Archive for May 27th, 2011

The IMF and EU review mission teams in Athens are remaining tight-lipped as they assess Greek progress to date and the feasibility of new austerity and privatisation plans. They must be the only people in this drama that are remaining tight-lipped.

First up, the ECB. Executive Board member, Jose Manuel Gonzalez-Paramo called yesterday for a repeat of the Vienna Initiative in 2009 which saw private lenders roll-over maturing debt. Next up, governor of the Dutch central bank and ECB governing council member, Nout Wellink expressed confidence in Greece’s ability to comply sufficiently with the wishes of the EU/IMF to see the release of the next drawdown. Greek central bank governor, Giorgos Provopoulos rowed in behind the positive sentiments of his colleagues in the ECB and described the possible exit byGreece from the euro as “entirely ridiculous” and he too expressed confidence in the success of the present efforts by the Greek government to comply with the bailout terms.

In Washington yesterday, the IMF’s weekly press conference was dominated by questions over Greece’s woes. The IMF’s Director of External Relations, Caroline Atkinson was adamant there was no question of Greece leaving the euro – “absolutely not. I would just point that I think there’s a broad view has been expressed about the absolute importance of Greece being a part of the Eurozone” but seemed more defensive than usual about the need for funding assurances from Greece (or the EU) before the IMF would release the next tranche of funding (tranche 5, totals €12bn of which the IMF’s contribution would be some €3.3bn) – “the other part of the discussion [the present review mission] is the financing part, including our own financing”. Now to be clear, Caroline didn’t say that Greece or the EU needed to provide assurances, for example on the funding of maturing debt in 2011, but she also didn’t dismiss the notion of the IMF requiring assurances which seems to give legs to suggestions in recent days that the IMF is seeking assurances from the EU that the EU will fund maturing Greek debt in 2011, and in the absence of such assurances, the IMF may withhold the next tranche of funding.

Elsewhere yesterday, the European Director of the IMF and the boss of Poul Thomsen (Greece and Portugal) and Ajai Chopra (Ireland), implied that the release of the next tranche would not be contingent on the EU putting funding in place to deal with Greek maturing debt in 2011 and 2012. However the same Reuters report claims that “he EU is preparing a new aid plan that would meet Greece’s funding needs in 2012 and 2013”

There was a rare meeting of Greek political leaders earlier today under the auspices of the Greek president. The last such meeting was in 2009. The publicly stated objective of the meeting was to secure consensus across all political parties to the proposed austerity measures and privatization programme. The meeting has ended without any such consensus. The Greek prime minister has stated that he will press ahead with the measures and will not seek early elections, as had been rumoured. There were public protests inAthenslast night and in some other key cities, smaller than the previous night due to heavy rain but the protesters say they will be back on the streets after 6pm this evening.

From the safety of the sidelines, economists Paul Krugman and the ECB’s former chief economist Otmar Issing seemed to be in agreement at a conference inCopenhagen that Greek default or restructuring was a very high probability event.

It was reported on Greek news service Capital.gr citing Dow Jones Newswires says that Greece is seeking an additional bailout package totaling €60bn on top of the existing €110bn package agreed last May 2010. It goes on to say “Greece expects to receive that next installment of aid, about EUR12 billion, by June 29. The government says it has enough cash on hand to continue operating until July 15”. Remember that the Review Mission presently on the ground from the IMF and EU expect to conclude their work by 6th June 2011 and it is expected that there will be a view by then as to whether the tranche draw-down will proceed. That’s why this GreekWatch series will conclude on 6th June.

In terms of explaining a bit more about the Greek domestic measures that are causing all the bother; today, the privatization of OTE (Organisation Telecoms Ellenos or Greek Telecoms Organisation), a major provider of telecoms in Greece and other south east European countries (Albania, Serbia, Bulgaria, Romania). The Greek government owns a 20% stake in the company that is worth an estimated €800m. German telecoms giant, Deutsche Telekom (DT) owns 30% of the company and the likelihood is that DT will buy whatever stake is put up for sale by the Greek government. OTE employs some 30,000 people and the unions and employees are not happy with the “privatization”. In fact they have now scheduled strikes for the start of June 2011 to make their feelings clear. The latest suggestion is that Greece will not dispose of the 20% stake but will sell an “option” for the future purchase of 10%, that is half the stakeholding.


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In what must be one of the most dramatic announcements by NAMA to date, its head of lending and corporate finance, Graham Emmett is reported to have told an audience in London on Tuesday this week, that NAMA would dispose of all of its assets in the UK by the end of 2013. Graham was speaking at the launch of the DTZ Money into Property UK report – his speech does not appear to be available yet so the best reporting is that by Property Week. This news is a bombshell because NAMA’s line previously, including that advanced by its CEO, Brendan McDonagh in an interview with Neil Callanan for the Financial Times in April 2011, was that it would dispose of only 25% of its UK portfolio by end of 2013.

NAMA’s UK portfolio is estimated to be worth €19bn at nominal value. It is unclear how much NAMA paid for these loans. NAMA’s average discount has been 58% but the expectation would have been that the UK discounts would have been far less than this. NAMA is understood to have received 100% of the nominal value of the loan for Richard Caring’s 20 Grosvenor Square building, for example. A 58% discount would imply a €8bn value at November 2009. Graham Emmett repeats the claim that the majority of NAMA’s UK portfolio is secured on assets located in London and the south-east ofEngland. NAMA has to date approved the disposal of €3.3bn of assets with “the majority” in theUK.

The reasoning for the rapid UK sell-off is, according to Property Week, the UK is a more liquid market than Ireland. The difficulties of disposing of property in a buoyant market first whilst nursing assets in other markets which continue to decline in value, was examined on here last week; a conclusion was that it would not be wise to dispose of assets in buoyant markets if the future rate of growth in those markets was greater than the declines in poorer performing markets.

UPDATE (1): 28th May, 2011. Emmet (two “m”s and one “t”) Oliver in the Irish Independent today seems to have been the only journalist to have gotten a reaction from NAMA to their Head of Lending’s statements in London. “NAMA will explore opportunities to dispose of assets in all markets over the coming years and will not restrict its disposals agenda to any one area or country, nor is it committed to exiting any particularly market by a particular time” was the NAMA reaction given to the lucky Emmet. Emmet is less fortunate with his spelling – NAMA’s Head of Lending, according to NAMA is Graham Emmett (two “m”s and two “t”s) and not as spelt by Mr Oliver.

UPDATE (2): 28th May, 2011. Actually the Irish Times today also reports a response by NAMA to Graham Emmett’s statements – “Last night, a NAMA spokesman said that “too much attention has been given to specific comments” and that it “may hold on to some assets for a longer time”, adding that the timescale would be set “by the appetite in any market to acquire assets at reasonable prices”.”

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The Nationwide Building Society has this morning published its UK House Price data for May 2011. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £167,208 (compared with GBP £165,609 in April 2011 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 10.1% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of May 2011 being GBP £167,208 (or €190,073  at GBP 1 = EUR 1.1537) is 0.9% below the €191,776 which the Permanent TSB/ESRI said was the average nationally here at the end of December 2010 (the series was abandoned thereafter and the replacement series from the CSO doesn’t include prices).

With the latest release from Nationwide, UKhouse prices have risen by 2.73% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index stays flat at 886 (because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK) meaning that average prices of NAMA property must increase by a weighted average of 12.6% for NAMA to breakeven on a gross basis.

The short-term outlook for UKresidential remains bumpy. Interest rates may need to rise to contain inflation that is beginning to take hold –  4.4% in February 2011, 4% in March 2011 and 4.5% in April 2011  – all on an annual basis. The UK target is 2% so the base rate which has been at 0.5% since February, 2009 may need be raised. The UK March 2011 Budget estimated growth in GDP of 1.7% and 2.5% in 2011 and 2012 and inflation of 4-5% this year falling to 2.5% in 2012.  Net debt will be 60% of GDP this year rising to 71% in 2012. Scary for the UK but paradise compared to the 100%+ in Ireland. The UK is also struggling with a deficit that was 11% last year (compared with 12% in basket-caseIreland) but there are swingeing cuts to public services in prospect to bring the deficit down to 4% by 2014/5. What all of this means for property prices is uncertain of course but the betting is that prices will come under modest pressure and may fall by less than 5% in 2011 – the Office for Budgetary Responsibility was saying 2.7% late last year but finances have deteriorated since then. The UK has plenty of micro-markets and the betting would be that London and the south-East will fare better than the North of England and elsewhere, Northern Ireland in particular.

What is interesting about the UK is that the real price of housing, that is, excluding high-ish inflation is some 40% off the peak in Q2, 20007. Massive quantitative easing has cushioned the 40% real fall from peak so that on a nominal basis, prices are only 10% off peak.

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