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Archive for March 31st, 2012

On Tuesday last, Fianna Fail’s environment spokesperson Niall Collins received written replies to questions he tabled in the Dail. Deputy Collins asked the same question of each of our 15 ministers – “the amount of expenses claimed on a monthly basis since March 2011 by all Ministers attached to his Department; and if he will make a statement on the matter” He doesn’t appear to have received a response from Minister for Health James Reilly but the details of the other fourteen are here – the information is derived from the 14 individual replies that Deputy Collins received (click to ENLARGE):

He was given a variety of answers, though all except Minister Varadkar (see above), provided figures. It seems that the Ministers decided to interpret the question in their own narrow way, and in general limited the scope of their replies to expenses incurred for mileage and for accommodation. Remember that three members of the Cabinet have retained a ministerial Mercedes and drivers – An Taoiseach, An Tanaiste and the Minister for Justice, Equality and Defence. Other Ministers use their own cars though each is provided with two drivers at the taxpayers’ expense. When they use their own cars, they are entitled to claim a mileage. These are the current rates.

Incredibly Minister of State for Small Business, John Perry has claimed €31,867 mileage allowance in the past 12 months. With the total cost of owning and running an average car in Ireland put at just over €11,000 by the AA, it is difficult to see how Minister Perry is not making a handsome profit on his mileage. Even though Minister for Education Ruairi Quinn’s  mileage costs have come in for some scrutiny by the Irish Mail on Sunday/Daily Mail – and, interestingly, no other newspaper – it is his Minister of State for Training and Skills, Ciaran Cannon, who appears to occupy 2nd place in the mileage stakes with €22,763 claimed for mileage and accommodation. Minister of State for Tourism and Sport, Michael Ring isn’t much better having claimed €22,691 for mileage in the 10 month to January 2012 – his mileage is set out here and here and includes an incredible €4,618.17 claimed for the month of January 2012 alone!

 

Minister for Justice, Equality and Defence, Alan Shatter was ambiguous with his responses, because he provided two – one in which he said that no expenses had been claimed by him or his two ministers of state, and one in which he sets out some expenses which included a claim for €100 for travel vaccinations and €707.77 for hotel expenses for a trip to the Lebanon in October 2011 to visit with Irish UN troops. His ministerial “accomplishments” for the year show that he spent between 14-16th October, 2011 in the Lebanon, or two nights presumably, at a shade over €350 a night for his hotel costs. At least Alan doesn’t have to worry about the €100 household charge, he claimed €100 for travel vaccinations which presumably immunises him for personal travel also, perhaps to see his rental property in Florida. “Get a life!” indeed Alan!

Unwittingly perhaps, Minister Varadkar’s unhelpful reply – it was “unhelpful” because it is quite difficult to get at the information on the Minister’s Departmental websiteeventually revealed more detail than was provided in the other ministerial responses.  Leo managed to spend €2,249.47 on three return economy flights from Dublin to Luxembourg in October 2011 for himself, his private secretary and his Department’s Secretary General. That’s €750 per return flight. The purpose of the travel was to attend a EU Transport Council event which presumably wasn’t last minute which makes €750 for a return economy flight between Dublin and Luxembourg look extortionate when a quick online search suggests an economy price for a return ticket would be under €250. Minister Varadkar provides a breakdown of the €7k of costs of his trip toIndia for 2011 St Patrick’s Day which includes €240 for gifts and there’s the €350 per room per person – Leo brought his private secretary and they needed two rooms, though they did stay one night only at the residence of the Irish ambassador.

Remember the above expenses will exclude a whole raft of allowances and benefits which the ministers claim and which are set out in some detail here. It also excludes any income provided by their own political parties which is claimed from the taxpayer – you’ll find some general details here. And of course it excludes salaries and additional post payments, set out here.

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Today is the last day for NAMA to hand over its latest quarterly management report and accounts to Minister for Finance, Michael Noonan. The accounts will cover the three month period ending on 31st December 2011 and will also show the annual figures for 2011. For the first time in NAMA’s reporting of its results for 2011, we will see what NAMA calculates to be its so-called “impairment charge” – this will make the difference between profit, and remember NAMA was last week forecasting a profit before impairment of “at least €750m” and loss, sadly NAMA didn’t have an estimate of impairment charges last week. Although these accounts that are due today are not fully audited, and NAMA will not publish its full annual report until the summer, these accounts should give an accurate picture of NAMA’s performance in 2011. Here are seven things to look out for:

(1) The impairment charge. This charge represents the decline in value of what NAMA expects to recover on its loans to developers which totalled about €32bn by reference to NAMA’s acquisition values and €74bn by reference to the original values of the loans. The decline in value is largely driven by declines in underlying property values. In 2010, NAMA’s first full year of operation, NAMA booked a €1.485bn impairment charge. NAMA does not calculate an impairment charge every quarter and waits until the end of the year to conduct what is a large exercise. The betting on here is that the impairment charge will be in the order of €1bn for 2011, but unlike 2010, you can rest assured that the impairment charge for 2011 will be examined on here with a fine tooth comb.

(2) Will NAMA need more capital from the State? You’ll recall that NAMA is an entity with €100m of share capital, with €49m from the State and €51m from “three independent investors” – namely AIB, ILP and Bank of Ireland. And you’ll also recall that NAMA made a loss of €1.1bn in 2010, its first full year of operation. So you might have expected the €1.1bn loss to have wiped out the €0.1bn share capital but no, NAMA performed a little accounting trick whereby part of the payment it made to buy the €74bn of loans from the banks was classified as capital. The so-called “NAMA subordinated bonds” comprise 5%, or just over €1.5bn, of the €32bn that NAMA paid for the loans. NAMA doesn’t have to honour these subordinated bonds if by 2020 the Agency hasn’t broken even. So in 2010, NAMA got away with adding the €1.5bn to the €0.1bn share capital which meant that the Agency still had €0.5bn of “capital” left after deducting the €1.1bn loss. If NAMA makes a loss after impairment in 2011 of more than €0.5bn then NAMA will need to get more capital, something that it has been adamant it won’t need to do.

(3) NAMA’s interest income from developers. We now have considerable detail about the way in which NAMA calculates its interest income, and we know that NAMA doesn’t just account for cash received – it estimates additional interest it will receive when the underlying asset is eventually sold. This has led to all sorts of accusations of Enronesque behaviour, so the interest income reported for 2011 and impairments to that income will be closely examined to ensure NAMA is not overstating profits that will vanish when the assets underpinning the loans are eventually disposed of.

(4) NAMA’s provision for legal costs in the Paddy McKillen case. You’ll recall that Paddy took a case against NAMA in 2010 to stop the Agency from acquiring his loans. Paddy lost comprehensively in Dublin’s High Court but went on to substantially win his case at Dublin’s Supreme Court, and NAMA ended up having to foot the bill. It’s been a year now since the Supreme Court concluded its deliberations and NAMA recently told an Oireachtas committee that it had still not established the costs that the Agency will need pay in the case, though media speculation has centred on a figure of €7m. Minister Noonan told the Dail a week ago that NAMA had not made any provision for an accrual for these costs in its last quarterly accounts, but we will expect NAMA to make a proper provision in its year end accounts.

(5) NAMA’s disposals and profit/loss thereon. It came as a surprise on here to learn a week ago that for the 22 months to the end of September 2011, NAMA had booked disposals of €2.7bn in its accounts. This was surprising because NAMA has been mentioning figures for “approved sales” of €6bn-plus, though of course some approved sales fall through, others take time to complete and some sales may result in payments to other lenders eg Ulster Bank where there were syndicated loans. But even more surprising was the fact that NAMA had booked a profit of just €132m on these €2.7bn of sales because the perception had been that most of these disposals were of the best quality assets in the most liquid markets, ie London where residential and commercial property prices have performed well since NAMA’s valuation date of November 2009. We’ll want to see how NAMA accounts for its biggest single sale to date, the €800m sale of loans in Paddy McKillen’s Maybourne group to the billionaire Barclay twins, which Paddy is presently challenging in a London court. NAMA might have to reverse that transaction and pay Paddy damages – how will the Agency recognise these risks?

(6) Staff and directors’ costs. Although some will begrudge Brendan McDonagh his 2011 salary of €430,000 – which he has agreed to reduce to €365,000 for one year in 2012 – and his bonus – contractually up to €258,000 but which he 100% waived again for 2011 – you might have sympathy for the man when he looks across to IBRC, as Anglo/INBS is now called, where Mike Aynsley cost that company €866,000 in 2011 comprising salary €500,000, pension €125,000, car allowance €38,000 and “other” of €203,000 which includes rent, personal travel and “relocation”. The boss of Blackstone took home almost €200m in 2011 and the boss of BlackRock took home nearly €20m. And yet, there’s Brendan who reputedly works 70 hour weeks in a highly charged political environment, in a commercial environment which is, very euphemistically, “challenging”, dealing with new teams, new legislation with individuals and companies lined up like that scene out of Airplane! with fists, baseball bats, knives and guns, waiting for their opportunity to put the boot in. Beyond Brendan, we know that NAMA chairman, Frank Daly has taken a pay-cut to €150,000. It will be interesting to see what NAMA’s newest director, John Mulcahy gets. And it will also be interesting to see what salaries are being paid to the 202 employees at the Agency. It will be fascinating to see what expenses the non-Irish NAMA director, Steven Seelig has managed to rack up in 2011 – it was €35,000 in 2010.

(7) NAMA’s profit or loss. This would normally have been the headline item in this list, but we already have a good idea of what the profit before impairment will be. Brendan McDonagh told a London audience last week that the profit before impairment would be “at least €750m”. But we know that this includes at least €250m of inflated interest income which has not yet been received and apparently depends on NAMA or the developers selling underlying property at November 2009 prices plus 9% for Long Term Economic Value. So what we want to know is what adjustment NAMA will make to its interest income and also how much it will reduce the value of its loans to reflect deteriorating property prices in Ireland.

So when will Minister Noonan publish these accounts?

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Graph of the Week

 

Last Saturday in Galway there was an economics conference with a great line-up of speakers. You can access the presentations made, here. Professor John McHale of the National University of Ireland in Galway and also the chair of the Fiscal Advisory Council produced the above slide which shows the deteriorating outlook for Ireland’s economy in 2012. Next week, the Department of Finance is set to revise its forecast of GDP in 2012, and the betting is that it will be substantially cut from the 1.3% in the Budget 2012 announcements last December 2011. Will the cut result in the need for a mini-Budget in May?

Quote of the Week

“Recently some harrowing and shocking accounts of sheep worrying in the Cooley peninsula, CountyLouth, have come to my attention. The problem is nearing epidemic proportions and causing great strain among the farming community in the area.” Deputy Peter Fitzpatrick speaking in the Dail on 29th March, 2012.

This is how our national parliament reacted to the Minister for Finance’s announcement about the arrangement for the repayment of the Anglo promissory note. Deputy Fitzpatrick offered the chamber a delay in his own contribution on sheep worrying in order to facilitate a debate on the ministerial announcement about the promissory note. Other deputies, notably Fianna Fail’s finance spokesperson Michael McGrath, the ULA’s Richard Boyd Barrett and Sinn Fein’s Mary Lou McDonald also intervened to ask for a debate on what had been a monumental announcement, that left a great many loose ends that needed answers. Instead the national parliament discussed sheep worrying and there was no debate whatsoever on the announcement.

And speaking of dogs, the Dog that Didn’t Bark of the Week is NAMA for not issuing any press release to mark what is likely to be the single biggest financial transaction during the Agency’s 10-year life-span. Remember this is the Agency which considered it necessary to issue a press release to announce relatively minor news of the recruitment of a relationship manager in January 2012.

Smart-arsery of the Week

Must go to the deduction on here that 135,467 out of 606,600 are paying the household charge with 4x instalments, the rest have paid the full €100. The Department of the Environment had refused to provide the split between instalment and full upfront payers when asked, and oddly the Department kept issuing figures for household charges collected that exactly equalled €100 multiplied by the numbers which the Department said had paid, in other words the implication was that EVERYONE was paying €100 upfront, which was strange given there was no interest charge for instalment payers and things are generally tight in the country at present.

Yesterday however, the Department said that 606,600 had now paid the charge, and said that €50.5m had now been received. So going back to algebra and simultaneous equations

Let x equal the number of households paying the €100 up front
Let y equal the number paying 4 x €25 instalments of which one has so far been collected on 14th March 2012.

So x + y = 606,600 and
x(100) + y(25) = €50.5m and off you go

x= 606,600-y
(606,600 –y)(100) + y(25) = €50.5m
60.6m – 100y + 25y = €50.5m
-75y=10.16m
y=135,467

So 135,467 out of the 606,600 are paying by instalments – I wonder will they pay the remaining three instalments? And why was it only yesterday that the Department released figures which allowed – having done the above maths – you to deduce how many were paying by instalment?

Word of the Week

”Raidering” – no, not “raiding”, but raidering. This word comes from the Ukraine, and I first came to hear it in the context of the Sean Quinn drama in the Ukrainian capital of Kiev where Anglo/IBRC is trying to repossess two valuable commercial properties, a shopping centre and an office block which Anglo says were security on loans advanced to Sean Quinn. What happened was that the property in Kiev has essentially been seized by unknown companies registered in the British Virgin Islands and Belize, on foot of suspicious debts which were acknowledged by a former director of the shopping centre after that director was dismissed from the company. Almost unbelievably a Kiev court allowed the debt to be acknowledged, and so did its superior court which meant that a €50m shopping centre has passed to persons unknown on foot of highly suspicious debts. An Taoiseach Enda Kenny is even understood to have gotten involved by having a quiet word in the ear of the Ukrainian president, but alas it had not effect. Anglo wasn’t taking it lying down and created a website in the Ukraine to protest at these events – it’s worth a look here. But Anglo’s experience is not at all unique and it appears common inUkraine for property to be seized by persons unknown, a practice that has become known as “raidering”.

So what happened on Friday in Dublin when the Government directed NAMA to spend €3.1bn on Anglo promissory notes secured with a newly issued Government bond might be called “raiding” NAMA, if it had been done by persons unknown it would have been “raidering”.

Video of the Week

I hope you’re entertained with this “flash mob” filmed a week ago on Mary Street in Dublin.

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