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Archive for February 1st, 2011

When Bill Clinton left the White House in 2001 after two terms in office and with successor, Republican George W. Bush’s administration about to walk through the doors, it seems Clinton’s staff decided to play some practical jokes and prised the letter “W” off many keyboards in the White House, removed door knobs and my own favourite, interspersed random sheets of paper with pictures of naked people in the photocopier paper trays – yep, that was the standard of sophistication back then. You’d have to wonder how Fianna Fail might mark their departure from office after nearly 15 years in power should they find themselves outside government after the forthcoming election (but remembering that Paddy Power put FG/FF as the second favourite for a coalition at 14/1, that’s after the odds-on favourite of FG/Lab at 1/16). With an election now seemingly due between 22nd Feb – 2nd March (and Minister O’Cuiv who will have Constitutional responsibility for announcing the date suggesting on radio this morning that Friday, 25th February seems the most likely date at this stage), Fianna Fail have some weeks yet to plan any practical jokes though some might say they couldn’t outdo themselves following the collapse of the economy, banking and construction sectors, soaring unemployment, emigration, negative equity, huge personal debt, an IMF/EU bailout with crippling interest rates and the loss of reputation worldwide.

But between now and whenever the new government is formed, there will be a lot going on in the Irish economy. It might be worthwhile reminding ourselves of what was agreed with the IMF and EU with respect to Q1, 2011 actions (prominent actions highlighted in red on here).

From the IMF/ECB Memorandum of Understanding (page 68 onwards)

In addition there are still some outstanding actions from Q4, 2010 like agreeing a loan:deposit target for Irish banks (presently around 170% though it seems the IMF/EU want us to reduce that to 100-120% within three years – the target though was supposed to have been agreed in December 2010 and it wasn’t).

Despite attempts by the Department of Finance and the NTMA to get an extension to 28th February, 2011 date set for the next recapitalisation of the banks, the Central Bank of Ireland and IMF and EU have stood firm, so it looks as if the State will need inject “in equity shares” (from the Financial Regulator’s PCAR/PLAR announcement on 28th November, 2010)

(1) €1.5bn into Bank of Ireland (the €2.2bn identified in the Financial Regulator’s PCAR announcement on 28th November, 2010 less the €0.7bn raised in the December debt-swap)

(2) €4.7bn into AIB (the €6.1bn identified in the Financial Regulator’s PCAR announcement on 28th November, 2010 less the €1.4bn raised in the January 2011 debt-swap)

(3) €0.4 for EBS.

In the case of BoI the injections will probably not be new money as the State already has some €1.8bn of preference shares which might be converted to Core Tier 1 (note the IMF/EU Memorandum of Understanding calls for the injections in “equity shares”)

And on 19th February, 2011 BoI might need some assistance from the State as €214m in preference share dividends fall due for payment to the NPRF on that date.

Lastly, yesterday it was reported that the latest restructuring plan for Anglo/INBS (is that version 5.0 for Anglo?) went to the Senor Almunia at the European Commission. It seems that there is a lot going on at present which the present Minister for Finance is unlikely to see through. And his putative successors don’t seem to be kept in the loop on present developments.

Of course if we continue to get performances like Enda Kenny’s Princess Di-type interview on “The Week in Politics” with Sean O’Rourke playing the role of Martin Bashir, the composition of the government in March 2011 might not be as expected and who knows, it could be that Minister Lenihan remains in his office – a long shot for sure but these are uncertain times.

UPDATE: 8th February, 2011. Santander’s decision to bid for the entire share capital of Polish bank, Bank Zachodni WBK, apparently means that AIB will conclude its disposal of its 70.5% share in the Polish bank on or soon after 24th February, 2011.  AIB has issued a press statement in which it says  “once the tender offer is open for acceptance[on 24th February, 2011] and all conditions to the sale agreement have been satisfied, AIB will tender its 51, 413,790 shares in BZWBK representing 70.36 per cent in the share capital of BZWBK.  There is no change to the sales proceeds or capital effect expected and announced by AIB on 10 September 2010.”  So it would seem the State will be in a position to converted its “Convertible Non Voting” shares to “equity shares” before the IMF/EU deadline of 28th February, 2011.

UPDATE (1):  9th February, 2011. It seems to me that the 28th February, 2011 for the next round of State injections to bolster the capital of AIB, BoI and EBS will now slip. The Minister for Finance, Brian Lenihan has said this afternoon that the injections will take place under the new government, formed after the general election on Friday, 25th February, 2011 and given that the likelihood is that it will be a coalition, the betting is that a government will take several days to be formed.

UPDATE (2): 9th February, 2011. Bank of Ireland has released a statement which acknowledges the Minister for Finance’s statement above and indicates that the Canadian subordinated debt swap which was being reported in the media as abandoned will be the subject of a further announcement tomorrow and it looks as if it will proceed. The press release makes reference to capital raising measures including from “other capital markets sources” which would presumably include State injections.  The Central Bank of Ireland has also issued a statement to cover its backside with the ECB and makes clear responsibility for the capital injections lies with the DoF.

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The Nationwide Building Society has this morning published its UK House Price data for January 2011. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £161,602 (compared with GBP £162,763 in December 2010 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 13.1% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of January 2011 being GBP £161,602 (or €188,994  at GBP 1 = EUR 1.1695) is only 1.45% below the €191,776 which the Permanent TSB/ESRI said was the average nationally here at the end of December 2010.

With the latest release from Nationwide, UK house prices have fallen by 0.71% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index has declined to 893 meaning that average prices of NAMA property must increase by a weighted average of 12.0% for NAMA to breakeven on a gross basis.

The short-term outlook for UK residential remains flat to modestly negative.  Last week saw the release of data which showed a shock 0.5% contraction in UK GDP for Q4, 2010.  And in November, the newly created Office for Budgetary Responsibility (OBR) issued a forecast which predicted the UK economy to grow (by reference to GDP) by 2.1% in 2011 and 2.6% in 2012. Unemployment is forecast to peak at 8% in 2011 and property will drop by 2.7% over the next 12 months. Mortgage approvals are dropping off with confidence in the low- and middle-market in the doldrums with reasonable supply (boosted by the abolition of Home Information Packs (similar to our BERs) in June 2010) and anaemic demand dampened by the prospect of public sector job cuts, VAT rises and an €81bn fiscal adjustment. Inflation is running at just over 3% in the UK and there may well be a rise in interest rates in 2011 (the Bank of England base rate is 0.5% and has been at this level for two years since 5th February, 2009).

Yesterday saw the release of information by the UK’s Land Registry for England and Wales which painted a mixed picture for the year just ended. Whilst London saw an annual increase in prices of 6.2%, the North East  (including Hull, Newcastle where I know some Irish investors have largish portfolios) at the other end of the scale dropped by 3.3%.

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