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Archive for July 29th, 2011

Figures released by the Central Bank of Ireland (CBI) this morning for the month of June 2011 show that the flight of private sector deposits from domestic Irish banks continued in the month of June, though at a lesser rate than during the more tumultuous months of the past year. In total terms for all Irish banks – the six State-guaranteed banks, the local branches of foreign banks and banks in the IFSC which don’t service the Irish economy – deposits fell by 1.5% or €9bn from €601bn to €592bn.

The CBI produces a mountain of figures each month – the focus on here is the total of private sector deposits in the six State-guaranteed banks, based on the belief that ifIrelandis to recover and develop a sustainable banking system, then companies and households will need to have the income and confidence to place deposits in Irish banks. In June 2011, private sector deposits in the State-guaranteed banks dropped by 3.6% from €107.5bn to €103.5bn. That’s the biggest monthly drop since last November 2010 when the IMF/EU bailout was agreed, and the second biggest monthly drop since September 2008 when the financial crisis blew up. Not good.

The CBI now produces monthly figures on savings and loans which analyses deposits in considerable detail – see here for the list of Excel spreadsheets available. Household deposits in all Irish banks (including foreign banks and credit unions) increased very slightly in the month from €92.133bn to €92.215bn. The overall loss of deposits inIreland has been generated by companies.

The CBI and ECB continue to provide substitute funding for Irish banks which replaces this flight of deposits and Irish banks continue to provide extensive State-backed guarantees on deposits.

So, looking at the deposit figures produced by the CBI. First up is the consolidated picture for all banks operating in Ireland including those based in the IFSC which do not service the domestic economy.

Next up are the 20 banks which do service the domestic economy and include local subsidiaries of foreign banks like Danske, KBC and Rabobank. There is a list of all banks operating in Ireland here together with a note of the 20 that service the domestic economy.

And lastly the six State-guaranteed financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS)

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank of Ireland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outsideEurope)

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The Nationwide Building Society has this morning published its UK House Price data for July 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 £168,731 (compared with GBP £168,205 in May 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 9.3% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of July 2011 being GBP £168,731 (or €187,981  at GBP 1 = EUR 1.141) is 3.2% above the €182,142 implied by applying the CSO June 2011 index to the PTSB/ESRI peak prices.

With the latest release from Nationwide, UK house prices have risen by 3.67% 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 is now at 856 (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 16.8% for NAMA to breakeven on a gross basis.

The short-term outlook for UK residential, like the UK economy as a whole, remains bumpy. Interest rates may need to rise to contain inflation that is beginning to take hold –  4.5% in April 2011  and 4.5% in May 2011 and 4.2% in June 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, though disappointing figures for Q2,2011 growth released last week of just 0.2% may bring downward pressure on these estimates. The outlook for inflation is 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.

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This is a short entry about yesterday’s property auction in Letterkenny held by the Easy Let property company (thanks to commenter “Patrick” for drawing attention to it). The auction was of 40-odd properties, catalogue here. According to Patrick, and indeed the Donegal Daily, only one property was sold during the auction. The Donegal Daily reports the auctioneer’s claims that deposits were taken on an additional three properties on the day, so perhaps the title above should refer to four properties sold in total, though in my own experience there can be some murkiness in post-auction sales.

The auction appeared to be similar in nature to the GMAC auction in Cork last month where just two properties out of 65-odd sold on the day. A quick review of the catalogue on here last week seemed to indicate reserve prices appeared ambitious in the present market. The houses seemed to be a mix of investment, holiday- and owner-occupier homes. TheCork auction was billed as a “low price” auction, the Donegal one as a “prime value” auction. In neitherCork or Donegal did the property sales appear distressed, to my eye at least.

Allsop/Space seem to be carving out a monopoly in the Irish auction landscape with well-marketed and publicised auctions, with high levels of transparency both before and during the auction. They have also pioneered the use of maximum reserves so buyers know in advance the reserve (or the maximum reserve) on any property. The next Allsop/Space auction is scheduled for 23rd September 2011, again in the Shelbourne Hotel in Dublin, with the catalogue available here from 21st August, 2011.

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