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Archive for March 30th, 2012

The Irish Examiner is this evening reporting that NAMA today failed to get a judge in Dublin’s High Court to agree to the entry of judgment orders against the Moritz group of companies. The Agency had been seeking to enforce €172m of judgement orders against Moritz Holdings, Maplewood Developments, Rumbold Builders and Highbridge No 2 Limited. Although Moritz has consented to the judgement orders, it was seeking a stay on NAMA enforcing the orders.

Interestingly, the Moritz companies have engaged Noel Smyth and Partners to be their solicitors, and of course Noel Smyth is himself a prominent NAMA developer who has been on the receiving end of recovery action from the Agency.

The judge in the case, Mr Justice Peter Charleton, today ruled in the Commercial Court division of the High Court that a stay be placed on “entry of orders” against Moritz to pay €172m for three months, expiring June 28th, 2012. Moritz had consented to the judgments so the stay just extends the period NAMA must wait to get its hands on Moritz’s assets. Moritz successfully argued that the stay would preserve jobs and interestingly, give Moritz the opportunity to maximise the potential of its assets for NAMA’s benefit. However the Judge did not accept all of Moritz’s arguments and reportedly held that NAMA had acted reasonably and within its powers in challenging the stay.

In addition to the €172m judgment which Moritz consented to, there is apparently further money owing to NAMA but there is to be a full hearing of the case in relation to these additional monies.

NAMA had been opposing Moritz’s application for the stay today, so the three month extension marks a defeat of sorts, and caps off what hasn’t been the best week for the Agency.

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This morning, the Central Bank of Ireland (CBI) has released its monthly snapshot of the state of Irish banks focussing on deposits and lending. The data covers the period up to 29th February 2012 and shows that during the month of February 2012, deposits by ordinary households and businesses actually increased at the so-called “covered” or State-supported banks – essentially the two pillar banks, Bank of Ireland and AIB, and also Permanent TSB. The increase of €125m from €102.6bn in January 2012 to €102.7bn in February 2012 was modest enough but means that private sector deposits at covered banks are at their highest level since June 2011 though the figures below show there has been a stabilisation rather than a recovery. Private sector deposits fell at covered banks in the past 12 months by €6bn from €109bn to €103bn, but most of that fall took place in the first six months of 2011 and since July 2011, the figures have been stable. I think it is fair to say there are signs of stabilisation, but it would be a gross exaggeration to claim “deposits were flowing” into Irish banks.

The CBI doesn’t provide an analysis of deposits at the covered banks – about the only analysis it doesn’t provide – but in terms of all banks operating in Ireland including foreign and IFSC banks, Irish household deposits fell by €0.4bn in February, the second month in a row to see declines. Household deposits at all banks are now back at August 2011 levels. Total deposits from all sources in all Irish banks fell €14bn in February, mostly as a result of a decline in €12bn in deposits by euro area (non-Irish) depositors.

It should be said that the Central Bank’s statistics do not include overseas deposits at Irish banks, for example, Bank of Ireland has a joint venture with the Post Office in the UK which attracts more than €10bn of deposits. And the figures may include what the Dept of Finance calls “consolidation differences”. Having said that, these are the most accurate figures on deposits in Irish banks in Ireland. The Department of Finance publishes its own deposit figures each month, but seems not to have published anything in March 2012.

Here is the full set of deposit statistics for the different categories of bank operating inIreland.

First up is the consolidated picture for all banks operating in Ireland including those 450-banks based in the IFSC which do not service the domestic economy.

Next up are the 20 banks which do service the domestic economy and include local subsidiaries of foreign banks like Danske, KBC and Rabobank. There is a list of all banks operating in Ireland here together with a note of the 20 that service the domestic economy.

And lastly the six State-guaranteed or “covered” financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS – Anglo and INBS have now been merged to form the Irish Banking Resolution Corporation, IBRC)

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank of Ireland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outside Europe)

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NAMA has this morning published the Direction that was issued by Minister for Finance, Michael Noonan to the Agency yesterday. A Direction is a formal instruction made pursuant to section 14 of the NAMA Act. Here is the Direction (click to enlarge)

 

Here is Section 2 of the NAMA Act referred to above.

 

Here is Section 12 (2) (r) of the NAMA Act referred to above.

 

It is hoped that NAMA will issue a press release for what is likely to be the Agency’s single biggest financial transaction.

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Ireland has a mature parliamentary democracy, it has an independent media, we don’t depend on a single commodity like bananas for our wealth, we are judged internationally to be a relatively honest and corruption-free country. Events last week have undermined these perceptions, namely the publication of the Mahon report on political corruption in zoning and planning, but the past 24 hours has been even more damning with a major financial transaction involving billions of euro in a country with a GDP of €160bn getting a few minutes in the national parliament, confined to a statement which brooked no subsequent questioning and where phone-calls to the Department of Finance apparently went unanswered. And politicians have now gone on holidays for three weeks. Never mind, we can fall back on our “independent media” to analyse what happened yesterday and here are the headlines from our main national media outlets today:

Deal puts off Anglo cash payment

Noonan: €3.1bn deal on Anglo a ‘one-off’”

Noonan seals deal on €3.1bn Anglo debt repayment

Government wins backing on €3.06bn payment

Here’s why we have taken a step closer to Banana Republic status yesterday.

1. There is no “deal” with the Troika consisting of the EU, ECB and IMF. In particular the ECB has given nothing and taken everything. The ECB has issued a statement – not available on the ECB website, but reported by Reuters here – in which it notes the €30bn loan which had been given under its auspices by the Central Bank of Ireland – referred to as “Emergency Liquidity Assistance” or ELA – is being repaid exactly on the terms which existed when the loan was made, and specifically the payment of €3.1bn due today will be made. Any “deal” involves three state-controlled entities – (1) IBRC which is the new name for Anglo/INBS (2) NAMA (3) the Government – and may additionally involve an entity which is presently only 15% controlled by the government but which needs a state guarantee to operate, Bank of Ireland. Those are the parties to the “deal”. Nothing has been given by the Troika and everything has been taken.

2. There is no “putting off” or “deferral” of the payment today of the €3.1bn to IBRC. The money is being taken from NAMA and will pay back the loan from the Central Bank of Ireland today. The Central Bank of Ireland will take the €3.1bn, bring it outside, douse it in lighter fluid and set it alight, or whatever the electronic equivalent is of destroying money which was created when the ELA loans to Anglo were originally made.

3. The payment today of the €3.1bn was originally going to be funded by the Troika who charge us 3.5% per annum for our €67.5bn bailout. Instead, Ireland is issuing a bond repayable in 2025 – we think, the Government yesterday merely referred to a “long dated” bond – and which will pay 6.8% per annum. In other words we will fund the payment with an instrument which costs us twice the rate the Troika would charge us. However, initially it is NAMA that will benefit from the 6.8% and we own NAMA so there’s a saving there of 6.8% less what NAMA was earning on its cash. However the intention is that Bank of Ireland, which we only own 15% of these days, will acquire the bond. What happens next is not clear – here is the Bank of Ireland statement if that helps. Bank of Ireland intends exchanging the bond for cash at the ECB and paying 1% per annum for it, and then charging the Government 2.35% it seems which gives Bank of Ireland a margin of 1.35%, but it is unclear how this sits with the fact that the bond pays 6.8%.

4. Minister Noonan made the statement in the Dail yesterday and then disappeared. There was no debate or elaboration of the details of the “deal”. I understand from sources that attempts were made by Opposition parties to get further information from the Minister and the Department of Finance but phones were not answered and the Government seemed more pre-occupied on the prospect of a three week holiday which began yesterday. That may be unfair but it seems clear that no further statement or elaboration has been forthcoming. NAMA has not issued any statement. There is no evidence of the Department of Finance issuing a Direction to NAMA, under the NAMA Act, instructing NAMA to pay the promissory note today in exchange for a bond.

5. NAMA has in the past invested a small sum – less than €50m – in short dated Irish government debt as part of, what NAMA calls, its “treasury management”. NAMA sold that debt last summer though it recently told an Oireachtas committee that it had €4.3bn of cash at hand with €2bn on deposit with the Central Bank and €2.3bn “is invested in short-term investments pending the use of the cash to redeem NAMA bonds, which we expect shortly”. What NAMA is being called on to do now is to invest €3.1bn in long dated government bonds which represents a significant departure for the Agency. The stated intention is for Bank of Ireland to take the bond off of NAMA’s hands, but that requires Bank of Ireland shareholder approval, and it is not clear why Bank of Ireland would take on a deal which would only pay it a 1.35% margin when it could theoretically buy one-year Irish government bonds today at 4% and exchange these for 1% loans from the ECB, thereby making a 3% margin. So this “deal” with Bank of Ireland, which now needs shareholder approval, has potential to unravel.

6. Why is the money now being taken from NAMA? The Government already has a piggy bank, the National Pension Reserve Fund (NPRF) which has access to over €14bn, and it is normal practice for the Government to direct the NPRF to make specific investments. So why not use the NPRF? The answer is probably that this “deal” is so last minute that the NPRF cannot liquidate investments it has made in time to meet the ECB deadline today.

7. What is the cost of the “deal”? We still don’t know. Minister Noonan referred to the 2012 deficit adjusted by €90m. He said “this will have an approximate €90m impact on the general government deficit in 2012 which is small relative to the overall benefit of the removal of the requirement for the Exchequer to settle €3.06 billion in cash.” Such was the confusion about this statement that there was debate as to whether the “€90m impact” was an additional cost or benefit. It looks as if it is a cost. However we still don’t know if it is a real cost, for example, money going from this state into the pockets of shareholders in Bank of Ireland, or if it is a theoretical cost such as money going from the State to NAMA or IBRC which we both control, and which will eventually come back to us.

8. As for the Irish media and its “winning”, “deal”, “deferral” – the Financial Times calls the arrangement announced yesterday “a bit more bonkers”, it is one of the few international media organisations to report yesterday’s development, which given the headlines in the Irish media noted above, seems curious. Maybe the absence of hard facts, and the reality that there has been no “deal”, that there is no “deferral” (until Bank of Ireland takes on the bond, and even then it is not clear what the financial impact of the arrangement will be) means that yesterday’s arrangement is not very newsworthy at all and that Ireland is repaying its debt exactly as planned.

9. As for so-called “debt sustainability”, the governor of the Central Bank of Ireland had a go at explaining the concept to the Oireachtas finance committee earlier this week, and he claimed that even though our national debt might increase, if the interest rate or duration for repayment improved, then “debt sustainability” may also improve. The Troika loans are repayable, in the main, by 2022 so substituting a Troika loan with a bond repayable in 2025 pushes out the duration, but a bond paying 6.8% is, on the face of it, more expensive than the 3.5% loans from the Troika. So at this stage, it is unclear if our debt sustainability has in fact improved.

All in all, yesterday was not a good day for the reputation of this country.

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