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Archive for June 27th, 2012

You really have to be impressed by lack of ambition, ability and vision abundantly evident in Ireland’s economic decision-making. We are on Day 2 of a three-day bondholder-fest during which a total of €1.14bn is being paid by the people of this State to unguaranteed, unsecured bondholders at IBRC, the world’s most bust bank representing the legacy rubbish of Sean Fitzpatrick’s Anglo Irish Bank and Michael Fingleton’s Irish Nationwide Building Society.

And this afternoon, NAMA has confirmed that it is redeeming €2bn more of its bonds. These are the €32bn of IOUs which NAMA gave the banks when it acquired €74bn of loans. Including this afternoon’s announcement, NAMA has now paid €3.25bn of these bonds which must in any case be paid by 2020, that is 8.5 years hence.

”So what’s wrong with this” you might ask, after all NAMA is supposed to pay back all of these bonds by 2020, so what’s the problem with paying back €2bn today? The issue is that NAMA bonds are incredibly cheap, costing NAMA just 0.9% per annum – officially, NAMA pays the so-called 6-month Euribor rate which fluctuates from day to day, today it’s 0.93%. So what NAMA has done is take its cash and buy back this incredibly cheap source of funding. What else could NAMA have done with €2bn? According to the NAMA Act, it can do practically anything to address the serious financial crisis which the country has been facing since 2008 – in April this year, it lent €3.1bn to IBRC, remember? NAMA can use the money for all sorts of projects, and it isn’t confined to its developers’ projects either. Of course the State cannot add any more debt – an exception is made paying back bondholders in bust banks – but the State can certainly enter into arrangements where it rents assets from NAMA. And as long as NAMA gets its money back by 2020 when – dear God – this economy will have recovered, then everyone is happy. It’s about leveraging an Ireland in 2012 on its knees with an Ireland in the second half of this decade when we will recover. And all NAMA needed was to get a return on its projects of more than 0.9% per annum.

You can thank the genius at the Department of Finance for this overall state of affairs, and for what seems to have been a unilateral concession in the latest revision to the Memorandum of Understanding with the Troika, whereby NAMA must now repay €7.5bn of its bonds by the end of 2013. Minister Noonan agreed to this new term just two weeks ago and apparently received nothing in return.

NAMA is cock-a-hoop about its latest payment and points out that the Agency has not only paid down €3.25bn of senior debt but also repaid initial seed capital and loans from the Department of Finance totalling €299m. The view on here is not charitable, and if the best use of €2bn of NAMA’s cash was to pay down debt which just costs 0.9% per annum, then truly those holding the purse-strings have a poverty of ambition.

The NAMA chairman Frank Daly said in respect of this afternoon’s announcement that the Agency’s strong cash position meant that additional debt repayments were likely before the end of the year and that NAMA was well-placed to meet its target of €7.5bn of Senior Bonds by the end of 2013.

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[The judgment is now available online here]

It has taken over 30 days of hearings, the court room has been packed to the gunnels with nearly 40 solicitors and barristers, the saga encompassed Bono from U2, Tony Blair, princes, yachts and of course Derek Quinlan “sitting around on his fat arse”, and today we get one ruling on one small – but highly significant for NAMA – aspect of the Paddy McKillen versus the Barclay brothers case in London’s High Court. Earlier this year, a British High Court judge gave an interim ruling which supported Paddy’s claim on a peripheral point in the case. That ruling was appealed to the British Appeal Court. The point at issue was whether or not NAMA had the right to sell the loans in the way that it did. Paddy said it hadn’t. NAMA said it had.

Paddy has lost.

This is the case where secretive Irish property developer Paddy McKillen is trying to stop the 77-year old billionaire Barclay twins from taking control of the company which owns three of London’s most prestigious hotels – Claridge’s, the Connaught and the Berkeley. NAMA was dragged into it because NAMA had sold loans owed to the Agency by the hotel group to a company controlled by the Barclays, and the Barclays can call in the loans and acquire control over shares which will give them 64% majority control over the hotel group. Paddy had claimed that NAMA’s sale of the €800m of loans was improperly executed, and in particular he had not been consulted by NAMA prior to the sale being concluded.

In February 2012, Paddy won his argument on an interim point about whether or not he could rely on the original loan agreement which specified consultation before the transfer of loans, as well as restricting the purchaser to being a finance company. The ruling was appealed from the High Court to the British Appeal Court.

Three Appeal Court judges today overturned the earlier High Court ruling and said NAMA was not obliged either to give the hotel company notice of the sale, or to consult with the company, before transferring the debt to a company controlled by the Barclays.

Paddy had also argued that the company to which NAMA sold the loans was not a company specified in his loan agreement which seemed to confine sales to finance companies, whereas the Barclays company was a special purpose vehicle set up for the specific purpose of enabling the Barclays to take control over the hotel. The judges disagreed. They said ruled that restrictions on transfer of debts contained in the original loan facilities with the banks did not apply to NAMA.

Paddy said he had less than one hour’s notice of the sale, and that this didn’t constitute proper consultation. Again the judges ruled that the original loan facilities terms did not apply.

“Coroin was not entitled either to notice of or to be consulted about the transfer to Maybourne” said the judges, “Coroin” being the company which owns the hotels and whose loans NAMA sold.

Paddy was refused permission to appeal to the Supreme Court and was ordered to pay the legal costs of the case.

A bad day for Paddy. If you listen very quietly you might hear champagne corks popping in NAMA’s HQ. Except that’s not the culture of the place, and they’ll probably just breathe a sigh of relief that the biggest single transaction involving loans at the Agency has not been undermined, and that the Agency doesn’t face substantial damages or legal costs claims. Phew!

The main case between Paddy and the Barclays has not yet been ruled upon.

UPDATE: 27th June, 2012. The ruling from the UK’s Court of Appeal is now available online here.

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The European Commission has finally responded to a request made from here at the start of May 2012, asking for copies of documentation upon which the Commission based its decision to approve the NAMA “negative equity mortgage”, or as NAMA calls it “the 80:20 Deferred Payment Initiative” – remember this was launched by NAMA at the start of May 2012 and applied to 115 residences on a pilot basis, and offered buyers the opportunity to buy a home at a price which NAMA would discount by up to 20% depending on house prices in five years time.

The Commission has rejected the request for the documents, citing objections raised by the Department of Finance in Dublin. Remember there was an interim response from the Commission at the start of June 2012, in which it alluded to objections to the release of the requested information. The Commission’s position is subject to additional representations, and a request to review that position will be made from here later today. Despite the rejection, we do uncover some new information from the 6-page response.

Firstly, there was no Commission decision. This may surprise you, but it was the absence of any Commission announcement in May 2012 which prompted the initial request from here. What seemingly happened was that Ireland submitted information about the proposed scheme to the European Commission “to ascertain whether the envisaged scheme … could have State aid implications” and no “formal notification has been submitted thereafter”. So presumably, the European Commission didn’t consider the scheme to raise issues of state-aid which would require a “decision”.

But what about the documents requested anyway? It seems that the Department of Finance contacted the Commission on 1st June 2012 objecting to the granting of access to the requested documents* Apparently the objections were four-fold but included “the protection of financial, monetary and economic policy of the Member State” Who would have thought that a modest scheme covering up to 750 NAMA dwellings when fully rolled out in a country with 290,000 vacant dwellings – 230,000 excluding holiday homes – would have gone to the “financial, monetary and economic policy” of Ireland?! It is asserted by the Department of Finance that – according to the Commission – “the requested documents relate to the internal development of policy of aspects of the financial and economic policy of the Irish State”

And why should we feel at all entitled to information about the “development of policy of aspects of the financial and economic policy of Ireland” – did we somehow have the impression that we lived in a parliamentary democracy or something?!!

The Commission also claims that the requested documents* “include confidential and commercially sensitive information…Please note that I cannot be more specific with regard to the content of the individual documents concerned, since this would have the effect of partly revealing their content and, thereby, deprive the exception of its purpose”

The Commission’s response is available here, and you can see the initial request and other correspondence here.

*Requested documents
The Decision of the Competition Commissioner approving the Irish
National Asset Management Agency (NAMA) scheme – “the scheme” –
whereby homes are sold with buyers protected against 20% declines
in property values over a five year period.
Documentation and responses to queries provided by NAMA to the
Commission in relation to the scheme
Documentation and responses to queries provided by the Irish
Competition Authority to the Commission in relation to the scheme
Documentation and responses to queries provided by the government
of Ireland and its agencies to the Commission in relation to the
scheme
Copies of representations made by any party, including financial
institutions, to the Commission in relation to the scheme

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