Archive for June 13th, 2011

This thread will now be broken into three parts, part 2 will detail the offers now being made to subordinated bondholders and part 3 will examine issues associated with the offers. Remember the bondholders now being “burned” are subordinated bondholders only, not senior bondholder is affected.

In summary, there are offers to buy back just over €6bn of subordinated bondholdings for €1.6bn meaning there is to be a haircut of €4.4bn. That €4.4bn will come off the €24bn estimate for recapitalising the banks suggested by the stress test results on 31st March, 2011.



Bank of Ireland (BoI)

The Educational Building Society (EBS)

Irish Life and Permanent (ILP)

We are still waiting to hear what is to be offered for the (CORRECTION) €0.1bn of outstanding subordinated bondholders at Anglo and INBS.

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The Taoiseach, Enda Kenny was in Cork this morning at the British-Irish Parliamentary Assembly and is reported to have expressed concerns that NAMA is selling property back to the original developers. The speech is not yet available online.

The Irish Independent reports the Taoiseach saying in relation to NAMA “I have had some indications of attempts to acquire property that was taken from developers through a variety of methods”

And he is reported to have said that he will meet Minister for Finance, Michael Noonan about this issue. Having not seen the speech, it is difficult to understand the context of these claims, which on the face of it are quite serious. And also just plain stupid. If Enda Kenny is trying to undermine confidence in a public body (and regardless of the sophisticated protestations, NAMA is a public body), then he is going about it in the right way.

Why on earth would the Taoiseach say in public, before senior Irish and British politicians, including some fromNorthern Irelandwho are particularly concerned about NAMA’s impact on their small local economy, why would Enda make serious allegations about NAMA? Shouldn’t he have consulted Minister for Finance, Michael Noonan BEFORE making such high profile public claims? Remember the Minister for Finance has a special legislative relationship with NAMA and can issue directions in accordance with the NAMA Act.

There have previously been allegations by Senator Mark Daly that NAMA was selling property back to people associated with the original developer below current market value. The senator has been challenged frequently to provide details. The senator enjoys privilege in the Seanad and has been challenged at least three times in that chamber to provide details, and has on each occasion refused. The senator reportedly met with NAMA and has apparently refused to provide NAMA with any details which the agency might investigate. The view on here of Senator Daly is not very positive because his allegations undermine confidence and yet all he has to do is provide an address (the property he is referring to is in theUK apparently) and the media and others can investigate his claims.

NAMA has not yet responded to An Taoiseach’s extraordinary speech today.The NAMA chairman, Frank Daly is tomorrow scheduled to address the same gathering in Cork that Taoiseach Kenny attended today.

UPDATE (1): 14th June, 2011. The Taoiseach’s extraordinary claims yesterday are increasingly looking like a gaffe. The Irish Examiner confirms the words used by the Taoiseach. It seems the claims were made to journalists on the fringe of the gathering yesterday; that said the Taoiseach’s speech is not yet available from the Taoiseach’s own website or from the Government’s communication website, merrionstreet.ie. A request for a copy of the speech from the Taoiseach’s office has been acknowledged but there has not yet been a substantive response.

UPDATE (2): 14th June, 2011. Apparently the Taoiseach is now satisfied by NAMA’s assurances today according to reporting at the Irish Times this evening, citing a spokesman for the Taoiseach. So in summary, the Taoiseach undermined confidence in a public body yesterday at a meeting in front of British MPs and Northern Irish MLAs, some of whom will have NAMA property in their constituencies. The Taoiseach publicly signals that he will involve Minister Noonan in investigating the murky claims. And the press run headlines like that in the Irish Examiner today suggesting skullduggery at NAMA with the Taoiseach’s imprimatur. What a needless and thoughtless gaffe.

UPDATE: 16th June, 2011. In the Seanad yesterday, the damage done by Enda Kenny was highlighted when it was pointed out that Senator Mark Daly’s frequent allegations of skullduggery at NAMA (which he has refused to detail even when speaking with parliamentary privilege in the Seanad) were supported by the Toaiseach. There was a terse exchange on the matter in the Seanad (available here).

UPDATE: 17th June, 2011. A NAMA spokesman has advised that NAMA adopts the following approach to deal with the prohibition of defaulting debtors buying back their own property.

” Under Section 172 (3) of the NAMA Act, there is a prohibition on a debtor who is in default on his loans from acquiring any legal or beneficial interest in the property which secured the loans concerned.  NAMA points out to receivers acting on its behalf the restriction imposed on them by Section 172 (3).

In the case of property which is being sold by a receiver acting for NAMA, a purchaser is asked to make a sworn declaration that:

– he is an independent third party purchaser not connected in any way whatsoever with the vendor;
– he does not fall within any of the categories of persons contemplated by Section 172(3) of the NAMA Act;
–  the agreed purchase price comprises the entire consideration for the property;
–  the Contract for Sale comprises the entire agreement in respect of the purchase; and
–  the terms of the Contract for Sale have been negotiated and agreed between the parties on an arm’s length, open market basis.

This approach tends to be adopted in the case of higher value disposals.In other cases, these points are incorporated as a special condition in the Contract for Sale and the purchaser, in signing the contract, warrants and confirms them. This approach is used, for example, in cases involving unit sales in a development. In the case of loan sales, wording is inserted into the sale agreement prohibiting (a) the involvement of any person contemplated by Section 172 and (b) prohibiting any disposal agreement between the loan purchaser and the debtor concerned.”

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UCD economics professor, Morgan Kelly’s article in the Irish Times last month appeared to reveal for the first time that a hitherto unknown player in Irish economic affairs, US Treasury Secretary Timothy Geithner had played a pivotal role in the IMF/EU bailout negotiations last November 2010. According to Morgan Kelly “The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish wasUK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent ofUS soft power, and in who our friends really are”

This came as a major revelation. And since the publication of that article, Taoiseach Enda Kenny came under pressure to discuss the matter with President Obama on his whistle-stop visit later in May, and yesterday Tanaiste Eamon Gilmore who is in Tanzania and met there with US Secretary of State, Hilary Clinton, was asked if he had brought up the “matter” with her.

But what “matter”? I suppose we want to know why someone from the US would interfere in a bailout for Ireland. If that is what we want to know then Wikileaks has already provided the answer apparently. In their release of US State Department  cables, there is one which reportedly seems to explain exactly why the US had a keen interest in bondholders in Irish banks being repaid : Secretary Geithner was concerned that if Ireland refused to repay bank bondholders then, in the words of Britain’s Telegraph “that could have spread contagion to the entire European system, to which American-backed “credit default swaps” were exposed to the tune of €120bn” (Wikileaks appears not to have published any cables beyond February 2010 on its website, and presumably this cable from Secretary Geithner is dated towards the end of the 2010, so an attempt will be made with the Telegraph to get the source cable and this post will be updated with any response).

So there is probably little point in badgering our politicians to raise this matter with theUS, in the sense we seem to know why the US adopted their stance. The US is the main financial supporter of the IMF of course, so its opinion is not detached from the bailout deal. That said, it seems to be the case that the IMF is supportive of “burden-sharing” which is interpreted here to mean that Ireland does not 100% shoulder the burden of repaying bondholders in private banks.

So why do we need raise the matter with the US ? Well, Central Bank of Ireland governor, Patrick Honohan said on TV on Friday last (Vincent Browne show, transcript here) “I think this is a matter that remains part of current policy discussion” and it seemed that he was talking about the apparent commitment not to burn senior unguaranteed bondholders. So if we are trying to counter the “influence” (a word used in a dark context in the same interview) of others which seems to be the only reason the State is repaying private bank bondholder debt, then it might be helpful to understand their position. And that would indeed seem urgent, and worth badgering politicians (and perhaps even Central Bank and National Treasury Management Agency personnel) for.

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