Archive for June 14th, 2011

To paraphrase Oscar Wilde, to miss one Eurogroup (grouping of the finance ministers of the 17 countries that comprise the EuroZone) meeting might be regarded as a misfortune, but to miss two is carelessness. Our Minister for Finance, Michael Noonan has now missed the following two meetings of the Eurogroup

(1) May 6th, 2011 – the “secret” meeting inLuxembourg that the German magazine Der Spiegel revealed. And about which later, the Eurogroup leader, Luxembourgish prime minister, Jean Claude Juncker said “When it becomes serious, you have to lie”

(2) June 14th, 2011 – Brussels

The Eurogroup is of course confronting probably the most serious crisis to date in the euro area with Greeceon the verge of default, certainly in need of a second bailout, giving rise to consequences that will very quickly ripple out to the other periphery countries, including Ireland. Ireland loaned €375m to Greece last year as part of the bailout and we would like to see this back. There might be moves afoot to reverse the reduction of 1% in the Greek bailout rate (that was certainly referred to by Minister Noonan inIreland’s Dail last week). There might be moves afoot to restructure Greece’s debt which might be regarded as a default. All of this is plainly of the utmost importance to Ireland. And yet our representative is again missing.

So why isn’t Michael turning up? This week he is in the USA promoting Irish business and apparently talking with existing and potential providers of funds toIreland. And the meeting this week is described as an emergency meeting so it might have clashed with Michael’s schedule. But the impression given is thatIrelandis being cold-shouldered out of current talks onGreece, even though we are likely to be the country possibly most affected by adverse developments there.

And whilst being respectful to the day that’s in it with the burial of our former Minister for Finance, Brian Lenihan who died last Friday, it is peculiar that the Eurogroup’s website still shows the late Brian Lenihan as the representative member of the group for Ireland. A wag might suggest the reason that Michael Noonan is not turning up is because invitations are going to the wrong place.


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At some point we may get from NAMA further details of the €3.3bn sales that the agency claims to have under its belt (or more properly, “approved”). Especially in light of Senator Mark Daly’s, and more significantly Taoiseach Enda Kenny’s claims yesterday that there might have been some machinations afoot by developers to either buy back their own property and/or pay below market value for NAMA property. We do know from NAMA that of the €3.3bn of sales so far approved, “the majority” are in the UK. What we don’t know is if the block pictured above on Oxford Street which was recently sold for GBP £220m by the Cosgraves (a NAMA Top 10 developer, reportedly) was a NAMA sale. Elsewhere it is reported today that some GBP £150m of loans relating to Derek Quinlan’sCitiTower inLondon’s Docklands has been sold by the Royal Bank ofScotland to the Canary Wharf Group. These loans will not be NAMA loans either as RBS is not a NAMA bank. So overall it is difficult to penetrate NAMA’s massive operation and get at any meaningful level of detail with respect to its €3.3bn of sales.

Today sees the publication of the UK May 2011 IPD Monthly Property Index – the index covering UK commercial property up to the end of May 2011. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.

The Index shows that capital values are still increasing but at a modest rate compared with the end of 2009/start of 2010. The Index rose by 0.1% in May 2011 compared with April 2011. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 11.0%. Commercial prices in the UK are now 34.5% off their peak in June 2007. On an annual basis prices are up by 2.3%. The NWL index is now at 886 which means that NAMA needs to see a blended increase of 12.9% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).

In terms of outlook for theUK’s commercial real estate market, difficult to say. The betting is that London will remain a buoyant market for the next 2-4 years, particularly in the next two years as shortages contribute to tight pricing, though other parts of the UK are suffering. And overall remember that despite the UK’s massive quantitative easing (printing more sterling) which has stoked inflation, the UK is still 35% off peak, which is better than Ireland where prices are 60% off peak, but still shows that the UK has some ways to move before recovering. The betting is that it will far sooner thanIreland.

The first table below shows the month-on-month % change in commercial property capital values since 30th November, 2009. The IPD index is broken down into three components – retail, office and commercial.  The second table shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner. Overall it shows that commercial property in the UK is worth 11.0% more at the end of November 2010 compared with the end of November 2009

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We are still waiting for a copy of the speech delivered by NAMA chairman, Frank Daly to the British Irish Parliamentary Assembly in Cork this morning. This is the same gathering at which Taoiseach Enda Kenny made such serious claims about developers’ machinations to re-acquire property from NAMA which was originally subject to a defaulted loan.

The press release says the chairman provided an update on progress this morning. And we’ve heard practically all of it before, save possibly for the snippet that NAMA has refused permission in 31 cases to banks to seek to appoint receivers to developers because “NAMA believed that there were other options which should be explored before considering enforcement”

What we all want to know is what Frank says about Enda’s allegations yesterday. The speech should be available shortly. And even if the speech doesn’t address Taoiseach Kenny’s claims, it is to be hoped that journalists can at least get a comment on the fringes.

Update here later.

UPDATE (1): 14th June, 2011. Frank’s speech should be available shortly. Apparently it does NOT address Taoiseach Kenny’s concerns but on the fringes of the event today, Frank gave an interview to RTE’s Southern Correspondent Paschal Sheehy which should be played on RTE’s News At One. I understand Frank noted Enda Kenny’s remarks and was determined to ensure defaulting borrowers did not acquire properties and said that the NAMA Act has provisions to guard against it.

UPDATE (2): 14th June, 2011. There was a 60-second statement by Frank during RTE’s News at One in which he said NAMA was unaware of defaulting debtors buying back their own property and the NAMA Act didn’t allow such transactions.

UPDATE (3): 14th June, 2011. It seems that the speech itself will not be released, which is a departure from previous NAMA practice.

UPDATE (1): 15th June, 2011. Having seen the NAMA presentation, which might be available in full later, the following is new
(1) NAMA has 140 staff and has a target of 200, that’s 50 up from previous reports
(2) NAMA has provided a breakdown of the €30bn of loans by territory, €18bn Ireland, €10bn UK, €1.6bn Europe and €0.6bn USA
(3) NAMA has said UK disposals will take place “sooner rather than later”
(4) NAMA says there is “incentivisation” for developers for meeting targets
(5) NAMA saved €300m through its due diligence efforts which only cost €29m and that €29m was recharged to the banks anyway
(6) There is a criticism of the banks – “Banks traumatised – overly cautious”
(7) Top 29 developers owe NAMA €34bn, and owe non-NAMA banks additional sums.
(8) During the boom, there was an over-reliance by banks on perceived value of personal guarantees
(9) NAMA is in some cases converting developers’ loans to non-interest bearing with back-end fee

UPDATE (2): 15th June, 2011. The full presentation is available here.

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