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Archive for February 26th, 2011

“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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