Archive for May 11th, 2012

News emerging from credible sources this evening that NAMA has agreed the sale of the Bank of Ireland building at 39 St Stephen’s Green on the corner with Merrion Row. This is a former Bernard McNamara building which was latterly controlled by receivers Farrell Grant Sparks and was being marketed by Knight Frank. The asking price was understood to have been €6.25m but it seems to have been snapped up by an as-yet unidentified Irish buyer for €7m who beat 16 other bidders for the property – seems like there is life in the Dublin commercial market yet!

The key attraction of the fine looking building – pictured above – is the tenant and tenancy; Bank of Ireland has another 19 years on its Upwards Only Rent Review lease which presently pays €54 psf or €404,000 a year for the 7,500 sq ft building. The asking price represented a 6.5% yield or 6.2% after costs and the settled price represents a 5.8% yield or 5.6% after costs. The building was originally bought by Bernard McNamara personally for about €12m in 2006.

The speculation is that NAMA acquired the underlying loan for just under €7m and given the 22% decline in commercial property generally since November 2009, the Agency is understood to be cock-a-hoop with the transaction, even if the actual profit on the sale might only stretch to buying a few decent bottles of Krug.

There is another McNamara office building on Arran Quay close to the Four Courts which was also being sold by Knight Frank with an asking price of €1.3m and it is understood that this building has also gone sale agreed at its asking price which represented a 8.5% yield. The tenant here is also Bank of Ireland which has a lease with a break option in 2021 and is paying a rent of €112,000 a year on the 4,000 sq ft building.

With a dearth of office transactions in Dublin in recent months, it is difficult to gauge current yields. Riverside II sold at a reported €35.5m suggesting a 8.6% yield, One Warrington Place sold for €27m suggesting a 7.25% yield. But by any standard a 5.6% yield on St Stephen’s Green is encouraging for NAMA.

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Figures released by the Central Bank of Ireland (CBI) today show that in the month of April 2012, the reliance by Irish banks on central bank funding stayed flat and may even have increased slightly after falls in the three previous months. Lending by central banks to Irish banks comprises lending directly from the ECB and lending from the CBI. In total overall lending has increased by €0.5bn in April 2012 from €130.1bn to €130.6bn, the first apparent increase this year. Lending directly from the ECB rose by €1.7bn in the month of April 2012, from €85.1bn to €86.8bn. Lending from the CBI to Irish banks, which is mostly known as “Emergency Liquidity Assistance” or ELA appears to have declined by €1.2bn, from €45bn to €43.8bn.

There is some confusion over the figure for direct lending from the CBI as there appears to have been some reclassification during the month. The CBI used to show its direct lending under the column headed “Other Assets” which stood at €44,995m in March 2012 but has declined to an amazing €2,357m in April 2012. The CBI shows an asterisk “*” against the €2,357m figure but does not explain what the asterisk represents. There is a second column on the CBI balance sheet with a column heading of “Other claims on euro area credit institutions in euro” and that has increased from €549m in March 2012 to an amazing €41,348m in April – the €41,348m also has an asterisk “*” but the CBI has again not provided an explanation for the asterisk. A request for comment has been made to the CBI. For the time being, it is being assumed that direct lending from the CBI comprises both columns.

Overall the figures are surprising because the results of the Anglo Promissory Note jig danced by Ireland’s Department of Finance at the end of March which resulted in NAMA paying €3.06bn to Anglo on 2nd April, 2012 which would presumably have been used to pay down Anglo’s direct borrowings from the CBI.

So you might have expected a €3bn-plus decline in central bank lending in April after NAMA paid over €3.06bn in cash which would presumably have been used to repay the CBI. There had also been a trend of month-by-month declines in the previous three months. The figures overall therefore would point to an increased reliance by Irish banks on central bank funding and the first increase this year.

What does this mean for Irish banking and the wider economy? If our banks are to return to some degree of normality, they will rely more on deposits from customers and lending from other banks. So today’s figures indicate – though don’t absolutely prove – that deposits and inter-bank lending are decreasing which suggests bad news.

It is worth pointing out that ECB direct lending to Irish banks today stands at €87bn. This compares with a €3tn ECB balance sheet, and indicates that Irish financing arrangements are now proportional to our economy, and that the ECB is no longer providing “unprecedented” support to Irish banks.

We will get deposit information on Irish banks for April 2012, at the end of May. Deposit analysis for Irish banks for March 2012 is available here.

UPDATE: 11th May, 2012. The CBI has said that the asterisked items indicate “An accounting reclassification took place, in month ending 27 April 2012, in order to harmonise the disclosure of the Emergency Liquidity Assistance (ELA) provided by Eurosystem central banks to domestic credit institutions under other claims on euro area credit institutions denominated in euro”  and it refers us to this announcement by the ECB in April 2012 which doesn’t help us very much when it says simply “n the week ending 20 April 2012, an accounting reclassification took place in order to harmonise the disclosure of the Emergency Liquidity Assistance (ELA) provided by Eurosystem central banks to domestic credit institutions under other claims on euro area credit institutions denominated in euro (asset item 6).” The CBI has been asked if there is any means by which we can see the direct funding of Irish banks by the CBI in April and how it compares with March 2012, and an update will be posted here if there is a response.

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