Archive for September 9th, 2011

Figures released by the Central Bank of Ireland (CBI) this morning show that Irish banks in August 2011 continued to wean themselves (very) slowly off funding from the central banking system. Although funding from the ECB directly to Irish banks actually rose by €0.3bn in the month of August from €97.6bn in July 2011 to total €97.9bn at the end of August, funding from the CBI itself to Irish banks fell by €1.1bn from €57bn to €55.9bn, meaning that the overall reliance by our banks on central bank funding fell a modest €0.8bn; modest that is compared with the €4.1bn decline in the previous month.

Overall our banks are in receipt of €153.8bn of central bank funding at the end of August, 2011 which is the lowest since the end of September 2010 when the total was €142.3bn, and is €33.2bn off the high of €187bn in February 2011 though most of the decline is represented by the recapitalisation of the banks. Irish banks continue to be largely excluded from funding markets so the reliance on the central banking system looks set to continue.

The small reduction in central bank funding is welcome and indicates that funding from other sources is stabilising; however there has been some deleveraging and it is not clear if the any part of the investment in Bank of Ireland announced at the end of July 2011 has been received.

It will be the end of September 2011 when we get to see how deposits in Irish banks fared in August 2011. So the figures released this morning are only generally indicative of a slight strengthening in the funding position of Irish banks.

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(UPDATE: 17th September, 2011. The transcript of the hearing is now available here)

Although not billed in advance, the NAMA chairman Frank Daly turned up this morning to duet with his other half, the NAMA CEO Brendan McDonagh. The occasion was the Joint Oireachtas Committee on Finance, Public Expenditure and Reform hearing which is part of an ongoing series of hearings in September which is examining the economic issues confronting us. The hearings have previously heard from the Minister for Finance, Governor of the Central Bank ofIrelandand Financial Regulator and this morning was the turn of NAMA and the NTMA. For outsiders looking in, the hearings appear woefully chaired with some of the 27 members hogging the finite time available whilst others seem to be side-lined. In terms of NAMA business today, here’s what we learned:

(1) NAMA says it has generated €4.5bn (elsewhere the indication was €3.9bn) “in cash” from its assets. Apparently some loans have been redeemed at par, presumably as part of some refinancing. But as noted on here earlier in the week, there is a shocking lack of transparency in these disposals, very few of which are reported. NAMA says that it doesn’t sell its assets “off-market”

(2) NAMA is projecting a pre-impairment profit of €500m in 2011 which when added with almost €500m of a capital buffer remaining at the end of 2010 should be enough to absorb impairment losses that might arise in 2011. Consequently NAMA doesn’t foresee the need for additional State funding this year.

(3) NAMA says that if there is “full implementation” of the changes to Upward Only Rent Reviews in commercial leases then the agency will incur costs of 20% on its commercial property.

(4) Funnily enough the NAMA CEO thinks that according to the indices commercial property is down 3% in Irelandthis year. The two commercial indices in the country, the Jones Lang LaSalle and the SCSI/IPD both indicate 7% declines. The NAMA CEO says they will cross the Upward Only decline when they come to it.

(5) NAMA says that it subjects all appointments to open tender. This would appear to be rubbish – here is the NAMA tender page and separately, you can search for NAMA vacancies here. Neither advertises a tender for an auctioneer to sell Derek Quinlan’s art collection or for executive chairmen (Harry Slowey was named in some newspapers in May 2011 as the person NAMA wanted to appoint to the Grehan brothers company, Glenkerrin).

(6) NAMA board member Steven Seelig incurred travel costs of €35,915 in 2010. According to the annual report, Mr Seelig was paid these expenses “on a cost recovery basis to attend meetings” The NAMA CEO said these costs represented attendance at 10 meetings and that the travel arrangements were booked and paid for by NAMA. Other than Frank Daly no ther director incurred travel expenses; which is interesting because Brendan McDonagh spoke at various venues around the country during the year. Did he just not claim his travel expenses?

(7) Despite NAMA winning on two of the four points at the Supreme Court, it seems that NAMA is to pay Paddy McKillen’s costs. NAMA says that Paddy McKillen’s costs will be taxed. NAMA says that its own costs were not significant as the Attorney General and the State Solicitor absorbed much of the cost. There was no comment on media reports of costs of €2-4m. There was no response on whether anyone faced sanction for NAMA incurring any expenses. Despite NAMA winning on two of the four points ultimately at issue, it wasn’t clear why NAMA would pay Paddy McKillen’s expenses. In such a score-draw situation, might you have expected both parties to bear their own costs?

(8) The reason NAMA doesn’t show non-real estate property in the monthly foreclosure list is because the agency hasn’t foreclosed on any. Really? Wasn’t the agency involved in the P Elliot, Pierse and Whelan foreclosures. Is NAMA seriously saying that these companies have nothing other than real estate assets? I note that there was even an auction of Pierse’s assets byWilsons auctions. NAMA says the only exception is Derek Quinlan’s art collection. NAMA says it has forced developers to sell assets themselves so cars, speedboats and helicopters may have come onto the market through the developers. Where’s the transparency in that?

(9) NAMA indicated the typical developer salary was €75-100,000 but conceded that salaries of €200,000 were being paid. NAMA did not say if these were the maximum salaries. NAMA indicated its approach was to the overheads of developers generally which it typically reduced by 75% from the boom days.

(10) NAMA said that some 20% of developers were “at that stage in their lives” where they didn’t have the ambition to work with NAMA. If that means that 170 out of 850 developers, then that means there’s going to be considerably more foreclosure action. NAMA said that it was “about to kick off a number of court actions” in respect of spousal transfers and indicated that some existing court applications touched on this subject (the only personal applications to date have been against Ray and Danny Grehan, Jim Mansfield, Paddy Shovlin, Patrick and Tony Fitzpatrick, the directors of Capel Developments and John O’Connor/Denis Kenny)

(11) NAMA confirmed that it had spent €50m on Irish short-dated government bonds in February 2011 but that it has now disposed of them entirely at a profit. NAMA claimed that these investments were a normal part of treasury operations and that NAMA was paying nearly 2% on its bonds and overnight deposit rates might be only 0.4%.

(12) NAMA expects to reveal its mortgage product shortly and said that it had gone to the board yesterday. Non-NAMA banks had been invited to participate in the scheme but had not positively responded, at least to date.

(13) To the end of August 2011, 113 business plans from developers had been reviewed by NAMA with 50 agreed, 30 enforced and the remainder not yet agreed. So between the end of June 2011 when the NAMA chairman told RTE that only one plan was near to finality and the end of August 2011, 50 plans have been agreed? Unfortunately NAMA wasn’t asked what constituted an agreement but if you are talking about the three documents which the NAMA told the Oireachtas last year constituted an agreement – memorandum of understanding, heads of terms and final agreement – and you are talking about all the parties – NAMA, the developer and potentially the developer’s wife – signing the agreements, as I understand it, we are still today looking at zero. NAMA says however that it is continuing to function absent agreements, that it is processing 100 credit decisions per month and decisions are made within one week.

(14) NAMA has now recruited over 190 staff and will have 200 by the end of 2011. In addition there are some 500 working on NAMA loans at the participating banks (AIB, Bank of Ireland and IBRC).

(15) NAMA has yet to acquire some €2.4bn from developers. These are understood to be the objectors, mostly from Northern Ireland. We were previously given to understand that they don’t now include Paddy McKillen.

(16) Whilst continuing to claim that NAMA will pursue developers for the full value of the loan outstanding, the NAMA chairman pointed to section 10 of the NAMA Act which says “(2) So far as possible, NAMA shall, expeditiously and consistently with the achievement of the purposes specified in subsection (1),

obtain the best achievable financial return for the State having regard to—

(a) the cost to the Exchequer of acquiring bank assets and dealing with acquired bank assets,

(b) NAMA’s cost of capital and other costs, and

(c) any other factor which NAMA considers relevant to the achievement of its purposes”

(17) There would have been only one bonus of over €50,000 payable in NAMA in 2010, and that was the bonus payable to the NAMA CEO and he, Brendan McDonagh, waived his bonus. Brendan’s bonus amounted to €230,000 [that was previously confirmed by NAMA] despite NAMA recording a loss of over €1bn but he waived that in its entirety. No other employee in NAMA was entitled to a bonus of over €50,000, and consequently no-one in NAMA was paid a bonus over €50,000. The NAMA CEO did not answer the question about the highest bonus paid in NAMA in 2010.

(18) The NAMA CEO admitted that it was the advice of his agency in June 2010 which prompted then-Minister for Finance, the late Brian Lenihan to claim that price movements in NAMA’s underlying assets between the NAMA valuation date of 30th November 2009  and June 2010 had an overall effect that was broadly neutral.  Yet in 2010 NAMA subsequently booked an impairment provision relating to the decline in property values of €1.5bn.  “so what” seemed to be the body language of the NAMA CEO.

(19) NAMA is prevented by section 172 of the NAMA Act from selling property back to the original developer if the developer has defaulted. NAMA can’t guarantee this will be adhered to because for example of the web of ownership of some companies, but the NAMA chairman gave assurances that NAMA would try its best. It’s still not clear if NAMA will sell loans back to groups including the original borrower for less than the par value of the loan.

(20) NAMA said that no part of the NAMA Act was preventing it from doing its business and said that it was the NAMA Act itself which constrained the transparency of the agency, either in keeping certain matters confidential or in making NAMA maximise its financial return to the taxpayer which might be compromised if NAMA was more open.

Overall there wasn’t much new this morning. Many of the 27 members of the committee seemed to be absent. Some of the responses today seemed peculiar when set against what we know about NAMA. In respect of others we might have to wait to see how credible NAMA’s claims are – for example it will be April/May 2012 when we get the full year accounts for 2012 with an accurate estimate of impairment. The transcript of today’s hearing should be available next week and will be linked to here.

UPDATE: 6th October, 2011. Minister Noona yesterday gave some details and justification of salaries paid to developers. According to the Irish Times today “the range of salaries, he said, was between €75,000 and €100,000, and there were two salaries above that, one between €100,000 and €200,000 and another of €200,000.”

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