Archive for March 27th, 2012

Property Week (free registration required) is reporting that Seamus Ross’s Menolly Investments has sold an office building in the City of London for GBP 124m (€148.8m) and that the proceeds are thought to be destined to pay down Menolly’s debt to NAMA. According to Property Week the building at 107 Cheapside was bought for GBP 150m in May 2009 when the IPD UK Property Index was at 56.4 (base June 2007 =  UK Commercial Peak = 100). It looks extremely disappointing to only realise GBP 124m today when the IPD index is at 65.5. If the property had tracked the IPD index it would have been expected to have fetched GBP 174m, but it should be said thatLondon was perceived to have outperformed the IPD index, which makes the sale price reported today even more disappointing.

Property Week reports that the building has a rent roll of GBP 7.5m which indicates a yield of 6.04% which is again at the high end compared with going rates. As with any individual property transaction, there can be specific factors which skew the price away from the “going rate” but this is now the third time that NAMA has been reportedly behind a sale which has been at the low end of expectations. And remember that we never hear about the majority of NAMA’s sales.

The buyer is reported to be Invesco Real Estate.


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As yesterday’s indices from the Central Statistics Office show, Irish residential property continues to decline in value, and there have now been 53 months of consecutive drops (though on two occasions the index remained flat). The CSO says that, nationally, homes are down 49.3% from peak and that prices have now declined by 29.6% since the end of November 2009, the date chosen by NAMA to value the property underpinning the €74bn of loans it has acquired from the banks. All fine and understood. The CSO indices also show us that way back in November 2009, prices were already down 28.05% from peak – the peak was in September 2007 when the national index was 130.5, this had declined 28.05% to 93.9 at the end of November 2009.

NAMA, on the other hand, has in the past claimed that residential property was down 50% from peak in November 2009 and just a fortnight ago stated that residential property was now down 57% from peak. Or, in other words, property had dropped just 14% since November 2009 – 14% of 50 is 7. Or NAMA is saying that property has declined by one half the level claimed by the CSO since November 2009 – NAMA says 14%, the CSO says 30%. Here’s a summary comparing what NAMA say with the CSO index.


To justify the difference, NAMA might say that its valuations in November 2009 reflected both the mortgage and cash market, and that would be true. But we know from the CSO that the cash market represented just 6% of the total market in 2009. So it seems highly unlikely that there would be such disparity between the NAMA and CSO valuations in November 2009.

But what about NAMA’s present estimate of a 57% decline, which you must admit is a precise number, not a round 50% or 60%, but 57%. Have cash- and mortgage-transaction prices declined by just 14% in NAMA’s world in the past two years when we know from the CSO that mortgage-transaction prices alone have dropped by 29.6% Surely the cash market which now accounts for between 25-35%, according to estate agents, would exacerbate the decline? That’s certainly what the Allsop Space auctions imply with 65-70% average declines. It’s a mystery!

Could NAMA’s pronouncements have anything to do with NAMA seeking to protect its own position. The thrust of what NAMA was saying last May 2011 – when NAMA chairman Frank Daly told an audience of licensed vintners that NAMA’s experience was that residential property had declined by 50% in November 2009-  was that we were nearing the bottom and that property had declined by more than people appreciated. In other words, BUY NAMA PROPERTY NOW. But why would NAMA be saying today that property only declined by 14% since November 2009 when mortgage-transaction prices have fallen 30%? Might NAMA be trying to minimise the impairment costs it takes in its accounts in 2011, possibly so as to avoid a further injection of capital from the State? Who knows, but the disparity between the NAMA pronouncements and the CSO indices is striking.

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Aliens appear to have been at work in Irelandin the past fortnight. Deputy Peter Mathews seemingly disappeared off the face of the earth shortly after his 6.30am dawn carpeting last Thursday week by An Taoiseach Enda Kenny, after Peter had, the previous evening, tabled a proposal at an Oireachtas committee meeting to summon governor of the Central Bank of Ireland, Professor Patrick Honohan before that committee to give an account of the work underway to reduce the cost of the Anglo promissory notes. So Peter was probably given a stern warning by Enda and told to stay away from the media. Maybe. But where is the Minister for Finance Michael Noonan who last Wednesday night barged into the Dail where Private Members’ Business was taking place, where against protocol, the Minister gave a brief statement on the Anglo promissory note negotiations and left. He turned up again on Friday morning when he told the media he was “confident” of a deal “over the weekend”. Not only has the weekend come and gone, but Minister Noonan now seems to have disappeared as well. And what of the man at the centre of these negotiations, a man in whom An Taoiseach says he has “every faith”? Remember Professor Patrick Honohan popped up unexpectedly in November 2010 to announce to the nation that the Government was negotiating a bailout with the IMF, so the man is not media-shy, and in recent weeks he has been holding forth on everything from sex slavery in Brehon times to fairy tales. Patrick attended ECB meetings last Wednesday and Thursday but has been nowhere to be seen afterwards either, but that is set to change when he appears in Committee Room 1 at 2.30pm today before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform. The session may be held in private or “in camera” so we may not get to hear what the 27 deputies and senators ask the Governor or what they are told. But here are 10 questions to which we’d all love answers, though we actually do probably know the answers – suggested in [brackets] below – already:

(1) Does Patrick accept that Ireland’s General Government Debt to GDP will increase to 118.4% in 2013? Does he accept that this is 147% of GNP?

[That’s what the latest IMF projection for Ireland, which was published on 2nd March 2012, says in relation to Irish debt:GDP]

(2) Does Patrick accept that NAMA’s debt – its €30bn of bonds used to purchase loans from the banks – which represent 19% of GDP are presently excluded from General Government Debt? Does he accept that NAMA made a €1.1bn loss in its first year of operation and is facing continuing losses in the short term? That NAMA has made only €132m profit from the disposal of its best assets? That if NAMA has ultimately made a loss in 2020, that loss will be mostly charged to AIB and IBRC which we own? And that if NAMA debt were added to General Government Debt our debt:GDP would rise by 19% from 118.4% in 2013 to 137% and that our debt:GNP would rise to 171%?

[Although NAMA’s debt is nominally backed up by assets, time has moved on since 2009 when we were keen to keep NAMA debt off the national debt. And in truth, the outlook for NAMA is not at all certain, residential and commercial property prices continue to decline in Ireland – by  17% and 10% respectively in 2011 and if it weren’t for the cut to commercial stamp duty in Budget 2012, the falls for commercial as well as residential in 2011 would have been greater than in 2010]

(3) Does Patrick accept that in the last 200 years, only one country has dealt with this level of debt without defaulting,Britain during the Industrial Revolution?

[This is from Harvard research which is regularly cited by Deputy Stephen Donnelly]

(4) Does Patrick still believe Ireland’s debt burden is “manageable” and if so, why is Ireland different from universal – bar Britain during the Industrial Revolution – economic experience in the past 200 years?

[Remember Patrick memorably called Ireland’s debt burden “manageable” in August 2010. The term “manageable” doesn’t have any particular definition but since we exceeded 60% debt:GDP we have been in dangerous territory.]

(5) Can Patrick reveal the content of the letter from former ECB president, Jean Claude Trichet to then-Minister for Finance, the late Brian Lenihan on 19th November 2010?

[This is the letter which both the ECB and Department of Finance refuse to publish. It is likely to state that the ECB believes that funding Irish banks in November 2010 might not have been legal in the sense the banks were insolvent, and may have demanded guarantees that bondholders would be honoured in full as a condition of continuing funding]

(6) Can Patrick confirm the amount of funding presently received by Irish banks from the ECB, and what proportion of all funding by the ECB to all European banks that represents. Can he provide equivalent figures for November 2010, and can he give his views on whether changes have improved Ireland’s negotiating position.

[At the end of February 2012, Irish banks had €87bn of direct funding from the ECB which now has a €3tn balance sheet – that is, Ireland now accounts for 3% of the ECB’s balance sheet which is roughly proportional to our economy in the EuroZone. Back in the dark days of 2010 we had €136bn which at the time was understood to be about one quarter of all ECB lending. In other words, the assistance provided by the ECB toIreland is no longer “unprecedented”]

(7) Can Patrick confirm that the Anglo/INBS promissory notes are IOUs with so-called “letters of comfort”, and that they do not represent sovereign debt?

[Patrick is uncertain about the status of the promissory notes and this is evidenced by the content of the “letters of comfort” – available here – which Patrick sought and received from Minister Lenihan]

(8) Can Patrick reveal the legal advice sought and received in respect of “burning” the bondholders? Can he confirm if he confined his legal advice requests to neutral assessments or if he asked for a tendentious assessment with a view to “burning” the bondholders? Can he reveal the same for the promissory notes?

[Patrick has stated in the past that he did seek legal advice, but he has not revealed the advice or the brief given to the lawyers. ]

(9) Can Patrick explain why he has failed to convince his peers at the ECB that Ireland’s debt is unsustainable?

[Our partners in Europe see Greece as sustainable even though the plan in Greece is to impose massive austerity so as to bring that country’s debt:GDP down to 120% by 2020. In other words, our partners are not all that concerned, and remember if the shoe were on the other foot, neither would we be, and that proposition is evidenced by our acceptance of the Greek outlook]

(10) Can Patrick confirm that aside from unilateral action,Ireland is on course to repay 100% of the debt which has been assumed at Anglo and INBS, and that this debt is unsustainable by reference to universal historical economic evidence?

There will be an update here later today, but given the apparent likelihood that the hearing this afternoon will be behind closed doors, it might be a brief update!

UPDATE: 27th March, 2012. The Governor appeared before the Committee from 2.30pm this afternoon. He made a brief opening statement which is now available here. There was then a 45 period where each party in the Dail – FF, FG, SF, Labour and the Technical Group – asked questions. At 3.30pm, the hearing went into private session in camera and it was announced that each of the 27 members would have 5 minutes to question the Governor. The Governor said it was “likely” a deal would be concluded by this weekend which would see a Government bond issued to be exchanged for the €3.1bn promissory note but alas many details were not given.

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