Archive for May 24th, 2012

The usual seasonal deluge of information has poured out of NAMA today. You can blame the Department of Finance for sitting on the NAMA report and accounts since NAMA delivered them on 31st March 2012 but it is not clear why the special report by the Comptroller and Auditor General which was created on 24th February 2012 should have had an even longer delay before publication.

The new report follows on from the first CAG special report on NAMA in November 2010 which examined NAMA’s acquisition of loans – the focus of this new report published today is NAMA’s management of its loans. It paints a mixed picture of loans performing less well financially than envisaged when NAMA valued and acquired the loans from the banks, but at the same time, there is seemingly an upbeat assessment of NAMA’s abilities. This is based on the briefest of perusals.

The report will be examined in detail on here tomorrow and this blogpost is being published now, mainly in response to a high volume of messages alerting the blog to the report’s publication this afternoon.


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After nearly two months, the Department of Finance has today deigned to approve the publication of the NAMA management accounts for 2011, along with the quarterly report for Q4,2012. There will be flash analysis here shortly, but for the time being, this is what NAMA wants you to know

(1) NAMA recorded a Q4 operating profit (before net impairment charge) of €484 million.

(2) NAMA generated net cash from operating activities of €1.7 billion during the quarter.  From inception (March 2010) to end-December 2011, net cash in excess of €5 billion was generated.

(3) At the end of 2011, NAMA was in a strong cash position with cash and other liquid investment assets of €3.8 billion.

(4) The percentage of performing loans in the loan portfolio at end-December 2011 was 20% of par debt compared to 21% at end-September 2011.

(5) To end-December 2011, NAMA had reduced its debts by almost €1.6 billion, comprised of some €1.25 billion of NAMA senior bonds which have been repaid by the Agency and advances repaid to the Minister for Finance.

There is a preview of the annual management accounts here.

UPDATE: 24th May, 2012. Flash analysis – there will be a detailed review tomorrow

(1) The impairment charge – the “impairment charge” is the estimate of the loss in value of NAMA’s loans primarily as a result of declines in property value. We already knew that NAMA was booking a provisional unaudited impairment charge of €810m for 2011. The accounts today make it clear that since NAMA delivered its accounts to its external auditor, the Comptroller and Auditor General in February 2011, detailed work is ongoing to validate the impairment estimate and we will get an audited figure in NAMA’s annual report which is due over the summer. It is noteworthy that NAMA claims to have calculated that it will generate a net surplus on some loans to the tune of €1.9bn but NAMA is prevented from recognising this gain in the accounts. So the cumulative impairment provision – for both 2010 and 2011 – of €2.5bn may be partly offset in future by gains on some loans.

(2) Profit – NAMA generated a profit before impairment of €484m which includes €170m of profit from the repayment/sale of loans. This is quite a healthy result for the quarter. After deducting the impairment charge estimate of €810m, the net loss for the quarter is €327m.  NAMA is reporting a net profit for the year of €200m, a big turnaround from the €1.1bn loss in 2010, but remember that in 2010 the impaitment charge mushroomed from €1bn in the unaudited management accounts to €1.5bn when the final audited report was published. As a result of the profit, NAMA is not for the time being at least, at risk of becoming balance sheet insolvent.

(3) NAMA’s interest income in the quarter on developers’ loans was €365m. For the full year NAMA is booking €1.15bn of interest income of which €837m has been received in cash, and the remainder is a provision under NAMA’s so-called “Effective Interest Rate” calculation. NAMA made a provision for impairment of €102m against the non-cash interest income.

(4) NAMA booked €170m profit in Q4, 2011 from the sale of loans and loan repayments which when added to the €132m previously booked means that NAMA has so far generated €300m from the sale of what might be considered its best assets. That is sobering. NAMA doesn’t give any detailed breakdown of the profit, but we are aware of David Daly’s loans being refinanced in Q4,2011 which should have generated a profit. And so also should the sale to the Barclay brothers of the €800m of loans associated with the Maybourne group of hotels.

(5) Staff and director costs – these totalled €21m and €0.6m respectively. NAMA doesn’t appear to say how many staff that represents but it is understood that NAMA in May 2012 employs more than 210 staff. At this point therefore we can’t see the average salary cost, NAMA’s Frank Daly says it’s less than €100k, analysis on here suggests that the average cost including PRSI and pensions is closed to €175k. We should get better information in the annual report.

(6) The number of performing loans is now 20% of the €74bn that have been acquired by NAMA. It is not clear from an initial perusal of the accounts if this includes loans that have been restructured. But 20% is not good regardless.

(7) NAMA has a startling €2.3bn invested in “Exchequer Notes”, it is not clear what these are but may refer to Government bonds. Who would have thought that NAMA would be propping up the Government’s finances?!

(8) NAMA has repossessed €6m of property from developers, probably residential. Remember NAMA generally doesn’t repossess, it appoints receivers who manage the property on behalf of NAMA and other creditors.

(9) NAMA paid out €57m to the banks in 2011 to manage the smaller loans on behalf of NAMA. The company NAMA engaged to oversee this management, Capita received €3.1m. NAMA paid out €16m on “portfolio management fees” understood to mostly refer to receivers. NAMA booked €9m of legal fees which seems to exclude provisions for NAMA’s loss of the Paddy McKillen case inDublin’s Supreme Court.

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The BBC is this afternoon reporting that a major new development in Newry has gotten the green-light from planning authorities, and the go-ahead means Newry’s Warrenpoint Road will see a new development of shops, offices and social housing. The developer of the site is named as Parma Investments Limited which the BBC says is understood to be controlled by Larry Goodman, who most of you will associate with the prefix of “beef baron”. Larry – pictured here with a lionised recap of his career – became a household name in Ireland in the 1990s through his involvement with the Beef Tribunal which investigated improper political links with the beef industry. Since buying his business back out of bank control in the mid 1990s, Larry has apparently gone from strength to strength and is now Ireland’s 15th richest person, worth €750m reportedly. 75-year old Larry  and his son Laurence have been involved in a number of property developments through their Parma Developments company, but for all of that Larry appears not to be associated with NAMA.

The development in Newry will see the demolition of the old Greenbank Industrial Estate and the construction of shops including a 100,000 sq ft food “superstore”, cafes, office space and 50 apartments. The BBC reportsNorthern Ireland Minister for Environment Alex Atwood claiming the development will create 1,130 new jobs.

The announcement from Northern Ireland’s Department of Environment is here, which sets out further detail about the development. You should be able to locate the actual planning application here on the Northern Ireland government planning website, but it appears not to be working presently.

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This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for April 2012. Here’s the summary showing the indices

  • at their peak (various months in 2007 depending on type of property and location)
  • the NAMA valuation date (November 2009)
  • 12 months ago (April 2011)
  • the start of this year (end December 2011)
  • last month (March 2012)
  • this month (April 2012)

The CSO’s indices areIreland’s premier indices for mortgage-based residential property transactions. The CSO analyses mortgage transactions at nine financial institutions : Ulster Bank, Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank ofIrelandgroup), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The indices are hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first-time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The indices are averages of three-month rolling transactions.

Cash transactions: there is increasing concern that although the CSO captures data from the mortgage market, it omits cash transactions. The latest figures from the Revenue Commissioners are for 2009 which show that just 6% of transactions (by volume) were in cash. In February 2012 , estate agents DNG claimed that cash made up one third of the market. At the start of January 2012, Sherry FitzGerald said that 29% of its registered buyers were cash buyers, and mortgage expert Karl Deeter said on here that “what Mark Fitzgerald [of Sherry FitzGerald] said at the AIB meeting in December (we were at the same table) is that 30% of purchases were cash – I’d take that as being completions unless this is a case of crossed wires”. In addition, the Sunday Independent reported the former acting-CEO of the Irish Auctioneers and Valuers Institute saying that “I would say a quarter of deals at present are being done in cash”. The Allsop Space auctions won’t be representative of the general market but the latest analysis from them says that almost three quarters of its auction transactions were in cash. The CSO still hopes to have monthly data from the Revenue Commissioners from mid-2012 and it expects that it may subsequently be able to show the market size with its monthly release of the residential index. The perception is that cash transactions will be at keener prices than mortgage transactions because the buyer can move quickly and doesn’t need credit. If that perception is correct then the CSO may be understating – and potentially, understating substantially – the decline in prices. NAMA, which is not an honest broker in this discourse, said recently “the index indicates a decrease of 48% overall but we believe the market has decreased by 57% or 58% on average. The index simply has to catch up because the transactions on the market reflect that.” NAMA in particular seems to believe that prices outsideDublin have fallen significantly further than the CSO index suggests. A recent enquiry to the Property Regulatory Services Authority which will administer the new House Price Database asked about the launch date and the response was that it would be implemented as soon as practicable – sources suggest that will be Q4,2012. The CSO continues to hope that it can introduce supplementary property price statistics over the summer which will show the overall size of the market including cash transactions, which will give a solid basis for assessing the cash/mortgage elements in the market.

As for the key questions:

How much does property now cost in Ireland? The CSO deliberately doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, inDublin in April 2007 at €431,016 and outsideDublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI figures as sound and comparable to the CSO series, then these would be the average prices today:

Nationally, €157,360 (last month €159,044, peak €313,998)

In Dublin, €186,827 (last month €185,866, peak €431,016)

Outside Dublin, €143,148 (last month €146,061, peak €267,987)

I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series as represented by its historical indices closely correlates with the performance of the CSO indices.

What’s surprising about the latest release? Prices nationally have resumed their downward trend after being flat in the previous month. Prices outside Dublin continue to decline whilst for the second month running, prices in Dublin have shown growth, particularly apartments which were up 2.6%, though Dublin houses were up just 0.2%. Perhaps the long-awaited equalizing of declines betweenDublin and elsewhere is beginning.

 Are prices still falling? Yes and the index declined by 1.1% in April 2012 after remaining flat in March 2012 following a 2.2% decline in February 2012, 1.9% monthly decline in January 2012 which was also up from the 1.7% decline in December 2011 and 1.5% decline in November  2011 but in the same range as the 2.2% decline in October 2011, the 1.5% decline in September 2011 and the 1.6% decline in August 2011.

How far off the peak are we? Nationally 49.9% (52.4% in real terms as inflation has increased by 5.2% between February 2007 and April 2012). Interestingly, as revealed here,Northern Ireland is some 45.2% from peak in nominal terms and 52.6% off peak in real terms. Are forbearance measures by mortgage lenders, a draconian bankruptcy regime and NAMA’s (in)actions distorting the market? Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?

How much further will prices drop? Indeed, will prices continue to drop at all? Who knows, I would say the general consensus is that prices will continue to drop. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please drop me a line if you think there are any omissions].



What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. Residential prices are now down 29.6% from November, 2009.  The latest results from the CSO bring the index to 817 (22.4%) meaning that NAMA will need see a blended average increase of 22.4% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index. Irelanddoes not yet have a publicly available register of actual sale prices, but one is expected in late 2012 following the passing of legislation this – read the latest on the House Price Register here. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here) – Phil Hogan’s Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end and not hedonically analysed – it is next to useless.

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A recurring theme on here is that NAMA does NOT have the dominance in Ireland’s residential property market that is often ascribed to it. NAMA controls about 14,000 dwellings, or rather the loans underpinned by 14,000 dwellings and we were given to understand that 10,000 were completed and 4,000 were under construction. Yesterday we found out that 700 of the 10,000 have already been sold. In the Dail, the Minister for Finance was responding to a question from the Sinn Fein finance spokesperson Pearse Doherty.

Deputy Doherty asked

“if he will [provide] an analysis of the 10,000 residential properties that the National Assets Management Agency says are associated with its loans, showing the number of dwellings that are occupied and vacant; and in respect of the vacant dwellings, the number being presently offered for sale or for rent; if there are vacant dwellings that are neither for sale or for rent, and the reason such properties are being kept vacant.”

And the Minister responded

“I am advised by NAMA that it is currently carrying out an extensive analysis of data on residential property under the control of its debtors. NAMA’s best estimate, at this stage in its analysis, is that some 9,200 units are currently rented, 700 have been sold and 4,000 are vacant. This estimate is subject to additional refinement as the analysis proceeds.

I am advised by NAMA that a substantial number of the 4,000 vacant units are close to being made habitable, and will shortly be available for sale or rent, depending on the detail of the asset disposal and asset management plans which have been agreed with individual debtors and receivers.”

So NAMA, or rather its developers and receivers, have sold 700 out of 14,000 dwellings or exactly 5% since inception. And NAMA is a super-landlord in that it has under its auspices 9,200 dwellings presently rented. NAMA doesn’t say how many of its dwellings are currently for sale, but we do know that 115 homes were offered with the recently-launched NAMA “negative equity mortgage” – or “80:20 deferred payment scheme” as NAMA calls it.

NAMA does not have a dominant position in the residential market, but it does in the Irish commercial market where it controls loans underpinned by €6-7bn of property in a country which last year saw less than €0.5bn of total sales.

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Question: If I loan you €10 on 3rd April 2012 for a maximum of 90 days, what is the maximum “maturity date” for you returning the €10 to me?
Answer: Should be 1st July, 2012 but according to the Department of Finance, it’s 30th May 2012

Cast your minds back to the “deal” on the Anglo promissory notes announced in the Dail by Minister for Finance, Michael Noonan on 29th March 2012. Remember we were supposed to pay Anglo €3.1bn in cash which we were getting from the EU/IMF bailout funds. Instead Minister Noonan raided NAMA’s coffers and took €3.1bn from it, paid Anglo, but told NAMA that it would get its €3.1bn back in no more than 90 days from Bank of Ireland. Sounds more convoluted that it actually is. Yesterday in the Dail, Minister Noonan responded to questions from the Sinn Fein finance spokesperson Pearse Doherty on  the “deal”. You will not be impressed.

First up, Deputy Doherty asked

“the terms upon which the National Assets Management Agency has provided the short-term funding to meet the Anglo promissory note payment due on 31 March; if he will confirm the amount provided by NAMA; the interest rate that will apply to NAMA’s contribution and consequently the amount of interest in monetary terms that will be paid to NAMA; if he will confirm that NAMA has provided the funding on an arms-length commercial basis at terms comparable to the terms that NAMA could otherwise obtain on the open market.”

And Minister Noonan replied

“Acting on my direction, on 29 March 2012 the NAMA Board approved the short-term facility with Irish Bank Resolution Corporation Limited (IBRC) collateralised by an Irish Government bond. The €3.06 billion facility was drawn on the 3rd April 2012. The maximum maturity under the direction is 90 days. The facility was provided on an arms-length commercial basis with interest accruing on equivalent commercial terms to the terms on the proposed IBRC – Bank of Ireland collateralised facility i.e. the margin for Bank of Ireland over ECB funding is 135basis points (currently a 2.35% all-in rate). Based on the current maximum maturity date of the facility, 30th May 2012, the interest earned by NAMA would be €11.4 million. I am advised by NAMA that the rate earned on this facility is within the range of returns achieved on NAMA’s short-term investments.”

The reply from our finance minister contains the obvious boo-boo, the “current maximum maturity date of the facility” is not 30th May, 2012 based on a 90 day maturity. But setting that to one side, NAMA is to receive €11.4m on the deal which looks like [€3.06bn*2.35%*58/365] with 58 days being 3rd April 2012-30th May 2012.

2.35% per annum is “within the range of returns achieved on NAMA’s short-term investments” Really?

According to yesterday’s closing prices, the shortest Government guaranteed investment, the treasury note maturing in September 2012 pays 5.41%, the bond maturing in April 2013 pays 4.61%. NAMA is understood to charge developers and recipients of staple finance over 4% per annum. If NAMA stuck the money in a 90-day notice deposit account at the Leeds Building Society, then according to the National Consumer Agency itsyourmoney.ie, it would have earned 3.25%.

And let’s not forget, NAMA’s collateral on the loan is IBRC’s credit-worthiness and the security of the 2025 Irish government bond which has plunged in value in recent days. NAMA didn’t issue a press release to mark what is likely to be its single biggest financial transaction over its 10-year life. On such a large transaction, on the open market, the transaction and professional fees alone would be in the millions of euro.

But what about the “exit” for NAMA from the transaction? Remember that the intention was for Bank of Ireland to take over the loan from NAMA within 90 days. The Bank of Ireland board approved this transaction back in March 2012 but said it would need consult with its shareholders in an Extraordinary General Meeting (EGM) before actually handing over any cash. Yesterday Deputy Doherty asked the following question

“the date on which he expects Bank of Ireland to refinance the Anglo promissory note that was temporarily met by the National Assets Management Agency at the end of March 2012; and when he expects Bank of Ireland to hold an EGM to secure shareholder approval for the transaction”

And the Minister responded

“As the deputy is aware, Bank of Ireland (the “Bank”) announced on 29 March 2012 that the Bank had reached a conditional agreement to conduct a securities repurchase transaction with IBRC. The Bank stated:

“As the transaction is considered to be a related party transaction under Listing Rules, it is subject to independent stockholder approval. A circular containing additional details of the transaction and the date of the proposed Extraordinary General Court will be posted to stockholders once the circular has been approved by the UK Listing Authority and Irish Stock Exchange. It is anticipated that the transaction will become effective following satisfaction of all pre-conditions and independent stockholder approval.”

This is a commercial transaction between the Bank and IBRC. The Bank has stated in their announcement on 29 March 2012 that they will issue a circular and schedule and Extraordinary General Courtin due course.”

Well, here we are on 24th May, 2012 and there is no sign at all of an EGM, and indeed ever since the March 2012 announcement, there have been noises to suggest the north American investors in Bank of Ireland weren’t happy with the terms of the transaction, though there hasn’t been any official statement on the matter, so that continues to have the status of rumour and speculation. But where is the EGM? And why would Bank of Ireland accept an interest rate of 2.35% on this transaction when they can get 4.6% on the open market for a loan on the same security?

It seems the “deal” announced on 29th March is, with each passing day, being confirmed as a rushed, ill-considered, badly-planned juggling act, which has seriously interfered with NAMA’s independence and which at this stage looks uncertain as to whether it can be completed as announced with Bank of Ireland taking over the loan.

And remember these are the people supposedly negotiating our bank debt with the ECB!

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