Of the Week…

Quote of the Week

“Producing a solution is incredibly hard, however, because the euro area faces a serious of interlocking problems.” Karl Whelan, Economist and UCD professor – and tireless and unthanked good egg who been prodigious with giving his time, trying to help the country overcome the financial crisis. Karl is now writing for Forbes.com and this is from his first contribution. Some of you might think that Karl means “series” rather than “serious” but that ignores the possibility of the American trend for converting adjectives to nouns eg “yesterday I had a sad” instead of “yesterday I was sad” and what better noun to describe the EuroZone crisis as in “it has a serious”!

“It was a bit of a let-down when he didn’t turn up. We were expecting a very heated discussion, seeing as he is such a public protagonist of Nama” unidentified Fianna Fail TD. NAMA held a meeting at Leinster House with Fianna Fail TDs and senators during the week. Missing from the meeting was the Fianna Fail senator from Kerry, Mark Daly who was otherwise engaged in a cross-party field trip to the US. Senator Daly has been accusing NAMA of all sorts of shenanigans for over a year now, yet refuses to provide details when challenged even under the privilege afforded to him in the Seanad. To date, the best he has come up with is a sale of a property on Baker Street in London involving NAMA developer, McAleer and Rushe, yet the senator accepts that this was a Bank of Ireland transaction, and nothing to do with NAMA. You’d hardly describe the Senator as a NAMA protagonist. Antagonist, maybe.

“I would be relatively cautious, in the sense that we really need to have a time-series of data. So if it levels out, or starts to slowly go up over 6 to 9 months then I think we can start to suggest that we might be or we’re at the bottom and we are bumping along the bottom and hopefully things will begin to rise again very slowly. But on the way down we’ve had periods where its kind of slowed down and its almost looked as if its levelling off then its fallen again, and then it slowed down and fallen again. So it might be a tiny little blip, or it might be the start of something else” Professor Rob Kitchin from NUI Maynooth whose IrelandAfterNAMA blog has kept us informed about housing, vacant housing and more general economic and social developments in the aftermath of the banking and property sector collapses in 2008. Professor Kitchin was speaking on RTE Radio’s Drivetime on Monday. The Independent’s Charlie Weston leapt on the contribution and extracted the “We are at the bottom and we are bumping along the bottom and hopefully things will begin to rise again very slowly” to support the Independent claim “Rob Kitchin, said there was tentative evidence the property market was bottoming out” For God’s sake, will someone place a property advertisement in the Independent to stop this rubbish.

Graph of the Week

The IMF has been keeping track of the cost of the global financial crisis that kicked off in 2007, and at the start of June 2012 published an update to its “databank”. Its analysis shows that the Irish banking crisis has been nearly the worst ever, anywhere in the world. Here is one of its graphs which shows apart from Iceland, Ireland is top of the world league on one measure. Apart from Iceland which has seen its currency devalued, debt written off and is now back in the bond markets, has unemployment at half Ireland’s level and indeed, is repaying the IMF sooner than scheduled.

Table of the Week

From the same IMF report, we get this table showing world banking crises from 1970 onwards and in terms of what the IMF calls “Output Loss”, Ireland is number three after Burundi andKuwait. What this country is shouldering to bail out the banks is truly horrific for a modern developed economy.

Image of the Week

Dimissed by some as “a cheap little power game”, the handshake between Irish republican Martin McGuiness and Queen Elizabeth II was indeed “historic” and as all handshakes are, “symbolic” – the original intention of the handshake being to demonstrate that you are not carrying a weapon. And the photograph showing a queen smiling from the eyes, dressed in green, engaging in the simplest of gestures with the embodiment of Irish republicanism with unionist partner in government, Peter Robinson looking on approvingly, and just off-camera, Irish president Michael Higgins – it was indeed “historic”. How was it to meet the Queen, someone asked Martin afterwards.  “Very nice” came the reply.

This coming week will see the Orange Order visiting Seanad Eireann where there will be speeches from the loyal orders and from senators including Sinn Fein. Which seems like a small departure from the Order’s “no speaking with republicans” position. Historic.

Last (last) chance of the Week

 

On Wednesday, we had the damning judgment in Dublin’s High Court where three of the Quinn family were held to be in contempt of orders given by the Court last summer. At stake is €500m of property, some or all of which the Quinns were held to have attempted to place beyond the reach of Anglo, or IBRC as it is now known. Yesterday, the Quinns were to hear their fate for their contempt, and imprisonment was a strong possibility. Instead the Quinns have been given three weeks to undo their fairly blockheaded attempts to bilk Anglo. Given the progress in the case so far, you might be sceptical of any success for Anglo from all this, but you never know. Presumably one of the transactions the Quinns will need undo is get the USD 500,000 back from their Ukrainian employee Larissa Puga (pictured above, left from the BBC Northern Ireland Spotlight programme). In this week’s judgment, the Judge held that Larissa’s contract had been improperly modified so as to provide for the USD 500,000 termination payment, and there appears to be an implication that the payment was made so that Larissa would accept a claim by a hitherto-unknown Belize company on a Kiev shopping centre. What chance does Anglo have of getting that USD 500,000 back? It remains to be seen of course, but the view on here is, to re-use that mildly vulgar expression we have down our neck of the woods again, “they have their shite”

Word of the Week

“Murder”

Last weekend, there was a tragic incident in Dublin city centre in which journalist Eugene Moloney was killed. Two people have since been arrested, one was released without charge and the other has been charged with manslaughter. Both RTE and the Independent covered the story describing the incident as “murder”, the Irish Times referred to “killing” and “death”. Murder has all sorts of legal and criminal meanings. Manslaughter is legally quite different. But national broadcaster and Ireland’s best selling daily newspaper (currently) know better, it seems. Next week’s phrase of the week is at this stage looking like “EU debt deal”, about which there is threadbare detail and in terms of Ireland, other than a mention in the EU summit statement which generally looks encouraging, there is nothing tangible to suggest that anyone other than the people of Ireland are expected to bear the burden for losses already incurred by our banks.

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Very few bankruptcy tourists expected here as Ireland fluffs new personal insolvency legislation

It has been a very long time coming but yesterday, the Minister for Justice, Equality and Defence Alan Shatter introduced a new bankruptcy Bill for individuals in Ireland. In a country where one in seven mortgage accounts is either in arrears for more than 90 days or has been restructured with less than the contracted monthly mortgage payment being made, there is obviously a debt problem. In fact when former US president Bill Clinton addressed a business forum in Ireland last October 2011, he said that the biggest challenge facing this State was the mortgage crisis. Under the existing draconian bankruptcy rules which involve a bankruptcy period of five to 12 years, there are about 30 bankrupts per annum in a country of 4.6m, by comparison the UK has over 60,000 per annum in a country of 62m, a rate that is more than 500 times that of Ireland. The new Bill is aimed at modernising our bankruptcy laws and providing an efficient and humane system which balances the needs of debtors and creditors.

The verdict? Certainly the scheme for those with unsecured debts is comparable to the rules in the UK and should provide for a quick and easy means for those who can’t pay to have a quick resolution. However, all eyes have been on those with secured debts, particularly mortgages, and the provisions here are quite restricted.

There are two aspects of the bankruptcy legislation as it relates to secured debt which differ from other jurisdictions with which I am familiar, and which have the potential to undermine the promised potential of this legislation

Firstly, the person seeking bankruptcy must be able to demonstrate that they will not be able to pay their debts over a five-year period.  According to the Bill “it is his or her opinion there is no likelihood of the debtor becoming solvent within the period of 5 years commencing on the date of the making of the declaration” So if you are a mortgage-borrower with six months of arrears today and a property which has declined 50% from peak, on what basis can you demonstrate that you will not be able to become solvent in five years. Obviously, it will depend on the future direction of house prices and there is no guidance given in the legislation as to how future asset prices might be determined.

Secondly, the person seeking bankruptcy must be able to demonstrate that they have co-operated with their mortgage lender for a period of at least six months and that they have not agreed to any alternative arrangement. The Bill says “the debtor has made a statutory declaration declaring that he or she has co-operated for a period of at least 6 months with his or her creditors who are secured creditors as respects the debtor’s principal private residence in accordance with any process relating to mortgage arrears operated by the secured creditors concerned which has been approved or required by the Central Bank of Ireland and which process relates to the secured debt concerned and that notwithstanding such co-operation the debtor has not been able to agree an alternative repayment arrangement with the secured creditor concerned, or that the secured creditor has confirmed to the  debtor in writing its unwillingness to enter into an alternative repayment arrangement”

In other words, notwithstanding the fact that you are hopelessly insolvent with massive negative equity, your bank can seemingly stop your bankruptcy bid by providing you with temporary relief on your monthly mortgage commitments.

Interestingly if you are already a bankrupt like Sean Quinn or Anglo’s Sean Fitzpatrick, then you can’t seek bankruptcy under this legislation.  And if you have debts in excess of €3m, again there is no change to your prospects as you will not be covered by this new Bill. The two exemptions are curious.

The Bill will now be subjected to debates in the Dail and Seanad, and the expectation is that it will be operational by the end of this year. It would seem from an initial review however that amendments will be needed if Ireland is serious about adopting a modern personal bankruptcy regime.

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Latest central bank statistics show stable private sector deposits at covered banks

This morning, the Central Bank of Ireland (CBI) has released its monthly snapshot of the state of Irish banks focussing on deposits and lending. The data covers the period up to 31^st May 2012 and shows that during the month of May 2012, deposits by ordinary households and businesses reduced marginally by a nugatory €78m at the so-called “covered” or State-supported banks – essentially the two pillar banks, Bank of Ireland and AIB, and also Permanent TSB. The decrease of €78m from €107.6bn in April 2012 to €107.5bn in May 2012 means that deposits were practically flat during the month after the previous months impressive €3.7bn increase. Deposits are now back at May 2011 levels which is indeed very positive but are still down €17bn from October 2010, the month before the IMF/EU bailout. Private sector deposits fell at covered banks in the past 12 months by just €39m, but this masks heavy falls June 2011 when the intensifying Greek crisis undermined confidence across the PIIGS countries. After four months of modest rises and with a €1.2bn increase in March 2012 and €3.7bn in April 2012 and despite the insignificant €78m decline in May 2012, I think it is fair to say there are signs of stabilisation.

The CBI doesn’t provide an analysis of deposits at the covered banks – about the only analysis it doesn’t provide – but in terms of all banks operating in Ireland including foreign and IFSC banks, Irish household deposits increased by €109m in May, which brings such deposits to €92.1bn, the same as the June 2011 level. Total deposits from all sources in all Irish banks increased by €7bn in May 2012 – the first increase since August 2011, mostly attributable to deposits from the Rest of World.

The Department of Finance hasn’t bothered to produce a “deposit trends” note for May but the note for April 2012  can be seen here . It confirms what the CBI is saying, and it shows retail deposits at the covered banks increasing by €2bn in April 2012 and such deposits now stand at €151bn. These figures include deposits at overseas operations of Irish banks eg the Bank of Ireland/Post Office joint venture in the UK. However the Department does say that one half of the increase in the month is from deposits at Irish branches. So again, the bouquet is positive, and should be welcomed as good news.

Here is the full set of deposit statistics for the different categories of bank operating in Ireland.

First up is the consolidated picture for all banks operating in Ireland including those 450-banks based in the IFSC which do not service the domestic economy.

Next up are the 20 banks which do service the domestic economy and include local subsidiaries of foreign banks like Danske, KBC and Rabobank. There is a list of all banks operating in Ireland here together with a note of the 20 that service the domestic economy.

And lastly the six State-guaranteed or “covered” financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS – Anglo and INBS have now been merged to form the Irish Banking Resolution Corporation, IBRC)

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank of Ireland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outside Europe)

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NAMA has receivers appointed to two new companies

NAMA’s foreclosure action continues apace but at a less intense pace than earlier this year. We learn from today’s edition of Iris Oifigiuil that two more companies have fallen.

First up is Horison Developments Limited to which NAMA had Simon Coyle of Mazars appointed as a statutory receiver on 22^nd June 2012.. Horison is controlled by Capel Developments directors Brian Molloy, Edward Keegan, Liam Kelly and Thomas Molloy,

Secondly we have Clubko Limited to which NAMA had Martin Ferris (or Martin V Ferris, which presumably differentiates him from the Kerry Sinn Fein deputy) from Ferris and Associates as a statutory receiver on 25^th June, 2012. Clubko is controlled by pub supremo Hugh O’Regan with minority shareholdings held by Delores Barry and a company called Beldent Limited.

Remember you can see a comprehensive list of Irish foreclosure action by NAMA here and in this regularly updated spreadsheet.

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Stop press: NAMA publishes new foreclosure list of properties

(The new properties added in May 2012, click to ENLARGE)

 

NAMA has today published its now regular monthly list of properties subjected to foreclosure action – the list shows NAMA foreclosed properties at the end of May 2012. The full list is here, the list of new properties added is here, and you will find previous editions of the monthly list which was first launched in July 2011, here. It is hoped to have the list in a spreadsheet format shortly, available here.

You should read the full list of NAMA’s terms for accessing the lists here. But in summary, this is what you’re looking at:

(1) Real estate property subject to loans in NAMA to which receivers have been appointed. The receiver’s website is shown against each property.

(2) This is all the real estate foreclosed sorted by country, and then region.

(3) Not all of the property may be for sale.

(4) Contact the receiver with enquiries or expressions of interest in the first instance. Only pester NAMA if you’re not getting any response from the receiver and make allowances for receivers being busy with queries, particularly after a new release of foreclosed property.

(5) If you think there are mistakes on the list, contact NAMA.

Comment and analysis here shortly.

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Six months after NAMA pledges to make 2,000 homes available for social housing, not a single home has been provided.

It was just before Christmas last year when Minister for the Environment, Community and Local Government Phil Hogan announced with fanfare that NAMA had agreed to make 2,000 homes available for social housing. In a country where there are nearly 100,000 households on the housing waiting list, the announcement was roundly welcomed. Six months later, and we learn that not a single home has so far come available.

Yesterday in the Dail,  Sinn Fein TDs, Pearse Doherty, Sandra McLellan and Martin Ferris asked the Housing Minister, Jan O’Sullivan about progress with releasing NAMA controlled homes for social housing. More than half the 2,000 homes are apparently unsuitable or have been otherwise sold/rented. Though there are 405 homes “at various stages of the approval process and 719 are being appraised”, contracts have been signed in respect of 58. But these 58 are likely to have been the 58 apartments at the Beacon South Quarter which were sold to the Cluaid Housing Association. Last summer 2011. In other words, since the fanfare of the 2,000 homes announcement six months ago, not a single home has in fact been acquired for social housing.

“Deputy Martin Ferris : To ask the Minister for the Environment, Community and Local Government the steps he is taking to ensure that housing secured for leasing under the National Assets management Agency will not leave tenants isolated from community and services.

Deputy Sandra McLellan: To ask the Minister for the Environment, Community and Local Government the reasons properties offered by the National Assets Management Agency for leasing were deemed unsuitable..

Deputy Pearse Doherty :To ask the Minister for the Environment, Community and Local Government if he will give an update on the development of the National Assets Management Agency properties for social housing; and if he will endeavour to secure housing from NAMA for local authority ownership..

Minister of State at the Department of Environment, Community and Local Government, Jan O’Sullivan: I propose to take Question Nos. 16, 31 and 43 together. Since the announcement in December 2011 thatNAMA would commit to providing up to 2,000 units for social housing by the end of 2012, my Department, the Housing Agency and NAMA have been working together with housing authorities and approved housing bodies towards achieving this target.  The units being advanced through NAMA will in general be provided through the Social Housing Leasing Initiative under the standard terms and conditions that apply.

To date over 2,000 units have been examined with a view to determining their suitability for social housing.  Of the original number, 701 have been deemed unsuitable by housing authorities.  Housing authorities assess the suitability of these properties with regard to location, local demand, the nature of the accommodation and sustainable community principles.

A further 372 have been withdrawn, usually by property owners, as circumstances have changed.  In some cases the properties concerned have been let on the open market or sold and are no longer available as vacant units.

At present demand has been confirmed for nearly 1,200 available units and these are currently being processed.  It is important to note that while demand has been confirmed in respect of practically all residential developments proposed by NAMA, the requirement to provide for an appropriate mix of tenures and to avoid undue segregation in housing means that local authorities will only ever deem a certain proportion of units within individual developments suitable for social housing.  Discussion and negotiation has commenced in respect of these properties involving approved housing bodies, local authorities, the property owners, financial institutions, receivers and other relevant parties.

Of these 1,200 properties, contracts are signed in respect of 58 units, 405 of these units are at various stages of the approval process and 719 are being appraised.  It is  expected that units will be tenanted in the second half of the year.  NAMA continues to work with a view to identifying additional units suitable for inclusion in the programme.”

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EU debt deal – there is no Santa Claus, someone has to pay

Having studied the statements emerging this morning after yet another marathon EU summit, I am still scratching my head to see what all the fuss is about.

The markets certainly believe something has agreed which strengthens the debt sustainability of Spain, Italy and Ireland with bond rates tumbling this morning. Though having said that, Ireland’s benchmark 9-year bond is presently at 6.77% down from 7.1% yesterday, but 6.8% is the same as just a few weeks ago before Spain asked for a bailout or “credit facility”. Spain’s 10-year bond is at 6.6% which is down from the 7% yesterday, but still at an elevated unsustainable level.

So has there been a Big Bang, a new dawn in Europe and the seeds of a solution to the four-year old crisis?

If there is, I can’t see it.

There is no development apparent in the announcements which will see Ireland’s bank-bailout generated debt shared or reduced. And in Ireland’s case, that’s the issue – the 40% of debt:GDP which the country is shouldering to bail out banks. What we get is a fund which will loan money directly to banks. The fund will not absorb losses. The fund will want its loans back. There is no Santa Claus.

The summit statement from European Council president Herman van Rumpuy goes as follows:

“We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.”

Ireland’s banks are already recapitalized, in fact we have the most capitalized banks in the EU. There is a distinct possibility of additional capital being required for Irish banks – Matthew Elderfield has flagged €4bn of additional requirements, and if the mortgage crisis results in the crystallization of losses at the banks, then that too will generate a need more capital, as will a deterioration in the economy. But there is absolutely no indication that some Santa Claus will shoulder losses in individual countries’ banks.

What does this mean for us? Nothing, as far as I can see. No-one is suggesting any new fund will foot the bill for bank losses – past, present or future losses/losses in Ireland, Spain or elsewhere. Think about it – who would pay for such losses? Germany? France? China? Santa Claus?

Ireland gets a specific mention in the summit statement. And there is a compliment for our “well-performing adjustment programme” – so far we have met all financial targets in the Memorandum of Understanding, but with another €5,000 per household of adjustment needed with the “low hanging fruit” well-and-truly picked, that adjustment programme will be increasingly difficult to comply with. But what is meant by the “situation of the Irish financial sector”? We have bailed out the banks to the tune of €68bn – €28bn of extant promissory notes, €5bn in NAMA bonds and the rest in cash, which given we are running deficits, is borrowed. There is no suggestion of a refund for cash already injected into the banks, and if there is some debt writedown on the promissory notes, who will pay for that?

What we have got today from the EU is some more L’Oreal skin cream which smells pleasant, moisturises the skin and leaves a nice texture. What we have, however, is skin cancer and these announcements by themselves don’t deal with the disease of actual bank losses.

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Minister Noonan delivers weird property speech to weird property organisation

When the NAMA chairman Frank Daly made a speech last year to the Licensed Vintners Association, there were a few raised eyebrows at why NAMA would be speaking to a small group of pub-owners. This morning, Minister for Finance Michael Noonan was present at an occasion organised by an equally small organisation, Property Industry Ireland, in which Minister Noonan held forth on the state of, and prospects for, the Irish property industry.

The speech is here, there’s nothing really new in it, but there will be a few snippets of interest to the audience on here.

(1) It seems that NAMA is providing up to 75% of purchase prices through its vendor pricing scheme. The Minister said two weeks ago that it was 70%, but that was at odds with NAMA’s own statements on the scheme.

(2) “Banks have stated [presumably to Minister Noonan] that they have significantly increased the number of mortgage approvals given, however, mortgage drawdown remains low. They [the banks] cited two factors for this: In the country – uncertainty about house prices, and inDublin– house prices moving above the expected sale price.” That’s a strange turn of phrase – “house prices moving above the expected sale price” and presumably means that buyers aren’t buying property they think is too expensive.

(3) Under the heading “[Measures to stimulate property market] – [Initiatives]”, Minister Noonan says his “Department is taking a lead role in returning the property market to normal” though little detail is provided

(4) There is an awkwardly worded call for private sector involvement in new construction and development – “Private sector investment is now needed to complement these initiatives by the State and NAMA initiatives, including for instance vendor financing, which can help leverage increased private sector appetite for property-related investment in Ireland.”

(5) Minister Noonan claims that property – presumably both residential and commercial – is competitively priced – “due to the property crisis, property is currently extremely competitive in international terms.” The National Competitiveness Council, in a report published earlier this year, would seem to disagree…

(6) The Minister points out that there are varying vacancy levels across the State, which is true enough, but his conclusion might strike some as odd – “based on these figures, care is needed to ensure that there is a sufficient supply of houses in areas of growing demand such as Dublin, as the last thing we need is a surge in house prices.” It’s as if he is calling for speculative residential development inDublin.

As for Property Industry Ireland, it is not exactly clear what the raison d’etre of this organisation is; it appears similar to the Construction Industry Federation (CIF). The only news item on PII’s website is an article in the Irish Times by Bill Nowlan which begins “Ireland’s economy depends largely on property” Minister Noonan described the group this morning as a “think tank”, though there doesn’t seem to have been much publishing “thinking”since the group was formed a year ago.

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NAMA loaned €3bn to IBRC without taking out credit insurance

The “nod and a wink” culture that is coming to symbolise Minister for Finance, Michael Noonan’s way of doing business becomes clearer with each passing week. We are today on the final day of a 3-day bondfest with an overall total of  €1.15bn being paid by this nation to unidentified, unsecured, unguaranteed bondholders at what remains of Sean Fitzpatrick’s Anglo Irish Bank and Michael Fingleton’s Irish Nationwide Building Society. The reason for this insolvent State, which is in the middle of an IMF bailout programme, making the payments? According to Minister Noonan last year, it is because “a nod is as good as a wink to a blind man”

Separately, that part of the public which follows these things continues to scratch its head at the deal done between the Government, IBRC and Bank of Ireland, by which BofI is lending €3bn to IBRC for one year at 2.35%. Last week at the BofI EGM, it was confirmed by the BofI CEO Richie Boucher that he was unlikely to see any profit from the loan after taking so-called “credit default insurance” into account; in other words, BofI is insuring its loan to IBRC and once you take the cost of that insurance into account plus the 1% interest BofI must pay the ECB for the cash in the first place, the transaction generates no profit. Why would BofI engage in such business? It’s not clear but you would have to suspect that the “nod and a wink” culture is at play again. The Government has a 15% shareholding in BofI so it doesn’t have majority control, and only two of the 12 directors on the BofI board have been appointed by the Government. Yet BofI engaged in a seemingly, philanthropic act in lending €3bn to IBRC for no profit. No doubt the appointment of Wilbur Ross and Prem Watsa to the BofI board announced just after the EGM, is purely coincidental – both men represent the North American companies which invested in BofI last summer.

BofI is taking over a loan to IBRC that was originally funded by NAMA in March 2012. And you might recall that NAMA was, like BofI, charging 2.35% per annum on its loan which was capped at 90 days. NAMA claimed it was providing the loan on an arms-length commercial basis. It was noteworthy that NAMA failed to issue a press statement for what has been the Agency’s biggest financial transaction to date, and the commentariat was suggesting that the transaction was conducted at Minister Noonan’s behest on terms which were closer to the “nod and a wink” culture than the arms-length basis asserted by NAMA. Earlier this week, in a Dail response to the Sinn Fein finance spokesperson Pearse Doherty, we found out that NAMA, unlike BofI, didn’t even take out credit default insurance. The full exchange is here

“ Deputy Pearse Doherty: asked the Minister for Finance following on from reports that suggests that, after taking credit default insurance into account, Bank of Ireland will not make any profit on the arrangement whereby it replaces the funding provided by the National Asset Management Agency to the Irish Bank Resolution Corporation in order to satisfy the promissory note commitment that fell due in March 2012, if he will confirm if NAMA made a profit on its part in the arrangement; and the amount spent by NAMA on credit default insurance.  [30418/12]

Minister for Finance, Michael Noonan: I am advised that NAMA did not take out credit default protection against the short-term financing facility. I am also advised that for the duration of the short-term financing facility between NAMA and IBRC, NAMA received a rate of return of 2.35%, which was above its interest cost on its NAMA Senior Bonds. The difference represents the agency’s profit in relation to this transaction.

In relation to Bank of Ireland, as the deputy may be aware I have no role in the day-to-day commercial and operational decisions of the bank, which include these matters. These decisions are taken by the board and management of the institution.”

So apparently NAMA’s view of an arms-length transaction, albeit for up to 90 days, is different to the view of the BofI board.

On a related subject, Minister Noonan is not saying if BofI is using a  related party or indeed one of its principal investors to provide the credit default insurance which will apparently cost €40m approximately for the forthcoming year.

Minister Noonan says “I am not aware of any such announcement. As the Deputy will be aware, risk management policies and actions are a matter for the Management and Board of the Bank of Ireland. I have no role in the day-to-day commercial and operational decisions of the bank, which include these matters. These decisions are taken by the board and management of the institution.”

Just the sort of response we are coming to expect in this flourishing “nod and a wink” culture.

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UK residential property down 0.2% in June 2012

The Nationwide Building Society has this morning published its UK House Price data for June 2012. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £165,738 (compared with GBP £166,022 in June 2012 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 10.9% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of June 2012 being GBP £165,738 (or €207,056 at GBP 1 = EUR 1.25) is 31% above the €157,601 implied by applying the CSO May 2012 index to the PTSB/ESRI peak prices in Ireland. The average home in Northern Ireland in Q1, 2012 was worth €168,347, according to the University of Ulster/Bank of Ireland survey.

With the latest release from Nationwide, UKhouse prices have risen 1.8% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 816 (because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK, small changes in UK residential have a negligible impact on the index) meaning that average prices of NAMA property must increase by a weighted average of 22.6% for NAMA to breakeven on a gross basis.

According to the UK’s Office for Budget Responsibility which independently monitors and comments on theUK economy, house prices are projected to fall by 0.4% in 2012 before increasing by 0.1% in 2013, 2.5% in 2014 and 4.5% in 2015 and 4.5% also in 2016.  UK inflation has now come down below 3% per annum despite being elevated since the banking crisis in 2007, overall inflation in 2012 is set to stay close to 3%  – remember that UK inflation has increased by over 15% since their peak whereas in Ireland inflation has been subdued and is one third of that – the UK has pumped GBP0.3tn of “quantitative easing” into its GBP1.5tn economy.UK interest rates may increase later this year to combat inflation – the base rate has been 0.5% since February 2009.TheUK economy is projected to grow by an anaemic 0.8% in 2012 in real terms, close to our own Department of Finance’s projection forIreland at 0.7%.

This morning, the Nationwide has also released its Q2, 2012 series which provides a regional breakdown of prices. All regions have declined in real terms in the past 12 months, given inflation of 2.8%. London and the English South East have been top performers. Northern Ireland is bottom of the league.

 

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