfF replied to a question in the Oireachtas from Labour finance spokesperson Joan Burton in which he set out a table of the remaining tranche discounts as follows:

He is showing BoI at 40% (down 2% in absolute terms from the forecast two weeks ago and a relative 5%). He is not rounding as he shows Anglo at 67% and the calculations which show overall NAMA consideration of €30.7bn also use 40%. Does this reduction in BoI’s discount reflect a further retreat from reality to preserve BoI’s status? With a market capitalization of €3.3bn and the State already owning 36.5% of BoI, it doesn’t need significant new losses to see the bank needing more capital.  Is the hope that “something will turn up” by the time NAMA completes its due diligence and final valuation of BoI (up to 12 months after the loans have transferred).

 

The MfF also said that INBS’s remaining discount is estimated at 70%, down from the 75% that Emmet Oliver at the Independent reckoned based on “bank sources”.

 

It also seems that AIB’s NAMA-bound loans have increased by €1bn – in the June 2010 NAMA Business Plan AIB’s total NAMA-eligible loans were put at €23bn. As a result of increasing the threshold for exposures from €5m to €20m for both AIB and BoI, €4.5bn was to come out of AIB (and €2.1bn from BoI). But instead of AIB having €18.5bn, the MfF is now saying €19.3bn. Roundings alone would not account for the difference.

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Paddy McKillen asset valuations revealed..

By Simon Carswell in today’s Irish Times. But to add some value to Simon’s article, here they have been put in a handy table split between the UK, the US and Ireland. And converted the local valuations at current exchange rates. Simon doesn’t tell us if the list in his article today is exhaustive and it probably isn’t. Belfast Office Properties Limited which is one of the 15 companies attached to the recent court case is reported to own the Ards shopping centre in Newtownards for example which is missing from Simon’s article. And whilst it is not joined in the present court case, the Fosse Park Partnership (from Property Week – free registration may be required) is currently selling a sprawling retail complex in Leicester, England for a reported GBP £320m and Paddy is one of the four members of the partnership, though of course the asset may not be secured by lending from any NAMA Participating Institution (PI – AIB, Anglo, BoI, EBS and INBS). Paddy is reported to owe €2.1m to NAMA PIs. The list below therefore appears to be partial but there is an overall convergence in valuations which are less than 5% apart (in overall terms the difference is 4.9%). The list compares NAMA valuations with Anglo’s – remember that Paddy’s own valuations might be different. Also UK commercial property is up by nearly 10% since last November 30th, 2009 (the date chosen by NAMA by reference to which current market valuations are assessed) whilst Ireland is down nearly 10% (and probably more once Q3, 2010 is eventually published by Jones Lang Lasalle).

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