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Archive for April 24th, 2012

“We entered into an LOI [Letter Of Intent] to sell our Irish consumer mortgage assets and the operating platform in Ireland and as a result of that LOI, we recognized a charge this quarter. This is consistent with our strategy of reducing the red assets in the portfolio and although the final terms have not been negotiated and certainly not announced, we did recognize a loss in discontinued operations of $188 million after tax and this allows us to exit the most challenged mortgage book that we have, and that is going to be positive as we go forward.” GE results announcement for Q1,2012

Last Friday 20th  April, 2012 US global conglomerate GE released its financial results for the first quarter of 2012. Of relevance to us here in Ireland was the announcement that the company is selling its entire Irish mortgage loan-book at a price which industry sources say reflects a write-down of about 60% on par values of loans; GE itself is saying it will make a loss of USD 188m (€142m) on the sale which seemingly represents a 30% write-down on the book values after provisions shown for GE Money Ireland at the end of 2011. The buyer of the loan-book hasn’t yet been disclosed but the indicated sale price is just over USD 400m (~€330m).

GE which traded in Ireland as GE Money Ireland and was officially known as GE Capital Woodchester Home Loans Limited; it was one of a number of so-called “sub-prime lenders” that did brisk business in Ireland during the 2000s. Sub-prime lenders attracted customers who mightn’t have been able to obtain mortgages elsewhere and charged a handsome premium for doing business with these borrowers. These borrowers were hardest hit in the subsequent collapse of the property sector and faced with spiraling unemployment, declining wages and rent levels and negative equity, these borrowers have particularly been placed in difficult positions – take a look at court records for 2010 and you’ll see about 80 applications where GE is seemingly chasing repayment. According to GE, the Irish mortgage loan-book is “the most challenged mortgage book” the company has, and remember GE lends into such markets as Nevada and Florida in the US and Spain, Italy, Greece in the EU.

So not only has Ireland“the most challenged mortgage book” in GE but the company is apparently accepting 40c in the euro for the loans. Residential property in Ireland has dropped by an average of 49% from peak according to the Central Statistics Office, unemployment is bad at just over 14% but we still have draconian bankruptcy rules which practically rule out bankruptcy for most people – though it should be said these rules are set to change, and Minister for Justice, Equality and Defence Alan Shatter is supposed to be publishing new legislation by the end of this month. Permanent TSB is probably the Irish bank most exposed to the mortgage crisis and for 2011 it showed it has outstanding lending of €35.7bn and a cumulative provision for losses of €2.3bn or 6%, one tenth of the loss now apparently being booked by GE. In that context the GE valuation is sobering.

Bloomberg reports the GE CFO, Keith Sherin, talking about the sale ““A lot of things are getting better around the world, but the Irish mortgage portfolio was one place we didn’t see the outlook improving,” Keith Sherin, GE’s chief financial officer, said in a telephone interview. “We made a determination that the buyer’s bid would be a better deal than to continue to work on that portfolio and try to increase the value over time.” The sale of the unit, which has $600 million in assets, may be concluded by the end of this year, Sherin said.”

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The tug of war between private landlords and tenants and the rents struck between the two is of constant interest on here as rents are one of the predictors of property values. Private rents in Irelandare now increasing at 4% per annum according to the latest CSO inflation figures, but we wait to see if the reductions in rent assistance allowances provided by the Department of Social Protection which were announced in January 2012 will have any knock-on effect on private rents. Meanwhile last week, we had confirmation in a series of questions and answers in the Dail that there is no sign of the number of landlords reducing or of a concentration in the control of rented residential property. The figures were provided in the context of Ireland’s Non Principal Private Residence charge, a €200 per annum charge introduced in 2009 which applies to practically all second and more residential dwellings in the State – there is a very small list of exemptions.

So what do we find out? We find out that 135,971 people paid the NPPR charge on one dwelling and we know from Census 2011 that there are 59,395 holiday homes in the State, so that indicates that there are still a very large number of small-scale landlords in Ireland as presumably the non-holiday homes non-principal private residences will be available for rent. We find out that the number of landlords with 100+ properties has increased from 26 in 2009 to 38 today, a 46% increase. The number of non principal properties increased by nearly 7,000 between 2010 and 2011 and there are now 339,431 such properties in the State upon which the charge is paid..There are only two landlords in the State with over 200 dwellings so it will remain difficult in the tug of war between landlords and tenants for landlords to act as a cartel, but the evidence is that increased mortgage costs last year and the €100 household charge this year – which applies to all property so landlords are now paying a total of €300 per dwelling in charges – has seemingly propelled landlords to marginally gain ground in the tug of war.

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Yesterday Minister for Finance Michael Noonan issued a statement in which he stated that the sale of the 17% stake in NAMA held by Irish Life Investment Managers had “just been agreed” and the sale was to “private investors”. The Minister isn’t saying who the new “private investors” are, and yesterday all sorts of rumours spread naming everyone from Bord Gais to Goldman Sachs to Denis O’Brien. NAMA itself decline to issue a statement which is becoming par for the course for the Agency – remember it didn’t issue a statement when it handed over €3.1bn of its cash as a temporary dig-out on the Anglo promissory note either, yet in the past it has issued press releases for what counts as little more than the acquisition of a new pencil.

So, why all the mystery? After all, we will find out very shortly anyway because NAMA is a company incorporated under Irish company law and the Agency will need notify the Companies Registration Office (CRO) of any change to the identity of its shareholders. You can see the CRO-registered shareholders, before the current transaction, of National Asset Management Agency Investment Limited from thestory.ie here.

And of course the event which prompted the sale of Irish Life Investment Managers’ shareholding – the Government taking control of Irish Life and Permanent which owns 17% of NAMA which, when added to the Government’s existing 49% stake, would mean the Government had majority control of NAMA to the tune of 66% which would mean Eurostat classified NAMA’s €28bn-odd debt as Irish General Government Debt – has been known about for many months; yesterday Eurostat in a bluntly-worded caveat about Ireland’s debt figures stated “owing to the nationalisation of one of its previously private beneficial owners, whose interest is currently under a process of sale, NAMA-IL has been in majority public ownership since July 2011.”.

So if the Department of Finance has known about the issue for nine months – because Eurostat presumably told it, though you’d expect the mandarins to have the nous to have understood the issue before being externally alerted to it – and we will shortly find out from the CRO the identity of the new investors – note the plural, Minister Noonan didn’t refer to “a new investor” but to “new investors” – then why is Minister Noonan being so demure? Is it because the “private investors” have only agreed in principle to buy the investment from Irish Life Investment Managers and that perhaps the mystery buyers needs wider approval, perhaps from stockholders, before it can proceed? That didn’t stop Minister Noonan naming Bank of Ireland as the White Knight riding to the rescue of the Anglo promissory note jig in March 2012, but if it does turn out a buyer whose agreement to buy the NAMA stake is again subject to shareholder approval, it will be hard not to conclude that the Department of Finance is a most incompetent, fumbling and un-anticipating group of administrators.

So for now, we wait with bated breath.

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