Lessons from the NAMA freak show

There was an entry on here last year which reflected on the phenomenon of foreign journalists arriving in plane loads into Dublin to witness the financial crisis at first hand. It seemed as if we were turning into a freak show for folks to point at, and it doesn’t feel very nice.

Britain’s Independent on Sunday yesterday carried a travel feature on Dublin which was really a NAMA feature. The writer, Sankha Guha describes a brief visit to Dublin. His local guide was our own Stewart Kelly, a sort of mini-me Jeremy Clarkson who produces the Carjam radio programme. The English journalist was shown some of the usual NAMA sights including Paddy Kelly’s Burlington Plaza (not subject to last Friday’s receiverships) and Elm Park (Bernard McNamara, David Courtney and Jerry O’Reilly, developers) and the family homes of some of the NAMA developers including what Sankha calls a “building of screeching vulgarity” referring to Johnny Ronan’s house on Burlington Road (pictured here during an Eirigi protest) – personally I thought that was unkind, the building could perhaps benefit from a larger setting but it seems harsh to describe it as “vulgar”. Shrewsbury Road was also on the sight-seeing tour where Sean Dunne and wife were said to have paid €58m for a 4,000 sq ft property sitting on a site with development potential.

This is the latest in a long line of journalistic articles showing poor Paddy down in the dumps. He concludes his piece by giving the price of a night’s stay in the 5-star Shelbourne Hotel (proprietor Sweeney, O’Reilly, Courtney, McNamara and others) at €198 per night for a double room on a bed-and-breakfast basis. And this leads me on to some lessons:

(1) There is intense interest in NAMA hotels from potential visitors. The perception is that NAMA hotels are distressed and will therefore slash prices to attract business. This is not really the case but that is the perception. Take Paddy Kelly’s hotels which were placed in receivership by NAMA last week. Although Paddy owns the freehold in the hotels, they are leased to hotel management companies like Marriot and Day’s Inn. And just because an hotel is in NAMA doesn’t mean the management companies will change their prices one whit – it is the freeholder that is under financial pressure, not the hotel management company. Of course there are hotels where the developer is also the operator and these hotels can be said to be under pressure to generate cash though NAMA says that it is Bank of Scotland (Ireland)/Certus hotels which are more likely to be discounting. So there may be a gap between perception and reality but there may well be an opportunity to market hotels as NAMA hotels because the perception is that they will be cheap. In truth, all hotels in Ireland have slashed room rates and there is, in my opinion, fantastic value for money regardless of the hotel’s NAMA status.

(2) There is also intense interest in Irish residential property from overseas. I know this because of the large volume of traffic on this blog which has been focused on the Space/Allsop auction in three weeks time. Again the perception is that there is fantastic value to be had with residential property. Irish natives, expats or émigrés are still interested in property, even if it is seen as an holiday home. And other nationalities have always seen the attraction of a holiday home in Ireland.

(3) Lastly there is of course interest in commercial property, but the savvy international investors have probably had field visits here already. NAMA said last week that “the only option is to sell the properties at whatever price purchasers are now willing to pay” and “this disposal process will commence very soon and we expect that it will provide significant momentum to the property market”. So those commercial investors that have expressed an interest in property here may see some real bargains in the near future.

So one real lesson to take away from the artificial freak show is that there is intense interest in property here and cheap hotel stays. If only we could marry up this interest to some marketing, then we might see some welcome transactions and perhaps some assistance for a recovery.

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Just what is stopping this palsied government?

“There is not one moment to be lost”

Labour Party Programme for Government, introduction

Okay, it was only 25th February, 2011 when we cast our votes in the general election and it was only 6th March, 2011 when Labour and Fine Gael (FG), who together had been tipped for months as the likely new coalition government, hammered out a deal for forming the new administration and it was only 9th March, 2011 when new Taoiseach, Enda Kenny formally picked up his medal/seal from the President confirming his appointment. But what we had a month ago was not a snap election, an election was firmly in the offing ever since the Greens (remember them?) announced with babes in arms on 22nd November, 2010, that they would be withdrawing from government imminently when certain bailout-related commitments were put in place. And even prior to that there had been a number of incidents last year – Willie O’Dea’s tribulations, Garglegate, the bombshell on 30th March when Minister Lenihan estimated Anglo’s bailout at €25bn, the controversial stag-hunting bill – which should have naturally put Opposition parties on an election footing. The point is, that the new administration should have hit the ground running with policies and initiatives that had been developed over the previous months, if not indeed, years. This entry examines progress to date.

You might ask if it is too early to demand to see progress with a new government. After all they have just gotten their feet under the desks, why should we expect any real progress at this point? In response, not only should this administration have hit the ground running but it seems to be accepted as a truism that the first 100 days in a new government is when you start putting in place the reforms and developments which you intend seeing implemented. Okay, theoretically, the FG/Labour coalition will be in power for 1,800 days but most of this will be spent in the detailed implementation of policy and then ramping up for a re-election.

Looking at the Programme for Government, the document which sets out the jointly-agreed policy positions of Labour and FG, it is striking that practically no progress has been made. Take one example, the restoration of the minimum wage to €8.65 per hour – remember it was cut in January 2011 to €7.65 per hour in line with a commitment given in the IMF/EU bailout agreement, and it was to apply to new hires only. Given that both Labour and FG pledged the reversal of the cut in their individual manifestoes, the pledge then making it unaltered into the joint Programme for Government and given Labour and FG have 113 deputies in the 166-deputy Dail, not to mention the same commitment from others, Sinn Fein and United Left Alliance for example which comprise a further 19 deputies, then why has the new government failed to restore the minimum wage? Surely this is entirely within their control and doesn’t involve State expenditure. Curious.

Looking at the Finance commitments which of primary interest on here the Programme for Government, progress here is representative of progress across all the departmental portfolios, that is, there doesn’t appear to have been any.

(1) Renegotiate IMF/EU bailout – on hold, initial overtures rebuked apparently because the Taoiseach would not offer something in return, specifically in the area of corporate tax

(2) Structural reforms – none announced

(3) Replacing emergency ECB funding with medium term funding – there are rumours of a €60bn medium term fund custom-made for Ireland. Irish banks are in receipt of €180bn+ of short term funding at present from the ECB and Central Bank of Ireland. Will confidence be restored amongst investors if only one third of current short-term funding is converted into medium term funding?

(4) Ending further transfers to NAMA – On 7th March, 2011 AIB announced the transfer of €1.1bn of loans to NAMA. There has been no further public word on NAMA’s intentions with Paddy McKillen’s loans or with the sub-€20m exposures at AIB and Bank of Ireland.

(5) Increasing credit availability – nothing announced

(6) Introduction of special resolution regime for bank insolvencies – this was commenced by the previous administration on 28th February, 2011 with the publication of the CENTRAL BANK AND CREDIT INSTITUTIONS (RESOLUTION) BILL 2011 but as far as I can tell it has not been debated in the new Dail or progressed in any way.

(7) Disposal of public stakes in banks – nothing announced

(8) Creation of “integrated decision making process” to improve government responses to the financial crisis – well there is now a grouping of four – Taoiseach Enda Kenny, Tanaiste Eamon Gilmore, Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform, Brendan Howlin – but it is not clear how it is working and whether or not it has yet accomplished anything

(9) Restructuring banks boards and creating pools of suitable candidates – nothing announced

(10) Highest standards of transparency in the operation in NAMA – nothing announced. The NAMA quarter four, 2010 (year end) report is apparently already on Minister Noonan’s desk, a week before the due date of 31st March, 2011. How long will it take him to publish it?

(11) Establishment of a strategic bank – nothing announced

(12) Establishment of credit union commission – nothing announced

(13) Establishment of financial services taskforce to maximise employment and opportunities – nothing announced

(14) Investigation of banking failures – nothing announced

Michael Noonan has reportedly spent much time talking – talking domestically with the NTMA, Central Bank and his new staff at the Department of Finance and, I would expect, NAMA; talking internationally with the IMF, ECB, EU and Federal Reserve. Of course what is overshadowing the many micro-decisions that must be made, is the ongoing stress test, but I understand that the results have been known in general terms for a couple of weeks and there is now even reporting which claims the tests will show an additional capital requirement in the €20bn-zone, more than the €10bn that was to have been injected in February 2011 but less than the €35bn allowed for in the bailout. So why should the stress tests be holding up progress elsewhere?

Of course it is still unknown how “the market” will react to the stress tests when the results are published this Thursday but the betting is that regardless of the level of detail disclosed, there will still be some scepticism about future losses (and not just in Anglo and Irish Nationwide Building Society, neither of which is even being subjected to a stress test). And the big decisions facing Minister Noonan will closely involve the EU/ECB and to an extent, the IMF. But Minister Noonan must now at least know the broad parameters of the problem, and anyway why is that stopping progress elsewhere in his department.

So, as far as I can see, there is little outward sign of much life in the Department of Finance. New initiatives to deliver the commitments in the Programme for Government are also apparently absent from other ministries. Perhaps more than one month is needed to start the ball rolling but the urgency suggested by Labour’s spirited statement “there is not one moment to be lost” does seem to be at odds with the apparent lack of progress across all ministries including Finance.

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