Archive for October, 2011

So farewell then Jean-Claude Trichet, the 68-year old president of the ECB whose last day in office is today. From tomorrow, the governor of the Italian central bank, Mario Draghi will take over the reins as ECB president at this crucial juncture in the young life of the euro.

The avuncular-looking Jean-Claude has been president of the ECB for exactly eight years since 1st November, 2003 and has been in the role during the inflation of Ireland’s calamitous credit bubble which burst in late 2008; and since then he has been increasingly influencing domestic behaviour – for example, it has been claimed that although Jean-Claude hasn’t explicitly threatened Ireland with a withdrawal of special funding if we burn bondholders, Minister for Finance Michael Noonan understands that “a nod is as good as a wink to a blind horse”. And although the payment on Wednesday this week of the USD 1bn (€714m) Anglo unsecured, unguaranteed senior bond is not mandated by the terms of the Memorandum of Understanding with the IMF/EU/ECB Troika nor is it a term of written agreements with the ECB, it is “understood” that burning the Anglo bondholders would have consequences; and given we rely on the ECB for €150bn of extraordinary funding to our banks (€100bn from the ECB directly and a further €50bn from our own central bank under the ECB’s auspices), it is assumed that Minister Noonan doesn’t want to rock the boat and potentially put that funding at risk – never mind the fact that the ECB can’t just unilaterally withdraw funding to any one country.

Although Unca Jean-Claude might epitomise the ECB position on repaying bondholders in failed Irish banks, he is but one representative; there is evidence that other representatives are more blunt in their position – remember this from June, 2011 – “in the meantime, we may have to come to the conclusion that it doesn’t really make sense for the ECB to keep putting €100 billion into Irish banks.   What we are doing is actually illegal, but we have being doing it because we want to help Ireland.  Maybe we might come to the conclusion that we should stop” Remember the ECB is directed by an Executive Board of six non-Irish bankers/economists and a Governing Council of 17 national central bank governors including our own Patrick Honohan. Not much is going to change tomorrow.

So what legacy has the career French banker left behind? The fact that respected voices are openly discussing the collapse of the euro and the consequences is not a good sign. And despite the cheering last week, it seems the latest deal on the EuroZone (EZ) crisis is meeting obstacles with potential funding sources not biting our hands off to stuff money into the various EZ funds and bailouts. So Greecestill appears to be teetering on the edge of an unstructured default. Italian bond prices are touching record highs today, ditto Spain. Ireland is still in shock with having to put €60bn (40% of GDP) into its banks. The European bank stress tests are a by-word for farce and a large part of the blame for the dismal reputation and poor financial condition of EZ banks today must be shouldered by the ECB – interbank lending is largely frozen, deposits by banks at the safe-haven ECB are at elevated levels, the EZ banking system is sclerotic. And austerity programmes are causing unrest and collateral unrest from Madrid to Helsinki, Athens to Ballyhea. Before our entry into the euro in 2002, we might have dealt with the current type of crisis by doing what the British are doing and print money to inflate our way out of debt, and to cushion the adjustment of national income to expenditure and to distribute the pain via the drop in living standards across all of society. But Unca Jean-Claude is opposed to so-called Quantitative Easing (QE), so we are left with the blunt instrument of austerity. As regards the setting of interest rates, many still see the decision of the ECB to increase rates in 2007 as wrong and that in 2008/2009 the ECB was too slow to reduce rates.

As for the positives, Unca Jean-Claude will trenchantly defend his actions as being primarily directed at maintaining price stability for the now-330m people in the EuroZone – keeping inflation at around 2% – and he has achieved that. He might also point to the currency maintaining its value against the US dollar and pound sterling, though QE in both theUSandUKwill be in part responsible for that. He has resisted QE in the EZ which might put upward pressure on prices, and he has been a exemplary proponent of the “no bondholder left behind” policy which he would justify on the basis of keeping funding costs for all EZ banks under control. And as for default on any bonds – sovereign or bank – that would be anathema to him unless it was part of an agreed restructuring with bondholders. All in the name of price and cost stability.

So au-revoir then Jean-Claude and ciao Mario! Sadly the change will mean little here.

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


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Here’s the full list (the file is 3MB so it might take a moment to load). Here’s the new stuff.

(Click to enlarge)

(Click to enlarge)

This is what you are looking at

(1) Real estate property subject to loans in NAMA to which receivers have been appointed. The receiver’s website is shown against each property.

(2) This is all the real estate foreclosed sorted by country, and then region.

(3) Not all of the property may be for sale.

(4) Contact the receiver with enquiries or expressions of interest in the first instance. Only pester NAMA if you’re not getting any response from the receiver and make allowances that receivers will be busy with queries, particularly after a new release of foreclosed property.

(5) If you think there are mistakes on the list, contact NAMA.

There will be an update on the detail of the new list later but it is dominated by Irish (Galway and Clare) property.

What’s the background to the list? In July 2011, coinciding with the publication of its annual report, NAMA published its first enforcement list – properties to which receivers had been appointed following default on loans by developers. That list was of 850-odd properties and generated an immense buzz. NAMA indicated the list would be updated on a monthly basis.

You will find the previous editions of the enforcement lists here, together with a list of reported NAMA sales.

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“retail deposits have seen some momentum in September following the stabilization of the banks and their recapitalization” briefing by the Department of Finance in October 2011

This morning the Central Bank of Ireland (CBI) released its monthly data on banks, deposits and loans in Irish banks as at 30th September 2011. During the month of September 2011, deposits by ordinary Irish households and businesses continued to decline but at a reduced rate compared with previous months. In terms of the so-called covered banks (essentially the two pillars, AIB and Bank of Ireland, and also Permanent TSB) these deposits were down just €133m from the previous month and now total €102bn; the decline over the last 12 months is €23bn, so the monthly rate of decline has slowed considerably. It hasn’t yet reversed, mind. The CBI doesn’t provide an analysis of deposits at the covered banks – about the only analysis it doesn’t provide – but in terms of all banks operating in Ireland including foreign and IFSC banks, Irish household deposits increased by €500m in September but ordinary Irish company deposits fell by €2.5bn in the month.

Non-Irish residents deposits in the covered banks rose in September 2011 by over €500m – only the second monthly rise in the past year, the other being in July 2011. One possible inference is that confidence in the Irish banking system is returning more quickly outside the country than within it. It might require another few months of increases though before that inference would be reliable.

Deposits in the covered banks overall increased – for the second month running  – by €2bn in September 2011, as a result of deposits from the Government and Monetary Financial Institutions (MFIs –see below). The CBI is not particularly helpful with its definition of MFIs which is reproduced at the bottom of this blogpost but it seems to include credit union accounts.

Here is the full set of deposit statistics for the different categories of bank operating in Ireland.

First up is the consolidated picture for all banks operating in Ireland including those 450-banks 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 – Anglo and INBS have now been merged to form the Irish Banking Resolution Corporation, IBRC)

(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 ofIreland) 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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“It’s shite being Scottish! We’re the lowest of the low! The scum of the fucking Earth!  The most wretched, miserable, servile, pathetic trash… that was ever shat into civilization! Some people hate the English. I don’t! They’re just wankers! We, on the other hand, are colonized by wankers! Can’t even find a decent culture to be colonized by! We’re ruled by effete arseholes! It’s a shite state of affairs to be in, Tommy!” from the movie Trainspotting

Substitute Scotland with Ireland, and England with Europe in the above and you might get an idea of feelings today after the latest marathon 2-part EU summit concluded in the small hours this morning, and resulted in the obligatory summit communiqué, available here. In short, the European bailout fund which started at €250bn and rose to €440bn is now to be boosted to have €1tn of “firepower”, EuroZone banks are to get €100bn of recapitalization by July 2012 so as to boost confidence and absorb losses, and Greece is to get a 50% write-down in its debt. There’s also talk about more oversight of national finances and a tax on banking transactions (as part of a global regime). Bank shares in Europe have rallied today in response. Interest rates demanded on government bonds have come down slightly meaning lenders think there are better chances of getting their bond investments back.

Delve into the communiqué though, and you can’t fail to notice the woolliness of the actions to be taken – the EU “recommends the definition by the end of the year of the process to achieve this objective” in relation to raising the Italian pension age might take the biscuit, but the second Greek bailout is still undefined and holders of Greek debt are to be “invited” to take a 50% write-off, it’s not clear what happens if they decline the “invitation”; most significantly though, there is no detail on how the mooted €1tn funding of the bailout fund will be sourced. It is also unclear how EU countries will adopt new rules giving the EU pre-approval rights over EuroZone national budgets where deficits are being run up; but at least that won’t concern us here inIrelandfor a long time, as we need Troika approval before we blow our noses.

But there’s nothing of consequence for Ireland in the latest summit. Perhaps that shouldn’t be surprising in a EuroZone with 330m people and a GDP of €9,200bn -our 4.6m population and €150bn GDP gets lost in the mix and it is France and Germany that dominate proceedings. But with the gross injustice of having to pay USD 1bn (€711m at today’s exchange rate) to Anglo’s unsecured, unguaranteed senior bondholders next Wednesday, 2nd November, it is worth having a quick review of the quality of the people who are, according to the Government, forcing us to stump up 100% of the cost of the Anglo bond, but at the same time just agreed to a 50% write-down (or write-off) of Greece’s sovereign debt. They may not be “effete arseholes” but they’re hardly superior geniuses either.

Prone to tantrums
It would be hard to beat the handbag-clutching outrage displayed by some leaders in Europeduring this crisis. Who can forget the ear-bashing delivered by European Commission president, Portugal’s Manuel Barroso to former MEP and current TD Joe Higgins back in January 2011. Manuel seemed almost asthmatic in his eagerness to pass the blame for the Irish financial crisis to Ireland, and stop any suggestion that policies in Europe and in particular, the ECB might have contributed to the national crisis. And whilst that might have been dismissed as a storm in a teacup, the continuing umbrage taken at the temerity of ratings agencies, who had the absolute gall to downgrade countries with 120% debt:GDP, would have been more serious if it wasn’t farcical. Talk of creating a European ratings agency might have subsided, but the “howling at the moon” by European leaders will not be quickly forgotten. The dismissal of the work of ratings agencies as “so-called clairvoyance” by Olli Rehn’s office in July 2011 after the Portugese downgrade would probably win the prize for European petulance.

So Ireland was one country within the community of 17 in the euro area, suffered an economic shock when the property and banking sectors imploded and found itself with a nasty deficit when tax revenues collapsed and spending stayed elevated and was exacerbated by bailing out its banks. And the country needed some time to adjust spending and taxation so as to reach a point where it could run a balanced budget. The country fesses up to its problems and seeks a bailout programme to tide it over the period of readjustment. And what do our friends do? Firstly they charge us a 3% premium (I think the mafia call it a “vig”) over cost for the funds so that we can, in part, repay European banks guaranteed and secured bonds; not only that, but then one of our partners insists that we change our tax system for corporations as a quid pro quo for a slight reduction in the profit being earned on our bailout. Charming!

Remember the stress tests in 2010 that gave both Bank of Ireland and Allied Irish Banks clean bills of health only for both banks to need nearly €20bn of a bailout months later. And then more recently on a warm Friday in July 2011, we all gathered around the monitors to hear the results of the second European banks stress tests. Would it be 15 or 30 banks that failed the stress tests and would they need €30bn or €50bn of new capital? Why no, said the EBA, just eight banks didn’t have enough capital and €2.5bn would do the trick. How we laughed when one week later, one Spanish bank by itself needed €2.8bn of new capital and €3bn of emergency liquidity! And three months later, the €2.5bn requirement has grown to €100bn. Funny, funny people with impeccable comedic timing.

Just plain dumb
When you recall that we have known since at least last year that Greece faces a 150% debt:GDP, you really have to admire the denial and delusion of claims at the heart of Europe that austerity alone could rescue Greece and return it to financial health. And with a great flourish at the July summit when a 21% debt writedown was proposed, it was still obvious that this wouldn’t be enough. And even today with a target of delivering Greece to a debt:GDP of “only” 120% by 2020, it again seems incredible, when you consider Greece’s reputation for attracting investment and the continuing weaknesses in its economy. Minister Noonan might have justifiably claimed thatIrelandwas not Greece, but Greece is not Italy either and doesn’t have the ability to attract investment and generate income so as to sustain a 120% debt:GDP. A further write-down will inevitably be in prospect for Greece.

Of course it would be an exaggeration to claim thatIrelandhad been “colonized” byEurope. And although feelings towardsEuropehave probably cooled a little, in general there is still support for the European project, despite the behaviour of some leaders. It is though, galling for this country to have to pay out €150 per man, woman and child next Wednesday to unsecured, unguaranteed bondholders in a bank that is costing the nation €29.3bn, a bank without depositors, that doesn’t lend, that is a warehouse of doubtful quality loans and which is being run down in as short a period as possible. Galling. But it is something else to realize the caliber of those insisting on the payment, and what that says about our abilities…

Finally, two small points on our own Government’s actions. We are being told that if we were to get a 50% writedown on our debt, we would need endure years of austerity. Given that a 50% writedown would simplistically mean forgiveness of €80bn of debt, I wonder if we could actually endure some more austerity; and anyway if our debt:GDP fell to 60%, would we really have austerity for more than a couple of years; surely with such low debt and a growing economy, we might be able to get back into bond markets sooner rather than later. And secondly, I can’t help but notice that the much-touted Comprehensive Spending Review which was to have been completed in September 2011 has still not been published. Nor has the 4-year plan which was signaled in August 2011 and was to be published in October 2011 and would provide a degree of certainty as to new taxes and levies in the next four years. Neither will be popular in the sense that both will make more tangible the future austerity measures. And I notice what appears to be an agreed position across the Cabinet as to the message to be deployed to deflect criticism of the repayment of the USD 1bn Anglo bond next week and that message is : Anglo will pay the bond out of its own resources, the taxpayers’ resources will not be affected, Anglo has recently sold North American assets for billions and it is from the proceeds of these sales that Anglo will repay the bond. This is patent nonsense but it seems to be part of the policy to dampen down what should be an outbreak of outrage.

[Apologies to readers who might find the quotation from Trainspotting at the top to be too colourful, but I think its earthiness and authenticity is justified. That said, let’s maintain the usual standards in any comments posted]

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[UPDATE: 2nd November, 2011. The transcript of the hearing is now available here ]

Here’s a question for you – say you were going to buy a car and a house. And you had a budget of €20k for the car and €300k for the house. Wouldn’t you expect to spend proportionately more time considering the house purchase? And although the colour and make of the car might be of intense interest, when it finally comes down to it, the outlay on the house is far more significant. That’s how a logical person might approach the purchases. But there is good reason to suspect that the approach by the members of the Oireachtas Committee of Public Accounts would be reversed and they’d spend more time considering the car. Why? Because for five hours today they grilled NAMA on its operations and devoted 90%+ of the time to costs and activities that represent a tiny proportion of NAMA’s finances. NAMA will generate some €30bn of sales in its lifetime (hopefully), even including developer salaries it will cost some €2bn, and yet it was the latter that occupied most of the time of the Committee today. Here are the highlights:

(1) NAMA has approved €4.6bn of sales to date. 80% are overseas, 20% inIreland. The overseas disposals have earned NAMA a profit of 12-15% above what NAMA paid for the loans. Some of the Irish disposals have been at a loss, put at 5-25%, compared with the loan acquisition value.

(2) NAMA expects to have disposed of €9bn of assets by December 2013, 70% of which are expected to be overseas. Besides theUSand theUK, NAMA has significant assets in Germany, France and Portugal (and only about €120m of assets in other European countries –Malta, Poland,  Czech Rep were mentioned).

(3) NAMA has approved advances of €900m to 70-80 developers with €500m of that being handed over in cash.

(4) NAMA is directly managing 188 of the 850 debtors controlled by the Agency. The rest are managed by the banks directly, with NAMA having overall control. To date 143 business plans have been “assessed” and 30% have been subject to full or partial foreclosure action. By the end of the year, it is expected that all of the 188 plans will have been “assessed” plus some 200 of the smaller business plans for the borrowers managed directly by the banks.

(5) Developer salaries; by the end of 2011, between 110-120 developers will be paid salaries of €70-100,000 per annum each, plus there are 2 who will be paid €200,000 per annum. NAMA stresses that these are cheaper than employing receivers or generic property management or asset management companies. NAMA says that the two €200,000 salaries relate to developers managing €2bn portfolios, and that a professional asset manager would typically charge 1% per annum or €20m. So NAMA says it is getting value for money, despite the public perception of a bailout.

(6) In terms of transparency of disposals, which is the meat of what NAMA does, the NAMA chairman said he was “minded” to seek approval from the NAMA board for better transparency but he wouldn’t make a commitment.

(7) In terms of the disposal of no1 King William Street, NAMA claims that the property was “extensively marketed” but only gave advertising in Property Week in support of that claim, there were 30 viewings of the building and 7 parties submitted bids which ranged from GBP 65m to GBP 67.5m. NAMA was not asked why a better yielding price wasn’t offered. Again from a personal perspective, I could not find the property on the receiver’s [GVA Grimley’s website]. There may well be reasons why the price achieved was some GBP 6m less than might have been suggested by the “going rate” yield but we didn’t find out what the reason was, today.

(8) Montevetro was apparently on the market before it was sold to Google earlier this year. It was advertised for sale or rent by the developer, a Treasury Holdings company. That might come as a surprise to some people. NAMA claimed that the only party that would have had an interest in the 210,000 sq ft building “then” was Google. Times have obviously changed because the Central Bank of Irelandand Bank of New York Mellon are both reportedly chasing the 230,000 sq ft Liam Carroll building designated for the Anglo HQ.

(9) The Anglo HQ may be sold by the end of November 2011. Negotiations are at a sensitive stage, but NAMA agree that the site is an eyesore and emblem of what went wrong and they genuinely seem to want to see the project completed.

(10) NAMA claims that the maximum it could have earned on the Maybourne loans was GBP 660m (which equates to the €800m widely reported in the Irish media) which was the par value of the loans. Whilst that would normally be logical there seems to be some suggestion by Paddy McKillen that NAMA might have earned more, and there are also suggestions that the loans represented a stepping stone to acquiring equity in the Maybourne group and thereby getting control over valuable assets. Let’s see what Paddy McKillen has to say.

(11) NAMA is in a crowded market-place in Ireland and is competing with ACC and its €2bn portfolio, Danske/National Irish Bank and its €2bn portfolio, Bank of Scotland (Ireland) and its €30bn portfolio written down to €15bn and RBS and its €15bn portfolio written down to €7.5bn. “We’re watching them and they’re watching us” said the NAMA CEO.

(12) NAMA has a full year, internal cost of €45m which comprises salaries of €20m (representing an average of €100,000 for 200 staff) and other costs. Maybe it’s the cynic in me but I have a feeling a large part of the other €25m will comprise headcount related rewards and benefits, pensions for example.

(13) NAMA apparently tendered for the auctioneer contract to sell Derek Quinlan’s art collection. There was a tender document, even if it wasn’t published on the NAMA website. Christie’s is not charging a fee to sell the art, and apparently Irish auctioneers were also willing to sell the art without charging a fee. The thing is that Christie’s will charge buyers 15%+ and that is expected to yield €400,000+ for the auction house. I have seen suggestions that NAMA should have formally tendered for this service because the concessionary value was more than €250,000, but regardless I think some auction houses might now ask why there was no public tender. And on the subject of art, NAMA is apparently poised to take control of a second art collection.

(14) The overall cost of the NAMA operation in 2011 will be an estimated €150m, comprising €45, for NAMA’s internal costs (see above), €75m for the banks who are administering the loans day-to-day and managing the 662 smaller loans and €20-30m for legal and professional services bought by NAMA.

(15) NAMA has made an operating profit of €400m for the first nine months of 2011 and still expects a full year operating profit of €500m. NAMA will need deduct impairments and NAMA has confirmed there will be impairments in 2011. The NAMA CEO would not be drawn on the quantum of impairments in 2011 and said it would only be calculated at the end of the year, but he did not reject a suggestion from Deputy Fleming that it might be €1bn, which if correct might see NAMA needing a small amount of new capital.

(16) Worryingly the NAMA CEO says that central London’s yields are at 4% which is an historical record, and that apparently is the justification for selling there now. Not only have there been sales below 4% (the 3% yield sale of a Rolex store in Knightsbridge recently being a case in point) but I would have thought that NAMA would have learned its lessons with yields. Remember September 2009 when then Minister for Finance, the late Brian Lenihan said that yields in Irelandwere at an historic high meaning we were close to the bottom? And prices have quite nicely fallen 25% since then? Yields are a factor in determining prices and projections, but just one factor. Central London has a severe shortage of prime property and inflation is likely to be 4% for the next couple of years with the new round of Quantitative Easing in the UK – if NAMA is relying solely on yields to inform its timing of London sales, then we should be worried.

(17) With respect to the recent Michael Geoghegan review of NAMA, it seems to be the NAMA view that the Agency initiated the review, the findings are confidential and weren’t written down apparently, but the NAMA chairman does not consider the recommendations to be tantamount to creating a watershed in NAMA’s evolution, nor does he see there being significant change.

(18) NAMA has acquired €74bn of loans for €32bn and that’s likely to be the end of the acquisitions following the recent completion of €2bn of acquisitions. The average haircut is 58%. Interestingly NAMA said that because of the way in which it valued loans, it is likely that the acquisition price equalled the value of the property at 30th November 2009, with the Long Term Economic Value premium being offset by discounts that the EU allowed NAMA to make to the loans. That may well be true.

(19) The Comptroller and Auditor General said that he would give consideration to publishing par values of loans in the accounts alongside the NAMA valuation. That would be welcomed in many quarters, so that we can see the scale of write-downs and write-offs.

(20) To finish on a lighter note, you would have to wonder if Brendan McDonagh was being sponsored today to say the word “effectively”. When the transcript becomes available next week it will be posted here but he seemed to use the word every half minute, particularly when he was on shaky ground.

With respect to the Committee’s oversight of NAMA, it is to be hoped that it will be able to acquire better information on NAMA’s disposals in order that it can meaningfully examine NAMA’s performance in disposing of €32bn of loans. It would be a shame if future hearings were to concentrate on the bonus of the NAMA CEO (max of €260,000, waived by him last year) to the exclusion of examining whether or not NAMA achieved good prices on €4.6bn of disposals.

UPDATE: 27th October, 2011. Further to point (13) above, it seems that the 2nd developer to see his art collection succumb to NAMA is Alburn’s Noel Smyth. The Irish Independent reports that NAMA has “taken possession” of nearly 400 works which included paintings that had previously been displayed at the Tate Gallery (London). The Independent claims Noel Smyth has said that he is “happy” to work with NAMA on “the transaction”, presumably the recovery and sale of the collection. There doesn’t appear to have been any public reporting of efforts by Noel to re-finance his Real Estate Capital portfolio in the UK since April 2011, but he was facing challenges to re-financing proposals, which were set out in a detailed note by CBRE here.

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This morning has seen the publication of the seventh CSO residential property price indices for Ireland. The inaugural series was published by the CSO on 13th May 2011 and covered the period from January 2005 to March 2011. This morning’s release covers the month of September 2011. Here’s the summary showing the index at its peak, November 2009 (the NAMA valuation date), September 2010 (12 months ago), December 2010 (end of year, start of this year) and September 2011.

Now that the Permanent TSB/ESRI has abandoned its quarterly house price index, the CSO’s isIreland’s premier index for mortgage-based transactions. It analyses mortgage transactions at eight financial institutions : Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank ofIrelandgroup), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The index is hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first-time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The index is an average of three-month rolling transactions.

As for the key questions:

How much does property now cost in Ireland? The CSO deliberately doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, inDublin in April 2007 at €431,016 and outsideDublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI figures as sound and comparable to the CSO series, then these would be the average prices today:

Nationally, €175,165 (peak €313,998)

In Dublin, €208,618 (peak €431,016)

Outside Dublin, €159,793 (peak €267,987)

I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series as represented by its historical indices closely correlates with the performance of the CSO indices.

What’s surprising about the latest release? Although the monthly decrease of 1.5% is elevated, we have had similar declines in recent months. What is astonishing is thatDublin apartment prices declined by 4.8% in just one month, following the 6% monthly drop last month.Dublin apartments are now down 59.2% from peak.

Are prices still falling? Yes, and the 1.5% monthly drop in September 2011 was similar to the 1.6% decline in August 2011.

How far off the peak are we? Nationally 44.2%% (also 44.2% in real terms as inflation has hardly changed since 2007). Interestingly, as revealed here,Northern Ireland is some 45% from peak in nominal terms and 52% off peak in real terms. Are forbearance by mortgage lenders, a draconian bankruptcy regime and NAMA’s (in)actions distorting the market? Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?

How much further will prices drop? Indeed, will prices continue to drop at all? Who knows, I would say the general consensus is that prices will continue to drop. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please drop me a line if you think there are any omissions].

What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. Residential prices are now down 22.5% from November, 2009.  The latest results from the CSO bring the index to 833 (20.0%) meaning that NAMA will need see a blended average increase of 20.0% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index. Irelanddoes not yet have a publicly available register of actual sale prices, but legislation to give effect to such a register is presently before the Oireachtas – read the latest on the House Price Register here. There are three other residential price surveys, based on advertised asking prices or agent valuations – for the latest see here. Lastly the Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end and not hedonically analysed.

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“The receiver was not hidebound by any views of Nama concerning purchase offers made by Mansfield interests or by persons introduced to the receiver by those interests, the judge [Judge Kelly] added. There was no evidence the receiver would do the agency’s bidding.” – Mary Carolan reporting the Jim Mansfield case in the Irish Times

Breaking news this afternoon that a Dublin court has granted a €74m liability order in favour of NAMA against developer Jim Mansfield; nothing unexpected about that at all, and indeed next month Bank of Scotland (Ireland) is likely to secure an order for an additional €204m against the 72-year old developer, perhaps most associated with the Citywest development in west Dublin and Weston Airport (formerly Weston Aerodrome). Together the liability orders are understood to be the largest ever in the State which is interesting enough. But what was really interesting about the case today was what the judge reportedly had to say about NAMA’s receivers.

The judge in theMansfieldcase was Judge Peter Kelly, perhaps the most prominent commercial judge in the country. Jim Mansfield had opposed the application by NAMA for a liability order on a number of grounds, one of which was reported by the Irish Times to be the rejection by the NAMA-appointed receiver of “an offer of about €11.9million for Palmerston House and estate and concerning any sale of Weston Aerodrome and West Park apartments” The Irish Times reports that Jim was claiming that NAMA would not accept offers on foreclosed property from parties connected with the Mansfield group. There seems to have been a claim that this rejection was in violation of a NAMA code of practice.

The Irish Times reports the judge’s response to this defence which is reproduced at the top of this blogpost, and although there’s no claim that the judge is being quoted verbatim, “hidebound” is the sort of term that Judge Kelly would use. But if Judge Kelly is correct then the NAMA receiver might not in this case, or indeed any other case, need “do the agency’s bidding”. The implication is that a party associated with a developer may indeed be able to purchase assets from a NAMA receiver even if the developer is in default. Section 172 of the NAMA Act was supposed to stop this but on a strict reading of that section and also Section 70 which defines an “associated debtor”, it could well be argued that certain associates of Jim Mansfield are allowed in law to purchase foreclosed properties.

Sadly this issue seems not to have had a full airing in this case, as the judge held that Jim hadn’t sought to remove the receiver, so the receiver’s actions appeared to be moot. So we appear not to have NAMA’s side of the story, but on the face of it, the judge’s comments might be significant in future cases.

NAMA had previously appointed Kieran Wallace of KPMG as receiver to assets in several companies controlled by Jim Mansfield. The receivership is described in detail here.

UPDATE (1): 21st December, 2011. It is being reported that Jim Mansfield has appealed the NAMA judgment to the Supreme Court and that NAMA has apparently agreed not to seek Jim’s bankruptcy pending the outcome of that appeal, Meantime, Bank of Scotland (Ireland) has this morning secured a €214m judgment against Jim in respect of personal guarantees given to three companies – HSS, Jeffel and Park Associates Limited. Judge Kelly who was dealing with the case rejected Jim’s claim that he incurred loss following what Jim claimed was a commitment by BoSI to give him development advances – the Judge said there was no evidence of any contractual commitment to that effect.

UPDATE (2): 21st December, 2011. Judge Kelly’s judgment is now available online, in which he considers – and then dismisses – Jim Mansfield’s arguments advanced to support his wish to have a full hearing of the claim. Judge Kelly granted summary judgment in favour of Bank of Scotland (Ireland).

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Just four weeks ago the NAMA CEO, Brendan McDonagh took a thinly-disguised swipe at vulture funds and bottom-feeders when he said at the Corporate Restructuring Summit in Dublin “if there is one key message I can ask you to take away from today it is: there is no point approaching us with an offer which is significantly below what we paid – it is a waste of your time and ours as it is unlikely to be entertained”

Thanks to a presentation given by NAMA’s Head of Portfolio Management, John Mulcahy to NCB last week, we now know that NAMA will sell its assets at a maximum discount of 10% below its acquisition value. So if there was a €100m loan in Anglo which NAMA acquired for €40m then NAMA will sell you the loan or the underlying asset for no less than €36m, that is a 10% discount on the €40m acquisition price. Good to know.

Of course inIreland, both commercial and residential prices have dropped by 20% since NAMA’s valuation date of 30th November, 2009 and of course NAMA paid a Long Term Economic Value premium to the banks which averaged 10% of the valuation. In other words, a loan acquired by NAMA at €40m might only be worth €29m today – NAMA is not exactly doing any buyer of Irish property a favour by offering a maximum 10% discount on what it paid!!

John’s presentation to NCB also revealed that NAMA will not sell an asset where the annual return is projected to be more than 20%. So Steve “wait for the blood on the streets” Schwarzman of Blackstone who seemed to be seeking 30% returns from distressed property assets in Europe might have to put away his USD 4bn (€2.9bn) real estate war-chest unless he lowers his sights. What is meant by a 20% annual return? Imagine buying a NAMA property for €10m and getting €2m rent per annum – that would be a 20% return. Remember that in some instances, NAMA will be prepared to lend you up to 75% of the purchase price at an annual interest rate of 4-4.5%. So you might buy the property for €10m, pay €2.5m cash and get NAMA to loan you the remaining €7.5m at 4% per annum. In order for you to generate a 20% return on your €2.5m you would need rent the property for €0.8m per annum [€0.8m rent less €0.3m paid to NAMA as interest, equals €0.5m which is 20% of your €2.5m investment]

What was absent from the presentation was criticism of the glacially slow progress being made by this Government in introducing legislation to give effect to Real Estate Investment Trusts (REITs). REIT legislation was sign-posted in the Fine Gael election manifesto in February 2011 “We are open to considering new types of investment vehicles – such as U.S. style Real Estate Investment Trusts – that can help create a new, liquid investment market in commercial property for Irish pension funds and smaller investors” There are still some locals in Ireland with some cash and they might welcome the opportunity to invest, for up to 20% annual returns, particularly within the managed, tax-efficient REIT framework.

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The NAMA CEO, Brendan McDonagh is set to appear before the Committee of Public Accounts in the Oireachtas this coming Wednesday 26th October where the discussion topic is billed as “Annual Report and Financial Statements 2010”. Proceedings are expected to get underway at 10am on Wednesday in Committee Room 1 and live video streaming should be available online here. The Committee comprises the following members : Paul Connaughton, John Deasy, Paschal Donohoe, Anne Ferris, Simon Harris, Michael McCarthy, Mary Lou McDonald, Seán Fleming, John McGuinness, Eoghan Murphy, Derek Nolan, Kieran O’Donnell and Shane Ross. The chairman is Fianna Fail’s John McGuinness.

The following open letter was submitted to the Committee this morning

“Dear Mr McEnery,

I understand that NAMA is to appear before the Committee this coming Wednesday. I would be most grateful if you might place the following before the Committee.

This is an open submission from the NAMA winelakeblog, an online blog which reports on NAMA and associated subjects. This submission is being published online on Monday 24th October at http://www.namawinelake.wordpress.com

Whilst there are myriad questions that beg to be asked about the operation of the Agency and its report and accounts for 2010, I would submit that the most pressing concern is the lack of information on the way in which the Agency is disposing of its assets which prevents any timely assessment of the Agency’s performance.

In the 36 months from the end of 2010 to the end of 2013, NAMA has set itself a target of disposing of €7.5bn of assets – loans and properties – which equates to €200m on average a month, every month. And remember these NAMA assets represent loans which were acquired from the banks at an average 58% discount. So in terms of original value at the banks, the disposals are worth an average of €500m a month, every single month. This is the scale of the enterprise over which your Committee has oversight; it is colossal. And remember these disposals are not of an homogenous commodity like electricity or gas – these are individual loans, borrowers, properties and buyers in individual locations and countries and generated by individual staff, advisers and consultants.

The accounts from NAMA, both the annual report and the quarterly management accounts do not provide a level of detail which enables you to assess how well NAMA is performing in its disposal of assets. Specifically you cannot assess the following:

(1) The gross profit on the transaction – sale price less loan acquisition cost

(2) The net profit after consultant/adviser/agent fees, loan carrying costs, foreclosure costs, tax on profit including potentially capital gains tax

(3) Evidence that NAMA has marketed the asset – loan or property – so as to maximise profit (and generally the sales price)

(4) Evidence that NAMA has achieved the best price for a particular asset

(5) NAMA’s expertise to ensure the best price is achieved

(6) NAMA’s expertise to determine the best time to dispose of an asset

(7) Estimated carrying costs for a distressed loan or property [In the UK, the standard assumption is 5% of the value of the asset in insurance, maintenance, management and other costs]

There is a compilation of reported NAMA sales on the NAMA winelakeblog but these are but a subset of NAMA’s total sales –  based upon press/industry reporting, contacts and other research – as NAMA does not report individual sales.

To make the above questions more tangible, I would ask that you apply them in the forthcoming hearing to a specific NAMA transaction. The obvious transaction is the recent sale of the €800m of loans in the Maybourne hotel group because it is the largest single NAMA transaction to date but given the mutterings about legal action, it might be better to avoid that transaction in preference to the following, which is a common-or-garden property sale by NAMA:

Number 1, King William Street in the City ofLondon was owned by a consortium which featured developer Paddy Shovlin. NAMA appointed receivers GVA Grimley who managed the disposal of the property on NAMA’s behalf. The property is a prestigious office block in the heart of the City, a stone’s throw from the Bank of England. It was widely reported in the press that it sold for GBP 67.5m in June 2011 to Nippon Telegraph & Telephone Corporation, and that the yield achieved on the sale was 5.6%. Yield simplistically means the annual rent on a building divided by its value so if the yield was 5.6% on a GBP 67.5m sale, that just means the annual rent is GBP 3.78m. Now theUK generally, and centralLondon in particular, has a far more transparent market thanIreland, with sales prices and property-related documents readily available from theUK’s Land Registry. And this transparency means that “going rates” are more readily established. The “going rate” for yields in the City ofLondon is 5.25% and if the sales price of the property onKing William Street reflected a 5.25% yield then it would have been GBP 72m not €67.5m. Also at the time, I was unable to locate the property being advertised on GVA Grimley’s website.

So in relation to the above transaction, you might properly ask about the gross and net profit, but also challenge NAMA to justify selling the property for less than the “going rate” yield would have indicated. And you might also challenge NAMA to demonstrate that the property was sufficiently marketed so as to achieve an optimum price. And lastly you might ask if now was the best time to sell the asset, particularly asLondonproperty prices continue to rise.

In response to questions about individual transactions, NAMA will typically remain tight-lipped and will invariably cite client confidentiality which NAMA is obliged to respect pursuant to section 202 of the NAMA Act. But the NAMA CEO said last month at the Corporate Restructuring Summit in Dublin that “if there is one key message I can ask you to take away from today it is: there is no point approaching us with an offer which is significantly below what we paid – it is a waste of your time and ours as it is unlikely to be entertained.” So buyers of NAMA assets are expected to have an idea what NAMA paid for the loans, and frankly given the number of valuers used by NAMA in valuing the loans and the standardised method of valuation, the acquisition value is unlikely to be difficult to establish. Sales prices are publicly available in theUK and some other jurisdictions. NAMA should be able to disclose costs associated with an historical sale. So although, you might encounter a reluctance on NAMA’s part to disclose information on individual sales, that information should be produced unless NAMA can demonstrate it will jeopardize its own business.

The bottom line is that you are going to have to establish some means of overseeing the meat of NAMA’s operation, which is the disposal of assets. Top-line reporting from NAMA will not enable you to determine if NAMA is doing a good job. Even if NAMA reports an overall profit, you will not be able to determine if a higher profit was achievable. So somehow, NAMA’s desire for confidentiality is going to have to square with your duty to oversee the operation of the Agency.

I don’t wish to finish on a harsh note, but it would indeed be unfortunate if a scandal or systemic failing in NAMA were to be uncovered in a couple of years and your constituencies rightly asked how the members of the main Oireachtas committee charged with the oversight of NAMA, failed to challenge the Agency early-on in its existence in a meaningful way which might have prevented such failing.

I wish you all well with the Committee’s important work.”

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This is the second part of a blogpost focussing on the repayment of a senior unguaranteed, unsecured bond at Anglo; part one was posted yesterday here. This entry examines in some detail what would happen if Anglo didn’t repay the bond.

The blogpost yesterday covered the position of the main stakeholders in the making of the decision to repay the bond. And this blogpost will start by concluding on that theme.

Is Minister for Finance, Michael Noonan a villain?
Not at all; there is clear evidence of the man going to great lengths to communicate a message to our partners in Europewho ultimately control the ECB despite all the talk of independence. He displayed bravado in the USin June this year when he met with the IMF and US Treasury Secretary Tim Geithner and announced on worldwide television that he would seek to share the burden of repaying bonds at Anglo and INBS. He raised the matter as a discussion topic with the Troika during their review mission in Dublin in July. He held meetings with ECB president Jean Claude Trichet, most recently face-to-face in Poznan. In the context of talks, he ran the marathon and then ran the extra mile. And he has failed to convince the ECB in the first instance of the merits of his position.

So why doesn’t he act unilaterally?

Because “heavy lies the crown” and Minister Noonan is facing the moment of truth with the actual burden of responsibility for the nation’s finances on his shoulders, and he presumably weighs up the €150bn of cheap funding provided to Irish banks through the ECB and the co-operative relationship between Ireland and the bailout Troika which sees our ongoing deficit being funded and concludes the risk to either, consequent to a unilateral default, outweighs the benefit.

What has happened when other EuroZone (EZ) banks defaulted on bondholder debt?
I stand to be corrected on this but I do not believe any EZ bank has in fact defaulted on bondholder debt since the introduction of the euro and the establishment of the ECB as a supra-national central bank. Outside the EZ there have been plenty of financial institution failures; in Northern Ireland, the Presbyterian Mutual Society went into administration and savers eventually received 100% compensation totalling GBP 232m from the London government. In the UK, Barings collapsed after our local, Nick Leeson (last seen on RTE Prime Time’s NAMA special) racked up dealing losses but Barings was bought for a nominal GBP 1 by Dutch bank, ING which also assumed all its liabilities. Icelandic deposit bank Icesave, part of Landsbanki, which operated in the UK and Holland collapsed and the UK government bailed out its depositors but only up to certain limits. The UK continues to seek compensation from Iceland, but to date the Icelanders have told it to get lost. And in non-EZ Denmark this year, at least three banks have failed and at least two, Amagerbanken and Fjordbank Mors have imposed losses on senior bondholders. But within the EZ itself, no bank has apparently collapsed; or rather no bank has been allowed to collapse with the usual consequence of business failure : unpaid creditors which in the context of a bank will include both depositors and bondholders.

In the US, 100 banks had collapsed in the first six months of 2010.

Irelandhas not signed up to any agreement to preserve its banks within the EZ, at all costs. Cast your mind back to 2007 when it was explicitly decided by EU finance ministers that creditors (including bondholders) and unsecured depositors “should expect to face losses” if a bank in the EZ failed. Cast your mind back to September 2008 when the deposit guarantee for ordinary depositors was only €20,000, and raised to €100,000 and subsequently made limitless. It was only three years ago when the system allowed for an EZ bank to go bust and creditors (depositors and bondholders) to face losses if that happened. Ireland has not signed up to a system whereby 20% of GDP (€29.3bn) must be paid by the nation to enable unsecured, unguaranteed creditors in failed banks to be repaid and we have also not signed up to a system whereby a bank must be financially supported at all costs.

What will happen on 2nd November 2011 if Anglo does not pay the USD 1bn bond?
One of three things (1) the bondholders have contracts with Anglo and would claim a default. They would presumably sue Anglo for their money. (2) Anglo would decide it was unable to meet the financial commitment of repaying the bondholders and would seek examinership or (3) the Government would intervene, presumably using its powers under the Credit Institutions (Stabilisation) Act , to stop the payment.

This is what the Anglo balance sheet looked like in the last accounts published for the six months ending 30th June, 2011 (page 26 is the balance sheet) There is some simplification and aggregation but simplistically the bank had €30bn of loans, €6bn owing to bondholders, €40bn owing to the ECB and Central Bank of Ireland and €27bn of accumulated losses and €29bn of state funding.

Of course there would be ructions with the ECB who might well decide to withdraw its extraordinary funding to Anglo. The Central Bank ofIreland, as part of the euro system, might decide, or be forced, to do the same. Anglo would collapse and there would be some form of examinership or receivership. If Anglo’s problems were ring-fenced, then I don’t think we would be unduly worried.

The fear would be that the ECB might alter the terms upon which it provides extraordinary funding to other banks, in particular AIB and Bank of Ireland. But to be clear, there is nothing in the bailout Memorandum of Understanding or anything that I am aware of in the agreements governingIreland’s relationship with the ECB which would allow the ECB to unilaterally act in such a manner.

And in respect of the ongoing funding of Ireland’s deficit to the end of 2013, again there is nothing in the Memorandum of Understanding which would allow our benefactors to withhold funds, as long as Ireland continued to meet the terms set out in the Memorandum and reduced/eliminated its deficit as agreed.

There has been a recent (almost suspiciously recent) suggestion that Ireland might be able to build on its good form in complying with the Memorandum of Understanding, and access additional cheap funding from the EU to pay off the Anglo promissory notes; and Ireland reneging on Anglo’s bondholders now might deter any agreement in this area, which might mean that next year we need borrow funds at 8%+ to pay off the promissory notes. That is an issue, but if Anglo was to be placed in receivership or examinership, the validity of all of the promissory notes might be tested, and some suggest that these represent what is called “odious debt” in international law and would not need be honoured by the State at all.

Society’s view
Yesterday the aim of part one was to provide a balance of the views of the stakeholders involved in making the decision to repay the Anglo bond. Whilst Society at large has no direct input, it is worth pointing out the cost being borne by Society, in part in order to repay bondholders. Since March 2011, we have had notice of three additional taxes – the pension levy, the €100 annual property charge which will start in January 2012, and the proposal for a €50 septic tank inspection charge. As unpopular as these have been, they are as nothing compared to what is coming in the next week. The Comprehensive Spending Review which was supposed to have been completed in September but which Fianna Fail leader, Micheal Martin was told in the Dail two weeks ago was still not complete, will set out savings and cuts to be imposed on state spending; it will not be popular in Society. Minister Noonan has committed to publishing a separate document “by the end of October” which will set out in “as much detail as possible” the new taxes and cuts to be introduced in the next four years; the aim of this document is to give some certainty to the economy but it will not be popular. And on 6th December, 2011 we will have a Budget which will cut at least €3.6bn out of the economy, and it will be in granular detail. Society isn’t exactly ecstatic at the moment, but in the next seven weeks it is likely to be deeply unhappy. Having said that, we know we need adjust our costs and taxes so as to balance what we earn with what we spend.

But when Society has the detail that will be contained in the three documents, the Comprehensive Spending Review, the Four-Year Plan and Budget 2012, and understands that part of the austerity is being used to repay colossal sums to unsecured, unguaranteed bondholders, it won’t just be deeply unhappy, it is likely to be incandescent.

Presently there are a number of ongoing, sporadic protests throughout the country, at a hospital closure here, a bondholder protest there, the Occupy Dame Streetprotest, and small-scale marches. To be honest it probably hardly registers with the Government. But having said that, I can’t help but notice the increased incidence of the words “protest”, “march” and “strike” in our media, and I would say that an amber light, perhaps just a soft-focus amber light at the moment, is already flashing. Taoiseach Kenny may enjoy a comfortable majority and an extended political honeymoon and it may be over four years to the next general election, but schisms happen and the Terminator-like red-eyed glint in last year’s leadership challenger, Richard Bruton has still not been extinguished; Taoiseach Kenny cannot afford to dismiss protests with the claptrap he mouthed in the Dail at the end of September, claiming that these payments to bondholders were not coming from taxpayers. Nor can Minister Noonan dismiss the question of these bondholder payments, claiming the maximum saving might be only €100m; we remember clearly enough Minister Noonan suggesting in June 2011 that an interest rate reduction on the bailout might be worth a only €148m per annum rather than the €1bn+ now achieved on the coat-tails of Greece’s woes.

What can you do?
I hope that you have a sense from the above that the payment of bondholders is not a black-and-white matter and different stakeholders take different views. If you conclude that these bonds should not be repaid, you can contact your local TD, a complete list of email addresses is here. If you are interested in a protest, you will find information here on the mechanics of the protest started by the Ballyhea villagers. The enormous sum being paid to unsecured, unguaranteed senior bondholders by Anglo on 2nd November, 2011 might not resonate with you, but when you soon see what lies ahead with austerity, part of which is needed to pay those bondholders, you may well be moved to act. The 34th weekly Ballyhea/Charleville protest march takes place tomorrow in Ballyhea and this evening at 8pm there will be a gathering in Charleville where Declan Ganley will give a talk on the subject at the Schoolyard Theatre (details of both and photos of the Ballyhea/Charleville protest are available here)

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