Deposit flight from Irish banks still ongoing but apparently slowing

The Central Bank of Ireland (CBI) has today issued its monthly financial data for banks operating in Ireland. The headline with respect to deposits is that money is still disappearing from our banking sector, at a reduced rate compared with the end of 2010 but still at a level that should be of concern and which equals the average monthly decline for the past tumultuous year. Here are the latest deposit figures for the 20 financial institutions which serve the domestic economy. The information is sourced from the CBI’s Table A.4.1

And here are the latest deposit figures for all Irish financial institutions including those operating in our Irish Financial Services Centre (IFSC), many of which don’t serve the domestic economy. The information is sourced from the CBI’s Table A.4

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank of Ireland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outside Europe)

As examined in a previous entry on here, there are difficulties in analysing data because the CBI produces much-aggregated figures but here are what I believe to be the relevant headlines.

(1) Deposits by the Irish private sector (households and businesses) in the 20 domestic financial institutions fell by €1.5bn in January, 2011 (€19.6bn is the annual decline and the previous months decline was €3.3bn). It is likely that the decline in deposits will be filled with emergency liquidity assistance from the CBI or extraordinary measures by the ECB.

(2) Total deposits by all sources in the 20 domestic financial institutions fell by €19.9bn in January 2011 (€134.6bn is the annual decline and the previous month’s decline was €40.3bn).

Although the rate of decline in deposits slowed in January, 2011 bear in mind that the deposit information does not allow us to examine the position of the six State guaranteed banks in relation to other “foreign” banks which serve the domestic economy like KBC, Nationwide UK, Rabo, NIB and Ulsterbank. It should be said that the Bank of Ireland financial update a week ago and the IMF Staff Report at the start of February 2011 both claimed that deposit flight had moderated and that deposit levels were stabilising.

UPDATE: 28th February, 2011. The CBI has for the first time produced information on the subset of the 20 domestic financial institutions covered by the State guarantee, that is AIB, Anglo,  Bank of Ireland, EBS, Irish Life and Permanent and INBS. Firstly there’s a draft consolidated balance sheet:

And secondly there is a new table A.4.2 from which the following information is extracted:

On the face of it, it appears that deposits continue to flee at an elevated level and the January 2011 declines were above the average monthly decline for the previous 12 months. The information contained in the new table is being analysed and there will be further comment here later ..

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Mortgage market freezes up in Q4, 2010

The Irish Banking Federation has this morning published its lending statistics for mortgages for Q4, 2010 and they show that transactions are grinding to a halt. Just 4,024 mortgages were advanced during the quarter for the purchase of property. This is down 87% from peak in 2006 when over 30,000 mortgages were advanced for property purchase in one quarter, but perhaps more importantly down 21% from the previous quarter three, 2010. The number of all new mortgage lending including top-ups and remortgages stood at 5,624 down 90% from peak and 23% from the previous quarter.

The euro amount advanced during the quarter has also fallen off a cliff with the total being 94% off peak 21% off the previous quarter. Just €805m was advanced for property purchases, down from almost €8bn in 2006.

The average sum advanced continues to bear up despite the fall-off in transactions and the average 39% decline in property values since the peak at the start of 2007. The average advanced for a first time buyer mortgage during Q4, 2010 was €185,000 down just 13% from peak and 2% from the previous quarter. The average mortgage for movers was €225,000 down just 5% from peak and 4% from the previous quarter. Average buy to let mortgages at €189,000 are down 29% from peak but up 12% from the previous quarter. Average top-ups and remortgages are also up on the previous quarter. It should be noted that lending criteria have sharply tightened since the peak with mortgage providers typically seeking 75% loan to values when advancing mortgages, down from a not-unusual 100% at the peak.

Commenting on the latest figures this morning, the long-standing IBF chief executive Pat Farrell said “Against a very challenging economic background it can come as little surprise that mortgage market activity remains weak.  The impact of the last Budget on consumer spending, the reduced level of consumer confidence during Q4 2010as reflected in the 44.4 low recorded in December in the KBC Ireland/ESRI Consumer Sentiment Index and continuing uncertainty around future employment prospects are among the factors that have made manageable borrowing and prudent lending an ongoing challenge”

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Mortgage arrears up 56% year-on-year, repossessions stable

Although Charlie Weston at the Independent said that the information would be published by the Fianna Fail appointed Financial Regulator last week, it is only today that the arrears/repossession information for Q4, 2010 has been published. Here’s the summary together with data for previous quarters.

(Click to enlarge)

In summary, arrears are up by 10% from Q3, 2010 which is down very slightly from the 11% rise in arrears between Q2 and Q3, 2010. Arrears over 180 days are up 12% quarter upon quarter. Overall arrears are up 56% on Q4, 2009. In addition to arrears, the Financial Regulator has reported for the first time that some 35,205 mortgages have been restructured and are performing. We do not have up to date information on mortgage interest social welfare payments. But overall we can see that 5.7% of mortgages are in arrears and 10.1% are in arrears/restructured. The last estimate I saw of social welfare payments of mortgages was at 16,000 which if still current might indicate some 12% of mortgages experiencing some difficulty.

Repossessions remain low at 106 for Q4, 2010. Ireland’s repossession rate is incredibly low given its 13.4% unemployment rate, the average 39% drop from peak in house prices, interest rate rises and generally challenging economic conditions.

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NAMA oversees second significant domestic property sale

(UPDATE: 2nd March 2011. It seems that NAMA may not have had involvement with this sale even though it relates to a property owned by a Liam Carroll company. It is suggested that the lender may have been the Bank of Scotland Ireland which of course is not a NAMA Participating Institution)

On 13th January, 2011 on the fringes of his re-appearance before the Oireachtas Committee of Public Accounts, the NAMA CEO Brendan McDonagh announced that he expected to see “two or three sales” worth in the order of €200m by the end of March 2011. And further, NAMA was in advanced talks with overseas buyers for two of the properties; a domestic buyer was expected for the third property.

Since then we have had the announcement of the sale of the Montevetro building on Barrow Street to internet giant Google (sale #1, foreign buyer). And yesterday Gavin Daly in the Sunday Business Post claimed that Google had bought its existing site on Barrow Street, Gordon House for €125m (if the report is correct, sale #2, foreign buyer). The Gordon House complex is reported to have 200,000 sq ft which would mean the purchase price of €625 psf was at quite a premium to the purchase of Montevetro (€476 psf) which in itself was at a premium to the sale of 20,000 sq ft at €283 psf at the start of February, 2011 on Anne Street (500 metres away) in a more traditionally prestigious building though with a dated interior. The sale would mean that Google held more than 400,000 sq ft of accommodation on Barrow Street.

Given that both the Fine Gael and Labour parties have committed to retrospectively examining commercial rents, you can only admire the confidence Google is expressing in the long term prospects for the country as it would appear to be paying in excess of current market prices, particularly in light of retrospective rent reviews.

With this latest sale, Google would appear to have spent €225m on two commercial transactions which are individually the biggest here for several years – way down from the €250m+ blockbuster deals during the boom but significant in today’s market. However the transactions pale into relative insignificance alongside Google’s purchase of the 2.9m sq ft 111 Eight Avenue building in New York at the end of last year. The purchase price was reported to be USD $1.8bn (€1.5bn or €530/psf).

The Gordon House complex is owned by companies in the Liam Carroll group and it is understood that the reported transaction has been effected under NAMA’s auspices. In addition to the €300m sale of 20, Grosvenor Square first reported on here last week, NAMA is certainly well on its way to equalling last year’s tally of €1.6bn of sales but quite soon NAMA is going to have to confront its massive portfolio of less prime property, the low-hanging fruit is disappearing.

So, going back to Brendan McDonagh’s statement in January, we would appear to have had two sales to foreign buyers – will the third sale to the domestic buyer materialise before the end of March?

UPDATE: 2nd March, 2011. Reporting on the above transaction in today’s Irish Times, Jack Fagan omits any mention of NAMA and claims the loan underpinning the complex (Gordon House and Gasworks House) belong to Bank of Scotland Ireland which of course is not a NAMA Participating Institution. Jack is also claiming that the price is “slightly over €100m” which implies that it is not €125m. Jack’s reporting has the feel of being correct as he cites details such as the sale being handled by the receiver David Hughes of Ernst and Young and that Google were paying €8m per annum (equivalent to €40 psf by the way) for the two buildings with 10 years remaining on their leases. Jack reports that the price paid by Google for the two buildings is “considered on the strong side” – at close to €500 psf and with an incoming administration likely to put through legislation to allow retrospective reviews that may be an understatement. Still you’d have to ask where Gavin Daly at the Sunday Business Post got the information to lead him to write “The transaction is also thought to involve the National Asset Management Agency (Nama), which acquired Carroll’s property loans last year.”

UPDATE: 8th March, 2011. There is unconfirmed speculation that in addition to the commercial property acquisitions, Google has been buying residential real estate closeby to its offices. There is speculation that Google is acquiring 25 apartments in Liam Carroll’s Gasworks building, understood to have been developed by Fabrizia Developments.

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Forget the Messiah, we’ll have to settle for Enda

For the first and last time, here is a purely political entry to mark the results of the general election. It looks like it will be a Fine Gael (FG)/Labour coalition with FG firmly in the driving seat, able to balance demands from Labour with the possibility of going elsewhere, particularly to independents, for coalition partners. In Irish terms where there hasn’t been a majority government since 1977-1981 when Jack Lynch’s Fianna Fail (FF) party held 84 seats in the then 148-member Dail. A coalition today was always the likely outcome, even if some FG members dreamt of a single party majority.

The election has been historic in the sense that the party at the centre of Irish politics since being founded in 1926 is today relegated to third position with Sinn Fein snapping at its heels and the Green party has not a single member elected. The country has certainly reconnected with politics. Consider the statistics – 533 candidates in an electorate of 3.2m (the population of the State has most recently been put at 4.47m) competing for 166 seats (technically 165 seats as the speaker of the Dail, Seamus Kirk was automatically re-elected). The turnout was 70.1% (up from 67.03% in 2007) and one in every 6,000 in the electorate was standing as a candidate. Compare that with our neighbours who held an election in the UK in May 2010 – 4,150 candidates, voting population of 44m, 649 constituencies and a turnout of 65.1% with one in 10,600 standing for election. Politicians here remarked at how engaged the electorate were on the doorsteps with elderly farmers apparently versed in the language of international bond markets – there might have been an element of plámás to this but you would have to go back to the 1950s to find a time when domestic political decisions have affected the everyday lives of people’s finances to the same extent as today. Back then it was protectionism and isolationism that hurt the country and it was political leadership that helped the country get back on its feet. The 1970s oil shocks and the early 1980s global recession were largely outside factors whose solutions dwarfed the talents of domestic politicians and were arguably resolved by external factors.

And what of the man himself, Enda Kenny the 59-year old leader of FG, who secured the highest number of first preference votes in the State yesterday (17,472 – some 397 more than Shane Ross’s 17,075). He acknowledged that his key speech yesterday “Let the word go forth from this time and place ..” borrowed from John F Kennedy but alas Enda is no great orator and his speeches in the Dail often come across as whiney and do not land punches. Just eight months ago, he was fighting for his political life as a sizeable portion of his party including his finance spokesman, Richard Bruton, sought to have him replaced in a leadership “heave” (an Irish use of the word which means an attempt to oust a party leader from within). A criticism I have heard many times particularly during the election campaign is that Enda the man does not inspire confidence in his own personal qualities as a leader. He displayed what many saw as a divaesque streak in refusing to take part in a debate during the election campaign with FF and Labour leaders on commercial TV channel TV3 – his excuse being that the debate’s moderator, Vincent Browne had comically suggested last year that Enda might commit suicide and Enda took offense at this because suicide is seen as an issue in the country which ranks no 35 in the world with its suicide rate. We must hope that IMF managing director Dominique Strauss-Kahn doesn’t  badmouth the back-row defence of Enda’s beloved Mayo gaelic football team, otherwise Enda might decide not to meet with the IMF to renegotiate the bailout deal.

There will be some who claim that FG’s success today is really about FF’s tenure in power during the worst economic crisis since the 1920s and less about FG’s own policies, that all FG needed do was stand still and watch FF slide into near oblivion. Circumstances have made Enda lucky, some might say.

But for all of that, Enda is not a candidate on X-Factor. You don’t get to lead the biggest party in the State through luck alone.  He is credited with being central to rebuilding the party after its relative wipeout in 2002 when the party took just 31 seats. Recently, looking over the Dail debates on the ill-fated guarantee of the banks I was struck by how prescient Enda was in foretelling the eventual pitfalls and in many respects it’s as if his speech back on 30th September 2008 was written in February 2011, such is the accuracy of the concerns expressed then compared with the actual consequences of the guarantee. It is regrettable that he did not press his concerns. Though he might say that it is the nature of opposition politics that the best you can do is ensure concerns and counterarguments are put in the public domain.

Alongside the everyday challenges of running a country, he must immediately deal with the inherited legacy of the IMF/EU bailout. We are already in breach of the bailout terms and the forbearance of our lenders is likely to rapidly disappear – we’ve had the election, the government has a fresh mandate and now it will be expected to get on with implementing the bailout. FG might claim that the mandate given allows the country to wait for the results of the stress tests of the banks in March 2011 before taking the next recapitalization steps but it is likely our lenders will leave FG in no doubt we need implement the bailout terms and they may well remind us that the IMF/EU has already provided €11bn to the country. FG has committed itself to renegotiating the IMF/EU bailout deal which would appear to involve seeking a licence from the EU to write-down bondholder debt and a reduction in the interest rate of the EU element of the bailout deal. And it seems that our 12.5% corporation tax rate is again at risk with Angela Merkel most recently circling our low tax rate. Enda will have his hands full and expectations are high.

So Enda is not the Messiah, but relative to the alternatives he is the best we have. His challenges have already started as he must put a resilient government in place in the next few days. His honeymoon period is likely to be short and the mantra that it is all FF’s fault will become old very quickly. I wish him luck.

And to finish on a finance note, there is one initiative I would like to see quickly implemented to remind us that FG’s focus is “Let’s get Ireland working” and remember both it and the Labour party placed employment and jobs at the heart of the policies. It is to do with our reporting of unemployment. Consider the following reporting from the BBC on our election “Unemployment in the Republic currently stands at 13.4%, meaning 450,000 are out of work. Unemployment benefits have recently been cut back.” This of course is rubbish – although the unemployment rate is indeed 13.4% that translates to approximately 299,000 unemployed. If you ask the man in the street though, how many are unemployed in the State, he will probably reply in the 450-500,000 range. And indeed there are some 442,677 on the Live Register which includes all sorts of recipients of employment benefits. On an International Labour Organisation (ILO) basis, our unemployment rate is 13.4% however, the number available for employment as at the end of the Q3, 2010 was 2,150,500 and the number unemployed on an ILO basis is 299,000. Each month the Central Statistics Office (CSO) reports the Live Register and gives an estimate of the unemployment rate. And every month, the man in the street believes there to be nearly half a million unemployed. And those looking at our small country (like the BBC above) believe that there are 450,000 unemployed. Given that we have a population of 4.47m and a famously young population, you can hardly blame the conclusion that we are a basket case if we truly had 450,000 unemployed which would equate to over 20%. The initiative I would like to see is a change to the way the CSO presents information each month and that the CSO simply produces unemployment information on an ILO basis. Indeed I would like the CSO to go further – given that each Friday we must now produce reams of financial and banking information for our IMF/EU lenders why is it that each Monday we don’t produce unemployment information so that no-one in government or elsewhere loses sight of the tragedy which is the true unemployment level.

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NAMA under Fine Gael: drastic changes expected

“A terrible noise exactly like thunder was heard in the outer room of his apartments : it was the crowd of courtiers deserting the antechamber of the dead sovereign to come and greet the new power of Louis XVI”

This was the account given by Marie Antoinette’s chambermaid of the immediate aftermath of the death of Louis XV – all the courtiers and hangers-on were making a mad dash from one end of the palace where the king had just expired to the other end to ingratiate themselves with the successor. And whilst I wouldn’t want to pre-judge the outcome of the voting count today, I would be shocked if anyone other than Enda Kenny was to be our next Taoiseach and Michael Noonan the next Minister for Finance. And I would say the ingratiating started many months back.

Of interest here is the fact that the FG director of elections for Limerick (Michael Noonan’s constituency) is none other than insolvency expert Brian McEnery of Horwath Bastow Charleton . Brian also happens to be one of NAMA’s nine board members and I would imagine that Michael Noonan is very well briefed indeed on the challenges facing the agency. And it will be the Department of Finance that has most political say in how NAMA operates in future, though other ministries like the Department of the Environment Housing and Local Government and Justice and Law Reform will also have a role to play.

So what changes can we expect at NAMA:

(1) Personnel. NAMA is probably most associated with its chairman Frank Daly and CEO Brendan McDonagh. Sections 22 and 40 of the NAMA Act provides the Minister for Finance with wide discretion as to the bases for removing the incumbent NAMA CEO and other board members including the chairman. Will FG want a change of personnel. Have some already ingratiated themselves to the new administration and convinced the putative Minister for Finance that a different set of hands would do a better job? There are certainly rumours in this area.

(2) Stopping NAMA 2: “We do not believe that transferring the land and development loans of Irish banks of less than €20 million to NAMA is in the best interests of the Irish economy” FG has said that it will stop the transfer of the sub-€20m exposures from AIB and Bank of Ireland to the agency. What that immediately means is that the stress tests presently ongoing will need examine the values of some €12bn of sub-€20m loans.

(3) Outsourcing: “We will force NAMA to outsource management of at least 70% of its assets to 3-4 competing private asset management companies” FG is keen to get third party asset management companies to take on NAMA’s loans. Indeed a long-held concern on here is that NAMA with 100 staff is ill-equipped to directly handle 175 developers (which might represent 5,000 development companies and 20,000 projects) and their €50bn of loans at par value. On top of this NAMA must manage the banks and Capita with their dealings for smaller value loans. Capita has a long and coloured history of ingratiating itself with parties in power.

(4) NAMA strategy: remember it boils down to the six actions (sell, lease, manage, develop, demolish, mothball). It seems there is a clamour for NAMA to generate more sales. These are likely to be in the UK and elsewhere abroad though NAMA needs to be careful about opportunists who expect a “NAMA knock-down”. But I expect there will be more sales here and given the condition of the market, I expect sales at levels not seen before, bargains some might say but that would be to ignore the distressed condition of the existing market which is being artificially distorted without true price discovery.

(5) Transparency: “The details of all non-performing loans acquired by NAMA will be available for scrutiny on a Public Register”

(6) Paddy McKillen’s loans: NAMA was supposed to have made a decision whether or not to proceed to acquire Paddy’s loans last Wednesday. And we are still waiting for the Supreme Court to issue its determination on the three outstanding strands to Paddy’s appeal (to do with the fairness and constitutionality of NAMA and its procedures). Will Michael Noonan decide that Paddy’s loans will destroy value at the banks if transferred? Will he persuade NAMA to release its grip on Paddy’s and other objectors’ loans?

(7) NAMA report and accounts for quarter three, 2010 which were delivered to outgoing Minister for Finance, Brian Lenihan on 31st December, 2010. Will Michael Noonan now ensure they are promptly published?

(8) Dismantling upward-only rent reviews in commercial leases. This manifesto commitment is really rattling the property industry that sees 20% declines in commercial property values and a repulsion of investors fearful of those declines. At the extreme on the other hand, certain retailers and other commercial tenants are literally praying it happens quickly because with existing rent levels their businesses will die. Whatever FG does, it needs to do it decisively and clearly. Otherwise this uncertainty of this Sword of Damocles will hurt the property industry and do nothing for commercial tenants.

Of course the bigger challenge facing the new Minister for Finance will be dealing with the national debt burden including a renegotiation of the IMF/EU bailout deal, the restructure of the banking sector and dealing with the results of the stress tests ongoing at the banks. But I would expect the Minister’s fingerprints to become transparent on the operation of NAMA within days.

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A very Irish auction (Part 2 of 2)

This is the second part of an entry which examines the sale of Anglo Irish Bank (“Anglo”) and Irish Nationwide Building Society’s (INBS) deposit books. Part 1 examines the background and much of the reporting of yesterday’s announcements of the conclusion of the sale. This entry examines a few puzzles:

(1) Why has Anglo remained silent on the €1bn profit it made on the transaction? Anglo did indeed make a profit of c€1bn on the sale because it had made a provision of ~9% against the value of NAMA bonds (I’m NOT talking about the subordinated NAMA bonds which comprise 5% of NAMA consideration for loans and will only be honoured if NAMA breaks even). The fact that Anglo had made a ~9% provision is captured in the accounts for six months ending 30th June 2010 and also its preliminary announcement of full year 2010 results two weeks ago. AIB value the €12.2bn of NAMA bonds that it bought yesterday to accompany the Anglo deposits at €12bn (that is with a 1.5% discount). Therefore Anglo made a book profit of €915m (~9% – 1.5% * €12.2bn). If any other company in the world made a €1bn profit on a transaction they’d be yelling it from the rooftops but there hasn’t been a mig from Anglo and the matter is ignored totally in the Anglo press statement.

Now it is a fact that AIB and Bank of Ireland made 1.5% provisions against the nominal value of the NAMA bonds they had received for their loans that were acquired by NAMA. The reason for the 1.5% is that the NAMA bonds can be exchanged at the ECB for cash at a 1.5% discount. It is not clear why Anglo made a ~9% provision but that bank seems to have used the yield on the Irish 10-year bond to discount the bond and has asserted that a ~9% discount reflects the open market value of the bonds.

(2) Where did AIB get €3.5bn in cash to buy Anglo’s deposits and NAMA bonds? Lorcan Roche Kelly has produced an explanation based on information from “reliable sources” which basically asserts AIB did not have the cash but that they obtained an advance from the central bank system to pay for the Anglo deposits/bonds and will now use the bonds to repay the advance. AIB has not announced any significant funds raising exercise recently.

(3) Was there really an auction? I realise this may sound as paranoid as doubting the moon landings in 1969 but consider the following

(a) The press releases from the NTMA, Central Bank of Ireland, Department of Finance, Anglo, AIB, ILP or INBS make no reference whatsoever to the term “auction”
(b) AIB says that it paid €3.5bn for Anglo’s deposits and NAMA bonds. That looks like an exact €3.5bn because elsewhere in the press release it refers to numbers as “c” for circa, for example it says that c €5.2bn of deposits related to Ireland. There is no “c” preceding the €3.5bn consideration. Which implies to me that AIB bid an exact €3.5bn, that is €3,500,000,000. What sort of auction deals in increments of €100m or €500m?
(c) The NTMA announcement says that there was “interest” from domestic and international banks.  Elsewhere it is reported that eight banks were involved in a “bidding war” but the source for the “eight” is not given. Now “interest” and “involvement” might have been restricted to replying to the letters sent out to all deposit taking financial institutions operating in the State at the start of February, 2011. Any “interested” financial institution then had to sign a confidentiality agreement and it is unclear how many did. And it is unclear how many bids were generated during the sale process.

(4) Why was it so important that this sale be completed on the very last day of the outgoing administration’s hold on the levers of power (notwithstanding the fact that Fianna Fail could theoretically be returned to government after today’s election)? Laura Noonan muses in the Irish Independent today “announcing AIB as a winner also sends a very clear signal that the Government sees AIB as a continuing institution” and “it’s hard not to wonder if the outcome wouldn’t have been different if Enda “we must save Bank of Ireland” Kenny was already running the country” though she concludes her musings by wondering if yesterday’s sales were the simple result of AIB and ILP submitting the best bids. Just over two weeks ago, Minister for Finance Brian Lenihan announced that he was abandoning the recapitalization of the banks agreed with the IMF/EU with a deadline of 28th February because he didn’t believe he had a mandate. And he threw down the challenge to Fine Gael and Labour that if they wanted the recapitalizations now they could write to him to that effect. Which they didn’t. Yesterday’s proceedings were orchestrated from first to last by the Minister of Finance whose signature is on the application to the High Court pursuant to the Credit Institutions Stabilisation Act 2010. Why not leave the transaction to the incoming administration? After all €3.6bn of assets were sold yesterday to ILP which is a private-sector company. And although AIB is effectively 90%+ owned by the State it still has a substantial private sector shareholding. Why did the absence of a mandate not prick Minister Lenihan’s conscience yesterday?

(5) Why does ILP need 297 staff from INBS to manage €3.6bn of deposits whereas AIB only needs 210 staff from Anglo to manage €8.6bn of deposits? ILP is taking on 160,000 deposit holders (average of €22,500 per depositor) and AIB is taking on 120,000 deposit holders (average of  €71,667), so the answer might be that staff requirements are a function of the number of depositors rather than the value though AIB took on the entire staff of Anglo Irish Bank Corporation (International) PLC.

I realize all of the above might attract suspicion of shenanigans and so to be clear I should say that there is no evidence of shenanigans (private benefit, political advantage). That said, the puzzles above remain. And if anyone from the mainstream media is talking with AIB or ILP, it would be nice if they asked what the revised loan to deposit ratios are for those two institutions – back of the envelope calculations on here are that ILP will now be 207% and AIB 135% but these calculations are based on financial reporting that is now several months old.

UPDATE: 25th February, 2011. Anglo has issued another release on yesterday’s transaction “Following the announcement yesterday afternoon that the Minister for Finance issued a Transfer Order under the Credit Institutions (Stabilisation) Act 2010, Anglo Irish Bank Corporation Limited (the “Bank”) is providing further clarity around transaction details. The Transfer Order instructs the Bank to sell its senior NAMA bonds with a nominal value of €12.2 billion at a price of 98.5% to Allied Irish Banks p.l.c. (“AIB”), together with its deposits.  The Bank will pay €1.6 billion in excess of the book value of the deposits in Ireland and the UK. In addition, the Bank will sell the shares of its Isle of Man subsidiary to AIB at net asset value.  The expected net effect (before tax) for the Bank will be a loss of approximately €0.2 billion.” It is unclear how Anglo can have a net loss of €0.2bn on this transaction given the fact that in its previous financial reporting it indicated that it had written off ~9% from the value of NAMA bonds and the transaction yesterday valued the bonds at 98.5%. No doubt there is more to follow…

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The positive side of the construction boom : we have better housing that most of the rest of Europe

Last Monday’s Panorama programme on BBC 1 presented by Fergal Keane was a pretty depressing presentation in the main – if you want to watch the programme online and you’re not in the UK you might need to fool the BBC into thinking that your computer is in fact in the UK with IP masking/proxy software like Expat Shield. The programme had the sub-title “How to blow a fortune” and for those of you who didn’t see it, there was a (very) brief look at the boom in the early 2000s (BMW show rooms, leather jackets, a woman buying an apartment in Turkey) and then an extended look at the hangover, including a couple who had lost their jobs and were now each living with their own parents, a teacher living on a ghost estate in Mullingar and a graduate emigrating and her dignified father suppressing grief and anger. An interesting 30 minutes but for my money Rita O’Reilly’s Prime Time programme on the developers aired before Christmas was superior.

But one thing struck me as the cameras captured the interview with the woman who had bought the semi-detached house on the Cloon Lara ghost estate in Mullingar – the house itself was modern, seemed well-built, had double glazing and looking at estate agent details, the houses appear to be 950 sq ft, three bedroom, two bathroom and decorated to a high standard, above average fireplaces, modern kitchens, built-in wardrobes, wooden/tiled floors, double doors internally, natural gas fired central heating and cobble-lock driveway. Sure the estate has not been completed and many of houses are empty, and the female teacher who featured in the programme is bemused at the carloads of ghost estate sightseers who come in to gawk at life in one of the many incomplete ghost estates in the country (far more than the 600 referred to by Fergal, by the way). The owner is more concerned at the fact that the properties have dropped some 50% in value and can apparently be bought today for €130,000. But aside from the fact that the property is worth far less than she paid for it and the estate is incomplete, it struck me that she does at least live in what seems like a very decent home.

Yesterday Eurostat published a report entitled “Housing Conditions in Europe in 2009” (the more summarised press release is here) and guess what? Our housing stock is in a far better state than most of our neighbours, there is less over-crowding and for most of us, our home is our castle and we’re not tied into the nastiness that can be the condominium/leasehold model that typifies apartment ownership. We suffer less pollution and although noise can be a problem for many, we are still amongst the least-affected sufferers in Europe. And lastly our housing is relatively affordable – on this last point, the world has moved on since 2009 and with a raft of tax increases, rampant unemployment, pervasive negative equity and interest rate increases I don’t think we’re as affordable as we once were for existing owners though for buyers, property has not been this affordable for 25 years.

Lastly the report identifies member states where there is over-crowding which can indicate housing shortages. Will we see Irish construction companies selling their services in Bulgaria, Romania and Latvia and Poland?

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U2 Bono’s wife and Paddy McKillen in Nude transaction

Whilst we’re still waiting for NAMA to announce a decision in respect of Paddy McKillen’s loans and indeed we are still waiting for the Supreme Court to issue its ruling in respect of the three outstanding strands to Paddy’s appeal, we are reminded by news today that Paddy is more than a property developer. Of course according to Paddy, he’s not even a property developer, he’s an “investor”. And today sees the partial realisation of one of his investments in the luxury skincare company, Nude Brands Limited. French luxury goods giant, Louis Vuitton Moet Hennessy (LVMH) has bought 70% of the skincare company founded by Bryan Meehan and Bono’s wife, Ali Hewson. Paddy became an investor in the group and along with the two founders will still retain a 30% interest. Terms of the transaction are not being disclosed.

Nude was founded in 2006 and the legend is that it brought together Bryan Meehan’s interest in organic products and Mrs Bono’s entrepreneurship and support. It’s not clear if the brand name had anything to do with Bono’s juice bar of the same name in Dublin. Regardless, the business developed and is reported to have found fans which include Carla Bruni, Christy Turlington and Helena Christensen. LVMH is home to some 60 of the world’s luxury brands which include Christian Dior and Guerlain and the transaction will see the Nude brand robustly supported.

And in mentioning U2 and the clan McKillen, the consideration of the permit applications by the Edge and Paddy’s son Dean, first reported on here at the start of February, 2011, for properties in southern California has been postponed by the Coastal Commission. The Staff Report by the Commission on the development, project named “Leaves in the Wind” recommended the applications be rejected.

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EXCLUSIVE: NAMA understood to have overseen €300m sale opposite American Embassy in London

Although the sale by Derek Quinlan of a car park on South Audley Street in London’s Mayfair stalled at the end of last year, it seems that NAMA has had more success just around the corner at 20, Grosvenor Square which according to sources has sold for GBP £250m (€295m). The seller is understood to be a consortium led by Richard Caring, the 62-year old British rag-trade to restaurant-venue millionaire behind celebrity restaurants such as The Ivy and Le Caprice in London, the mid-market Strada and Belgo chains as well as Harry’s Bar and Annabel’s nightclub not to mention Wentworth Golf Club. And if you’ve ever been to Carluccio’s on Dawson Street in Dublin, you can ponder the fact that 12% of the operation is owned by Richard Caring, or at least it was until the end of last year when Dubai-based retail and restaurant investment company, Landmark Group bought the chain.

Irish Nationwide Building Society was reported to have provided a 95% mortgage on 20, Grosvenor Square which was formerly home to the US Naval Offices. Handy that, as it was just across from the US Embassy on the other side of the Square which is scheduled to relocate to premises in New Covent Garden (behind the Battersea Power Station site) in 2017. 20 Grosvenor Square was bough by Richard Caring in 2007 for GBP £250m. In May 2009, Westminster City Council granted planning permission to develop the 100,000-square foot building into 41 luxury flats but development has yet to take place.

NAMA has never confirmed that it acquired the INBS loan secured by 20, Grosvenor Square but it would seem to fit the NAMA eligibility criteria in the NAMA Act, that is, that the loan was with a NAMA Participating Institution (INBS) and was for development. Although NAMA expects to pay just 30c in the euro for INBS loans generally, it is likely that the agency paid far more for this loan. That said, it is understood that NAMA has made a substantial profit on the transaction.

UPDATE: 6th March, 2011. The Estates Gazette is reporting that the deal, which it claims will see GBP 300m repaid on an INBS loan, is still to be finalised. It claims that the deal is the sale of the loan, rather than the property itself and it seems that Richard Caring and the consortium he heads may retain paper ownership but answerable to a new lender.

UPDATE: 25th July, 2011. Britain’s Property Week reports that this transaction may yet remain to be completed.  Whilst reporting the speculation that the Caring consortium may have bought the loan securing the building from NAMA at a discount, the magazine says this may not be the case and the current health of London’s West End residential market may embolden NAMA to seek full value for the loan. Apparently Deutsche Bank is involved with providing senior finance for any buyout of the loan and a syndicate of mezzanine finance is being assembled for the remainder.

UPDATE: 21st September, 2011. The Irish Times is reporting that the loan refinancing of 20 Grosvenor Square has “been finalised”. Reportedly Lloyds, Deutsche Bank and a Singaporean bank, United Overseas Bank has provided GBP 230m of finance and GBP 100m mezzanine finance is being provided by LaSalle Investment Management and Safanad.

UPDATE: 4th May, 2012. Almost incredibly this transaction has not yet completed and NAMA is still the lender on this property after approving several extensions to Richard Caring to attract investment to refinance the NAMA loans. The latest, according to UK commercial property portal CoStar.co.uk is the Qatari Investment Authority is  in talks to take over the loans and provide finance. It was recently revealed in the Paddy McKillen case against the Barclay brothers that Paddy had a relationship with Tony Blair and there was a belief that Tony’s company, Tony Blair Associates played a part in help broker a financing arrangement between Paddy’s company and the Qataris. Maybe it’s time for NAMA to call in Tony to help the Agency finally exit from Grosvenor Square.

UPDATE: 20th December 2012. It looks like the last two years of negotiations have come to nowt withthe UK’s Property Week yesterday reporting that the property is to be put on the market in the New Year after NAMA refused to accept part-repayment of the loan. The London residential and development market has held up well in the last two years and NAMA is not likely to have been damaged by any delay in resolving this loan.

UPDATE: 12th May 2013. Property Week reports that “the Abu Dhabi Investment Council, in a joint venture with Finchatton, has exchanged contracts to buy 20 Grosvenor Square for more than £250m”

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