Departing NAMA director hints at major changes at the agency

It has been announced today that NAMA non-executive director Peter Stewart (pictured here) has resigned from the agency. In a brief statement issued by NAMA today, the NAMA chairman Frank Daly expresses his gratitude to Peter for his service to the board during an “exceptionally busy and challenging period”

There is a longer statement issued on Peter’s behalf by MKC Communications in Dublin which confirms that “financial consultant” Peter has resigned and notified Minister for Finance, Michael Noonan of his decision. The statement goes on to say “this is an appropriate juncture for my [Peter’s] decision, particularly with the completion of the review of the structures of NAMA by the former chief executive of HSBC, Michael Geoghegan. His review should result in significant changes to the structures of the agency”

The statement says that Peter was “instrumental in the establishment of the agency review” and goes on to quote Peter saying “I believe the Geoghegan review should be a watershed in the life of NAMA, and I hope that its recommendations will be fully implemented”

There is no word on Peter’s specific intentions other than he “now intends to devote more time to his other interests”. There is no word from NAMA on a replacement appointment. Make of that what you will.

Peter was a key bridge between NAMA and its Northern Irish constituency. NAMA’s role in Northern Ireland is particularly sensitive as the agency controls €4bn of loans (at face value) associated with the North. The agency has gone to great lengths to explain its mission in Northern Irelandand to reassure politicians and the business community that NAMA will neither hoard property nor conduct fire sales. Northern Irish loans account for 5% of NAMA’s portfolio, yet NAMA has set up a Northern Ireland committee to dedicate itself to Northern Irish issues. In August, 2011 the Northern Irish finance minister Sammy Wilson called for a “full representative” on the NAMA board, and for NAMA to get a move-on with dealing with developer business plans. Plainly Peter’s departure and ensuring a smooth transition in the conduct of the Northern Irish committee will be a delicate matter for NAMA.

But, putting Northern Ireland to one side, what are the “significant changes” which the Geoghegan review recommended and why might they mark a “watershed” in NAMA’s life? Remember that Michael Geoghegan (profile and picture here) is the former HSBC banker that Minister Noonan engaged two weeks ago to conduct a 10-day review of NAMA, and that review was apparently discussed with Minister Noonan last Friday 7th October, 2011. We’re unlikely to get a copy of the review, but will Minister Noonan announce the recommendations?

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NAMA’s report and accounts for Q2, 2011 – five things to look out for.

Quarter	Covering period to	Delivered to DoF	Published
1, 2010	31st Mar, 2010	30th Jun 2010	13th Jul 2010
2, 2010	30th Jun, 2010	30th Sep 2010	2nd Nov 2010
3, 2010	30th Sep, 2010	31st Dec 2010	2nd Mar 2011
4, 2010	31st Dec, 2010	31st Mar 2011	4th May 2011
1, 2011	31st Mar 2011	30th Jun 2011	28th Jul 2011
2, 2011	30th Jun 2011	30th Sep 2011	Waiting…

Judging by past experience, it will be about a month before we get to see NAMA’s report and accounts for the second quarter of 2011 ending 30th June, 2011 which were delivered to the Department of Finance a fortnight ago. This entry previews the results.

It’s worth saying at the outset that NAMA is seemingly disposing of an average of €200m of assets per month (at NAMA acquisition values rather than the book value of the loans at the original banks). So between late 2010 and December 2013 it is set to dispose of €7.5bn of assets in total. By “assets” I mean either property or loans – an example of the former would be the sale of 1 King William Street in London (following recovery action against Paddy Shovlin and the Fitzpatrick brothers) and an example of the latter would be the sale of €800m of loans relating to the Maybourne hotel group. By “disposal” I mean a sale or a refinancing.

But think about that for a moment – €200m disposals on average a month every month, representing an average of €500m of original loans (NAMA applied an average 58% discount or “haircut” to loans it acquired from the banks). And although some of these transactions might be huge – NAMA says the €800m Maybourne transaction was its largest transaction to date – most are relatively modest – a €5m office block in Belfast, a €5m shopping centre in Scotland.

Now consider just how much information we have on these disposals. Did NAMA make a profit or loss? How much of the original loan has been written off? What were the professional/adviser fees? How was the asset marketed to ensure prices were maximised? To whom was the asset sold?

When you consider the amount of debate that will take place in the next few months as politicians, the media, the commenteriat and others fret over the €100m disposal of the 25% state shareholding in Aer Lingus, the lack of transparency in NAMA’s reporting is astonishing.

“Ah but NAMA needs to keep its dealings confidential to ensure its business isn’t compromised” might be a defence you sometimes hear; after all, the NAMA chairman Frank Daly has said as much to an Oireachtas committee. But how would the historical reporting of NAMA’s transactions interfere with its future business? It might portray the decision-makers at NAMA as a bunch of amateurs who don’t understand property or economic cycles which might lead to NAMA falling prey to vulturine buyers. More optimistically, it might portray NAMA as a decent asset management company which can deliver on its remit of maximising returns to the taxpayer. But either way, how would revealing basic details of historical deals undermine NAMA’s commercial remit?

An obvious concern is that NAMA is not getting the best price for its assets. Yesterday in Dublin’s High Court, lawyers for developer Jim Mansfield Snr are reported to have expressed concern that Palmerston Stud would be sold by NAMA for less than an offer previously made to the NAMA-appointed receiver. Similar claims were reported to have been made by developer Ray Grehan and I note that Oliver Shah in the UK’s Sunday Times (not available online without subscription) claimed two days ago that NAMA was about to sell the Grehan Crowne Plaza hotel in London for GBP 75m to “a consortium led by Ian Schrager, the New York hotelier credited with inventing the boutique hotel genre”. Senator Mark Daly seems to bob up every so often to make claims about NAMA selling assets back to developers (or people associated with the original developer) for less than the asset was worth. Even the Taoiseach stuck his oar in on the issue a four months ago, though he later curiously declared himself satisfied with NAMA’s operations. All of these claims might be complete tosh, but if NAMA published its list of deals we could at least go some way to disprove the claims eg if the sale price of Palmerston Stud was revealed then Jim Mansfield could then produce the evidence for his claim of a higher offer.

This blog tries to keep track of NAMA disposals reported in the media and elsewhere, but if NAMA has made €4bn of disposals to date, then there is a lot that is not being captured, and those deals that are captured omit a lot of detail.

Anyway, five things to look out for in NAMA’s Q2, 2011 report and accounts:

(1) Disposals. At the NAMA appearance before the Oireachtas Committee on  Finance, Public Expenditure and Reform hearing last month, the NAMA CEO, Brendan McDonagh claimed that NAMA had notched up €4.5bn of approved disposals and realized much of this in cash. Previous financial reporting from NAMA, including the Q1, 2011 accounts, indicated that completed sales were actually quite modest and there was no indication whatsoever of NAMA’s profit or loss. We should now start to see better numbers with large disposals and an indication of how well NAMA is doing (compared with the agency’s acquisition price as sadly NAMA appears not to be willing to disclose original book values).

(2) Advances to developers. NAMA has said that it has approved €900m of advances to developers of which less than half has been handed over to date. NAMA has also reportedly agreed a €10m loan to Fingal council to help build a road. On the other hand NAMA has redeemed €1.25bn of its bonds which it had given the banks in return for the loans it has acquired. These bonds were costing NAMA the 6-month Euribor rate of 1.7% per annum approximately. If NAMA can generate more than a 1.7% per annum return from advances to developers then  it should probably be doing just that, and when NAMA was being conceived it was estimated the agency might have made up to €5bn of advances. It is unlikely the report and accounts will give any great detail on the advances, but you never know.

(3) Gains/losses on derivatives and hedging. Most peoples’ eyes glaze over at these terms but truth be told, NAMA has bought a lot of insurance against interest rate and exchange rate fluctuations, and it will be interesting to see how this insurance is performing.

(4) Profit or loss. The NAMA CEO told an Oireachtas committee hearing last month that he projected an “operating profit” at NAMA in 2011 of €500m. That’s before impairments or write-down in loan values following declines in property. NAMA doesn’t recalculate impairments every quarter, so we should see a healthy operating profit reported for the quarter. The betting on here is that NAMA needs come back to the Government at the end of this year for a recapitalisation because of paper losses incurred on loans as a result of continuing declines in property values. An operating profit would mitigate the risk, but even €500m might not be enough.

(5) The cost of the Paddy McKillen case. Okay NAMA tried to downplay the costs, estimated in the media at €4-7m, of the mammoth case taken by the developer (sorry, “investor”) Paddy McKillen against NAMA in 2010 to prevent his loans being absorbed by the agency. The case was firstly fought inDublin’s High Court where NAMA comprehensively won; Paddy appealed to the Supreme Court where he won on two of the five points at issue, NAMA won on two other points and one wasn’t addressed. Despite the 2-2 draw at the Supreme Court, it seems that NAMA is picking up 100% of the costs.

There will be the usual analysis on here when Minister Noonan deigns to release the report and accounts.

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Fancy a pint in Belfast this evening? Why not try a NAMA bar? You’ll be spoiled for choice.

The BBC is reporting today that twoUK companies controlled by Clare-men Sean Lyne and Noel Connellan have been put into administration by NAMA. Lanyon Trading Limited and its parent company Lisk Limited owned the freehold in fiveBelfast bar/restaurants which it rented on 25-year leases to a pub and hospitality company, Botanic Inns. Although the two developers had taken over Botanic Inns in 2004, it has since been sold to its management and the company and indeed the operation of the bars is unaffected by the administration, much in the same way as on this side of the border, the operation of hotels owned by Paddy Kelly have not been affected by NAMA appointing receivers to the buildings.

The BBC says that Lisk Limited leased The Bot (pictured here), Madisons Hotel (pictured here), The Globe (pictured here) and The Northern Whig (pictured here) to Botanic Inns in April 2005 whilst Lanyon Trading Limited leased The Kings Head (pictured here).

The two Clare-men Sean Lyne and Noel Connellan have been involved, both individually and together, in development on this side of the border for some time. In the prospectus for a property development venture, “Liberty Asset Management Crystal Property Development Fund” the two set out their experience which includes the development of the Liffey Valley shopping centre, now owned by the Duke of Westminster’s Grosvenor Estates. There have been residential development such as the construction of 84 houses and apartments at Rosslevan,Tulla Road, Ennis. And the BBC today refers to property deals in Cavan.

Remember you can see the list of NAMA’s enforcement actions here and in this regularly updated spreadsheet.

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