Archive for March 7th, 2012

Whilst Minister for Finance Michael Noonan was exposing the NAMA scheme to a re-examination by the European Commission, as he put in place a politically appointed and accountable NAMA advisory board which will practically have decision-making potential, despite the Minister’s protestations to the contrary; over in London, the NAMA CEO Brendan McDonagh was doing a good job himself of exposing the Agency to anti-competitive criticisms, or even something more serious. Without a care in the world, Brendan McDonagh told the Financial Times “most buyers can’t borrow at a margin of less than 4.5 per cent, even on a good asset. Our cost of capital is lower, so if we offer the finance at a minimum margin of 2.5 per cent and a 70 per cent loan to value, then we are all right” Elsewhere in what the FT grandly calls an “interview”, the NAMA CEO says that “all” loan sales will have vendor financing offered. Remember “vendor financing” or “staple financing” is where NAMA gets 30% of the purchase price upfront and the remaining 70% is paid over a term of years.

So just imagine that you are an Ulster Bank or Lloyds Banking Group manager this evening, and you are wondering what you will do with your Godforsaken Irish property loans portfolio. You might be considering offering loan portfolios for sale as a means to quickly disengage from the troubled sector, but when you do, you will find NAMA there in front of you, offering similarly distressed loans, for property in the same territory and in some cases, even with the same developers. Wouldn’t you love to be able to compete with NAMA offering similar vendor-financing terms? Sadly NAMA has been provided with Irish government guaranteed bonds on which NAMA pays an annual interest rate of just over 1%.  Why would a potential buyer without funding – pretty typical these days – buy a loan portfolio from Ulster or Lloyds when NAMA is undercutting them?

Thanks to the NAMA CEO who is broadcasting the competitive advantage, at least these competitors will have testimony and record if they decide enough is enough with competition distortions at the Agency, and decide to make a complaint to the European Commision.

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Minister for Finance, Michael Noonan has today provided details of the three members of the much-heralded NAMA advisory board, and whilst we knew of Michael Geoghegan’s appointment as chairman of this board, and had seen reporting of Denis Rooney’s imminent appointment, the surprise is that the third member is ….. current NAMA chairman, Frank Daly. And Gerry Murphy, a managing director of a Blackstone unit and who was mooted to be the third member of the board, is….not mentioned at all. Have Minister Noonan and An Taoiseach Enda Kenny been unsettled by recent examination, reported on here but led by others, of Blackstone’s growing influence inIreland?

It seems that Frank Daly will remain the NAMA chairman, and all three advisory board members are providing their time pro-bono gratis. Michael Geoghegan is a career HSBC banker, Denis Rooney is aNorthern Irelandquango king and we all know Frank, the former Revenue Commissioners man who has assumed a prominent national role in promoting NAMA for more than two years.

No doubt to boost the commercial property asset management remit of NAMA – and probably also to make up for dropping the commercial experience expected from Blackstone’s Gerry Murphy appointment – there has been a promotion in NAMA itself, and John Mulcahy is now to become a director on the board of NAMA. The NAMA chairman, Frank Daly issued a statement, welcoming John – a man who seems to command the respect of developers, bankers and NAMA’s own staff –  to the board. The amusing point is this: NAMA is only allowed have nine board members under the NAMA Act, and with John’s appointment, that leaves only one vacancy. And remember NAMA lost its Northern Ireland representative, Peter Stewart last October and also its most senior banking man, Michael Connolly last November. So how will NAMA fill the one remaining vacancy? The betting on here is that the vacancy will be filled by a Northern Ireland banker! The announcements today also smack of confusion – the closing date for the submission of applications for the two board vacancies was yesterday, 6th March. Were all the applications considered in the space of less than 24 hours?

Minister Noonan also published what he claimed to be “terms of reference” for the new troika that is the advisory board, as follows:

“Provide advice to the Minister on:
The strategy of NAMA as proposed by the board of NAMA
The appointment of directors to NAMA
The remuneration of the senior executives of NAMA
Any further advice the Minister may seek the Group to provide
The advisory group will not have decision making powers under the Act”

I can see a complaint now going to the European Commission. The Minister might claim the advisory group will not have decision-making powers but if the advisory board is reviewing NAMA strategy ex ante, and the Minister has the power to issue Directions to NAMA based on the advice of the advisory board, then as decision-making goes, it walks like a duck, looks like a duck and tastes like a duck. A complainant to the European Commission might object to the State management of NAMA and NAMA’s competitive advantages through the obvious potential for political interference.

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The news that Ulster Bank was seeking proposals for the disposal of €1bn of loans-related property is sure to have unnerved portfolio managers at NAMA who are trying to get their heads around a strategy for the €9.25bn of commercial property loans – by reference to 30th November 2009 values, worth about €6-7bn today. With both residential and commercial prices still shaky here, the last thing the Agency needs is supply-side competition. Several Ulster Bank borrowers whose loans haven’t yet been foreclosed will also have been unnerved by the prospect – not officially communicated to them yet – of being strong-armed into selling property or accepting a transfer to new lenders.

And now it seems that the other main British bank operating here and which has also had its fingers (and hands,wrists and other extremities!) burned on Irish property lending, Bank of Scotland Ireland is, according to credible sources, understood to be assembling a €400m portfolio with the same objective in mind – dump and get out of Dodge as soon as possible. That’s possibly an exaggeration as BoSI has a work-out vehicle, Certus and in 2010 was understood to have some €30bn of lending outstanding inIreland, before it shut up shop for new business and went into work-out mode. But it does appear to be the case that a dimmer view is being taken of the prospects for the Irish residential and commercial sectors.

NAMA might have told the Dublin Chamber of Commerce that it expected commercial prices to stabilise in Ireland in 2012 but at the same time, it appears as if the Agency was confiding in the Troika that prices might not stabilise before the end of the bailout programme in December 2013. With the supply-side becoming a tad crowded, it seems as if the skinny given to the Troika may have been more accurate.

Bank of Scotland Ireland was asked for a comment on the claim that it is assembling a substantial portfolio for short term disposal. Should a response be received, it will be posted here.

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