Last week’s announcements by NAMA were interesting in that it is unusual for NAMA to give a general update outside of its report and accounts unless it is making a formal presentation, and even then there tends to be few details disclosed. Exceptionally, the NAMA Chairman did deliver a pre-Christmas message which gave a general update on progress at the agency on the same day RTE screened a sensational Prime Time programme on developers’ debts – the image of Gerry Gannon and the Missus stuffing the ample boot of the silver Range Rover with Brown Thomas bags will linger.
The announcements last week were curious though – NAMA oversaw a sale by Treasury unit, REO to Google. Big whoop, since according to NAMA it oversaw sales of €1.6bn in 2010. NAMA stated that the sale price achieved covered both the NAMA acquisition cost and additional development outlay. That was no mean achievement given commercial prices in Ireland are down 10%-plus since NAMA’s chosen valuation date, 30th November, 2009 and NAMA paid an average 10% long term economic value premium. But what NAMA didn’t disclose was whether the taxpayer made a loss because NAMA will have to write off part of the face value of the loan. Of course NAMA may seek to recover the shortfall from other Treasury lending, unless the loan was non-recourse or otherwise ring-fenced. But the sale was hardly spectacular in the context of €1.6bn of disposals in 2010.
The announcement that NAMA would repay €250m of NAMA bonds “in the coming weeks” was also curious. NAMA is awash with cash apparently with the claim that the agency will have €1bn cash on hand even after making redeeming €250m of bonds. You would have to ask why the NAMA business plan didn’t anticipate using the early recovery of loans to fund development. Indeed why would NAMA need the €5bn development pot legislated for in the NAMA Act if early repayments could be used for working capital/development advances. This looks to me like a gigantic cock-up in the creation of the business plan. Remember the draft Business Plan in 2009 – it didn’t even consider early repayment of NAMA bonds until 2014.
But it was the third part of the announcement, that NAMA would repay a €49m loan, that was regarded as the most intriguing here. NAMA said “the Board of NAMA has also authorised the repayment of €49 million to the Minister for Finance. The money was advanced to the Agency in March 2010 as a loan by the Minister for Finance and was used to inject ordinary equity into the special purpose vehicle, National Asset Management Agency Investment Limited. This repayment is also ahead of schedule.”
Indeed the repayment is “ahead of schedule” (about nine years ahead, because it was the NAMA seed capital was to be repaid to the State when NAMA was ultimately wound up). And what’s this “loan” business? Wasn’t the €49m an investment by the State in NAMA?
Yes it was an investment but was reclassified by the Department of Finance in the December 2010 Exchequer Statement. Let’s take a look at the history of the State investment in NAMA
(1) 16th October, 2009. Eurostat issues its “preliminary view” on the accounting treatment of NAMA bonds in the context of Ireland’s national debt and concludes that because the NAMA SPV is at arms length to the State with 51% private investment that NAMA bonds can remain off the national balance sheet – welcome news indeed for a State whose debt is teetering towards 100% of GDP. The “view” is based on NAMA being publicly owned and investing in 49% of the equity of the NAMA SPV in whose name the bonds are issued.
(2) 28th April, 2010. Minister for Finance, Brian Lenihan reveals the names of the private investors that own 51% of NAMA. They include a 17% shareholding each in the names of Allied Irish Banks Investment Managers, part of the AIB group and New Ireland Assurance, part of the Bank of Ireland group.
(3) 10th September, 2010. AIB agrees to sell its 70.5% holding in Polish bank Bank Zachodni WBK SA (“Zachodni”) to Spanish bank Banco Santander (“Santander”). The sale will be subject to shareholder and regulator approvals.
(4) 28th November, 2010. As part of the IMF/EU bailout, the Financial Regulator issues new capital requirements for Irish banks which includes a €9.765bn requirement for AIB to be fulfilled by end February, 2011.
(5) 23rd December, 2010. State effectively nationalises AIB with immediate control of 49% of the bank’s ordinary share capital and control over Convertible Non Voting (CNV) shares which would be converted to ordinary shares when AIB had completed its disposal of Zachodni to Santander. When the CNV shares are converted to ordinary shares, the State will then own 90%+ of AIB.
(6) December, 2010 – the Department of Finance reclassified the €49m as a loan and says “It was felt that it would be more appropriate that the monies advanced be classified as a loan to NAMA as opposed to share capital acquired as this share capital isn’t directly held by the Exchequer but held by NAMA.”
(7) 7th February, 2011. With the announcement by Santander that it was bidding for 100% of Zachodni, AIB issued a release to the effect that the sale of its interest in Zachodni would complete soon after 24th February, 2011
(8) NAMA announces the forthcoming repayment of the €49m loan to the central fund (Department of Finance)
(9) 19th February, 2011. Santander receives approval from Polish banking authorities (the Financial Supervisory Commission in Warsaw) for its purchase of AIB’s stake in Zachodni
And lastly any day now, we are expecting an announcement that the CNV shares in AIB have been converted to ordinary shares and that the State now owns 90%+ of AIB. And as AIB owns 17% of NAMA already presumably at that point we will have majority control of NAMA and the €30bn of State-guaranteed bonds issued by NAMA will come onto the national debt?
So back to the curious case of the €49m repayment. Is the repayment of the €49m at this point an attempt to ensure the €30bn of State-guaranteed bonds stay off the national balance sheet? And if NAMA is no longer using State funds to invest in the NAMA SPV then how exactly it funding its 49% stake? The above might be a shaggy dog view on why NAMA is repaying €49m now but it does seem curious, on here at least, why NAMA is repaying a relatively small sum at this point.
NAMA Wine Lake 
V.interesting as always.
Furthermore New Ireland Assurance is going to be sold by BOI.
http://www.sbpost.ie/themarket/bank-of-ireland-prepares-for-sale-of-new-ireland-assurance-54048.html
What’s going to happen to its 17% stake once sold?
“But what NAMA didn’t disclose was whether the taxpayer made a loss because NAMA will have to write off part of the face value of the loan. ”
This is the point I’ve been banging on about for ages. Nama will never make a profit when account is taken of the par value of the loans it has acquired. Its objective should be to minimise the loss based on par values rather than base less demanding profits on LTEVs. While accepting that it can never hope to recover more than a portion of the difference between par value and LTEV, its corporate focus should be on recovering the maximum possible cash from borrowers for the benefit of taxpayers. This should be explicitly stated (and incorporated into its published accounts) even though it is not a stated objective in the Nama Act. For more on this see http://www.planware.org/briansblog/2010/11/nama-and-creative-accounting.html
Hi Brian, I was a little surprised not to have seen any letter from you to the national press in the aftermath of the Google sale, though it is still current news. What we would all like to publicly know is
(a) What is the face value of the Treasury/REO loan on Montevetro (that is the amount outstanding including interest)
(b) What did NAMA pay for the loan
(c) How much did NAMA advance to finish off the site or to fund Treasury/REO
All we know is that the building sold for €99.9m and that is greater than (b+c) above.
What we would all like to know and which I would like to publish is a – €99.9m
I don’t think a letter would have any chance of publication with the GE. Maybe someone in the media or a politican (if not too busy canvassing) who reads this blog might follow up.
We must bear in mind that a “profit” for Nama doesn’t necessarily mean a profit for the taxpayer. For example, using strictly hypotethical and simplified figures for Montevetro:
Par value of loans amd interest o/s = €110 m
LTEV = €80 m
Nama’s costs = €10 m
Net sale price = €100 m
Profit to Nama = €10 m (100-80-10)
Loss to taxpayer = €10 m (110-99)
Of course, Nama would not show such a loss to taxpayer in its accounts.
Just to put the “99.9 million” bonanza sale in perspective:
Google isn’t wasting any time in its plan to gobble up additional office space at 111 Eighth Avenue, the mammoth Chelsea office building that it purchased for $1.8 billion late last year. According to a Real Estate Weekly source, the search engine giant has already made a buyout offer of an undisclosed sum for Nike’s 100,000 square feet of sixth-floor space at the 3 million-square-foot property, which was declined. Nike’s lease expires in 2014, but Google apparently wants to expand more quickly than that. The source said Nike rejected the offer because it’s currently paying less than market-rate and doesn’t want to move early
http://therealdeal.com/newyork/
@Brian Flanagan
You were born an optimist. :-)
It was far worse than that.