Archive for February 17th, 2011

According to the Moscow Rules, once is happenstance, twice is coincidence and third time means enemy action – not a bad rule in life, I have found. And applying these Rules to NAMA’s release of information, you might conclude that there is a deliberate communications policy at the agency to release large volumes of information at once (which deters intensive analysis) and then follow the releases with months of silence. Remember the 7th July, 2010 – business plan, codes of practice and report and accounts for quarter one, 2010 all released together and remember 2nd November, 2010 when the annual statement, the report and accounts for quarter two, 2010 and the Comptroller and Auditor General’s report were released more-or-less together.

This morning, NAMA announced on radio (no press release from the agency yet, but the Irish Examiner was quick off the mark with its press reporting) that (a) it was overseeing the sale of Treasury’s Montevetro building in central Dublin, reported on here three weeks ago by the way (b) that it would repay €250m of NAMA bonds in the coming weeks – I interpret this to mean that it will redeem government-backed bonds that were issued to the banks in exchange for loans and indicates that NAMA now has surplus funds and (c) it will repay a €49m loan to the Department of Finance which is extreeemely puzzling because the only loan from DoF to NAMA at present is the €49m given to agency to invest in the capital of the NAMA SPV. So three good news stories (1) NAMA is making sales (or more accurately developers are selling under the watchful eye of NAMA) and isn’t that what the IMF and EU/ECB want NAMA to do? (2) NAMA has so much surplus cash (even though it apparently abandoned its debt programmes last year aimed at raising €5bn development funding allowed by the NAMA Act) that it can redeem €250m of its own bonds and (3) it would seem to me that the repayment of the €49m loan to the Department of Finance (remember the puzzle of DoF changing the classification of this €49m from investment to loan in last December’s Exchequer Statement first reported by Lorcan Roche Kelly on cornerturned?) is aimed at lessening state involvement in NAMA, making the agency more independent.

But what about preparing the ground? Well we have now been waiting 48 days since NAMA handed its Quarter Three, 2010 report and accounts over to Minister for Finance, Brian Lenihan on 31st December, 2010. 48 days is a record delay for the publication of documents which after all were finalised 48 days ago and relate to a period that ended nearly five months ago. The accounts for Q3, 2010 are likely to show a reasonable profit but what they won’t show is the current value of the portfolio of loans acquired by NAMA. NAMA purchased loans by reference to a valuation date of 30th November, 2009 and although some markets have improved since then, the home market where the assets underpinning two thirds of NAMA’s loans are located has tanked. Also NAMA paid a Long Term Economic Value of an average of 10% above the value of the asset. Now it is true that 5% of NAMA consideration for loans is in the form of subordinated debt which will only be honoured if NAMA breaks even and it is also true that the NAMA Act provides for a levy on the banks proportionate to the value of loans absorbed (so Anglo and INBS will need cough up more than 50% of any ultimate loss which is of course ridiculous but practically speaking it is also ridiculous for AIB and EBS which are effectively State-owned, Bank of Ireland faces a challenging future). Taking all of this into account the loss on NAMA’s portfolio of €71bn is some €2bn. It should be said that NAMA is a 10-year project and prices may recover, though the short term outlook in Ireland is not great (and initiatives like retrospectively reducing rents in leases may severely undermine commercial property values though there will be benefits, and drawbacks, for the wider economy).

It was August 2010 (yes, nearly six months ago) when we last got any detailed update from NAMA on the tranches. Yet it seems that NAMA has now acquired €71.2bn of loans and that number seems not to have changed in the last eight weeks. NAMA seems to have been incredibly unprepared for the set-back at the Supreme Court a fortnight ago and it will be next Wednesday 23rd, February when it has signaled it will make a decision on Paddy McKillen’s loans (meantime by the way, there are credible reports that NAMA has green-lighted an extension to the €784m loans to Paddy McKillen’s luxury hotels group, Maybourne/Coroin). Many are asking what’s going on…

Whatever information dump is coming from NAMA in the coming hours and days, I hope that the information can be examined in some detail on here with an eye to NAMA’s and the country’s priorities.

UPDATE: 17th February, 2011. NAMA has now issued a press release on this morning’s revelations referred to above. In addition to the three points above, NAMA says (1) NAMA has approved advances of €592m to developers to assist with their working capital/overheads , yesterday’s Irish Times reported that €420m has in fact been drawn down (2) NAMA has “examined” 30 business plans and has signed, “or is close to signing” 12 Memoranda of Understanding. What NAMA doesn’t tell us is how much of a loss has the taxpayer made on the Montevetro building (for the sake of illustration, let’s suppose Treasury vehicle REO had a loan of €150m secured by this property, NAMA paid the bank €90m for the loan, NAMA advanced another €5m for the completion of the building and the reported sale price is €99.9m). NAMA clearly made a profit by reference to what it paid for the loan and the additional advances but the taxpayer in the above illustration has made a loss. And secondly NAMA’s language in respect of business plans is little short of deceptive. Note that the agency has not confirmed that one single Memorandum of Understanding has been signed (the “or close to signing” extricates the agency from that constraining statement) and remember that there are three documents involved in agreements with developers (i) the Memorandum of Understanding (ii) the Heads of Terms and (iii) Agreement and each document requires two signatures (i) NAMA’s and (ii) the developer’s.  As I understand it NAMA has yet to process all three documents and ensure two sets of signatures on each document.

UPDATE: 18th February, 2011. The good news just keeps coming from NAMA – you could even forget that NAMA is sitting on a €2bn loss on the loans it has acquired! The agency apparently has €1bn in cash on hand, presumably proceeds of the €2bn of sales approved in 2010 and the €0.5bn approved so far this year according to Simon Carswell at the Irish Times today.  Separately, of the €250m of bond redemptions “in the coming weeks”, €100m will be spent with Anglo and €75m with AIB which is roughly proprtionate to the par value of loans taken over by the agency from those two instititutions (I suppose, very roughly, €25m will be spent with INBS, €35m with Bank of Ireland and €15m with EBS).  Sadly there is no a great deal of analysis in Simon Carswell’s piece

(1) He says that Anglo has discounted its NAMA bonds by 15% to “reflect how the market would value them”, even though the ECB will redeem them at a 1.5% discount. Simon doesn’t explain the large loss booked at Anglo.

(2) It is intriguing on here as to why NAMA has decided to repay the €49m “seed capital” loan given to NAMA. Why did NAMA not decide to redeem €299m of NAMA bonds with the banks, not €250m. Will repaying the government loan affect NAMA’s status as a government agency?

(3) Simon Carswell says that the NAMA subordinated bonds which constitute 5% of the consideration paid by NAMA for loans will be honoured “if the banks help Nama recover the loans” which is a departure from the previous position that the subordinated bonds would only be honoured if NAMA broke even.


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