For a company with €1bn negative shareholder equity, Treasury Holdings vehicle REO is surprisingly upbeat in its latest financial report

The word on the street last month was that KPMG International was close to agreeing a deal whereby Treasury Holdings loans would be bought from NAMA, but it seems that for the time being at least Treasury is continuing to negotiate with NAMA. One of Treasury’s main corporate vehicles which it majority owns, Real Estate Opportunities (REO) PLC today reported its preliminary results for the year ended 28th February 2011, in which it confirms that it has signed a Memorandum of Understanding with NAMA but that negotiations are ongoing, presumably before the famed Heads of Terms and Final Agreement are concluded (“famed”, because last year before Ireland’s Committee for Public Accounts in the Dail, the NAMA CEO referred to three documents which comprise a full agreement with the Memorandum of Understanding being the first).

Treasury Holdings is reportedly one of NAMA’s Top 10 developers and REO’s main asset, the Battersea Power Station site in London is likely to be one of NAMA’s most valuable properties (the Dundrum Shopping Centre might just about be the most valuable on paper today but that will change as Battersea is developed, having secured full planning permission at national government level earlier this year).

With respect to the actual accounts, REO reported a GBP 77m loss after taxation which is a considerable improvement on GBP 828m loss in the previous year. Of course both years are buffeted by the effects of revaluations to the immense REO portfolio which looks like this in overview.

REO is heavily indebted with borrowings of GBP 1.7bn of which  GBP 1bn is bank debt, a large amount of which is now with NAMA. The company has negative shareholder funds of GBP 0.8bn. For all of that the company believes it will reach agreement with its creditors and will go on to develop Battersea. Subsequent to year end REO sold –  world exclusive on here last January – the Montevetro office building in  Dublin to Google for GBP 85m. REO’s landmark building inIreland is Central Park in Leopardstown, Dublin where it has a blue-chip list of tenants and subsequent to year end, Irish gas and oil exploration and production company Tullow agreed to rent 48,000 sq ft.

Treasury is controlled by the colorful Johnny Ronan and Richard Barrett and would appear to be one of the NAMA Top 10 developers which might secure full (including Heads of Terms and Final Agreement) NAMA backing to its business plan.

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NAMA CEO provides update on agency’s progress

This morning, the NAMA CEO, Brendan McDonagh delivered a speech in Limerick to the Chartered Accountants in Ireland (CAI). The transcript should be available here shortly – UPDATE: available here now. There doesn’t seem to have been any significant change to the update speech delivered by the NAMA chairman, Frank Daly at the British Irish Parliamentary Assembly last week but here’s what I think you might find of interest anyway.

(1) NAMA has approved €3.5bn of sales, mostly in theUK– that’s €0.2bn up from last week

(2) NAMA says that in relation to Ireland “there are a number of other indicators which suggest a stabilisation of prices, including the reversion of office and retail yields back to pre-bubble levels” This might raise some eyebrows – Knight Frank last week indicated that prime office yields in Ireland were at 7.25% with upward pressure.

(3) There is a modicum of new information on the new mortgage product for residential buyers. NAMA says it has “had preliminary discussions with the two ‘pillar’ banks (AIB and BOI) and also with PTSB and we expect to have a more detailed engagement with them over the summer” and the aim would be to unveil a product in the “early autumn” NAMA thinks that total new mortgage lending will not reach €4.5bn in Ireland in 2011. There is no word on how much NAMA might introduce to the market.

(4) NAMA has recruited 140 staff to date. Although not mentioned in today’s speech, last week Chairman Daly referred to a full complement of 200 staff, so presumably recruitment of 60 staff continues.

No NAMA speech would be complete without a little dig at developers and in today’s speech it is thus expressed : “some of them have difficulty surrendering the grandiose lifestyles that they seem to regard as their continued entitlement”

There was no word on business plans already examined though NAMA says that it hopes to get to 200 by August 2011. No word on enforcement where there is some sign of a new ramping up in activity. Although not referred to this morning, it is understood that the NAMA annual report will be unveiled in the next few weeks which should put a more precise figure to the level of losses last year. The Q1, 2011 report is also due shortly after 30th June, 2011.

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“What do you want me to do, ring up the Élysée and say I’m here I need to speak to you?” Yes Enda, that’s EXACTLY what we want you to do.

It’s probably not that important what will be on the menu for dinner this evening in Brusselsat what was originally going to be a Greek-focussed summit of EU prime ministers, but it would certainly be helpful to see the seating plan. The invitation to the summit from EU council president, Herman van Rumpuy is here. Taoiseach Enda Kenny will be attending for Ireland, and probably the most significant contribution he can make to the fate of this nation in the next 24 hours is to seek a rapprochement with the French president, Nicolas Sarkozy. By most accounts – including Channel 4 journalist Faisal Islam who tweeted in March 2011

“So I just got quite an interesting internal account of what happened between new Irish leader Kenny and Sarko/Merkel at the Euro Council” and “”Kenny was v cocky: “we are new Gov, bailout has to change”. Content/ attitude stark comparison to humble Papandreou. Merk/ Sarko v upset”” and “EU source: “Kenny had a terrible impact”. But, also said, that EU more sympathetic because Irish exports are growing vs no growthPortugal”.

Enda upset the Frenchman on 24th March and they haven’t spoken since, and when I say “upset” I mean Enda, puffed up with self-importance after being overwhelmed by it all in Washington for St Patricks Day the week before, grandstanded Ireland’s position, insulted the French position on corporate tax rates and effectively put the kaibosh on a deal that might have been worth €450m (that’s 1% of the full EU contribution of €45bn, none of this “0.6% of the undrawn-down portion being worth only €148m”). A 3% raid on pension funds in the next four years to fund the Jobs Initiative could have been avoided if Enda hadn’t played the Big Man.

In recent weeks, Enda has been increasingly challenged on his relationship with President Sarkozy, seen as the main impediment to Ireland getting a reduction in bailout interest rates in line with that given to Greece and Portugal. Not only has Enda not sought or had a one-on-one meeting with President Sarkozy, he hasn’t even arranged a phone call. When challenged yesterday he is reported to have said “What do you want me to do, ring up the Élysée and say I’m here I need to speak to you?…I cannot force another country to give agreement” and “If the situation arises that it’s appropriate to have a meeting with President Sarkozy about this particular matter I would be happy to do so, but for now I’m pleased that the Minister for Finance on our behalf, in co-ordination with his other colleagues, is continuing the discussions that they were mandated to conduct.” Instead of Enda showing some leadership in the past three months, it has mostly fallen on Minister for Finance Michael Noonan to be sent in to undo the damage wrought by Enda on 24th March. And this “working the room” as an Irish academic recently called it, by the juniors is not moving the French president. And frankly I’m not convinced we have been working the room. Has President McAleese been involved or involved herself? How engaged has our French diplomatic corps been? There did appear to be evidence of shuttle diplomacy last week between the French and Irish with EU council president, Herman van Rumpuy acting as go-between.

The French position on our corporate tax rates is curious.Ireland is not Germany, Italy, Spain or the UK. Our economy is less than one tenth the size of France’s and although the French headline corporate tax rate is considerably more than ours, when it comes to effective tax rates there is less difference, and indeed on some measures, the French rate is below the Irish rate. So is the tax rate in what is a small European country experiencing economic hardship, so important to French interests?

So, regardless of the seating plan this evening, will Enda Kenny engage directly with Nicolas Sarkozy, will they shake hands, will they exchange pleasantries, will Enda say “look, at that meeting in March, I was eager to secure for my country, as any leader would for their own people, a change to the bailout which has been agreed for others; as a new leader I might have been overly enthusiastic but I hope we both agree on the solidarity of EU co-operation, and I ask you to withdraw your veto to the reduction in Ireland’s bailout rate. As a quid pro quo, we will constructively engage in further measures to ensure the bailout programme is concluded on plan” It’s a couple of minutes out of our Taoiseach’s evening and might save this country hundreds of millions of euro each year for the duration of the bailout.

The Taoiseach is right to say he cannot force the French to withdraw their veto. That’s because the system of EU-wide governance we have signed up to allows countries, be they as small as Malta or Cyprus or as great as Germanyor the UK to veto certain actions. And if a country uses a veto against another specific country then that target country must accept the decision; that’s what we signed up to. The system should, however, ensure vetos are not irresponsibly used, as that would just encourage retaliative vetos. And unless Enda can manage a rapprochement with the French, he might either have to accept his weakness as a leader or target a retaliative veto at the French. And by the way, the invitation for this evening’s dinner and meeting makes it clear that EU-wide issues can be raised, so I hope the Taoiseach will not insult us again with the “there wasn’t any time/ Greece dominated discussions / too bad, so sad” excuses. And if there is, for some reason, no time to discuss the matter this evening, yes Enda, phoning the Elysee Palace is EXACTLY what we want and expect you to do.

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