Archive for February 3rd, 2012

Northern Ireland property company, BTW Cairns, held a very successful auction at Belfast’s Europa hotel this morning when 22 lots came under the hammer, 2 having being sold before the auction. The auctioneers used the “maximum reserve” device made famous on this side of the Border in the Allsop Space auctions, so punters knew in advance the price above which bids would be accepted. All 22 lots were sold at the auction at an average of 32% over maximum reserves, and thanks to the good folks at Property Pal and their twitter feed, we can bring you the full results now. The auction catalogue is available here.

According to the most recent quarterly survey of house prices in Northern Ireland by the University of Ulster/Bank of Ireland, prices have fallen 44% from the peak in 2007 to the end of September 2011, a very similar rate of decline to the 47% suggested by the CSO’s house price series on this side of the Border. There is no indication with the individual description of the lots that the property has been repossessed, though you would hardly call any of the property “prime”.There is not really enough information to provide a guide to current yields. The 100% success rate today would appear to place BTW Cairns at the top of the league in terms of Irish auction results. The next Allsop Space auction will be held on 1st March, 2012 in Dublin, and the catalogue is due to be published on Monday next, 6th February.

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“We’ve had a major incident and there is a showdown coming between Brendan McDonagh [the CEO of NAMA] and the public accounts committee. On 26th October, he was in at the public accounts committee and I asked him a straightforward question – “you have a figure of €448m in the accounts for interest received in the course of 2010, how much of that was received and how much of that was not received by the end of the year” – and over three months on after four requests by the public accounts committee, he has not yet answered that question. He has tried to fob it off. So Brendan McDonagh is heading for a direct confrontation with the PAC and the PAC won’t lose on this one because we are there on behalf of the Irish people. Brendan McDonagh is a public official when all is said and done. And he has stonewalled, so he is not being accountable and he is specifically required under the legislation to be accountable. So there is a bit of a showdown coming on that.” Fianna Fail TD Sean Fleming speaking on Tonight with Vincent Browne on 2nd February, 2012

Here’s a maths teaser for you. Consider the following problem. You are owed €74bn in loans. Only 21% of the loans are performing. You get an average of 3.5% interest per annum on the loans. How much would you expect to receive over a three month period? Okay, it’s Friday so here’s the arithmetic – €74bn * 0.21 * (3 mths/12 mths) * 0.035. Which equals €136m.

Now NAMA just happens to have €74bn of loans. NAMA says 21% of the loans are performing. NAMA previously said in April 2010 that the average interest rate on its loans was 3% but ECB rates went up 0.5% since then and only fell by 0.5% in the final quarter of 2011. So you would expect NAMA to show interest income of about €136m in its latest quarterly accounts for Q3,2011.

Instead the Agency shows €255m. Now you might suggest that maybe developers only pay interest half yearly or yearly. But the Q2, 2011 interest income was also reported to have been €255m and the Q1, 2011 interest was €276m – you’ll see the analysis in the table at the end of this blogpost.

What’s going on? I honestly don’t know. But chartered accountant and Fianna Fail TD Sean Fleming also seems confused and asked NAMA about its method for calculating interest when the Agency appeared before the Committee of Public Accounts in October 2010. In fairness to NAMA – and contrary to the claim last night that NAMA had not responded to Committee letters – there is in fact a letter from the Agency to the Committee on 15th December 2011 which is examined here and NAMA says it applies internationally recognised accounting standards in calculating interest due. But despite that letter, it remains unclear how much interest was payable and paid by developers in 2010.

Obviously Deputy Fleming is not going to let the matter slide and NAMA can expect some further robust questioning when it is next summoned to appear before the committee.

Last night’s Vincent Browne show was supposed to focus on NAMA, which is certainly a large property asset management company, but contrary to claims in some quarters, is nowhere near the world’s biggest. Even in Ireland, Certus and loan portfolios at Ulster Bank and legacy loans at state-guaranteed banks are of similar size. Separately, Deputy Peter Mathews forecasts that NAMA will make a loss of “upwards of €5bn over its lifetime” and journalist Gavin Sheridan is still on the periphery of a fight to get NAMA to provide information pursuant to an environmental information piece of legislation. There is no update as to when NAMA will be encompassed by Freedom of Information legislation, and indeed I don’t even know if such a move will materially affect the information provided by NAMA, because of NAMA’s confidentiality constraints imposed by the NAMA Act. The disgrace and political failure is that NAMA is disposing of an average of €500m of loans/property (by reference to face values of loans) a month EVERY MONTH, and we know next to nothing about the disposals. If  NAMA was selling second-hand cars, we would know more and understand more about its operations and performance. But apparently the management of multi billion property portfolios means we are kept in the dark, to a large extent.

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[UPDATE: 4th February, 2012. The judgment is now available online at bailii.org and is discussed in an update at the bottom of this page]

Coincidentally a million euro for every minute of notice that was given by NAMA to Paddy McKillen last September in advance of the sale of €800m of loans by the Agency to the Barclay brothers, Frederick and David – that’s a speculative estimate going around London of the damages that businessman and property investor – not property “developer” as he will insist until he’s blue in the face – Paddy McKillen may eventually claim from NAMA, after Paddy won what was a preliminary court case in London’s High Court yesterday. It’s a good job NAMA only gave Paddy a paltry 57 minutes notice of the sale!

Yesterday’s win by Paddy means that he has been given leave by the UK courts to challenge the purchase of the loans – which relate to the Maybourne group of 5-star hotels in London : Claridges, the Berkeley and the Connaught – by the billionaire Barclay twins. The purchase which was announced by NAMA in September 2011 meant that Paddy’s existing shareholding and control of the Maybourne group was threatened as the loans apparently gave the Barclay twins more control over the equity of the company, adding to a stake that they had been building-up in the company for a year previously.

Following yesterday’s ruling, the full hearing of the issues in Paddy’s case is due in March 2012, and whilst yesterday’s victory for Paddy merely means that he can argue that NAMA unlawfully transferred to loans to the Barclays, it is a boost to his case as neither NAMA nor the Barclays were seemingly able to convince the judge at this stage that restrictions did not apply to the sale of the loans.

To be honest, I thought we had seen the final chapter and epilogue in the Paddy and NAMA saga last September 2011. After all, NAMA had failed in its defence of Paddy’s legal challenge to the Agency’s right to take over his loans without consultation beforehand. And NAMA had stated that it was not proceeding to acquire Paddy’s loans. Paddy had been awarded costs in the case. And NAMA had seemingly sold its remaining loans in a company in which Paddy had a controlling interest. But now, there is the possibility that not only might the €800m transaction – the largest single transaction thus far for NAMA – be undone, but Paddy might shake €50m-odd out of the Agency’s coffers in damages plus several million more in costs. Seems like we might need to start a new book….

Yesterday’s decision may also have put a halt to the Barclay twins’ plans for a rights issue which might have seen Paddy’s control of Maybourne further diluted. The judgment yesterday is not yet available online though there is another preliminary judgment from December 2011 in which Paddy lost on several points, available here. NAMA has not commented on yesterday’s development. Paddy’s spokeswoman has said no statement is being issued to the media at this stage.

UPDATE: 4th February, 2012. The judgment is now available online here. At issue at this preliminary hearing was whether Paddy was entitled to rely on terms in his agreement with NAMA as to NAMA’s rights to sell his loans. In particular, Paddy argued that he was entitled to rely on two terms in his agreement with NAMA (1) that if NAMA was to sell the loans, the sale was to be another lender and (2) that Paddy was to be consulted. NAMA argued that NAMA was not entitled to rely on these terms by virtue of NAMA’s overarching rights in relation to acquired loans, granted to NAMA in the NAMA Act. In a nutshell, Paddy won the right to argue both points at the full hearing scheduled for March 2012. This will be a major blow to NAMA, because the company to which NAMA sold the loans, Maybourne Finance seemingly doesn’t meet the requirements of being “another bank or financial institution or a trust fund or other entity regularly engaged or established for the purpose of making, establishing or investing in loans, securities and other financial assets “and if newspaper reports are correct, Paddy was given a mere 57 minutes notice of the sale, which hardly seems like fulfilling the condition of “having first notified and consulted with the Borrower in relation to such proposed assignment or transfer”

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