Archive for April 21st, 2012

If you believe the Sunday Independent’s Anne Harris curious editorial last week which claimed that journalists at the paper were unaware of the views/composition of the board of management and that there is clear blue water anyway between the management of the Independent News and Media and editorial decisions, then you can expect tomorrow’s edition to continue the recent campaign against Denis O’Brien. There were 10 largely anti-O’Brien articles in last week’s Sunday Independent. How many will we see tomorrow? Will we see Denis O’Brien’s extensive aid effort in Haiti after the catastrophic earthquake being criticised because no giant cheque was presented to the Haitian people as seems a requirement at IN&M’s Sunday World? Will we see a Niamh Horan exclusive “Denis O’Brien has a small willy”? Will there be a headline “Denis O’Brien ate my hamster, while pal Bill ate my pussy”? Will there be a promotion of the O’Reillys “Ireland is a simply marvellous place and the Irish are a grand bunch of lads say O’Reillys (from London)”? Who knows, but certainly the Denis O’Brien dealings with Siteserv seem to have disappeared from the media.

Which is curious because during the week, Minister for Finance Michael Noonan was asked the question on the lips of most people looking in on the Siteserv deal – why was Anglo, or IBRC as it is now known, writing off more than €100m on its €150m loan to Siteserv, and at the same time Siteserv shareholders were walking away with €5m. Minister Noonan was responding to a parliamentary question from Sinn Fein’s finance spokesperson, Pearse Doherty and here’s the defence

“commercial decisions in relation to IBRC are solely a decision for the bank. IBRC have informed me that KPMG Corporate Finance and Davy Corporate Finance ran a joint sales process to sell Siteserv which was in severe financial difficulties and was unable to service or pay back its loans to IBRC. The sale process was initiated by Siteserv and overseen by a subcommittee of the Siteserv Board. The sale process involved two stages and IBRC was briefed after each stage. The Board of Siteserv, as advised by KPMG Corporate Finance and Davy Corporate Finance, recommended the successful bid as representing the best return for IBRC. The Board of the bank are satisfied that this is the case”

So why were the normal rules of capitalism in a debt situation turned on their head with shareholders keeping value, whilst secured lenders wrote off €100m-plus? After all, shareholders in Anglo lost everything in 2009 when secured creditors were repaid 100%. During the week we saw an elderly couple evicted from their €2m home because they didn’t repay the mortgage. Both events are tragic for the shareholders and homeowner but those are the rules of capitalism. Yet the State, and the State owns Anglo 100%, has written off €100m-plus at a commercial business whilst allowing its shareholders to walk away with €5m. And when held to account on the matter, the defence is as set out above.

The opening paragraph above is tongue-in-cheek, I don’t expect we’ll hear much negative coverage of Denis O’Brien in tomorrow’s Sunday Independent at all, following the boardroom drama during the week which saw Gavin O’Reilly resign under terms of a confidential Compromise Agreement and which saw an unanimously-supported new CEO, Vincent Crowley appointed. I could be wrong of course and maybe the Sunday Independent will continue to pull at the Siteserv loose thread as obviously Minister Noonan has given a non-answer above and questions still remain about the sale transaction, and the curiosity of the shareholders not being 100% wiped out.


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“My Department received 6 applications by post and 18 applications via e-mail. The closing date for expressions of interest was 6 March 2012. John Mulcahy was appointed to the NAMA Board on 7 March 2012.” Minister for Finance Michael Noonan responding to a parliamentary question this week.

Although we’re still waiting for the outcome of the two investigations into how the Department of Finance managed to mis-state our debt position by €3.6bn, an error that was publicly revealed at the start of November 2011, at least we have received confirmation during the week that the Department’s own human resources department is world class, at least in respect of the speed with which it makes recruitment decisions.

You’ll recall that on 23rd February, 2012 the Department of Finance put on its website what must have been the most unappetising job vacancies you’ll ever see; there were two vacancies on the NAMA board arising from the departure of Peter Stewart in October 2011 and of Michael Connolly the following month. Expressions of interest were invited by the Department with a closing date for the receipt of applications of 6th March 2012. At midday on 7th March, 2012 Minister Noonan announced that one of the vacancies was filled by NAMA’s own head of asset management, John Mulcahy.

So how many applications did the Department of Finance receive for the two vacancies? Thanks to a parliamentary question from Sinn Fein’s finance spokesperson, Pearse Doherty we got an answer on Tuesday last:

“My Department received 6 applications by post and 18 applications via e-mail. The closing date for expressions of interest was 6 March 2012. John Mulcahy was appointed to the NAMA Board on 7 March 2012.”

So the Department’s own human resources department was able to assess the 24 applications lickety-split after the closing date for receipt of expressions of interest. We don’t know how many interviews were held or when, during the two week application  period, the applications were received, but on the face of it, the Department acted with haste which supports accusations that official positions in Ireland are filled, not on the basis of an open appointments process but in a way which is pre-determined.

Now this is not to criticise John Mulcahy who was doing the country proud yesterday in a London court and is NAMA’s most senior property man, but the speed with which the appointment was announced after the closing date will be used by critics to claim that nothing has changed in this country, that it is the same names that crop up time-after-time on state boards, and that it remains the case that it is “who you know, not what you know” that still counts with our government.

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“We have seen that analysis by IPD which states that the value would drop by between 18% and 20%. We have done some calculations with our people in-house as to whether that is valid and we have spoken with potential investors who might buy assets. They have said to us that a full ranging change would be a 20% hit.” NAMA CEO Brendan McDonagh telling an Oireachtas committee in September 2011 how the abolition of Upward Only Rent Review clauses in commercial leases would impact NAMA.

You’ll be forgiven for being confused about the effect of rent reductions at NAMA’s commercial buildings. In May 2010, NAMA took the exceptional step of writing directly to the then-Minister for Finance, the late Brian Lenihan warning the Minister that if the Government moved to abolish Upward Only Rent Review (UORR) provisions in pre-February 2010 commercial property leases, then that would have a significant impact on NAMA’s portfolio. How significant? It was claimed by NAMA that it would result in a 20% loss on its commercial portfolio, totalling about €2bn. In the event of course, and despite both coalition parties’ pre-election commitments, the Government abandoned its efforts to abolish UORR terms in older leases, and made an announcement to that effect to the Dail in December 2011. All straightforward up to now, but here’s the confusing bit.

On 6th December 2011, when announcing Budget 2012 and the abandonment of UORR changes due to constitutional issues and the compensation payable to landlords, Minister for Finance Michael Noonan announced that NAMA was to introduce its own scheme – available here – to deal with requests by commercial tenants for rent reductions in buildings which were under NAMA and its debtors’ control. So far NAMA has received 150 such requests and we know that of the 120 that have been processed to date, all but one was agreed. So how much have these requests cost NAMA? €2bn? €1bn? A couple of euro? Zero, according to Minister Noonan responding to a question in the Dail last Tuesday from Sinn Fein’s finance spokesperson Pearse Doherty, or in the Minister’s own words “Any short-term loss of rental income arising from rent abatement and any short term decrease in the value of the asset where there is rent abatement, therefore, is likely to be more than offset by these long-term benefits”

In Ireland we have UORR leases which means that rents are reviewed throughout the life of a business lease but if the lease was entered into before February 2010, then these reviews cannot lead to lower rents even if the market falls, and in Ireland’s case commercial rents today are 50% of those that obtained during the boom in the mid 2000s.

So in 2010 you had NAMA claiming that giving tenants the right to obtain market rents on their property would cost the Agency €2bn, and today we have the Minister for Finance blithely claiming the cost is likely to be nil. Of course there are pre-qualifications before a commercial tenant can obtain a reduction in their rents, they must demonstrate that rents are jeopardising their businesses and the reduction in rent may not be to a market rent but something between the current market rent and the rent specified in the lease, and it is also the case that the rent reductions pertain for just one year whilst a pre-February 2010 lease might be for 25 years with 23 years to run.

Still it’s remarkable that NAMA providing in no small measure what was threatened by the Government with the abolition of UORR terms has had nil impact on the Agency.

You’d almost think the Agency had been crying wolf. You might also think that if the Government introduced emergency legislation to compel all landlords to deal with tenant requests in line with the NAMA scheme then the compensation payable by the State to such landlords would be…nil. Still confused?

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