Archive for February 16th, 2012

Claims this afternoon and evening from credible sources that NAMA has decided to abandon its defence in the legal action brought against the Agency by Treasury Holdings. A consequence of such a move on NAMA’s part would be the standing down of its receivers which it appointed in January 2012 to assets in the Treasury Holdings group of companies. Neither NAMA nor Treasury’s solictors, McCann FitzGerald have commented on the claims.

You’ll recall that following a repayment-of-loans ultimatum issued by NAMA to Treasury which expired on 25th January, 2012 NAMA moved to appoint receivers to a property empire said to be worth almost €1bn. Treasury, led by the dynamic duo of the colourful Johnny Ronan and understated Richard Barrett immediately ran to the courts, and sought injunctions against the appointment of receivers, and also a judicial review of the way in which NAMA was treating Treasury’s loans.

On 26th January, the High Court in Dublin considered the applications and set the matter down for a preliminary hearing on 21st February 2012. Prior to that date, Treasury was required to provide NAMA with its pleadings, and it is understood that upon receipt of those pleadings, NAMA decided to throw in the towel and abandon its defence. The logical consequence would be that the receivers, Ernst and Young and PwC , would be “stood down”

So what might have prompted NAMA’s apparent change of heart? NAMA isn’t commenting, which is par for the course with NAMA and court cases. But sources suggest it was the content of Treasury’s pleadings. You’ll recall that Treasury is represented by what are regarded as one of the smartest law firms inDublin, McCann FitzGerald, and Michael Cush SC was leading the charge in the court-room. Michael Cush helped Paddy McKillen to an effective victory with NAMA last year – technically it was a score draw in that Paddy lost on two points, but he won the right to consultation, and NAMA abandoned his the acquisition of his loans and agreed to pay his costs.

These were the Treasury Holdings/Johnny Ronan firms to which NAMA is recorded by Iris Oifigiuil as having appointed receivers :

Callside Developments Limited

Rushrid Limited

Tenderbrook Limited

Wintertide Limited

Sencode Limited

Coolred Limited

Radtip Limited

Lornabay Limited

Ballymun Shopping Centre Limited

Twynholm Limited

Rigol Limited

Colata Investments Limited

Hakaton Limited

Everglade Properties Limited

Benreef Limited

Carlovent Limited

Beckton Properties Limited

Abbono Limited

Candourity Limited

Montevetro Limited

Montevetro II Limited

IREO Irish Real Estate Opportunities Fund PLC

We await a statement from Treasury Holdings. In the past Johnny Ronan hasn’t been backwards in coming forward with his views to various media outlets. If confirmed, NAMA will face questions over its actions. And if rumours coming out of London this evening in the Paddy McKillen case are to be believed, then NAMA is facing an uncomfortable few weeks in defending its dealings.

UPDATE: 17th February, 2012.  A source close to NAMA rejected the report above and suggested there was no change to NAMA’s plans in respect of the court case. No official word from either side yet.


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“All other euro countries [the 17 excluding Greece only] solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole.” EU summit statement in July 2011

Cast your minds back to the balmy summer days last year, and specifically 21st July 2011 when the EU held a summit which saw Greece, Portugal and Ireland secure reductions to the interest rates on the bailouts, saving nearly €10bn in the case of Ireland. Remember the conditions attached, which were set out in the Summit Statement? Do you remember the commitment to “solemnly reaffirm” an “inflexible determination to honour fully .. individual sovereign signatures”?

The reason I ask is that from listening to some contributions in the past few days, you might have gotten a different impression about Anglo’s promissory notes – technically they’re promissory notes issued by Anglo and Irish Nationwide Building Society which has merged and is now called IBRC – which were signed by former Minister for Finance, the late Brian Lenihan and which were backed up by so-called “letters of comfort” signed by Minister Lenihan and addressed to the Central Bank of Ireland and which gave various undertakings including “the policy of the Government that the Bank should not incur a loss on the provision of emergency liquidity assistance to support Irish credit institutions. Accordingly if any such loss is in prospect, the Government will [redacted] provide for the Bank to receive payment to make good any shortfall”. And you’ll remember that the promissory notes were issued pursuant to a banking guarantee which was debated and approved in the national parliament in September 2008?

You might be forgiven for getting the impression that some people think we can now welch on the promissory notes whilst forgetting about our commitment to the EU last year in return for which we received an interest rate cut – by “welch” I mean depart from the terms which include an interest rate and repayment schedule, to which Ireland, through its finance minister, has given its “sovereign signature”.

Yes there are certainly ethical and moral reasons why these promissory notes shouldn’t be paid. They represent bank losses which the previous Government convinced the national parliament to place onto the shoulders of citizens, at a time when the scale of losses was apparently unclear . There are even economic reasons why the notes shouldn’t be repaid – they involve Ireland taking on more debt to pay the notes because our tax income isn’t even sufficient to pay for our State expenditure, let alone fund the promissory notes – and our debt is consequently expected to reach 120% of GDP in 2013. Domestically some people say that’s unsustainable. Others, like the Irish Fiscal Council, apparently say it’s not. But really the domestic debate is irrelevant. It’s the external view that is relevant.

And the view of Europe generally is that Italy with a 120% debt:GDP has sustainable debt. It is the view of Europe generally that allowing Greece write down some debt so as to get to 120% debt:GDP in 2020 is sustainable. What’s magical about 120%? Nothing really except the higher the debt ratio, the more likely it is that it will be unsustainable and some macroeconomists suggest that it is above this level that a nation’s debt becomes unsustainable. Others say it should be no more than 80% or 90%. And of course the EU Stability and Growth Pact places it at no more than 60%. But regardless of what we think domestically and regardless of what macroeconomists think, the people that matter – the EU and the ECB – think that 120% debt:GDP is sustainable. And even after paying these godforsaken promissory notes we will still have a debt:GDP of just less than 120%.

“But”, the argument goes “if Ireland defers the payment of these promissory notes for a number of years, until we get back on our feet, it won’t affect the EU” so why wouldn’t the EU, and particularly the ECB, accede to a request fromIrelandto defer payment? These miserable promissory notes make up less than 0.5% of the money supply throughout the EuroZone. Surely it won’t affect anything if such a small sum of money is left owing for a small number of years?

But if the ECB agrees to Ireland’s special pleading – which incidentally it shows no sign of doing and if body language and physical approach means anything, then ECB president Draghi was very dismissive of the notion at the monthly ECB press conference last Thursday – then what about other troubled economies in the EuroZone? For example, some of the world’s top investors currently regard Spain as a basket-case in the making, even if they’re not saying so publicly. Last year, on here there was an analysis of the Spanish property and credit boom which mirrored our own, and the curiosity thatSpain had revealed such minor losses in its banks to date was highlighted. Just a couple of weeks ago, the Spanish authorities ordered banks to make a €50bn provision for additional losses on loans.

Now what happens if Spain needs to bailout its banks so as to prop up its troubled economy? Will the Spanish government be able to write promissory notes worth billions to its banks which can be used to access funding from its central bank? And what happens if Spain then decides that paying back these promissory notes is too much of a burden and asks the ECB for a deferral?

Recent positive comments by Ministers Creighton, Rabbitte, Varadkar regarding the prospects for getting some deal on the promissory notes, are all noted. As is the IBRC chairman Alan Dukes description of “the possibility” of some concession on the promissory notes as “good”. There is some unease at the apparent contradiction between An Taoiseach claiming it was the Troika’s own suggestion to write a paper on options for dealing with the promissory notes and the Troika’s more muted claim that it was Ireland that had requested “technical discussions”. All of them are to be wished well in their endeavours, however intense or light they may be, but as Dr Stephen Kinsella told an Oireachtas committee yesterday, it will not be a real success for Ireland if politicians simply achieve an interest rate reduction because the interest on the promissory notes is paid by the Government to IBRC which we own 100%.

The position on here is that, as moral and fair as Ireland’s position is, and as much as our economy is jeopardised by these notes, we have agreed to pay them and the ECB will not approve any deferral or write-down. Unless there is (1) Unilateral action (2) The threat of unilateral action (3) Communication which makes clear that unilateral action is regarded as more than a theoretical possibility (4) Communication which questions whether the promissory notes indeed carry “the sovereign signature” or (5) Communication which suggests the people will be consulted on the matter, and until then, the view on here is that these “intensive negotiations” will fail.

UPDATE: 23rd February, 2012. In an exchange in the Dail yesterday, the junior Minister  at the Department of Finance, Brian Hayes seemed to concede that the imminent payment of €3.1bn on the promissory notes at the end of March 2012 will go ahead and will not be affected by any ongoing discussions or “technical papers”. The Minister was responding to questions by the Sinn Fein finance spokesperson Pearse Doherty and said “unfortunately, I am not in a position to indicate when the review of options and negotiations will be completed. The Government is aware that payment of the promissory note is due at the end of March 2012. However, given the nature of advocacy and the decision-making process in the EU, I would not expect this matter to be concluded in the short term” Now it’s not cut-and-dry as to what this means but the proximity of the reference to the March 2012 tranche payment and the Minister’s view that the matter will not be concluded in the short term does not fill you with hope.

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In response to a question from Sinn Fein, NAMA has this morning provided a geographical analysis of the advances it is providing to developers; you’ll recall that NAMA is allowed, under the NAMA Act, to provide up to a total of €5bn to developers in additional lending to help finish out projects and maximise the amount that can be recovered on the original loan. NAMA has provided a split of it approved advances – totalling €980m – and a split of its actual drawn-down advances – totalling €740m – for the Republic of Ireland,Northern Ireland,Britain(which NAMA confusingly calls “UK”) and “other locations”. NAMA has provided % splits, the following table shows NAMA’s information together with calculated € values.

The table above also shows the split of NAMA’s assets by reference to NAMA’s acquisition values – totalling €31.8bn, and a split of the locations of NAMA’s foreclosed properties; both sets of figures are extracted from the NTMA’s recent investor roadshow presentation, pages 68-69, available here.

These figures will not make anyone happy. Britain has gotten the lions-share of the drawn-down funds but €385m is unlikely to make much difference to the UK’s €1.8 tn economy. However the Republic of Ireland where 57% of NAMA’s assets by acquisition value are located has got just 39% – when you consider that we have 440,000 on the Live Register and more than 310,000 unemployed, you’d have to wonder why NAMA has been so slow to deal with unfinished projects like the intended Anglo HQ in north Dublin Docklands (pictured above) – NAMA has apparently been faffing about with the sale of this building for over six months, in October 2011 it said it expected to make a decision in November and three months later, there’s not been a dickybird – the Central Bank of Ireland, BNY Mellon and others are said to have been seriously negotiating for the property.

Northern Ireland politicians will be wondering why, with an estimated 5% of the NAMA portfolio by reference to estimated acquisition values, that only 1% of new advances is being spent there – bad enough that the Republic has welched on its promised funding for the A5 road between Derry and Omagh but now, its so-called “bad bank” is seemingly avoiding investment as well.

NAMA is presently sitting on a cash mountain of some €3bn. NAMA pays interest on its bonds at the six month Euribor rate, currently just over 1% per annum. NAMA has a commercial remit to maximise the return on its assets, but you’d really have to ask, if the Agency is unable to find a use for its cash mountain that delivers more than a 1% return, why can’t the Agency find commercial projects? The Agency says  “there is strong reason to expect that commercial prices will stabilise this year”, so what’s holding the Agency back?

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