Archive for March 14th, 2011

It seems that NAMA is to dispose of up to €5bn of UK loans/assets in 2011 which draws attention to the “M” in NAMA, indicating “Management” and meaning that NAMA will seek to dispose of assets at the optimum point. If the redemption of the loan at 20 Grosvenor Square proceeds as planned then NAMA will see a tidy profit on that residential transaction reflecting the relatively buoyant central London residential property market. NAMA has a number of landmark commercial developments also, including the Battersea Power Station site (mixed residential/commercial) and loans to the Maybourne group of luxury London hotels, some of which were reportedly sold to Robert Tchenguiz recently.

But most of NAMA’s assets in the UK will be everyday commercial assets like the one above, the Matrix building on Aldgate High Street in the City of London, controlled by NAMA following the appointment of administrators to companies within the Beetham Organisation group. 2010 was a good year for commercial property in the City and West End and the early indications are that growth is continuing in 2011, which may make disposals of assets such as the one above all the more attractive especially as NAMA’s home market, Ireland is continuing to tank.

Today sees the publication of the UK February 2011 IPD Monthly Property Index – the index covering UK commercial property up to the end of February 2011. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.

The Index shows that capital values are still increasing but at a modest rate compared with the end of 2009/start of 2010. The Index rose by .2% in February 2011 compared with January 2011. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 10.4%. Commercial prices in the UK are now 34.9% off their peak in June 2007. On an annual basis prices are up by 4.8%. The NWL index is now at 893 which means that NAMA needs to see a blended increase of 11.9% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).

Given that NAMA has valued the loans it is acquiring at 30th November, 2009 it would seem to make sense if it disposed of UK property first given the pressure the agency is under to generate cashflow and some sales – it hardly makes sense to sell off Irish property which has dropped by 12% since November 2009 unless the assessment is that it might continue to fall and not recover for a considerable period, possibly beyond NAMA’s life expectancy (or that a future recovery in UK property would exceed any falls in Irish property).

The first table below shows the month-on-month % change in commercial property capital values since 30th November, 2009. The IPD index is broken down into three components – retail, office and commercial.  The second table shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner. Overall it shows that commercial property in the UK is worth 10.4% more at the end of February 2011 compared with the end of November 2009.


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It seems to that the Credit Review Office (CRO) and the Irish Small and Medium Enterprises Association (ISME) occupy two completely different worlds. The former, which was set up by the last government to monitor lending to businesses (including farmers) and particularly to arbitrate between banks and unsuccessful loan applicants, is clearly saying that there are only modest problems with accessing credit for viable businesses whereas industry group ISME says today that there is an “alarming reduction in SME bank credit as refusals hit 48% in last three months”. The CRO only monitors Bank of Ireland and Allied Irish Banks – the latest statistics available suggest BoI has 20-40% of the commercial loan market and AIB would presumably be not far behind.

Official figures from the Central Bank of Ireland do show that loans to businesses continue to drop at a significant rate. However what these figures do not tell us is whether or not there is a drop off in demand for credit as a result of generally difficult economic circumstances or a drop off in supply of credit as banks hoard cash to shore up their balance sheets and “deleverage”.

The CRO was set up to provide an avenue to viable businesses to pursue loan applications beyond the walls of the bank, and it was intended that the CRO would independently consider the loan application and the bank’s rejection, to make sure that banks were not denying viable businesses access to credit. The latest report from the CRO shows that to date (understood to be February 2011) 48 applications have been made to the CRO by unhappy SME owners refused credit at AIB and BoI. Of the 48, 12 rejections have been overturned or the banks have reconsidered their rejection. The 12 represent total borrowings of €978,300 (an average of €82,000) and have helped secure 90 jobs. 18 referrals representing €1,009,753 were rejected by the CRO and the banks’ decision upheld which apparently put 110 jobs at risk. The other 18 applications are at various stages of review though a small number have been withdrawn.

This morning ISME released what seems like a monthly survey of credit availability to its members and reports that credit availability is deteriorating on all fronts – 48% of firms refused credit (up from 33% in December 2010), 79% of firms claiming banks are making it difficult to access credit, 23% of firms have had their overdraft facilities reduced. For a monthly press release it is quite detailed but as for the role of the CRO, the press release says “It is naïve in the extreme to think that an appeals process which is not totally independent of the banks can be effective. Owner managers just see it as another layer of bureaucracy within the clutches of the already discredited bank system, headed, staffed and funded by bankers”

It seems on here that someone in Richard Bruton’s Enterprise and Jobs or Michael Noonan’s Finance ministries needs to knock some heads together at the CRO and ISME. The small and medium enterprise sector is, as we have heard many times before, critical to the recovery of the domestic economy including the protection and creation of jobs. It seems that the CRO and ISME have diagonally opposite views of the health of credit availability to viable businesses. There surely needs to be some investigation to ensure there is a common definition of a viable business and that such businesses are not unreasonably being denied credit. It seemed to me during the election campaign that both Labour and Fine Gael were adopting the position that small businesses were being unfairly denied credit – isn’t it time to announce how they will rectify the problem?

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It can surely only be a matter of time before we get an event involving our new Taoiseach, Enda Kenny which will allow the press to use the headline “Oh my God, they killed Kenny! The bastards!” but examining the conclusions to last week’s European summit where Enda Kenny failed to win any concessions to the terms of Ireland’s bailout loans, it seems that the headline might be more apt now than you might think.

The press here was reporting on Saturday that Greece won a 1% reduction in the interest rate payable on its bailout loans. The Greek press went further and said that the interest rate had fallen to an average of 4.2% from 5.2%. However bear in mind that the reduction in interest rates was accompanied by an extension to the repayment term from 3 to 7.5 years from 2013  (the FT said 4.5 to 7.5 years, but regardless there seems to be agreement that the term has been increased). Comparing Ireland with Greece at this point means that Greece is paying 4.2% versus Ireland’s 5.8%, a 1.6% discount.

But delve a little further and you will find that €30bn of the €110bn Greek bailout is coming from the IMF which has fixed rates which for 7.5 year euros will be ~5.5% for Greece. So if Greece is to have a blended average rate of 4.2% on its €110bn bailout and is paying ~5.5% on €30bn of that, then that means the EU element is being charged at 3.7% (80*3.7% + 30*5.5%) = 4.62 = 4.2% of 110. So on the face of it, Greece has actually won a 2% reduction in its EU bailout rate compared with the 5.7-6.1% paid by Ireland. Ouch, that must indeed have hurt Enda.

Portugal is having a difficult time at present. It announced harsh austerity measures on the eve of last week’s summit. And last week’s press in Portugal was pre-occupied with the humiliation of having to accept a bailout. In the event Portugal is getting a bailout but it won’t have that title. Instead, the EFSF will buy Portugese bonds and there will be some “conditionality”. How this is different to the EFSF giving a lump sum to Ireland along with a Memorandum of Understanding setting out conditions, is a mystery to me. But apparently it allows the Portugese prime minister to claim that his country will not be getting a bailout. The details of the EFSF buying bonds have not been published.

So Enda came away empty-handed save for some hurtful words on Ireland’s low corporation tax rate from French prime minister, Nicolas Sarkozy. A “Gallic spat” is how Enda is reported to have described the exchanges, which elsewhere were said to have been pretty one-sided with Enda getting an ear-bashing from our French partner with our German partner looking on approvingly. Of course, like the fictional Kenny in South Park, Enda will live to see another day and will have another opportunity to press for changes to the bailout terms at the next Euro summit in two weeks. But as more details emerge from last week’s summit, it does indeed seem that Enda took some beating whilst our friends in Portugal and Greece came away with a result of sorts.

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