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Archive for June, 2012

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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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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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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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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[The judgment in the case is now available here]

“The behaviour of the respondents outlined in evidence before me is as far as removed from the concept of honour and respectability as it is possible to be.” Ms Justice Elizabeth Dunne concluding the judgment handed down today in the Anglo v Quinn contempt case.

The continuing Quinn family saga took a dramatic turn this morning when Dublin’s High Court ruled that members of the family were in contempt of orders made by the court last year, orders aimed at preserving assets that IBRC wants to use to offset €2.8bn of loans given by the bank. The Quinns – Sean (senior, the formerly richest man in Ireland), Sean (junior) and Sean senior’s nephew, Peter Darragh (otherwise, Peter Darragh Quinn) – are each held to have breached orders made by the court in 2011.

The judgment handed down this morning by Ms Justice Elizabeth Dunne is here. It follows a long line of judgments in Dublin and Belfast. And Kiev, in the Ukraine where IBRC has so far failed to get its hands on a €50m shopping centre. The BBC undertook a special investigation – which was broadcast last month – into the global machinations involving the Quinn property empire. The BBC’s Jim Fitzpatrick pursued a trail of asset transfers which took him from Derrylin to Stockholm to Kiev to Moscow to Belize City – below is a screengrab from the programme with Jim pointing, in an anonymous post office hallway in Belize City, to the registered office of a company laying claim to a €100m Moscow office block. You will find two of the previous court judgments and commentary here and here.

The judgment this morning is damning of the three Quinns. There are findings that documents were fabricated and back-dated, that the Quinns were not truthful in giving evidence and that, contrary to the orders obtained by IBRC last year, they deliberately sought to put assets beyond the reach of IBRC. It is believed it will be some days before the Judge decides on the penalties to apply – IBRC sought “committal or attachment”, meaning prison or financial penalties. Sean Quinn Senior is a bankrupt.

IBRC’s CEO Mike Aynsley said this morning in response to the judgment “Bringing this contempt motion was a valid and necessary step for IBRC to take. The proven planned, covert and illicit actions taken by the Quinns and connected parties have resulted in millions of Euros being lost or put at risk. IBRC will continue to seek to remedy this and recover as much of the remaining assets as possible on behalf of the Irish taxpayer.”

Larissa Puga (above, left) employment contract judged to have been altered so as to provide for a USD 500,000 termination payment.

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