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Archive for January 23rd, 2012

In February last year, NAMA had Grant Thornton appointed as receivers to Greenband Investments Limited, a company controlled by Limerickdeveloper (and solicitor) Paul O’Brien – photographed here and here – and Mary Moran. Today the Limerick Leader is reporting that NAMA has had statutory receivers appointed to three more companies associated with Paul – Kilminchy Holdings, Mount Kennett Investment, M.K.I. Property Investments. Paul has apparently issued a statement in which he says his legal practice, “McMahon O’Brien is in no way affected by matters between NAMA and Mr O’Brien” and that Paul will now be focussing on work at the legal practice. He will have his work cut out because, according to the Limerick Post,  his partner at his own law firm Denis McMahon is presently remanded on bail relating to fraud charges with the case set to be heard this Wednesday 25th January at the Limerick District Court. Denis McMahon’s solicitor is said to have told the court that the charges would be “vigorously and fully contested and defended” McMahon O’Brien came to national prominence for all the wrong reasons in 2005 when having admitted overcharging victims of institutional abuse, a judge in a separate case involving a property dispute said of Paul O’Brien “to say that I found Mr O’Brien’s understanding of the law of his obligations under the law of solicitor and client, the law governing trusts and company law, extraordinarily unusual and difficult to believe, is as charitably as I can express my view”

This latest NAMA receivership is not yet recorded in the State official publication, Iris Oifigiuil. Remember you can see a comprehensive list of Irish foreclosure actions by NAMA here and in this regularly updated spreadsheet.

UPDATE: 7th February, 2013. RTE is this afternoon reporting that Denis McMahon has been acquitted of the fraud charges referred to above, upon direction by the trial judge on the second day of the trial. Denis had always denied the charge.

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In what was one of the most impressive displays of government at work, last November 2011, the Oireachtas Committee of Public Accounts wasted no time after a €3.6bn error was uncovered in the calculation of Ireland’s General Government Debt; within two days of the revelation, the Committee hauled before it, the three organisations involved in the blunder – the CSO, the NTMA and the Department of Finance. It quickly became apparent that it was the Department of Finance which was responsible for the collation of the General Government Debt statistic and, in addition, the NTMA had warned the Department of Finance about the error on several occasions. So it fell to the Department to explain what had happened. Remember this wasn’t €3.6bn in cash that had gotten lost down the back of a sofa but was an accounting error which showed Ireland’s debt to be 2% greater than was in fact the case.

But having hauled the protagonists in lickety-split on the 3rd November 2011, which was impressive given the error was only revealed on 1st November, it was particularly disheartening to see the Committee fobbed off with responses which deflected investigation into the long grass. The Secretary General at the Department, Kevin Cardiff had testy exchanges with deputies and senators and said that there would be an internal review completed by the end of the month – that is, by the end of November 2011 – and there would be a separate external review. In both cases, it was, astonishingly Kevin who was drafting the terms of reference and selecting the reviewers which prompted unease amongst committee members, but not enough so as to write to the Cabinet demanding external responsibility for the reviews.

In any event that was the end of the matter back then. But the end of November 2011 came and went, as indeed so did the end of December and still no review was forthcoming from the Department. So the Committee wrote to Kevin Cardiff on 4th January 2012, seemingly asking for an update. The response from Kevin is here. The relevant extract is reproduced below.

So what could probably have been an inexpensive expedient review carried out by the Comptroller and Auditor General under the auspices of the Committee, has now been dragged out to what looks like five months – three months for the internal review and five months for the external review – with costs unknown. And the €3.6bn error has grown to €3.719bn, according to the CSO.  All we wanted to know is what checks the Department has to ensure the accuracy of its debt calculations and that appropriate checks are in place to prevent the recurrence of such errors, and why the communication from the NTMA about the error was not appropriately responded to. It seems incredible that it will take until March 2012 for an external review to be produced. What started out as a badge of honour in the performance of the public accounts committee no longer looks so worthy.

Meanwhile Kevin shuffles off to the €276,000 plum role at the European Court of Auditors in Luxembourg in February 2012, following intense lobbying by the Government for the appointment, despite widespread opposition.

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Thanks to management consultant and regular commenter on here, Brian Flanagan, it seems as if NAMA is to open up its books and provide far greater information. The concession which Brian has campaigned for – through writing letters to the national press, the Committee of Public Accounts, NAMA and the EU – is that NAMA will provide additional “shadow accounting” for the €74bn of loans the Agency has acquired from the banks. At present NAMA accounts for the value of the loans and interest receivable and paid, all based on NAMA’s acquisition value and an interest calculation which is by no means straightforward – just ask Fellow of the Institute of Chartered Accounts, Fianna Fail Deputy Sean Fleming. What NAMA will do in its 2011 Annual Report (due for publication over the summer, July 2012 probably) is it will show a separate, additional accounting of the loans and interest based on original values. This will enable the public to see how much debt has been effectively written off by NAMA – some might call this debt forgiveness, but NAMA will tell you that the full amount of the loan remains due from the developer even if NAMA writes down the value of the loan in its books.

So to illustrate – if NAMA acquires a €100m from Anglo and pays €30m for it, then NAMA currently shows the value of the loan in its books at €30m. It seemingly calculates annual interest, primarily by reference to the €30m. And that’s how NAMA presently presents its accounts.

In future, we expect NAMA will provide a separate set of accounts which will show the loan at €100m, a provision for loss of €70m and a current carrying value of €30m. In addition we expect to see interest calculated on the €100m original value of the loan less a provision for loss to give us the actual interest booked. In this way, we can see how much NAMA has provided for losses, and if these losses are eventually written off, then we can see how much debt forgiveness or to use more commercial language, “loan impairment losses”, have occurred.

I recommend you read Brian’s own account of his campaign and the results. The letter from NAMA to the public accounts committee confirming the changes is here and reproduced below. Well done to Brian for winning greater transparency in NAMA’s accounts! And remember before you suggest jokes around the theme of “shadowy accounting”, that this transparency provides both accounting to general accounting standard PLUS accounting to provide the public information on just how much debt is being written off.

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The cynics and conspiracy-theorists might be looking out for another arrest as happened to coincide with the St Patrick’s Day visit to Washington by then taoiseach Brian Cowen  in 2010, or re-arrest as happened last November 2011 to coincide with the payment of a USD 1bn (€730m) bond at Anglo – both arrests associated with the Anglo investigation by the Gardai which is now in its fourth year. Economists might be looking out for a “we’re really, no seriously, REALLY, trying to renegotiate Anglo’s promissory notes” Others might be looking out for bread and circuses or “panem et circenses” as the Romans used say, referring to officially organised distractions from the real problems facing that Republic. But how many of you would have expected the imminent payment of the €1,250m to Anglo bondholders on Wednesday to have inspired the Minister for Transport and Tourism, Leo Varadkar to defend the payment in the way that he has, and to have criticised those opposed to the bond payment as “misinformed and mischievous”.

Speaking to RTE television’s “The Week in Politics” yesterday, the sometimes plain-speaking, occasionally outspoken minister introduced some novel new arguments in favour of the payment:

(1) It will raise electricity and gas prices! This is certainly novel, and you’re unlikely to have heard this argument before, despite over €1bn of bonds being repaid last year under protest at Anglo and Irish Nationwide Building Society. Even though our gas and electricity prices remain higher than the EU average and amongst the highest in Europe, according to Minister Varadkar, they may even increase more! What the minister means is that Irish semi-state companies like the ESB and Bord Gais borrow from corporate bond markets and if Ireland doesn’t pay the €1,250m owed by Anglo on Wednesday, then the corporate bond market might charge higher interest rates on new lending because of the perception that the State might not back the ESB or Bord Gais if they got into trouble. The ESB for example – latest annual report for 2010 here –  had €4.1bn of borrowing at the end of 2010, of which €1.6bn is repayable in the next two years and the fear implied by the minister’s claim was that the ESB would find it more expensive to refinance that debt that was maturing. The minister ignored the fact that Anglo is a defunct institution that doesn’t take deposits or engage in new lending, it is one of the biggest corporate failures in the world. Might corporate bond investors not be able to distinguish between the non-payment of bonds in Anglo and the ESB? S&P rates the ESB broadly in line with its rating for Irish sovereign debt; the ESB corporate bond rating is presently BBB+ which is one grade above junk and the outlook is negative; the Irish sovereign rating from S&P is Ba1 which is junk. Is Minister Varadkar seriously suggesting the ESB’s near junk rating with negative outlook will deteriorate to the extent that it needs raise electricity prices, if the Anglo bond isn’t paid? Apparently so. And in any event, the ESB is firmly in the Government’s cross-hairs for privatisation in the next year or so, so the link between State and company is likely to be severed in any event. But Minister Varadkar didn’t make any mention of this.

(2) The saving isn’t real money, it would be like deciding “not to pay off your credit card” argued the Minister who went on to say that the €1,250m that might theoretically be saved in not paying the Anglo bondholders, would only become available once Anglo was wound up which might be 10 years. Now like Anglo’s loan loss estimates and capital requirements, the Anglo wind-down period seems to yo-yo around the place, seemingly depending on what side of the bed, its chairman Alan Dukes arose from that morning. Last September 2011, Alan told an Oireachtas committee that he thought the merged bank  would wind down in less than the 10-year time frame agreed with the EU/IMF in November 2010, or less than 9 years from today. More recently he seems to be using 10 years from today. Regardless of the wind-down period, if the €1,250m weren’t paid to bondholders on Wednesday, it would theoretically be available to invest in Irish 9-year bonds on Thursday that presently yield 7.5% per annum, thereby netting the State €2.3bn in 2020.

(3) It will raise the cost of mortgages. This is an interesting claim because Ireland’s banks hugely rely on ECB funding to the tune of about €150bn at present, and the traditional bank bond market for banks right across Europe is moribund with little new issue. So the only way the cost of mortgages would go up, would be if the ECB increased interest rates. But such an increase couldn’t be selective – or could it, Minister? is this what you meant by a “bomb going off in Dublin” – it would affect all banks acrossEurope who have €1tn of lending from the ECB.

(4) Those suggesting that the €1,250m payment equalled the sum total of revenue expected from new taxes in 2012 (of the €3.8bn Budget 2012 adjustment, €1.3bn is from new taxes and €2.5bn is from cuts to welfare and the public sector) or suggesting that avoiding the payment would not diminish the need for austerity were dismissed as “misinformed or mischievous” by the Minister, I don’t think there is any serious commentator that denies that the country must close the gap, or deficit, between our national income and expenditure. Comparisons with current austerity measures seek to illustrate the enormous scale of the payment on Wednesday.

If the above is representative of the extent to which this current Government plans to go to desperately defend the payment on Wednesday of €1,250m to unsecured, unguaranteed bondholders at a defunct bank, then perhaps the Gardai should, instead, ready themselves for another high profile arrest in the Anglo probe.

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