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Archive for September 4th, 2012

[Short answer, between January and April 2013]

Yesterday, there was a blogpost on here calling for that third pillar bank – or more correctly “money pit” – Permanent TSB to be broken up and wound down. So far Irish Life, the company which comprised PTSB and the Irish Life insurance business has received a bailout from the State of €4bn. It looks on here as if it will need another €1-2bn at the start of 2013 to help repay €2.7bn of bonds which fall due in January and April 2013.

Although we are 18 months past the 2011 General Election, we still haven’t forgotten transport minister, Leo Varadkar’s “not another red cent” for the banks. The jejune Leo might have body-swerved subsequent criticism by emphasising the caveat that any future bailout would be subject to what were the imminent stress tests in March 2011. But in the case of Permanent TSB, we have a bank which was stress-tested, and which was capitalised in full by the Irish state in line with the needs identified by the Central Bank of Ireland. As things stand today, it seems as if PTSB will be coming back with the begging bowl real soon.

Here is PTSB’s balance sheet at the end of June 2012.

PTSB doesn’t have very much cash on hand, just €59m, but that shouldn’t be a cause for concern by itself. And PTSB says that it has €2.119bn of “cash and cash equivalents” at the end of June. It should be noted that the June 2012 results include €1.269bn of cash received for the Irish Life sale. Between January and June 2012, PTSB’s “cash and cash equivalent” increased by €1.0bn but this is mostly represented by the cash received for Irish Life plus the Northern Rock Ireland deposit book acquired by PTSB, together totalling €1.7bn offset by cash outflows from its operations of €0.7bn.

Does PTSB have any major outgoings coming up in the near future? Oh yes, it is required to repay €2.775bn of bonds in 2013 – the majority payable in January and April 2013. Here is what Minister for Finance Michael Noonan told the Sinn Fein finance spokesperson in July 2012.

“During 2013 there are a variety of debt securities which comprise the €2,775 million stated in Note 24 to the 2011 annual report and accounts, the largest of which are a €1.4 billion guaranteed maturity in January 2013 and a €1.2 billion guaranteed maturity in April 2013. As stated in 33791/12 PTSB expects to meet maturity needs from the €1.3 billion of liquidity received from the sale of Irish Life, deposit growth and the benefits of restructuring the balance sheet.”

Will PTSB have any exceptional cash receipts? Seemingly not, with the abandonment of the €8bn Capital Home Loans sale earlier this year. In recent months there has been speculation that PTSB is doing a deal off-market, but that has been denied by PTSB. Still, the stream of Indian-looking gentlemen visiting Permanent TSB’s HQ on Dublin’s St Stephen’s Green hasn’t gone unnoticed and rumours persist – denied by PTSB – but as thing stand, no, there is no exceptional cash receipt on the horizon.

We find from PTSB’s cash flow statement (see below) for the six months to the end of June 2012 that the net cash outflow from operations was €0.7bn. If that is repeated in the next six months – and with the ECB having reduced its main interest rate to 0.75% in July 2012 we know that PTSB will suffer from lower mortgage payments, even if there is some cushioning from lower interest on ECB borrowings – then the cash and cash equivalent available to PTSB will be €1.4bn at the end of this year, which will be just about enough to pay for the first big bond in 2013 – the €1.4bn payable in January 2013. PTSB has no chance, it would seem, of paying for the second bond in April 2013 of €1.2bn. Looks like PTSB will need €1-2bn of additional bailout.

What about the ECB? As we know, the ECB has been providing exceptional levels of liquidity to Irish banks. So can’t PTSB just tap the ECB for more cash? This is where PTSB in particular has a problem. In order to get cash from the ECB, banks need to pledge assets as collateral, and in PTSB’s case, its collateral is lousy. It’s mostly tracker loans with a loss-inducing interest rate, and industry sources suggest PTSB has maxed out its liquidity access at the ECB.

So in summary, unless something exceptional turns up, PTSB will itself be turning up at the Department of Finance on Upper Merrion Street with the begging bowl by the end of this year, looking for another €1-2bn. The breaking up of PTSB as called for on here yesterday will not prevent the additional bailout, and we should not be selling State-owned assets at fire sale prices, but breaking up PTSB will help save costs over the longer term by avoiding a triplication of services and competition for resources and customers.

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The people of Claremorris in Mayo are happy today with news that a shopping centre in their town is set to be benefit from NAMA funding. The Silverbridge Shopping Centre is anchored by Tesco with a 50,000 sq ft store, and NAMA is reported to be funding clean-up works on the site including landscaping and laying new footpaths. Mayo is of course An Taoiseach Enda Kenny’s constituency.

The amount of funding from NAMA is not known but it looks modest. It may create a disproportionately large number of winners though – local firm Conway Builders and their employees will benefit from the work and when it is complete, the local economy will further benefit from the clean-up. The work will “send the message that Claremorris is open for business” says the local Chamber of Commerce. Presumably NAMA’s investment will also enhance the value of the shopping centre and related developments, thereby increasing the chances of NAMA getting more of its loans repaid. Win-win-win.

The local business people have some good words for NAMA – “welcoming the news, Chamber of Commerce President Jimmy Flynn, who put the proposal to NAMA in April, thanked the agency for moving so swiftly: “NAMA were positive from the start and when they wrote to us in June, they were already working on the detail with Conways Builders. This is very good news for the commercial fabric of Claremorris”, he said.”

NAMA announced in May 2012 that it would be investing €2bn in the next four years in completing developments in Ireland. The NAMA Act allows NAMA to borrow up to €5bn for such works.

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Greystones in Wicklow is lucky to have two deputies in the Dail who have proactively worked to see the stalled Habour project re-started and completed. Fine Gael’s Simon Harris and Independent TD, Stephen Donnelly have both been chivvying NAMA along so that the boarded-up eyesore at Greystones Harbour can be transformed into the mix of amenity park land and over 300 developed homes that was envisaged .

You might recall that a company called Sispar – which was a joint venture between developer Michael Cotter’s Park Homes and builder/developer Sisk – was developing the Habour site when the property bubble burst. Loans to the Sispar consortium were transferred to NAMA. There is now a report that NAMA has done a secret deal with Sisk which seemingly involves a major debt write-down.

The Sunday Independent last weekend carried a report on debonair developer, Michael Cotter and Irish construction giant, Sisk’s adventures in France where a yacht club they were developing together has gone pear-shaped apparently. Buried at the bottom of the report is a claim about an Irish development, that “NAMA is believed to have written down over €50m of debt attached to the blighted Greystones Harbour Development. The write-down is thought to be part of a secretive deal struck to allow building giant Sisk Group to take over the project”

The Sispar 2010 accounts had indicated the consortium had a €38m loan from AIB which was understood to have subsequently transferred to NAMA. Presumably this loan forms the lions-share of the “over €50m of debt” that the Sunday Independent reported is believed to have been written-down.

This “deal”, if confirmed, would raise a couple of concerns about the way in which NAMA conducts its business. Firstly, NAMA is proscribed by the NAMA Act from selling assets to defaulting debtors. Whilst Sisk is understood to have been servicing its share of the loan, both consortium partners were presumably jointly and severally liable for the full repayment of the loan. So, on what basis can NAMA have agreed to write-down the debt “to allow building giant Sisk Group to take over the project” when, if the loan were to be called in, Sisk would presumably have become liable for the lot and may even have become a defaulting debtor. Secondly, as with all secret deals, there is a concern that NAMA has failed to maximise the value of its loans. Might a third party have offered better terms to buy the loan and develop the Harbour? Who knows, who can tell, it’s secret.

As is usual with individual projects, NAMA is keeping schtum and not providing any comment.

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