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Archive for February 13th, 2012

This afternoon, Minister for Jobs, Enterpriseand Innovation, Richard Bruton has published his “2012 Action Plan for Jobs” which sets out a large number of measures, with varying degrees of specificity, to help generate 100,000 new jobs between now and 2016. In a country with an unemployment rate of 14.2% with 310,000 unemployed, and a total of 440,000 on the Live Register, any initiative is to be welcomed. The 126-page document is here – there is a discussion of the initiatives generally over at irisheconomy.ie here.

Although there is a lot of detail, it remains to be seen how the initiatives will work in practice. We can but hope. The document does deal with competitiveness issues and I see there are moves afoot to modify pay agreements, and by “modify” is meant “reduce”. The document does touch on commercial rents in the State which have come down by about 50% from peak levels in 2007 in respect of new leases; however, many existing leases pre-date February 2010 and have Upward Only Rent Reviews which maintain rents at levels which may no longer be competitive for the tenant. The document suggests that properties subject to NAMA loans be subjected to rent reviews where rents are “in excess of prevailing market rents”.

Now this is not new in itself. NAMA issued a statement at the start of December 2011 which set out a scheme whereby rents in buildings subject to loans acquired by the Agency might be assessed and in some cases reduced. The NAMA statement in December 2011 made it clear that in order to qualify for any rent reduction, the tenant would need demonstrate the viability of their business was threatened by high rents.

What is different about today’s announcement is that there is no pre-qualification at all – if the existing rent in the lease is in excess of the market rent, then the implication is that NAMA must allow rents to be independently assessed, and reduced if such independent assessment concludes the rents are in excess of “prevailing market rents”.

At this stage, it is understood NAMA feels today’s initiative echoes its own scheme and is not departing from the principle of that scheme. It should be said that there are other initiatives in today’s announcement such as the reduction of stamp duty on commercial transactions from 6% to 2% which have already been completed. So it may be that the initiative is not new and that it is still intended there be a business critical imperative before any review by NAMA takes place. But that’s certainly not clear from the jobs initiative though.

The Department is being asked for comment and any update will be posted here.

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NAMA has a tendency to bunch its releases of information together. So on one day, 31st January 2012, we had the quarterly accounts for Q3,2011 together with the usual management report, we also had the Annual Statement which set out NAMA’s plans and “objectives” for 2012 together with its projections of its own costs. And to cap it off, we had the monthly list of foreclosed property issued on the same day. It’s either deserts or deluges with the Agency. And sometimes it takes a little time to tease out all the information presented in what the professionals call “one news cycle”. This blogpost looks at NAMA’s plans to appoint receivers as revealed in its Annual Statement.

The 2012 Annual Statement was reviewed in two parts on here – the objectives and the financial projections. As stated in the latter blogpost – “according to the NAMA it expects to spend €75m or €1,500,000 per week in 2012 on “recovery/insolvency costs” which represents 1.5% of the asset values foreclosed (indicating €5bn of assets being managed by receivers – or one sixth of NAMA’s total assets). But let’s look at this projection more closely.

NAMA has acquired €74bn of loans at face value from the banks. NAMA has paid €31.5bn for these loans (according to the NTMA – €31.8bn according to the NAMA chairman, Frank Daly last week). So far NAMA has approved the disposal of nearly €7bn of assets and had received €2.5bn in cash of that €7bn by the end of Q3,2011. So of the loans that were valued at €31.5-31.8bn, how much does NAMA have now on its books? Difficult to say but the indications are €25-29bn by reference to NAMA’s acquisition values. But remember these values have declined since November 2009 – by €1.5bn in 2010 according to NAMA and although we don’t have 2011’s accounts yet, the betting is that the decline will be in the order of €1bn. And the underlying property values have declined by more than this but NAMA doesn’t have to recognise these losses if the loan is in any way performing. Although NAMA has advanced €1bn of new lending, you would expect the Agency to dispose of several billion of assets in 2012.

NAMA expects to pay €75m to insolvency practitioners in 2012 representing 1.5% of the assets which receivers/administrators/liquidators are managing on NAMA’s behalf. That indicates that the insolvency people will be managing €5bn of assets on average during the year.

So drawing these figures together – by the end of 2012, NAMA is likely to have about €20bn of assets (say, €29bn at the start of the year by reference to NAMA values less €2.5bn of cumulative impairments, less €7bn of disposals to end 2011 plus new advances less 2012 disposals) and the Agency expects to be paying receivers etc to manage €5bn.

These projections are blurred by NAMA’s apparent, but baffling, inclusion of VAT in its projections and the fact that some part of the €7bn disposals will go to non-NAMA banks.

Now 25% of NAMA’s assets in the hands of receivers doesn’t indicate 25% of the 850 developers on NAMA’s books will see foreclosure action. Liam Carroll for example is one of NAMA’s Top 10 developers, and receivers are managing his assets on behalf of NAMA and other creditors. It has been suggested that NAMA acquired €2bn of loans relating to Liam Carroll and if you apply NAMA’s average haircut of 57.5c in the euro, that would mean that Liam Carroll’s loans alone are worth €825m. NAMA has also appointed receivers to other high profile – and presumably high value – developers including Sean Dunne, Ray and Danny Grehan, Treasury Holdings, Derek Quinlan, Paddy Kelly, Paddy Shovlin, Capel Developments, Jim Mansfield and David Agar.

But having said that and factored in disposals of assets managed by receivers, it seems on here that NAMA still intends appointing receivers with gusto in 2012.

On a related topic, NAMA is paying most developers €75-100,000 to manage their assets. In two cases, NAMA is paying €200,000 but in these two cases NAMA says the developers are managing “several billion euros of taxpayers’ money” – to quote NAMA chairman Frank Daly at an Oireachtas hearing last September 2011. Now I think NAMA has been spinning us a line about these costs because if NAMA appointed receivers to a €2bn portfolio, then NAMA would pay those receivers 1.5% of this in a year, or €30m. Instead NAMA would have us believe it is paying €200,000 in two instances, and NAMA gives the impression that the €200,000 salary payment is comparable to a €30m payment to receivers. What NAMA is omitting to detail is the overall payment to developers’ companies although the Agency has said that it has insisted on 75% reductions in overheads. So you can bet your bottom dollar that you don’t have the full picture of expenses in developers’ companies – it is just not credible that NAMA has two options, pay a developer €200,000 or pay a receiver €30m.

UPDATE: 29th February, 2012. NAMA has provided a new projection and analysis of its 2012 operating costs which is shown here.  The foreclosure/receivership costs have been slashed by €42m from €75m to €33m, and if this still represents 1.5% of what is being managed by receivers then the implication is that NAMA will be far less aggressive in its 2012 foreclosure action than previously expected – and written about, above.

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