Archive for October 26th, 2011

[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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