Archive for July 1st, 2011

Following the announcement yesterday by the European Commission, of the approval of the restructuring plans of Anglo Irish Bank (“Anglo”) and Irish Nationwide Building Society (INBS), the Irish Department of Finance has today announced that INBS’s assets and liabilities will be transferred to Anglo and the new entity is to have a new name. The DoF announcement doesn’t actually mention the new entity’s name but the press reports that it is to be the Irish Banking Resolution Corporation or IBRC. This merged entity has so far cost the Irish taxpayer €34.7bn and may cost more as the €40bn-odd of loans in the merged entity are worked out over the next number of years. IBRC doesn’t hold deposits and will be providing no new lending save in pursuance of existing loan agreements.

We may be waiting some time to see the detail of the full European Commission decision but you might wryly smile at the claim in the press release that the restructured entity has appropriately burden-shared with stakeholders.

(Graphic above produced by Japlandic.com, with other examples of artwork available here)

UPDATE: 15th October, 2011. The BBC reports that the new entity, IBRC, is now a reality following the merger of Anglo and INBS. A statement from the newly-named old entity states “with effect from 14 October 2011, the name of Anglo Irish Bank Corporation Limited has been changed to Irish Bank Resolution Corporation Limited (trading as IBRC). IBRC is an asset recovery bank which is committed to working out the Bank’s operations over time in accordance with directions given to the Bank consistent with our EC approved restructuring plan. The objectives of Bank’s Board and senior management team is to run the Bank in the public interest and in a manner that maximises return to our Shareholder and the Irish state whilst also treating customers and creditors fairly.” Despite the new name, the fact that it is a bank in name only, the Irish state will continue to repay €3.5bn approximately of senior unsecured unguaranteed bonds in the merged unit, one of the most significant of which is the USD 1bn (€721m) bond repayable on 2nd November, 2011.

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(Click to enlarge)

Figures supplied today by the National Treasury Management Agency (NTMA) show that Ireland has drawn down €22.36bn from the IMF/EU bailout agreed last November 2010. The figures show that the blended average rate of interest charged is 5.58% and that the funds are due for repayment between 5-10 years with a weighted average of 6.83 years. The figures also reveal that the longest maturity debt, borrowed from the EFSM in May 2011 is 10 years and that carries the highest rate of interest of 6.48% including “costs and credit enhancements”. Figures from the Central Bank of Ireland yesterday showed that the Government has over €21bn on deposit in Irish banks, most presumably being held in advance of the July recapitalisation of the banks.


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With yet another bondholder legal action collapsing in Dublin’s High Court this morning after the parties, Cayman Island-based hedge fund, Aurelius Capital Management on the one side and Minister for Finance, Michael Noonan on the other, agreed to a confidential settlememt, is it time to ask if the Minister is now regarded as a soft touch by any bondholder who feels aggrieved at the demand for a contribution to the cost of Ireland’s banking disaster? Let’s examine the evidence.

First up we had an action in the New York Southern District district court in February this year when Fir Tree Capital launched an action against Anglo Irish Bank (“Anglo”, 100% Irish state-owned basket case in receipt of €29.3bn of state funding). It is not known if Fir Tree is related to this morning’s bondholding litigator du jour, Aurelius but it seems that both firms have been joined together in actions in the US courts before – see here. Fir Tree was unhappy with Anglo’s attempts to “brazenly” act in a way which might disadvantage subordinated bondholders. The case appears to be held in abeyance, there certainly hasn’t been any main stream media reporting of it since February 2011.

Next up we had Abadi and Company Securities, which, at the start of June 2011, withdrew its challenge in Dublin’s High Court against Allied Irish Banks’ (AIB) plan to impose a haircut on its subordinated bondholders. Minister Noonan has agreed to pay their legal costs which the Irish Times reported ran to six figures. It is not clear how much Abadi’s bondholding was worth and there may be lingering suspicions that the payment of legal costs may have contained some element of reward to offset the proposed haircut on the bonds. That is denied by the Department of Finance but it is interesting that the 6-figure legal costs for such a short case were not sent for “testing”, that is independent assessment by the courts of reasonableness.

Then we had not one but two separate cases in the UK’s High Court where Bank of Ireland subordinated bondholders were upset at Minister Noonan’s plans to impose haircuts on them. The first of these cases was resolved this week, when what was reported as a group of pensioners who had invested in Bristol and West Permanent Interest Bearing  Shares (“PIBS”, Bristol and West is a Bank of Ireland subsidiary and the PIBS are essentially subordinated bonds) won their case at the High Court. Bank of Ireland backed down and abandoned its defence of the case, sniffily claiming the action “only” related to 3% of its buy-back programme and there might have been issues with the deadlines the bank was imposing on the bondholders – there is a report of the climb-down here complete with picture of victorious pensioner and the Bank of Ireland announcement is here.

The second Bank of Ireland case in the UK involves a merry band of what some might term the most squaliform kind of “fast money funds” and their case is still pending it seems. One of the applicants in the case is APPALOOSA MANAGEMENT and the Irish Times today reports that it holds €500m of subordinated bonds in Bank of Ireland.

And we have the case this morning where the details of the settlement have not been disclosed.  According to the Irish Times “the Department of Finance said the terms of the settlement would not be released “for commercial reasons”.”

So based on the evidence so far, it would seem that Minister Noonan is hardly playing hardball. Although we own more than 90% of AIB, we don’t know the terms of the settlements but if the cases were without merit then why hasn’t the Minister fought the cases in open court, if only to make an example? It emerged last month that senior bondholders in Anglo had seen 30% annualized returns on their investment when Anglo repaid €200m of senior bondholders at par. Indeed you can today buy the Anglo senior bond that matures in November 2011 at a 20% discount to par, which if it is repaid in November 2011 will mean you make 25% in four months or a 75% annualized return. The concern must be that there are companies out there at present making enormous profits off the back of Irish taxpayers, and Minister Noonan is just… well here’s how Professor Brian Lucey today illustrated his view of the political stance which is a far cuter picture than other illustrations, which might be considered pornographic.

UPDATE: 24th August, 2011. It is reported that Bank of Ireland had today re-launched its program to buy back GBP 75m of subordinated debt that was abandoned two months ago. The terms appear more generous with a 40c in the euro cash offer, a purely voluntary action and until 22nd September 2011 for bondholders to accept.

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Well I’m truly confused, but then again NAMA’s anti-lobbying provisions have always been confusing; witness poor former minister Willie O’Dea who just did not know what to do for the best last summer as a building site under NAMA’s control in his constituency became a health hazard and magnet for criminality. The former tourism minister Mary Hanafin was similarly bamboozled about how she could express her concerns for unfair competition in the hotel sector to NAMA. And indeed NAMA itself has been forced to dance a delicate dance by insisting its letter to the former Minister for Finance last year on Upward Only Rent Reviews was merely pointing out the effect the promised changes would have on the NAMA portfolio of assets, and the agency has been keen to emphasise that it wasn’t lobbying for the abandonment of changes to existing arrangements. For an outsider, it’s been amusing to watch people experienced in law in a bit of a tizzy over what they can and can’t do.

Lobbying is dealt with in section 221 of the NAMA Act. And it’s not just lobbying NAMA that is potentially an offence. It is also an offence to lobby “a NAMA group entity or a person providing services or advice to NAMA or a NAMA group entity”. So you could argue that the Department of Finance provides “services or advice” to NAMA. So lobbying the Department of Finance in relation to NAMA might potentially be an offence. Even if it was a NAMA employee doing to lobbying.

So what is confusing is that NAMA is now recruiting a lobbyist. The advertisement is here and you have another 10 days left to apply if the post is of interest. The salary isn’t quoted, but this week, it was revealed that 235 staff at the NTMA (NAMA’s parent organization which includes NAMA) were paid up to €100,000 , 78 were paid from €100,001 to €150,000, 27 were paid from €150,001 to €200,000, 3 were paid from €200,001 to €250,000 and 14 were paid over €250,000. The new NAMA role will report to Seán Ó Faoláin, NAMA’s Head of Business Services.

The role is not termed “lobbyist” however, the appointee will have the title of “Relationship Manager”. The vacancy notice says “the purpose of the role is [sic] as a contact person between NAMA and its principal stakeholders and to manage NAMA’s external communications” though it then goes on to specify that “experience of communications in a political and Governmental environment would be an advantage” which would seem to indicate the lucky appointee will be dealing with NAMA’s political masters – at least that is the conclusion reached by Emmet Oliver in the Irish Independent today when he writes that NAMA “ seeks to improve relations with politicians and other groups” and that the term “stakeholders” with which the role will liaise “is understood to mean members of the Oireachtas, but also the wider business community”

The whole area of lobbying and NAMA seems to be very confused. The reason it was addressed in the first place was to deter vested interests from swaying NAMA from its primary role of delivering maximum returns to the taxpayer, and that included deputies in the Dail who might be tempted to place local constituency concerns ahead of the national interest. But because the relevant section of the Act has dark warnings about imprisonment and fines, the lobbying provisions seem to be perceived to go far beyond what was intended. Which seems puzzling to me because the relevant section of the NAMA Act seems to exclude from its ambit, people who are paid to lobby or as the Act says,“is acting in his or her professional capacity or in the course of his or her employment”.

The NAMA chairman was forced to clarify before an Oireachtas committee last year that NAMA positively welcomes information about sites becoming health hazards. And people can contact NAMA to express an interest in buying a NAMA asset, NAMA meets with 50 of them a week apparently. And NAMA itself is building bridges with, for example, the representative body of Irish accountants, and with planning authorities and the expert group dealing with ghost estates.

So maybe some better clarification is needed about NAMA’s anti-lobbying provisions. It would be unfortunate to see the appointee to fill the current vacancy, facing a Garda investigation every time he or she opened their mouth to a politician.

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