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Archive for February 24th, 2012

I wonder will we ever reach a point when the army of consultants and advisers that worked with the late Brian Lenihan in 2009 will be eager to come forward and claim it was they who inspired NAMA? It seems for the time being at least that NAMA is a bit of an orphan with its progenitors muted in discussing their involvement in NAMA’s conception in 2009. Step forward Dr Alan Ahearne who was seconded from his role as economics professor in the National University of Ireland in Galwayin March 2009 to work with the former Minister for Finance, and who is likely to have had no small role in the conception of NAMA. Dr Alan has now returned to his old post and today pens a defence of NAMA in the Irish Independent.

He defends NAMA’s secrecy by comparing it with the five nationalised banks – AIB, EBS, INBS, Anglo and Permanent TSB. These are he says, now state-owned as NAMA is, and yet no-one seems all that concerned about the goings-on there. So if I get this line of argument correct, because we’re not clamouring for more information from IBRC, AIB and PTSB, we’re being inconsistent and perhaps even hypocritical in demanding it from NAMA. After all the five banks and NAMA are both state-owned, so why the difference in treatment? So why would we want a new entity with top heavy public sector and accounting direction, with untested procedures and to an extent, personnel, which oversees €74bn of assets, many of which are in distress, which gets its initial forecasts wrong, which still thought that its portfolio’s value was stable in mid-2010 – why would we want more oversight over this body than IBRC which employs over 1,000 career banking personnel, which disposes of large tranches of assets in pretty transparent bidding processes? Why don’t the two get equal attention?!

Dr Alan credits NAMA with stabilising deposits in Irish banks – “it is simply not plausible that the stability in bank deposits recorded over the past six months could have been achieved if toxic loans had remained on the books of the banks” Hmm, Irish private sector deposits in the so-called covered banks (AIB, INBS, Anglo, EBS, PTSB and Bank of Ireland) declined by 5.3% between May and October 2011, in Spain they declined 5%.  Now it is getting a little irritating that neither the Central Bank of Ireland nor the Department of Finance seems willing to publish private sector statistics on Irish deposits in Irish banks, because the DoF is claiming deposits are increasing, but DoF has declined to say how much of the increase is attributable to overseas branches which will be governed by local guarantees. But on the face of it, the stabilisation at Irish banks doesn’t seem materially different to Spain. Spain doesn’t have a NAMA, so isn’t it indeed “plausible” that Irish deposits might have stabilised in the same way Spain’s did? I use Spain because Spain had a property bubble similar toIreland, lending on land and development similar toIreland but has not seen the same collapse in banks (or indeed property) asIreland. Extend and pretend seems to have worked better forSpain in this regard.

Dr Alan defends NAMA’s €1m per working day cost by challenging critics to provide evidence that NAMA is either paying above market rates for its services or that NAMA is wasting money? That seems like a fair challenge and it is hoped that we can benchmark NAMA’s operating costs with comparable organisations on here in coming months. But having said that, Dr Alan hasn’t provided any justification himself for NAMA’s costs. Sauce for the gander?

Dr Alan says that critics have changed their tune on aspects of NAMA over time, that in the beginning the criticism was that NAMA would pay too little for the loans it was acquiring from banks – this was when it was suggested NAMA would pay 70c in the euro, and the upshot of the criticism was that NAMA was bailing out the banks. That criticism has now changed apparently after NAMA had paid 42c in the euro and the upshot is that NAMA has paid so little causing the banks to fall back on state assistance. This is rich, and it is particularly rich coming from an adviser on the NAMA set-up. Cast your minds back to the Wikileaks cables which claimed in relation to then-deputy Secretary General at the Department of Finance, Kevin Cardiff “On April 7 [2009], Econoff spoke with Kevin Cardiff (protect), Second Secretary General at the Department of Finance, who said that the pricing of assets should be finished within three months. Cardiff said he will need about 30 more staff members, who will come in on a contract basis, to set up NAMA and value the banks’ assets.  He hinted that, given the work he and his colleagues have already done, the assets will be discounted by around 50 percent.”  Perhaps Dr Alan, given he joined the Department of Finance in March 2009, a month before Kevin’s hinting, might give us the skinny on what the projections were, because from this perspective, it seems that it was considered a possibility if not indeed a probability or likelihood that the losses in the banks after NAMA’s work would be so severe as to require nationalisation, in which case, why have a new organisation called NAMA, why not do it at the banks?

And lastly Dr Alan says that NAMA’s critics are being inconsistent in saying on one hand that NAMA is a bailout for developers and on the other that NAMA is overzealous in foreclosing on developers. I think Dr Alan might find that different critics have different views, on here for example, you might find commenter Brian Flanagan consistently suggesting NAMA is still shielding developers from the reality and inevitable consequences of their losses, whilst others will suggest NAMA won’t be happy until every developer has a classic 1970s car, the Mark III Ford Cortina,  and living in a 3-bed semi-detached property!

NAMA has come in for unrelenting criticism over the past couple of months which seems unfair to an organisation with some success under its belt. However, you can always over-egg the pudding in the opposite direction also.

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We seem to have an amazing ability in this country with not being able to spot emperors without clothes – how many of us knew in 2007 and 2008 that residential property prices had inflated into a bubble, and still many didn’t act in recognition of that knowledge. And looking at Treasury Holdings’ financial position as set out in the NAMA affidavits – these two from Mary Birmingham are most significant, here and here – in the ongoing case in Dublin’s Commercial Court, you’d have to wonder what it takes to declare Treasury Holdings an utterly failed commercial entity, that this emperor has no clothes – perhaps Johnny Ronan and Richard Barrett’s genitalia swinging in your face, because it seems that NAMA’s assessment of the Treasury group as set out in its affidavits isn’t doing it.

What might be clouding our judgment is the apparent wealth of the company’s founders, in terms of perceived personal assets and also the vague talk about another entity in which the founders have an interest, Treasury China Trust (TCT) which is reportedly “worth” €1.5bn, in the sense of “having assets in mainlandChina valued at €1.5bn”. However examining the Treasury Holdings’ group position, as credibly claimed by NAMA it should be said, here’s what we know:

Cash
Cash is king for all companies, but particularly those in distress. And the cash position for Treasury as claimed in the NAMA affidavits is precarious, with the balance having dwindled – in relative terms – to €4.1m at the start of December 2011 and with an average burn rate of over €2m per month between November 2010 and December 2011 – a decline of €31.7m from €35.8m to €4.1m in 13 months – Treasury’s cash should be depleted at this point if the same burn rate continued. NAMA has conceded it has injected an additional €103m of its cash into Treasury, but presumably that cooperation is suspended with the ongoing legal proceedings.

Unsecured creditors
According to NAMA, Treasury had €13.6m unsecured creditors on 7th December 2011, and, additionally, accruals of €5.6m.  Again, according to NAMA, it is Treasury’s “strategy” to pay the unsecured creditors ahead of secured creditors like NAMA and the non-NAMA banks!

Insolvency
According to NAMA, Treasury is insolvent. NAMA claims that Treasury owes NAMA €1.7bn and in addition owes non-NAMA banks €1bn. NAMA says that the majority of Treasury’s loans are in default and that Treasury “appears to be significantly insolvent”. NAMA says that at 28th February, 2010 that Treasury was insolvent to the tune of €859m. By “insolvent”, the liabilities of Treasury exceeded its assets by €859m.

Founders injecting equity
Treasury’s founders have reportedly declined to inject any further funds into the Treasury group – “Mr Barrett had said in August 2011 there was no justification to inject funds as “no equity existed””. So even if TCT is worth €1.5bn and even if the founders have significant wealth tied up in TCT, it doesn’t look as if it will be coming anywhere near the Irish Treasury group.

Despite being asked several times, including at the public accounts committee, NAMA has so far declined to provide the cost of its ultimately failed legal proceedings with Paddy McKillen, NAMA has typically said it still doesn’t have the final costs total which gets less and less credible as we are now nearly a year since the case was finally settled. The media has speculatively filled the gap and the estimate of NAMA’s and Paddy’s costs, which NAMA is to pick up, is €5-7m. When you consider that the hearings at the High Court took seven days, an additional couple of days to deal with the appeal and costs and the Supreme Court hearing took five days and then there were another couple of days on costs – a total of about 16 days – that’s a pretty tasty cost, though that will ignore preparatory work and non-court time.

The ongoing Treasury Holdings case is lower profile but is still likely to be an expensive affair. Whilst the outcome of the case remains to be decided, people are asking how Treasury Holdings which is in poor financial health, can afford to put at risk perhaps millions in legal and other fees in fighting NAMA’s attempt to appoint receivers to the group which by NAMA’s account is severely insolvent.  Presumably the legal fees being incurred by Treasury are not secured or preferred creditors, so if Treasury loses the case, then those invoices from DAC Beachcroft and Michael Cush SC will stand at the back of queue, behind NAMA’s claim for €1.7bn. And if these legal fees will be added to the €14m of unsecured creditors, and if their payment is dependent on Treasury Holdings winning this case, then what does that say about a barrister’s primary duty being to the Court?

UPDATE: 24th February, 2012. As it’s Friday, you might appreciate the following which might arguably be representative of Treasury’s financial position as claimed by NAMA.

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