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Archive for February 23rd, 2012

The Department of Finance has this afternoon published the notice below, available here.

 

It is five months since Peter Stewart resigned from the NAMA board, suggesting at the time that NAMA had arrived at a watershed. It is three months since Michael Connolly suddenly resigned, without issuing a statement and receiving the standard thanks and good luck message from NAMA. These two resignations left the 9-member NAMA board with a complement of seven. It is curious that it has taken so long for the Minister to advertise for the roles and given a closing date of 6th March, 2012, a selection process and a possible notice period, it might be many months before the NAMA board is back to full-strength, which seems a little discourteous to NAMA and highlights the political interference in the operation of the Agency.

The notice is pretty threadbare with detail. For information, the NAMA Annual Report for 2010 showed that the standard fees payable for board membership were €57,641 but Michael Connolly received €146,374 because he was also “Chairperson of the Credit Committee”. It’s not clear how many recruits are sought, presumably two, as that is what is specified by the NAMA Act, which also sets out conditions attaching to Board membership in section 18 onwards.

Remember there is a separate NAMA advisory group about which there has been no official announcement though it is understood the members have been appointed (without advertisement).

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This morning Ireland’s Central Statistics Office (CSO) has released its inflation figures for January 2012. The monthly headline Consumer Price Index (CPI) was down 0.5% compared to December 2011, but up 2.2% year-on-year (down from 2.5% in December 2011). The biggest driver of inflation in the past 12 months continues to be the CSO category of housing-related costs, and within that, the most significant component is mortgage interest which has risen 7.8% in the past 12 months as domestic bank-driven interest rate rises take effect, though this is substantially down from the 15-20% increases seen in recent months. Energy costs in homes have risen by 11% in the past 12 months.

It should be said that in the month of January 2012, inflation on mortgage interest fell by 5.6% as ECB interest rate reductions and domestic regulatory and political pressure bore fruit.

Mortgage interest comprises nearly 6% of the CPI “basket” so the effect is significant.

 

Elsewhere private rents rose by 0.2% in the month of January 2012and over the past year, such rents are up by 3.1%. It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 3.0% increase (mostly recorded in February and October 2011). At the start of January 2012, the Department of Social Protection reduced its rent assistance payments by up to 29% (an average of 13%) and the Department says that some 40% of the rented market in the State is affected by rent assistance payments, which at the end of 2011, was paid to 98,603 households.  The Department’s 40% is derived from information provided to it by the Private Residential Tenancies Board. The Department is projecting it will save €55m in 2012 from its €500m budget for rent assistance, the saving comprising €33m to changes to the minimum contribution and €22m in relation to the new maximum limits.

Private rents have tended to fall in line with rent allowance even though many landlords will not accept rent allowance tenants. The betting on here is that private rents will come under pressure in the short term but it might take a couple of months for the changes to feed through as most renters will have a couple of months to renegotiate their rents or move.

The CSO has this month changed its format of presentation which is why you can now see private rents and public authority rents above. It is only private rents that is of interest on here as they represent market levels affecting private housing.

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In December 2010, fourteen months ago, and after NAMA had acquired most of the €74bn of loans which it was eventually to acquire, the NAMA chairman Frank Daly issued a pre-Christmas message in which he said “as a result of the Agency’s insistence, a number of borrowers whose loans have been acquired by NAMA have reversed or are in the process of reversing transfers of over €130 million worth of assets which they had previously sought to transfer beyond the reach of NAMA or the relevant Banks”. And remember that December 2010 was 7-9 months after NAMA had acquired the first tranche of loans from the NAMA Top 10 developers which were worth a staggering €15bn, and four months after the Agency acquired the second tranche with the 20 next-biggest loans which totalled €12bn.

It is difficult to put NAMA’s December 2010 figure in context – was €130m a “good” result for NAMA? The media would have you believe that developers were squirreling wealth away on an industrial scale, and that this malfeasance mostly involved putting property in the wife’s name (it is a feature of the Irish property world that developers are almost exclusively male). So €130m might be perceived as small in the context of loans for assets worth €74bn – surely borrowers of €74bn had at least a few billion of unencumbered assets to protect? And the view on here is that if developers who ran up debts of €74bn only managed to transfer €130m to their wives (or girlfriends or elsewhere beyond NAMA’s reach), then they were either too stupid to see the downturn coming or too honest to act so as to deprive creditors – neither seems likely, though there’s possibly a modicum of truth to both, so the implication is that spousal transfers should be far greater than €130m.

Fast forward 14 months to February 2012, and remember that NAMA has now examined 95% of the developers’ business plans, according to the NAMA chairman last week, and remember these business plans are required to disclose details of asset transfers in the past five years, and in the Dail yesterday, Minister for Finance Michael Noonan told the Fianna Fail finance spokesman Michael McGrath that NAMA had now succeeded in reversing €160m of transfers – in other words an additional €30m when compared with  December 2010. The €160m of reversed transfers represent 31 developers. Minister Noonan says there are another 17 developers being pursued. The Minister is reported to have said that NAMA is pursuing five “cases” through the courts for the reversal of transfers – it’s not clear if this is five developers or just five legal actions, remember that NAMA has initiated legal actions in Canada, the US and the UK against the Grehans, so there could well be “five cases” there alone. There are pending legal actions inIreland against Sean Dunne and the directors of Capel Developments, but it is understood that these are related to judgment orders, rather than reversals of any transfers. The David Daly case did have an element of spousal transfer of cash, but David Daly has now refinanced his loans, so that is no longer a NAMA issue presumably.

Again we have little context to be able to judge if this is a good or bad result for NAMA. If NAMA is indeed hounding developers and if the media image of widespread transfers is correct, and developers with €74bn of loans had a few billion of unencumbered assets to protect, then it somehow seems like a small number. In light of the TAIL transaction at Treasury Holdings which we learned about yesterday where €20m of shares were supposedly transferred to the founders of the company for what on the face of it appears to be well below value – disputed apparently by Treasury who seem to claim the transaction was at open market values – and two years after the transaction, NAMA has still not gone to the courts to reverse the transaction, despite referring to it in its affidavits as “a grave concern” and “making good of the financial damage caused to Treasury by the TAIL transaction has been a central requirement of NAMA at all material times” and “at no stage has NAMA accepted the propriety of what was done in the TAIL transaction” then you might indeed wonder if the €160m of reversed transactions is anything but a paltry start to reversing developer transfers.

Deputy McGrath’s question and Minister Noonan’s answer in the Dail yesterday should be available later today and will be published here verbatim when available.

UPDATE: 23rd February, 2012. It seems NAMA is sticking by its view expressed here, that there is “no pot of gold” in developers’ transfers. Deputy McGrath’s question was actually dealt with on Tuesdaythis week, not Wednesday, and can be found here, and is reproduced verbatim below. “Deputy Michael McGrath asked the Minister for Finance if he will provide details of the number of individual cases that comprise the €160 million of asset transfers by National Asset Management Agency debtors to family members which have been now reversed by the agency; if all of these reversals have been achieved without the necessity for court action; the number of individual cases in which NAMA is pursuing similar reversals; and if any court action is planned or currently underway to achieve this objective.

Minister for Finance (Deputy Michael Noonan): NAMA advises me that in the case of 31 of the 188 debtors under its direct management, it has secured agreement to reverse asset transfers with an aggregate value of €160m. In another 17 cases, assets transfers have been identified and NAMA is confident that its current discussions with debtors will conclude with additional transfer reversals or the granting of charges to it over unencumbered assets. In 5 other cases to date, NAMA has initiated legal action to reverse asset transfers. NAMA also advises me that in the case of 32 of those debtors, no asset transfers to relatives appear to have taken place in the past five years.

A number of directly-managed debtors have borrowings with no recourse other than the secured asset and in those instances debtors have no legal obligation to reverse asset transfers or offer additional unencumbered assets. Finally as regards the other debtors under its direct management, NAMA has either already enforced against the debtors concerned or is engaged in further investigation and legal review of possible asset transfers. Some of these cases will ultimately lead to additional reversals or the granting to NAMA of additional charges over assets which are currently unencumbered.

In the case of the 598 debtors whose debt is managed by the participating institutions on NAMA’s behalf (par debt of €13 billion), the business plan cycle is approaching completion. It is expected that the current engagement with these debtors will yield additional reversals of asset transfers to relatives by the time the process has completed.

NAMA has already stated that the maximum amount it expects to recover as additional security is of the order of €500 million.”

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