Archive for March 30th, 2011

With EBS state-owned, Irish Life and Permanent having suspended dealings in its shares until Friday, Allied Irish Banks effectively 90%+ state-owned and Bank of Ireland 36.5% state-owned but with the prospect of majority state control all but certain, you might wonder why the Central Bank of Ireland has chosen a time after the markets close tomorrow to make its announcements with respect to the results of the stress tests. But choose it has, and here are the arrangements for publishing the eagerly awaited results of the stress tests

“The Central Bank of Ireland will publish the Financial Measures Programme report, which details the outcome of the 2011 review of the Prudential Capital Assessment Review (PCAR) and Prudential Liquidity Assessment Review (PLAR) for AIB, Bank of Ireland, EBS and Irish Life & Permanent, at a press conference on Thursday, 31 March at 4.30pm”

The press conference will be available to view live online here from 4.30pm.

The Financial Measures Programme report will be published here at 4.30pm.

UPDATE 30th March, 2011. RTE is reporting that share dealing in both AIB and Bank of Ireland will be suspended from 6.30am tomorrow. These two banks join Irish Life and Permanent in suspending trading. The decision was taken by the CBI apparently in conjunction with the Irish Stock Exchange to preserve  “the integrity of market trading in the financial sector” Presumably trading will recommence on Friday 1st April, 2011. Mind you, makes you wonder why the Central Bank needs wait until the markets close at 4.30pm to make its announcements ….


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On the general election campaign trail last month, Enda Kenny, injudiciously in my opinion, referred to the Cardinal Consortium as the preferred choice as buyers of state-owned EBS, but today the National Treasury Management Agency has issued a statement that the sale of EBS, which has been ongoing for nearly a year, has been cancelled because “the bid [by Cardinal] was not sufficiently commercially attractive to the State”

It was September 2010 when CNBC prematurely announced that the Cardinal Consortium which comprises Dublin’s Cardinal Asset Management , Wilbur Ross and the Carlyle group had won the battle to buy Irish state-owned Educational Building Society (EBS). As it happened, the bidding battle had some way to go and at that time there were still four bidders which were Cardinal, JC Flowers, Doughty Henson and Irish Life and Permanent (ILP). The bidders were whittled down to just two in October 2010 with Cardinal and ILP remaining in the race. Cardinal was touted by Enda Kenny as the preferred bidder. This morning ILP suspended its shares on the Irish Stock Exchange following rumours that that it will be imminently nationalized following publication of the bank stress tests tomorrow.

The cancellation of the EBS sale is perhaps not a surprising development. The Carlyle group is known for its tough negotiating character. Tomorrow we are likely to find out that EBS needs more capital than previous forecast, because of more severe losses on its mortgage loans. So perhaps Cardinal was felt to be playing hardball.

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The expression “one red cent” is gaining a lot of currency here in recent times. The origin of the expression is said to be the copper-ish red colour of the lowest unit of currency, the cent, in the US in the early 19th century and is used to betoken the smallest sum of money possible – to not pay “one red cent” means to pay nothing. Not only did Denis O’Brien unconvincingly – in the sense that most respondents to an opinion poll published in last weekend’s Irish Independent, didn’t believe him – claim that he had not paid former Minister Michael Lowry a “red cent” in return for favours in awarding a mobile telephone licence in 1995, but it was only a month ago when then-Opposition parties were eager to tell us that they would not be putting “another red cent” into Irish banks until the results of the stress tests became known in March.

Well, here we are one month later, and the stress test results will be published tomorrow but as this is Ireland, we seem to have had a healthy dose of leaks already which has caused Irish Life and Permanent to suspend trading of its shares until 1st April and the consensus is that the stress tests will indicate that a further €20bn will be needed by the banks to meet stringent capital requirements. This is €15bn less than the €35bn allotted to resolving our banking difficulties in the EU/IMF bailout, though it’s not clear which contributor to the bailout – EFSF/EFSM/IMF/domestic resources – will see a reduction in their contribution. However if the additional cost of capitalising the banks is put at €20bn then that will still mean that the cumulative bank bill will rise to €66-71bn. The table below is from the Department of Finance last September 2010 and shows the commitments at that time.

Anglo was to have cost us €29-34bn and unless we get an update on Anglo’s needs tomorrow (remember the stress tests didn’t touch Anglo or INBS) then we will probably have a range of values tomorrow also.

So what next? Will the stress tests be debated in the Dail and will options be explored including default? Will the Coalition simply stump up the €20bn without debate? Is it imperative that we act on the results of the stress tests immediately or have we the freedom to ponder our options over the coming weeks? Is now the time to re-open the “burning the bondholders” debate

– remember this was the bondholder position in Irish banks in February 2011, although there has been a massive redemption of bonds since the guarantee in September, 2008 there are still substantial sums that can, theoretically, be burned. Here are a few scenarios for the next few days.

(1) The government tells our bailout partners, particularly the ECB, that when we accepted the bailout in November 2010, the understanding was that the maximum additional sum required for the banks would be €10bn – after all, that is what one of the key negotiators, Central Bank of Ireland, Patrick Honohan was saying – and now that it is €10bn more, this is an appropriate time to discuss burden sharing. Might the ECB be supportive of burning the €16bn of unsecured unguaranteed senior bonds, maybe by paying them 50c in the euro.

(2) The government accepts the €20bn additional cost for bailing out the banks, but requires the ECB “medium term” facility to be set at €190bn, not €60bn. In that way, Irish banks will have a strategic certainty which they presently don’t have – the ECB, which is providing exceptional liquidity support, might unilaterally pull the plug. No country should allow its banking system to operate on this hand-to-mouth basis, especially since the “hand” is the ECB and beyond the nation’s control.

(3) The government accepts the €20bn additional cost for bailing out the banks but requires the EU to provide its element of the bailout at a cost interest rate, that is 2.8%. The 3% saving would amount to some €10bn in interest savings over 10 years. Given the Irish nation is taking on 100% of the banks’ liabilities, including those to shaky banks in Germany, France and the UK, then the least that can be done is to provide these funds at cost.

(4) The government accepts the €20bn additional cost and seeks a stimulus grant from the EU to allow our economy to grow so that the debt can be repaid and we don’t default. The stimulus might be used to fund capital programmes in broadband and communications, energy, transport, education, health, security including prisons. It happened before in the 1990s. Surely we now need it more than ever.

(5) The government accepts the €20bn additional cost but seeks an extension of the term over which the EU loans can be repaid. If the EU element of the bailout has to be repaid by 2018 and repayments start in 2015 then that means we need find €10bn per annum which might still be costly to secure from the market.

(6) The government chooses the nuclear option and takes the position that not only is the additional €20bn not sustainable but the €35bn of promissory notes already created last year for Anglo and INBS will not be honoured. The government disowns the guarantee, perhaps justifying itself on the basis that the guarantee was founded on incorrect information. A bank resolution process is put in place which protects depositors to €100,000 or €20,000 and beyond that, the banks are wound down as would normal commercial companies. No-one realistically believes the nuclear option will be pursued but it should surely be made clear that it is an option.

I have a feeling that tomorrow’s stress test results will be a bit of an anti-climax but regardless we are likely to have an official point estimate of the “final” cost of rescuing the banking system and the moment of truth will have arrived for our new government. There will be coverage here tomorrow.

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Well I’m confused. The Irish Independent reports today that NAMA “looks set to secure about €17m” from the sale of a 1.5 acre parcel of land near to Waterloo rail station in south London (pictured here). The Independent says the property is expected to sell to close to its asking price of GBP 17m – maybe NAMA is going to “net” part of the sale price, maybe the Independent has mixed up its currencies between sterling and euros. The Independent doesn’t name the developer but does say that the sale has been managed by British property consultants, Edward Symmons acting as receivers, and the sale is to a hotel development and management company, Shiva Hotels (other news sources claim the purchaser is a consortium which comprises Rising Star and Shiva). Of course in the UK, they have administrators, not receivers, but that’s possibly splitting hairs.

What’s confusing is I can’t find any record of the property on the Edward Symmons website, which shows property for sale. Even if the property sale has just completed, I would still expect to see a record for it, perhaps with an “under offer” or “sale complete” sign.

The 1.5 acre site has planning permission to develop a 300-bedroom hotel which is expected to operate under the budget Hampton by Hilton hotel brand. The site is presently occupied by a derelict office building, called Partnership House. CB Richard Ellis were offering a 0.55 acre site for sale at 157-183 Waterloo Road but it is not clear when the brochure was dated and if it is current, though the Independent today makes reference to CBRE as the “property’s agents” – I could not find any record of this property on the CBRE UK website.

So for the moment, the developer remains a mystery, NAMA’s involvement is a bit of a mystery and the €17m is a mystery also. But possibly of most concern is that a property in which NAMA is said to have an interest and which has sold doesn’t appear to be offered for sale by the firms associated with the property.

UPDATE 30th March, 2011: The building was owned by developers CPSL Limited before that company was placed in administration in 2009 with property consultants Edward Symmons being appointed Law of Property Act (LPA) administrators then. The loan securing the building was from Anglo Irish Bank and presumably on that basis was absorbed into NAMA . The site finally obtained planning permission for redevelopment as an hotel in 2009 from Lambeth Council in London, having had a previous application in 2008 rejected.  Former residents of the building include the Church Mission Society which had occupied part of the building since 1966 and was responsible for the motto carved into the front annex of the building on Waterloo Road : “Go forth to every part of the world and proclaim the good news to the whole creation” – seems like NAMA is doing just that!

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