Archive for May 9th, 2012

It is still not clear on here why there has to be ANY delay between NAMA submitting its quarterly report and accounts to the Department of Finance and the Minister for Finance, Michael Noonan placing the documents before the Oireachtas. But each quarter we must wait 1-2 months to see management accounts that are thentypically five months out of date by the time they are published. Last year the quarter four, 2010 accounts were published on 5th May 2011. This year we are still waiting for the quarter four, 2011 accounts which were delivered by NAMA to Minister Noonan before 31st March, 2011. It’s just plain anachronistic. Mind you we learned of the headlines in the middle of April – profit of €200m in year of 2011 for NAMA, comprising profit before impairment of €1.01bn and impairment charges of €0.81bn. There is also a preview of the accounts here.

We learned yesterday that there is another report on Minister Noonan’s desk. Remember the €3.6bn error in the national accounts that was revealed last November 2011? Well six months later, it seems that the internal investigation and report into the error is ready. Responding to a question from Sinn Fein’s Mary Lou McDonald yesterday, Minister Noonan said that the internal review was now complete.

You might remember that as soon as the €3.6bn error was revealed last year the Committee of Public Accounts hauled the Department of Finance and others in to explain themselves and explain why the Department had been overstating Ireland’s General Government Debt by a staggering €3.6bn (later €3.719bn), equal to more than 2% of our debt. An internal investigation was promised for November 2011. Months passed, snows melted, Spring came and the Department’s Secretary General departed for softer pastures in the European Court of Auditors and yet the Committee saw no sign of the report. Now it seems, six months later, we may shortly find out how such a large error – which had been identified and apparently communicated to the Department for over a year before it was acknowledged – still went unchecked.

In addition to an internal report, there is an external investigation being carried out by Deloitte Consultants at a cost of about €60,000 and we also learned yesterday that this investigation was being “finalised”. In respect of both the Minister said “It is my intention to submit both of these reviews to the Committee of Public Accounts and also to make them available on my Department’s website as soon as is practicable after the Government have [sic] considered them”

Seems like Minister Noonan’s in-tray is becoming a bottleneck.


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The lunacy of having several state-owned asset management agencies or bad banks is brought into focus today with a tender notice issued by IBRC (Irish Bank Resolution Corporation, the name for the entity which merged Anglo and Irish Nationwide Building Society together). The tender is for the “fit-out” of 52 apartments, 46 x 2-bed and 6 x 1-bed in Dublin 1. IBRC won’t provide the precise address at this stage but Dublin 1 covers much of central Dublin, on the northside of the Liffey and includes the IFSC.

The “fit-out” appears to be aimed at getting the apartments into a ready-to-rent condition and includes flooring, curtains, kitchen appliances, beds and basic furniture. It seems the apartments already have basic kitchens and bathrooms. The tender strongly suggests that IBRC is going to rent the apartments.

Which will place IBRC in direct competition with NAMA which has already foreclosed on several residential units in Dublin 1 – residential units at Castleforbes Square and Sherriff Street are included on the latest NAMA foreclosure list, though of course NAMA has foreclosed on only a fraction of its loans, so there will presumably be developers trying to rent property subject to NAMA loans in Dublin 1 also.

So that we get this straight – IBRC will presumably employ an estate agent and property management company to deal with the rentals. NAMA or its receivers will do the same. They will suboptimally compete with each other – in other words it might make sense for NAMA and IBRC to separately rent their foreclosed apartments but together it might make more sense to sell some and rent others or not put the apartments on the market right now.

Competition between NAMA and IBRC – and indeed AIB and Permanent TSB – has largely been ignored up to now because the big disposals have been overseas, but even there it makes sense to conclude that there was dysfunctional competition between these state-owned organisations. Now that it is closer to home, and both NAMA and IBRC deal with smaller domestic assets, the sub-optimal competition and duplication of cost should become clearer.

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As expected, Senator Mark Daly’s bill to promote transparency at NAMA and IBRC languishes somewhere in Leinster House gathering dust, but that didn’t stop the Kerry senator and auctioneer from trying to promote the bill in the Seanad last week when he used the report of the sale of 450-acres of land adjacent to Cork city as a case-in-point to support the need for a transparent register of NAMA-controlled property for sale and sales. The Senator told the Seanad last Wednesday 2nd May (emphasis mine)

“Will the Leader allow time for a discussion on the NAMA and Irish Bank Resolution Corporation Transparency Bill 2011 which my colleagues and I have published? This Bill allows the public to see the properties that NAMA is selling. Last week a property that was never on the market, but which was bought for €100 million, was sold for €7 million. Nobody in the area knew it was for sale and then it was gone. Under the legislation NAMA must sell all State assets under its control. Loans are State assets and NAMA is a State body and must sell them in an open and transparent manner in accordance with the sale of public goods, whether by tender or public auction. That is what NAMA is supposed to do, but it is not doing it. We, as Senator Coghlan who is a former auctioneer would know, are losing millions of euro as a result of a lack of transparency”


The Senator was presumably referring to this sale of a Castlelands Construction land-bank that had been assembled at a cost estimated at €100m but sold, reportedly to a local farmer, for €7m without the property ever having been advertised on the open market.

The Government chief whip in the Seanad, Senator Paul Coghlan – like Senator Daly an auctioneer, also hailing from Kerry – responded with “Tomorrow morning I will return to the issue of NAMA”


And true to his word, the very next day, Senator Coghlan was seemingly well-prepared on the detail of the sale when he told the Seanad

“I am rebutting something that was stated seriously in this Chamber yesterday. I put on record that two independent valuations of approximately €10,000 an acre were carried out by reputable firms in that regard. When NAMA acquired that loan, it reflected the state of the market at that time. It was sold in one lot at a price significantly above what the agency paid for it and consequently, a profit was made for the taxpayer.”

At which point Fianna Fail’s Senator Thomas Byrne interrupted with

“Members were not meant to know the details”

And Senator Byrne is quite right, what NAMA pays for a loan is supposed to be confidential and known to NAMA and the bank from which NAMA originally bought the loan. Not even the developer knows what was paid and is told by NAMA that the full par value of the loan remains outstanding. NAMA obviously doesn’t tell receivers or estate agents what it paid for the loan. In both cases, NAMA wants to maximise the sale price and the acquisition value should not be relevant to either receiver or estate agent. Senator Byrne’s interruption was ignored.

So how did Fine Gael’s chief whip in the Seanad find out what NAMA paid for the loans underpinning the 450-acre property in Cork? And although it’s not certain, it does seem that the Senator came by this information in the 24 hours between Senator Daly raising the subject and the response by Senator Coghlan.


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“If nothing else, the promotion had the merit of simplicity. Buy a Hoover vacuum cleaner for at least pounds 100 and receive two free flights to America or Europe. It couldn’t fail to boost sales, trilled the ill-fated marketing department in Wales. How right they were. More than 200,000 people bought Hoovers they didn’t want. Satisfying the demand for free flights would have required more than 500 jumbos.” One of the most disastrous marketing gimmicks of all time – buy a cheap electrical product, get a flight worth more, it ended the corporate independence of one of the world’s greatest electrical brands

You have to have some sympathy for NAMA. Faced with a residential property market that has not risen in any month in the last 53, and with a general consensus that further falls are in prospect and the Holy Grail “bottom” being some way off, and yet nursing a portfolio of loans secured on 10,000 residential properties with politicians, the commentariat and the general public waiting for it to sell, what was the Agency to do? Well, I think the Agency deserves some credit for recognising the problems and setting about developing some scheme which might encourage necessary transactions. And so the Agency focussed on a negative equity mortgage product which would give buyers some confidence and protection in their purchase of a NAMA property.

Fair play to NAMA for trying.

What the Agency came up with was the product launched yesterday, which it is calling the “80:20 Deferred Payment Initiative”, a scheme whereby buyers can obtain mortgages from three state-guaranteed banks – Bank of Ireland, Permanent TSB and the EBS unit within AIB – and then buy a selected NAMA property with a guarantee that if the properties have declined by up to 20% in five years, the buyers will be refunded the decline up to 20%. Buyers have an initial choice of 115 properties inCork, Dublin and Meath but it is understood the scheme will be rolled out to 750 properties after the initial pilot phase.

Details of the scheme are still emerging and being clarified, but at this stage it would be fair to say the scheme is getting a luke-warm and almost cynical reception. Whilst the asking prices on the properties in the scheme might be up to 80% off peak asking prices, questions are emerging as to whether the current asking prices are still too high. Importantly, the NAMA chairman is seemingly saying the asking prices are fixed, there will be no haggling as these prices are claimed to be realistic. There is also contradiction in the NAMA FAQs where on one hand it is stated that no interest will be paid on the deferred amount for the initial five year period, but elsewhere it is suggested the mortgage repayment will be the same as a normal repayment mortgage based on the full mortgage amount.

But with the Hoover example above in mind, there may also be loopholes which have the potential to cost NAMA dearly. Whilst the scheme has the headline of being for a fixed five year period, the FAQs indicate you can sell the property at any time with NAMA’s consent which is not to be unreasonably withheld and at that point – be it two weeks or two years after buying the property – there will be a reckoning of the fall in value which will be quite easy I would have said, there is the initial purchase price and the subsequent sale price. As long as the decline is less than 20%, you’ll apparently get your deposit and principal repayments back and you can walk away with NAMA settling with the bank. You’ll have had the benefit of the property for two weeks or two years having re-paid principal (which you get back in the sale) and interest (which you don’t, but the interest is seemingly limited to the 70% of the purchase price). You’ll also have the initial stamp duty of 1% and you may have estate agent fees when you sell. But on the other hand, you’ll apparently get a spanking new home and with rental yields in the market well above interest rates, it may well be a terrific deal for you the buyer. And indeed if prices do continue to decline, there may be an incentive to sell when they reach the bottom, you cash out, buy another property at the bottom and benefit yourself from the recovery rather than NAMA. On the other hand, the NAMA developer will have the nurse whatever loss is realised when the property is sold, and given these spanking new homes will suffer wear and tear, there may well be a loss even if the market has stayed flat. But all of that is NAMA’s risk, not yours as a buyer.

Your risk as a buyer is that the asking price today is artificially high, a suggestion rejected by NAMA who say the prices are realistic and not open to haggling. But absent a proper house price database and a dearth of transactions and limited mortgage finance, it is quite difficult to place values on property anyway. And speaking with a valuer’s hat on, it is not unusual for two valuers to arrive at prices that might be 30% apart – remember valuation is an art, not a science, though it shouldn’t be astrology either.

Your second risk is that if you do wait for the full five years, then the so-called “independent” valuer who NAMA pays to value your property, may be – subconsciously of course – influenced to value the property at the higher end of what will usually be a range. So after five years, you might believe that property has declined 20% but if the NAMA valuer thinks it has declined by less, then that is a risk you bear though there is a limited procedure which can be invoked if NAMA or you are unhappy with the valuation, but that limited procedure still depends on a NAMA-appointed valuer.

The mortgage deals seem to be average with interest rates between 3.4-4.2%, but if you have a tracker on an existing home, you would think long and hard before giving that up.

The scheme announced yesterday is not open to investors, and that is telling. Investors would be more ruthless and suffer less from inertia and emotion when it comes to disposing of property. And maybe that is what NAMA is banking on, that even if prices do fall, that the buyers will not cash out and leave NAMA with less valuable second-hand property.

So the view on here is that if the buyer is happy with the purchase price, then this may be a very good deal. But the deal might work best for the buyer if they treat the purchase as an investment, monitor price trends and dispose of the property at the bottom, buy a new property then and pocket the recovery themselves. If you wait the full five years, it may be NAMA that pockets any recovery.

The announcement yesterday has certainly generated headlines for the Agency and already there is analysis of the asking prices of the homes available through the scheme. There is genuinely a concern that prices will decline further – if you believe the CSO figures which exclude cash transactions, we are down 49% from peak and it seems on here that the consensus forecast centres around a 60% decline before we reach the bottom – so protection for a 20% decline may well be attractive. And if the pilot homes are snapped up, then NAMA may well extend the programme and it may encourage others to sell their homes with similar insurance – IFG offers an insurance product that might be of interest. And with a growing number of transactions, a degree more stability and confidence might return to the market, and that could indeed be a game-changer.

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