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Archive for April 6th, 2011

Speaking in the Dail today, new Minister for Finance, Michael Noonan delivered an assessment of the aftermath of last Thursday’s announcements regarding the stress test results and bank restructuring. The speech is available in full here. Some key points:

(1) The Minister claims “the total amount of deposits withdrawn from the pillar banks has been very significantly reduced.  Since Thursday’s announcements, the net deposit position of the Pillar Banks has improved significantly.” The Pillar Banks are Bank of Ireland and Allied Irish Banks. It is not clear to me if the statement means the pace of decline in deposits has slowed or if deposits have increased. The Central Bank of Ireland tomorrow issues its own financial statements for March 2011 but these will be upto 25th March 2011 and won’t capture the aftermath of last week’s announcements. Indeed it will probably be the second week in May 2011 when we get a steer on this when the CBI issues data covering the period post-31st March.

(2) The Minister points out that the share prices of AIB and BoI have advanced considerably since last week. This is indeed correct – the closing prices on 30th March 2011 for AIB and BoI respectively were €0.19 and €0.22. And a couple of minutes ago the price of both was coincidentally the same, €0.31, representing 63% and 41% increases respectively. By contrast Irish Life and Permanent has fallen by 68% from €0.37 to €.12

(3) The Minister points to the drop in our 10-year bond which has been even more dramatic this afternoon – it is now trading at 9.31% mid-point compared to a close of 10.22% last Thursday, down some 9% in relative terms and it is now trading at the same level as 24th February, 2011.

(4) The Minister alluded to the Morgan Stanley analyst note on Monday entitled “Ireland – Time to Buy” and S&P’s removal of Ireland from its CreditWatch. Both were encouraging, said the Minister.

(5) The ECB will continue to fund Irish banks at rates which are currently far cheaper than available elsewhere and there will be no firesales. Though with more than €2bn per month to deleverage (€70bn in total over the next 33 months), it is hard to see how fire sales can be avoided.

(6) There will be €30bn of new lending across the entire economy between now and end 2013 (that is €10bn per annum). This is up from the €3bn per annum committed to, by the last government for SME lending alone – €1.5bn each from AIB and Bank of Ireland each year.

UPDATE: 7th April, 2011. The ambiguity with respect to deposits continues. The Independent reports that (my emphasis)  “it is understood the banks have not seen a major surge in deposits in recent days, but the deposits have marginally outstripped withdrawals, delivering a “net deposit” boost.” However this is “marginally” descriptor is at odds with the Minister’s statement “the net deposit position of the Pillar Banks has improved significantly” and yet the title of the article is “deposit flows have reversed on stress test”. The Irish Times via Bloomberg talks about a “rebound” in deposits but although the word “rebound” was used in the Minister’s speech, it was not in relation to rebound. This is all very unsatisfactory because the Minister’s words are ambiguous and we will not have official figures on deposit flows for the period 31th March – 6th April until the last day of May 2011 when the Central Bank of Ireland issues bank statistics.

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While we’re still waiting for a commercial property sale price database, we can always rely on Jack Fagan in the Irish Times who reports today on the recently completed investment commercial property sale of the 40,000-sq ft HSE headquarters in the Millennium Park, Kildare for €8.99m and which generates €880,000 in rent annually giving a 9.8% gross return.

Jack also reports that Savills will later today (not available on its website at time of writing but should be available here) put on the market a 20,000-sq ft office block, Block D of the Parkgate Business Centre just across the road from Heuston Rail Station on the north side of the Liffey on the edge of Phoenix Park in Dublin (view on map here). Currently rented to gilt-edged public sector tenant, the Health Service Executive (HSE, coincidentally was also the tenant in the Millennium Park transaction referred to above) for €715,000 per annum, the property is expected to be offered at €7.05m. This is what the investment might look like using sq ft.

According to the macroeconomic assumptions in the recent Central Bank of Ireland supervised stress tests, the baseline scenario for commercial property prices is for a fall of 2.5% in 2011 and an increase of 1.5% in each of the years 2012 and 2013. The CBI says the baseline is not a forecast but the denial has not been convincing.

(Click to enlarge)

So if you believe that commercial property in Ireland is at the bottom why wouldn’t you jump at this investment, which incidentally is also across the road from the recently completed Criminal Court complex which might give rise to office demand from the legal and associated professions? It’s not clear from the reporting if the lease is an Upward Only Rent Review lease but regardless, the €36 psf looks high for Dublin 8 rents and a concern might be that this will come down. The building is said to be subject to a 25 year lease to the HSE commencing in 2001 with a break option in 2016 and a rent review is due in 2011.

The building is reported to have been developed by South Dublin Construction, the company associated with Michael Murphy of Astondale and Chartbusters fame. The sale is a receiver sale by Kieran Wallace on behalf of ACC Bank.

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The Central Bank of Ireland last week issued a corrected version of its 2nd March publication of the bondholder positions in the six State-guaranteed Irish financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and INBS). The correction of nearly €1bn was to reflect an error identified during the recent stress tests. EBS told the CBI that its senior unguaranteed secured bonds totalled €1.05bn whereas they in fact total €1.991bn, a difference of €0.941bn.

The CBI calls it a “clarification”. It might more properly be called a correction, and that would be polite. Is the management of Irish financial institutions so incompetent that it can under-report an important statistic which was intended to inform public debate, to such a significant extent?

Anyway, here is the corrected version of the bondholder positions in the State-guaranteed financial institutions. The only changes are to the EBS senior unguaranteed secured bondholder total and to the overall total for that category of bondholder across all six institutions.

(Click to enlarge)

Here is the old incorrect version. The press release from the CBI on 2nd March 2011 seems to have been removed from its website.

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