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Archive for August 3rd, 2011

Revealed in NAMA’s report and accounts (note 8 on page 9) for its latest reporting period, quarter one of 2011, is a charge of €825,000 for “lease fit out costs”. It’s not a cost incurred with one of its loans or developments and it is assumed that the cost relates to changes made at NAMA’s offices at the Treasury Building on Grand Canal Street in central Dublin (2007 brochure for the building here). NAMA has leased the building from developers Paddy McKillen andTreasury Holdings. Due to annual leave, NAMA might not be able to provide further information on this charge for some weeks, so this entry will be a bit of diversion with conjecture on what the €825,000 might have bought. Here’s 10 suggestions.

1. A gym. NAMA CEO Brendan McDonagh was recently reported to be working 70-75 hour weeks. Sitting behind the desk 10 hours a day or in a meeting room and grabbing the odd snack can’t be very healthy, so maybeTreasuryBuilding needs a decent gym. That wouldn’t account for €825,000 though. Maybe they’ve installed a rooftop swimming pool as well?

2. De-stressing facilities. Perhaps stress balls and watching the spheres in aNewton’s Cradle just aren’t enough any more, and perhaps the over-worked NAMA management have installed more industrial facilities to help them relax. Lord knows NAMA should be familiar with such facilities with the extensive spa amenities tacked onto many of the 83 hotels now controlled by the agency inIreland.

3. Enhanced co-operation devices. It seems to be now established that some developers are just not playing ball with NAMA, and are still stuck in the old mindset. God knows, NAMA has said it often enough. So perhaps argument and persuasion have reached their useful conclusion and perhaps more extreme measures are needed. Could a conference room be turned into a water-boarding suite? Iron maidens don’t take up much room. A rack might do the trick though it mightn’t deter certain developers who feel a little self-conscious about their height. A refusal to reverse a transfer to a spouse? The Tucker Telephone might encourage co-operation by curing developers of any future physical attachment to said spouses.

4. Covert surveillance. Developers who enter the premises to negotiate business plans might find themselves unwittingly compromised with hidden surveillance, be that listening devices in the washrooms and elevators or perhaps CCTV and external listening devices to capture conversations outside the building, not to mention photographing developers’ mode of transport. It might be best to ditch the Mercedes and turn up atTreasuryBuildingin a sensible Volkswagen – you never know who might be watching.

5. Anti-surveillance. Didn’t the Russians, or maybe it was the Chinese, perfect technology to acoustically interpret vibrations on window glass caused by conversations within a building. Was it laser or microwave technology they used? Regardless, NAMA might have upgraded the security of its own building, and the information stored and communicated therein. Maybe it’s an urban myth that with just an empty tube of Pringles and a wire coat hanger, attached to a laptop that you can infiltrate a wireless network, but NAMA might be taking precautions anyway.

6. Protection. Last year the “toxic bank avenger”, developer Joe McNamara, took his frustrations out on the gates of Leinster House. But how long before developers switch their attention more directly to their tormentors at theTreasuryBuilding? Concrete bollards to prevent truck bombs won’t be cheap but will be a bargain compared with bullet/blast proof glass for the building. Perhaps the senior executives now have panic rooms constructed in case any developer runs amok on the premises.

7. Wallpaper. In 1998 the British Lord Chancellor was embroiled in a scandal after it emerged he had spent GBP 650,000 decorating his public office flat. That included GBP 59,000 just for wallpaper; “you are talking about quality materials which are capable of lasting for 60 or 70 years” Derry Irvine sniffily said at the time. Now we know that NAMA has a publicized life-span of just 10 years but judging by its first year, it may take longer than that for the agency to turn a profit. Has anyone seen the wallpaper inTreasuryBuilding recently?

8. Housing the NAMA Art collection. In May 2011, NAMA amazed us all by donating a €300,000 painting, previously snaffled from developer Derek Quinlan, to the National Gallery. It was “a goodwill gesture to the National Gallery and to the Irish people” said NAMA grandly at the time. You can see a photograph of NAMA chairman, Frank Daly discussing the painting in situ at the gallery here. Perhaps NAMA’s management no longer wants to schlep over to the National Gallery to appreciate its art collection.

9. A special room for unsigned developer agreements. It’s now 15 months since NAMA acquired the first tranche of loans, and as of one month ago, only one agreement with a developer was “close to finality”. The NAMA CEO told an Oireachtas committee last year than an agreement comprised three document stages – the memorandum of understanding, the heads of terms and the final agreement. And each needs to be signed by NAMA and the developer, and potentially the developer’s wife. Yesterday, Northern Ireland’s finance minister called on NAMA to get a move-on with settling these agreements as the uncertainty was jeopardising businesses. Now that NAMA has acquired the loans of 850 developers, the agency must have a very big stock of unsigned documents.

10. Time-machine. Ah yes, if NAMA could only go back to May 2010 and write two letters, instead of one, to the Department of Finance. We know about the one warning of the effect of abolishing Upward Only Rent Reviews in commercial leases but alas NAMA didn’t write to the Department to inform it that it was changing the valuation date from 30th November because the evidence was that Irish property prices were still tanking, and asking for an amendment to the Long Term Economic Value regulation so that the agency might have been able to take account of information available after January 2010. If only NAMA had written such a letter, it mightn’t have just turned in a €1.1bn loss for 2010 with the prospect of a similar loss in 2011.

The more serious question is why NAMA has spent €825,000 on what is a relatively modern, third generation office building given the agency’s publicised lifespan of a further six to nine years. The building already has air-conditioning, raised floors and suspended ceilings. Perhaps NAMA will let us know in a few weeks.

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There was quite a deluge of information from NAMA last Thursday which included the list of properties to which NAMA has appointed receivers and of course the annual report. NAMA also slipped out the quarterly report and accounts for the quarter ending 31st March, 2011. Funnily enough there was no press release this time announcing the report and accounts and summarising the results. Being innately suspicious of organisations that time the release of information, particularly discretionary information, so that it all comes out at once, there will be deeper analysis on here in respect of the first quarter’s results than usual. This entry is the first of two, and carries a summary of the results. The next entry will examine some of the detail and carry consolidated financial statements which are more explanatory than those produced by NAMA.

1. NAMA made a profit of €91m in the quarter (this is the second out of five quarters to show a profit). The profit arose from interest received from developers of €276m being substantially more than the interest payable by NAMA on its bonds of €86m. NAMA made a loss on derivatives of some €35m and a foreign exchange loss of €44m. There were €26m of admin expenses of which a payment to Capita/the banks (see below) accounted for €18m.

2. Interest income on developer loans was down in the quarter (€276,235,000 in Q1, 2011 versus €330,317,000 in Q4,2010). This has been queried with NAMA.

3. There was no impairment provision recorded in the quarter. This compares with an impairment provision of €1.485bn recorded for the full year 2010. Like most asset management companies, NAMA will not recalculate the value of its loans and provision for losses each quarter. However it should be noted that NAMA’s main market,Ireland, saw declines in both residential and commercial property prices in Q1, 2011 and these declines accelerated in Q2, 2011. Increases in commercial and residential prices in theUK where NAMA has some assets increased very marginally in the first six months of 2011. So although NAMA has escaped an impairment provision in Q1, 2011, at this point it looks as if there will be a substantial provision to be made at 2011 year end.

4. NAMA generated €530m from borrowers during the quarter, representing interest, repayment of principal and disposal of assets. Interest is reported in the profit and loss account at €276m. NAMA says it didn’t sell any property itself during the quarter. So any sales will have been made by the developers. So it would seem that €254m was generated from the repayment of principal and disposal of assets by developers or sale of loans by NAMA. NAMA claims to have €17bn of performing loans (by reference to original book value) so €254m for one quarter (or €1bn annualised) is not a tremendous pay-down of debt.

5. At the end of March 2011, 23% of the value of NAMA’s loans – by reference to the original book value of the loans – was performing, that is, repaying interest (cf 40% in the draft business plan, 33% in April 2010, 25% in June 2010 and 23% in December 2010). Although that’s pretty dismal, it does mean that NAMA should be able to hold its head above water for a little time to come because if it receives interest at an average of 3.5% of 23% of €73bn, that will be just about enough to offset the interest payable of 1.5% of 42% of €73bn (NAMA applied an average haircut of 58%). In other words, NAMA will receive €587m and pay out €460m. The problems will crop up when the performing loans are repaid.

6. About 86% of the non-performing loans are 120+ days delinquent or being foreclosed. NAMA would appear to be in a weak position when negotiating with developers given that there are such serious problems with so many loans. NAMA can’t afford to appoint receivers to all of them.

7. NAMA’s big administrative expense is the payment to Capita and the four banks (there used to be five before Anglo merged with INBS to form IBRC) for the ongoing day to day management of the loans. NAMA paid €18m during the quarter and is on track to spend €72m in total with Capita and the banks in 2011, just for basic management of the loans.

8. NAMA continues to have extensive activity in derivatives, partly evidenced by the fact that the agency paid €181,000 to an external company, presumably Societe Generale, to value its derivatives in the quarter. In terms of the net loss on derivatives during the quarter, it appears to be about €35m.

9. NAMA advanced €91m of new loans to developers during the quarter which means a cumulative total of some €330m was advanced to the end of March 2011 (NAMA had approved €750-900m so quite a lot of the approved loans are still to be drawn down)

10. NAMA now has 145 staff and is expecting to recruit an additional 55 to bring the complement to 200. Remember when NAMA was supposed to have 60 staff? Of course NAMA also remotely controls some 500 staff in the banks who manage NAMA loans day to day. And there are signs that NAMA is delegating a significant amount of the asset management burden to receivers.

Part two should appear tomorrow depending on responses by NAMA to queries.

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NAMA property for sale

Last Thursday NAMA made a very important disclosure by publishing a comprehensive list of properties to which the agency has appointed receivers. The list of 847 properties represents the comprehensive real estate property foreclosed at the 6th July, 2011. NAMA has said that the list will be updated monthly. Future updates might be in a more flexible format than the PDF released last week.

Last Thursday NAMA said that not all the property on the list is for sale. And that in the first instance queries or expressions of interest should be directed to the receiver indicated. Should an apparent error be uncovered, then NAMA would appreciate contact from you to make any correction to the list.

Today, the tab at the top of this page previously devoted to the Paddy McKillen versus NAMA legal case has been moved to the About tab above and will remain directly accessible here. And a new tab is being created for NAMA property that is for sale, or at least is shown by NAMA as having been subject to the appointment of a receiver. This new tab will be regularly updated with NAMA’s monthly update and there will be comment and analysis of the properties on offer.

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