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Archive for June 7th, 2012

“With regard to the reason behind this, a more disturbing case, the details of which I will give to the Minister, is the situation of Nos. 2 to14 Baker Street, which is an extraordinary loss to the taxpayer. I see my colleague, Senator Paul Coghlan, shaking his head when he has not even heard the evidence, which I think means his mind is closed on this issue. For his benefit, let me outline what happened. In September 2005, Nos.2 to 14 Baker Street was purchased fromBritishLand[by McAleer and Rushe, presumably] for €47.5 million. When the bust came, they [ McAleer and Rushe, presumably] sold it after receiving planning for 50% more square footage on the site in 2009. On 16 April [2009, presumably] they [McAleer and Rushe, presumably] sold it back to British Land for €29 million, representing a loss of €28.2 million to the Irish taxpayer. This property was not placed on the open market. How was that in the best interests of the Irish taxpayer? Could my colleague, Senator Coghlan, outline how on 16 April, a trust was set up in Jersey? A legal agreement signed in Westminster City Council shows that McAleer and Rushe had a beneficial interest in this trust. Was this to deceive the Irish taxpayer? On 21 September 2011, in a report and a press release to the market ,British Land said:

We repurchased approximately 50% of the value it previously sold for in 2004. We structured a three-way deal to purchase the site from McAleer and Rushe, Bank of Ireland, with the consent of NAMA”, (I ask Senator Coghlan to note). This acquisition has already performed very well. Since purchased the valuers have increased the site value by 52%.

This is in one year. Does this tell us it was undersold? Does this tell us that the market value was achieved? It most certainly tells us that.” Senator Mark Daly speaking in the Seanad debate in which he attempted to advance his NAMA transparency Bill

I must admit to having rarely watched or visited the Seanad, Ireland’s “upper house” in our bicameral parliament. So yesterday was a rarity to watch the Fianna Fail senator from Kerry, auctioneer Mark Daly (pictured above) present his Bill – available here with commentary – aimed at forcing NAMA to set out all its property for sale – so as to avoid suspicion of secret sales below market value – and to publish achieved selling prices – so as to provide transparency in what NAMA was basically set up to do. The 60 senators are mostly quasi-elected but often just nominated, and the high-minded hope is that experienced and wise heads can initiate and improve the oversight and legislative functions of government. Aside from the (very few) senators taking part in yesterday’s debate, the Minister for Finance Michael Noonan was also present to deliver the Government’s response to the Bill.

The Bill was always going to be problematical because of the NAMA Act and commercial and contractual issues. The Bill did not address these which is a pity. With respect to the serious allegation referred to above on Baker Streetin London, you will find background on this property transaction here and here. The Senator appears to be claiming that Northern Irish NAMA developer McAleer and Rushe sold the property on Baker Street below value, because subsequent to the sale it had increased in value by 50% in over two years – the Senator says one year but April 2009 to September 2011 is 2.5 years. The Senator seems to be saying the property did not come on the open market before it was sold in April 2009. The Senator seems to be saying that McAleer and Rushe benefited from the sale ex post facto in that there was supposedly a profit-share arrangement. And there seems to be an allegation of underhandedness in suggesting a trust in a tax haven was formed at the time of the sale in which McAleer and Rushe were beneficiaries. The property was subject to a Bank of Ireland loan apparently.

This would appear to be a Bank of Ireland matter in that NAMA was only created in December 2009, some eight months after the transaction. The Senator asked Bank of Ireland about the matter and seems to have received a letter which he says “I received a letter which told me they could tell me nothing”. Since the Irish state bailed out Bank of Ireland to the tune of €4.7bn, it is a matter of public interest. It doesn’t seem to have anything to do with NAMA though.

Senator Daly made more convincing reference to the sale of the 450 acres in Corkreported in the Irish Examiner and subsequently here. However that can’t be a transaction that Senator Daly had in mind when he called shenanigans last year because it seemingly only completed April 2012.

Senator Daly’s party colleague, Thomas Byrne also suggested unsatisfactory behaviour when he said “apartments in my area are going at a very cheap price and they are all being sold privately. I do not see any advertisements for their sale. Apartments taking in rents of up to €10,000 a year are being sold at about €85,000 to €90,000 in private sales by banks. This results in a significant return to investors who are able to find out which properties are for sale. A local auctioneer or a willing seller will be looking for substantially more than what the banks are willing to take for the properties. These properties are being sold by the banks with a return of 12.5% to 13% but many people do not know about this and this information must be made available to all.” But what about details like addresses? No details were forthcoming from the Senator despite the presence of privilege attaching to statements in the Seanad. He further said in respect of a different matter “I am aware of a situation and I am happy to provide the details to the Minister after this debate as I am not prepared to put those details on the record of the House. An auctioneer was called by a legal adviser in IBRC and asked if it would be appropriate for a person whose property had been repossessed to bid at an auction.”

The objection from Minister Noonan to the Bill was set out thusly “the proposals in this Bill have been considered and it has been concluded that the Bill as initiated would place these bodies at a competitive disadvantage to other institutions disposing of assets. Were these proposals to be implemented they would undermine the commercial mandate of NAMA and IBRC. Implementation of the policies in this Bill would also be likely to leave these bodies open to constitutional and other legal challenges”

It is a shame that the Bill died because if attention were focussed on the obstacles, it is possible that a solution might be found:

Contractual: Personally I have no difficulty with NAMA imposing draconian secrecy on sales of property where a developer repays 100% of the outstanding loan – that’s the original loan value plus all contractually due interest, not the NAMA value. However if a sale does not realise enough to repay 100% of the outstanding sum, then the developer has broken his contract with NAMA, in that he is not repaying the amount due under the loan contract. Somehow that seems to be a more significant failure under the contract than NAMA providing the details of sale prices.

Commercial: In the UK sales prices and the identities of purchasers and sellers are publicly available from the Land Registry. Such transparency has not undermined the UK market. But the contention is that such transparency would undermine NAMA. Perhaps Minister Noonan might like to discuss this divided opinion if the UK ever decides to conduct its own review mission to see how its €4bn bilateral loan to this country is performing. Yes that’s sarcastic, the Brits are not that dumb and their transparency supports and enhances their property market. Yet here in Bailout Ireland, our Minister for Finance seems to argue that such transparency would undermine NAMA!

NAMA Act: The NAMA Act imposes confidentiality on NAMA’s dealings with debtors and it is the NAMA Act that NAMA normally uses to shield itself from intrusive questioning if there are suspicions about any dealings. Seems like a solution would be to amend the NAMA Act in cases where there was default by a debtor.

NAMA is overseeing the disposal of around €750m per month every month by reference to NAMA acquisition values, and at present there is little external oversight. The Comptroller and Auditor General seems to have little, if any, expertise in domestic and international disposal of property and loans, and of asset management generally. The public accounts committee and the finance committee generally only get the highest level responses from NAMA which uses the NAMA Act to suppress information on individual deals. Ditto with parliamentary questions. It is hardly beyond the wit of such a well-resourced parliament to draft legislation that might meet NAMA’s commercial objectives but at the same time dealing with the confidentiality provided for in the NAMA Act or in contracts, but where the developer is in default.

In terms of the 2-hour debate itself, a number of issues arose about the functioning of the Seanad. At a maximum I counted less than 15 senators including the Chathaoirleach in the Seanad which is really just a big room with pretensions of grandeur at one end of Leinster House.When the vote was called, there were 41 votes cast, 24 opposed to allowing the Bill continue its passage through the Oireachtas and 17 in favour. Presumably the 25-odd senators not present in the Seanad itself were in their offices or other parts of the building – perhaps including the bar or restaurant – during the debate itself. And where was one third of the Seanad when the vote was called? As regards the quality of the debate, of the speakers, less than half focussed on the content of the debate. Fianna Fail’s Averil Power (above) spoke about Priory Hall,UK bankrupt developers and unfinished housing – nothing whatsoever to do with the focus of the Bill. Sinn Fein’s Trevor O’Clochartaigh listed everything he knew about NAMA, a tiny portion of which was relevant to the debate. Many others talked about NAMA’s €2bn investment in the Irish economy and other extraneous matters which again had zero to do with the meat of the debate. For critics of the Seanad, and there are many, the display was not edifying with perhaps four senators – Thomas Byrne, John Gilroy (pictured below), Sean Barrett and Mark Daly – focussing on the issues at hand.

 

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NAMA has this evening announced that it has filled the vacancy for its Chief Financial Officer (CFO) role. Donal Rooney, an existing NAMA employee is taking over the role. According to a NAMA statement, Donal joined NAMA in May 2010 and has experience in NAMA’s Portfolio Management and Asset Recovery divisions. NAMA says “prior to joining NAMA, Mr. Rooney worked initially for Arthur Andersen from 1997 until 2002 before joining KPMG where he held the position of Director in its Audit & Advisory division. He is a graduate of University College Dublin.”

The NAMA organisation chart should now look like this.

 

The CFO looks after Finance, Business Services, Treasury and Tax as well as Audit & Risk, according to NAMA. Up to now, it seems that NAMA’s CEO, Brendan McDonagh who is a management accountant by training, alongside support from NAMA’s parent the NTMA, undertook the CFO role. So the appointment today should free the NAMA CEO up – according to reports last year, Brendan was putting in 75 hour weeks so this appointment should allow greater focus on the challenges facing NAMA as it continues deeper into its asset management phase.

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As the Ballyhea protestors make their long journey back to the Shire from Frankfurt today, ahead of an appearance by one of the protest leaders, Diarmuid O’Flynn on tonight’s Vincent Browne show at 11pm on TV3, in the Dail this morning, the Minister for Finance was providing a sense of the remaining scale of the bondholder bailout. Sinn Fein’s finance spokesperson Pearse Doherty asked the Minister about his intentions towards the two senior unsecured unguaranteed bonds that are scheduled to be paid by what was Michael Fingleton’s Irish Nationwide Building Society (INBS) on 26th June 2012. The two bonds – XS0306307694 and XS0306306613  – have €634m (one of the bonds is in sterling and has GBP 28.8m outstanding so this total € figure may change as exchange rates change) outstanding and the Minister said

“As the Deputy is aware the Government is committed to delivering a return to a successful vibrant economy. In this context I have indicated that there is no private sector involvement for senior bank paper or Irish Sovereign debt without the agreement of our external partners. This commitment has been agreed with out external partners and is now the basis on whichIreland’s future financing strategy is built. This strategy is working well as evidenced by the reduction in pricing of Irish Sovereign debt in the secondary markets and the recent successful bond exchange offer by the NTMA.

IBRC has confirmed that two unguaranteed senior bonds with a combined principal value of €0.6bn are scheduled to mature on 26 June 2012. IBRC’s position on its publicly traded securities remains unchanged. The Bank is contractually obliged to repay senior securities on their maturity dates.”

An altogether weak response which invokes sovereign debt, “agreement” with our external partners and the claim of a reduction in the pricing of sovereign debt – current 10-year yield is 7.4%, same as it was at the end of January 2012 and pretty much the same as the 7.5% in September/October 2011. Of course 7.4% for long term borrowing is not sustainable, but then again you would hardly characterize the arrangement imposed on this State by the ECB as an “agreement”. Though in the sense that this Government accepts the arrangement, it is an “agreement”

The two bonds payable on 26th June 2012 are the last of the very big bonds at the two bust banks, Anglo and INBS which of course have been merged together to form the new bank, the IBRC – thus far, Anglo has received a €29.3bn bailout and INBS has received €5.4bn. There are still billions repayable at AIB which we 99% own and which has had a €20bn bailout.The response above just highlights the impotence of this Government.

Minister Noonan was also asked for the identities of the bondholders and his response was

“As already indicated it is not possible to identify bond holders with any degree of certainty. Such securities are freely tradable once issued and therefore the issuer (i.e. the Bank) has no means of establishing the underlying ownership. These securities are publicly traded and dealt through market participants and settled by clearing house systems. An issuer does not have any access to the records of the clearing house. At maturity, the Bank will instruct its paying agent to transfer the funds due to the clearing house who will then distribute the funds to the holders of the securities as per their records.”

So on 26th June, 2012 a bank which is bust to the tune of €5.4bn so far, and which is 100% owned by this State and managed ultimately by the Minister for Finance, will pay €635m to bondholders (investors) whose identities we don’t know, investors who will receive 100% of their investment with interest. Ireland is in an IMF bailout programme, is running a 9% deficit and our debt:GDP will be 120% next year. If you haven’t heard a good Irish joke in a while, this must make up for it.

“Tonight with Vincent Browne” is on TV3 tonight at 11pm.

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NAMA, or the National Asset Management Agency is managing loans secured by 13,200 Irish homes. The Agency recently confirmed that 9,200 of these homes were being rented which makes NAMA one of the largest landlords in the country, though of course it is normally the developers or receivers that are the direct landlords. NAMA wasn’t saying very much about the remaining 4,000 homes in its portfolio, and today, Sinn Fein’s finance spokesperson, Pearse Doherty asked the Minister for Finance, Michael Noonan, what was happening to these other homes – were they available for rent or sale or were they being kept vacant for some reason.

And the answer that came from the Asset Management Agency via the Minister was….

“the further breakdown sought by the Deputy is not currently available. As I stated in my response of 22 May {PQ 24849/12}, NAMA is currently engaged in an extensive analyses of the residential portfolio under the control of its debtors and receivers and this is expected to continue for some time”

So the Asset Management Agency – which has invested almost €1m in an asset management software system, and which directly employs over 210 people, most of whom work in portfolio management – doesn’t know the status of one third of its Irish residential portfolio!

Many years ago, I worked alongside a colourful Texan when he took over a subsidiary company and called in the Human Resources people and asked them how many people were employed at the subsidiary’s location. HR didn’t precisely know, so the Texan ordered all the employees outside to the car park for a headcount, which alongside the absent through sickness and holiday gave him his answer. HR looked like a bunch of eejits. A little like NAMA today. The Minister nominally responsible for NAMA doesn’t look very smart either.

Hopefully in the not-too-distant future, the National Asset Management Agency will be able to work out the rent/sale/vacancy status of one third of its Irish residential portfolio.

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This morning Ireland’s Central Statistics Office (CSO) has released its inflation figures for May 2012. The monthly headline Consumer Price Index (CPI) was flat compared to April and March 2012, and up 1.8% year-on-year (slightly down from 2%+ annualized rates that have pertained since January 2011). Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 4.8% in the past year as ECB rate cuts and greater scrutiny of variable mortgage interest rates take effect. Just a few months ago, mortgage interest was rising by 20% per annum, and as mortgage interest costs account for nearly 6% of the basket which measures inflation, the impact on inflation was substantial.

Energy costs in homes, which account for 5% of the total basket examined by the CSO, have risen by 11% in the past 12 months, the same annual increase as pertained in March. This should be a cause for concern.

 

Elsewhere private rents fell by 0.1% in the month of May 2012 – the second monthly decline in 2012 and the first time since before 2010 that there have been two consecutive monthly declines – and over the past year, such rents are up by 2.2% according to the CSO – there is some small rounding in the figures above which show 2.0%. It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 3.6% increase (mostly recorded in February and October 2011 and February 2012). At the start of January 2012, the Department of Social Protection reduced its rent assistance payments by up to 29% (an average of 13%) and the Department says that some 40% of the rented market in the State is affected by rent assistance payments, which at the end of 2011, was paid to 98,603 households.  The Department’s 40% is derived from information provided to it by the Private Residential Tenancies Board. The Department is projecting it will save €55m in 2012 from its €500m budget for rent assistance, the saving comprising €33m to changes to the minimum contribution and €22m in relation to the new maximum limits. The decline in March and April 2012, when three month notices given in January 2012 would have expired may herald the start of the long awaited impact of the reductions in rent assistance announced in January 2012. Though on the other hand, the modest 0.1% decline in May 2012 might suggest the adjustment is coming to an end.

Private rents have tended to fall in line with rent allowance even though many landlords will not accept rent allowance tenants. The betting on here is that private rents will come under pressure in the short term, though you shouldn’t read too much into the results for two months. Property commentators including those in NAMA have pointed to a buoyant rental market as one of the bright spots in an otherwise dismal property market, but that buoyancy may deflate in coming months as the artificial supports of State-aided rent assistance dissipates.

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