Archive for May 13th, 2011

There was an odd story in the Irish Times this morning where Simon Carswell reported that NAMA had donated to our National Gallery a painting by Irish painter, John Lavery. NAMA’s largesse came after it took possession of Top 10 developer, Derek Quinlan’s assets following foreclosure action last month. There is a lack of clarity in the article – on one hand, it seems to be the case that NAMA is bartering the donation in return for curatorship services provided by the National Gallery in respect of the remainder of Derek Quinlan’s art collection and on the other there is a suggestion that the donation is (to quote the Irish Times citing a NAMA spokesman) “a goodwill gesture to the National Gallery and to the Irish people to offer the National Gallery one piece of art from the collection for free given the fact that they advised it was of importance to the heritage of Ireland”. The painting to be donated is called “The Return from Market” and according to Bourne Fine Art dealers in Scotland, it was painted in the 1880s and then passed through inheritance to a certain Lady Sempill and then sold to Sotheby’s in 1970 who sold it to the Fine Art Society in London, it was then in a private collection until 2001 when apparently it was acquired by our own Derek Quinlan.

The painting is said to be worth €300,000 now though it was apparently valued at GBP £465,000 in 2001 – €530,000 at today’s exchange rate. I found the report this morning extremely troubling.

NAMA has two codes of practice with which it complies when making disposals – one is for disposing of loans which doesn’t concern us here. But the other is for the disposal of real property; NAMA says it complies with the Code of Practice for the Governance of State Agencies 2009. That says (from page 20)

“The disposal of assets of State bodies or the granting of access to property or infrastructure for commercial arrangements e.g. joint ventures with third parties, with an anticipated value at or above a threshold level of €150,000 should be by auction or competitive tendering process, other than in exceptional circumstances (such as a sale to a charitable body). The method used should be both transparent and likely to achieve a fair market-related price. The anticipated value may be determined either by a reserve price recorded in advance in the State body’s records or by a formal sign-off by the Board on the advice of the Chief Financial Officer (CFO) or, if delegated by the Board, sign-off by the CFO or the Board Audit Committee, that, in its view, the anticipated value is likely to be less or greater than €150,000. In determining market value, regard should be had to accounting standards best practice inIreland. NAMA was asked for comment on the reported donation, and has not as yet responded.”

There doesn’t seem to any dispute that the donated painting is worth more than €150,000. The painting is not being sold to a charitable body in that this is reportedly a donation and I don’t believe the National Gallery is a charity. Even if it was a charity why should NAMA be able to select it for its largesse? So where is the auction or tendering process?

There must be a serious concern if NAMA has acted in the way suggested by the Irish Times today. Surely the agency should be maximizing the value of the painting for the taxpayer. If the value of the painting is €300,000 and NAMA is receiving €300,000 of curatorship services in return, then the donation would be consistent with the objectives of NAMA as set out in the NAMA Act. I’m no expert on art storage fees but in terms of providing insurance, security and the proper environmental conditions, €300,000 would get you a lot if you were seeking car storage for example. It seems unlikely that it is an equal barter. So has NAMA broken the code?

UPDATE: 7th July, 2011. The painting finally went on show at the National Gallery  yesterday and is reported here by the Irish Times who also add a quote from the NAMA chairman, Frank Daly “We are grateful that the National Gallery continues to store a number of pieces of work on our behalf while we finalise preparations for their disposal by public auction”

UPDATE (1): 3rd August, 2011, The painting referred to above can be seen in situ at the National Gallery here.

UPDATE (2): 3rd August, 2011.  On 27th July, 2011, it was reported that NAMA had sold a Jack B Yeats painting “National Airs/Patriotic Airs” for €175,000 to the National Gallery.

UPDATE: 11th December, 2011. It has been reported in today’s Sunday Independent that the Lavery painting donated to the National Gallery was  bought by Derek Quinlan for “over €800,000” in 2001.

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One of the features of this blog is the information shown above in the right hand corner of the screen, the change to prices of residential and commercial property in the two countries comprising over 90% of NAMA’s assets. This feature is an attempt to track how the properties underpinning NAMA’s loans are performing, by reference to the single valuation date chosen by NAMA, which in turn provides an indication of NAMA’s eventual profitability (or lack thereof as is the position now and probably for the short term at least). There is also a NAMAwinelake (NWL) index which tries to provide a consolidated index of how prices have changed. Presently the index is 886 which means that NAMA needs see a blended increase of 12.9% in property values before it breaks even at a gross operating level.

Up to now, the source of Irish residential price changes was the Permanent TSB/ESRI property price series because that was Ireland’s foremost index though in recent months its validity has been doubtful because of the low number of residential property transactions, the fact that PTSB now seems to have less than 4% of the new mortgage market and the perception that cash transactions which are not captured by the index have grown more significant. That price series was abandoned this morning following the introduction of a new series from the CSO. It seems logical therefore to substitute the CSO index in the NWL index calculations and that is what has been done.

The last PTSB/ESRI release was for quarter four of 2010 and showed that prices nationally were 14.1% down from 30th November, 2009. The CSO release this morning shows that prices were 15.9% down from 30th November, 2009 at the end of March, 2011. The CSO index will be released each month with the April 2011 index released in early June, 2011.

What is curious about the CSO’s release this morning is that it showed that at 30th November, 2009 prices were down 28% from peak. Also in 2009, mortgage transactions comprised 94% of the market with cash-only transactions making up the remaining 6%. NAMA chairman, Frank Daly told the Licensed Vitners Association at their AGM in March this year that “we do not believe that the PTSB\ESRI index currently showing close to 40% fall from peak is realistic and reflective of where the market is. NAMA’s base valuation date was November 2009 and at this date we were already taking account of on average 50% falls in residential property values from the peak”. So now that the CSO has seemingly verified PTSB/ESRI’s series (it was down 29% in November 2010), what will the NAMA chairman have to say, I wonder…

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The Central Bank of Ireland (CBI) has this morning published the first information that might give us an objective steer on the consequences of the stress test and restructuring announcements on 31st March. Both the CBI provision of Emergency Liquidity Assistance (ELA) and ECB lending have dropped significantly – ELA by €12.7bn (19%) and ECB funding by €8.4bn (7%) and both are now back at levels last seen in August/September 2010. It is the biggest monthly fall in over two years.

So, what does it tell us about the stability of the Irish banking system? Well, it doesn’t give definitive answers but it does, in a general sense, point to Irish banks being able to reduce their dependence on what is lender of last resort funding. It might mean retail deposits are increasing – we won’t know if that is the case until the end of May 2011 but if that was the case, I would have expected an unscheduled statement from the CBI or indeed the Department of Finance. It might mean the mini-mountain of cash that the government is sitting on (advance payments from the IMF/EU which have not yet been shovelled into the banks or spent on our deficit or the liquidation of the National Pension Reserve Fund) is having an effect. There haven’t been any major deleveraging (or delevering as Anglo’s Maarten Van Eden calls it) announcements though it is rumoured that Bank of Ireland has agreed a sale of itsUS loan book. It could mean the banks are sourcing funding elsewhere, but again I would have expected announcements if that was the case. After all, any sign of recovery in confidence in our banking sector should be shouted from the rooftops. We will get a better sense of the state of our banks following the stress test/restructuring announcements when the CBI releases its banking data at the end of May.

This is the history of CBI and ECB support to our banks over the past two years.

UPDATE: 14th May, 2011. It seems from reporting in today’s Irish Times (and also on Lorcan Roche Kelly’s blog) that one reason for the drop in central bank support is that the NTMA has deposited a cumulative €19bn in the banks comprising €10bn of NPRF liquidated funds and €9bn of EU/IMF bailout funds – the NTMA has been depositing money under these two headings since the start of January 2011 and it is not clear how much was deposited in the month of April 2011 alone; therefore we can only speculate about the impact the NTMA’s actions have had on the reduction in central bank support. I wouldn’t have thought very much of the EU/IMF funding had an impact in April 2011 because, of the €18bn in total that we have received so far, €14bn had been received by end February 2011. The liquidation of the NPRF is likely to have been a more recent development so the €10bn cumulatively deposited by the NTMA (the NPRF’s parent umbrella organisation) may well have been deposited in the month of April 2011.

It has been interesting on here to observe Minister Noonan doing his little dance of the seven veils with our creditors over the timing of the recapitalisation of the banks, which is now understood will take place by the end of July 2011. We have received €18bn so far from the EU/IMF and we certainly don’t need that for day to day funding or rolling over maturing debt. We were supposed to have recapitalised the banks in February 2011 and that would explain why we are sitting on a large surplus of creditors funding. It would presumably look cack-handed to hand it back until it was needed. On the other hand, I’m sure our creditors would like to see their funding placed close-by to its intended destination, so placing it on deposit with the destination banks would presumably reassure them.

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News just in that Permanent TSB/ESRI has announced that it has ceased producing its house price series which until recently was the most respected actual house price index in the State. The press release from PTSB states “I wanted to advise you that together with the ESRI, we have decided to cease the production of the index.

This decision has been taken primarily as a result of the introduction by the Central Statistics Office [CSO] of a monthly index which will measure average prices for dwellings around the country and which is based on information provided by a number of financial institutions.  The CSO index will be published monthly from today [13th May].  We believe that it does not make sense to continue to produce our own index when the CSO will be producing a similar index based on a more comprehensive set of information. I trust that the decision to terminate it now will not inconvenience you given the availability of the CSO index.

On behalf of permanent tsb and the ESRI I want to thank you for your interest in the index over many years.”

There is a detailed analysis of the CSO index published this morning available here.

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