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Archive for September 20th, 2012

For a country on this planet that has been uniquely affected by emigration – just take a look above at how our population has declined whilst our neighbours in the UK have seen their population grow strongly – it is deeply regrettable that Ireland doesn’t have any robust means for measuring emigration. We saw when the most recent Census was published last year that the annual intercensal estimates of emigration and immigration produced by the Central Statistics Office were seriously wrong – the CSO annual estimates indicated net inward migration of 29,000 between 2006 and 2011, but the more accurate Census 2011 showed 116,000. It is a topic that has been discussed on here from time to time, and you will be pleased to learn that the CSO has now started using a variety of information sources which should dramatically improve the accuracy of the annual estimates. And on 27th September, 2012 we should get the first of the new improved estimates, with the release of population estimates for the year ending April 2012.

On Tuesday this week, the Sinn Fein finance spokesperson asked An Taoiseach Enda Kenny about the inaccuracy in the migration statistics collated by the CSO, and about the steps taken by the CSO to improve the accuracy in future estimates. An Taoiseach responded that with effect from the publication of the next annual estimate which will be next Thursday, the statistics will benefit from increased data collection and checking which will include reference to work permits issued overseas to Irish nationals and PPS numbers issued in Ireland.

Deputy Pearse Doherty: To ask the Taoiseach the actual net migration to this State between April 2006 and April 2011; the estimated intercensal estimate of net migration between those same two dates and the reason for the difference; the steps that have been taken by the Central Statistics Office to improve the accuracy of its intercensal estimates.

An Taoiseach, Enda Kenny: Net migration for the period 2006 to 2011 was 116,000. This was derived as the difference between the total usually resident population as measured at both censuses less the natural increase in the population (that is the births less the deaths) for the intervening period.

The preliminary estimate of net migration over the 2006 to 2011 period, published as part of the annual population estimates series, was 29,000, giving a difference of 87,000 compared with the census figure.

To put the difference in context it is important to bear in mind that the estimated gross migration flows over this inter-censal period account for about one-sixth of the total 2011 population.

The principal source of information for the inter-censal estimates of both immigration and emigration is the Quarterly National Household Survey (QNHS).  The published estimates, which are classified by sex, broad age group, origin and destination, and nationality are subject to sampling variability.

A revised series of inter-censal population estimates will be published on 27th September. This will incorporate data from a number of sources, such as:

a more detailed analysis of the number of Personal Public Service (PPS) numbers allocated to non-Irish nationals in a given year who still had either employment (P35) or social welfare activity the following year; census results on one year inflows by age and sex, and the recorded years of arrival of immigrants.

Revisions to emigration data will incorporate details of work permits issued to Irish nationals in respect of a number of destinations including Australia, US, Canada and New Zealand.   In addition, the number of National Insurance numbers (equivalent to PPS numbers) issued to Irish nationals in the UK will be incorporated in the revisions.

This new analysis will form part of ongoing work aimed at improving the methodology used to measure migration.

The next issue of the Population and Migration Estimates to be published on 27th September 2012 will provide estimates of the population for April 2012 along with estimated immigration and emigration in the year to April 2012, and also revised estimates for immigration, emigration and total population for the years 2007-2011.

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One of the regular complaints received in confidence on here is about the cost of NAMA’s receivers. Typically the complainant is the developer who is shocked at the cost of the receiver which his business must pay, and that the receivership costs are a multiple of what the developer would have charged to undertake the work. Of course if NAMA had confidence that the developer could manage the business, it probably wouldn’t have sought the appointment of a receiver in the first place, and would have entered into a loan workout agreement with the developer. Plus nobody disputes the fact that trustworthy, established, experienced and expert receivers do not come cheaply with a typical share receiver costing €800 per hour and a property receiver €200 a hour. Today we learn that NAMA spent €5.7m on receivers in the first six months of 2012.

For those of you who recall the NAMA report and accounts for the first three months of 2012, you might remember that there were a few oddities with the accounts. Even though NAMA has an annual budget for legal expenses of €25m in 2012, it only spent a measly €23,000 in Q1,2012. You might also recall that NAMA had a budget for what it called “recovery/insolvency costs” of €33m but spent just €355,000 in Q1, 2012 on “portfolio management fees” which was assumed on here to be recovery/insolvency costs. On Tuesday this week in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan for answers to some of the curiosities in the NAMA Q1, 2012 accounts. The full exchanges are shown at the bottom of this blogpost.

We learn that NAMA did indeed only spend €23,000 in Q1, 2012 on legal fees which might inspire concern that the roving hoards of solicitors and barristers in Dublin 1 and 2 might need resort to chasing ambulances. NAMA says that it accrued for some legal costs in 2011 but given that NAMA prepares its accounts on an accruals basis, you would have expected accruals in Q1,2012 also. NAMA also says that it can recover some fees, but overall the news is good, the budgeted legal costs for 2012 of €25m are unlikely to be realised and NAMA believes the actual costs will be “significantly less”

We learn that NAMA does not in fact book any receivership costs in its own accounts. These costs are deducted from proceeds of sales at the companies to which the receivers have been appointed. However Minister Noonan has said that the receivership costs for the first half of the year come to €5.7m which is also substantially less than budget and on the basis of these fees representing 1.5% of the assets under management, it implies that receivers are managing €760m of assets (€5.7m  / 0.015 * 2 halves of the year)

NAMA also spent a whopping €317,000 in Q1, 2012 on “administrative costs” which the Minister says represented “principally insurance premia, external project costs, bank fees and charges and sundry expenses”

NAMA has a history of getting its costs forecasting wrong. You might recall that, in its draft business plan in October 2009, NAMA originally planned to spend €2.6bn over its lifetime on costs; this was reduced to €1.6bn in its business plan published in summer 2010. Whilst lower costs are welcome, you would wonder if there are fundamental issues at NAMA when it comes to planning.

Deputy Pearse Doherty: To ask the Minister for Finance following the publication on 25 July 2012 of the National Asset Management Agency report and accounts for the three months ending 31 March 2012, the reason legal fees booked during the quarter of €23,000 were so low compared with the annual budget for 2012 of €25 million; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: I am advised by NAMA that legal fees for the first quarter of 2012 are low relative to budget for a number of reasons. Some fees actually paid in the quarter related to legal work which was in progress at the end of 2011 and had been accrued in the Q4 2011 accounts. In addition, the budget of €25m for 2012 included prudent assumptions on potential litigation costs which have not to date emerged. In addition, some of the legal fees incurred by NAMA are regarded as recoverable from the debtor and do not form part of its administration expenses. NAMA’s expectation is that the outturn for legal costs in 2012 will be significantly less than the €25 million budgeted.

Deputy Pearse Doherty: To ask the Minister for Finance following the publication on 25 July 2012 of the National Asset Management Agency report and accounts for the three months ending 31 March 2012, the reason the portfolio management fees booked during the quarter of €355,000 were so low compared with the annual budget for 2012 for receivers of €33 million.

Minister for Finance, Michael Noonan: Portfolio Management Fees relate to the ongoing costs of managing the acquired loan portfolio, including fees incurred for the review of debtor business plans together with other fees relating to its portfolio management such as fees for valuations, asset searches, insolvency advice and ancillary property costs.

Portfolio Management fees do not include costs relating to receivers appointed to NAMA debtors. These costs are deducted from proceeds realised from the receivership and disposal of the related property assets and, therefore, do not form part of NAMA’s administration expenses but will impact on the Income statement as gains or losses on realisations.

To end Jun 2012 receiver cost were €5.7 million.

Deputy Pearse Doherty: To ask the Minister for Finance following the publication on 25 July 2012 of the National Asset Management Agency report and accounts for the three months ending 31 March 2012, what the expense heading other administrative expenses which totals €317,000 for the quarter, relates to.

Minister for Finance, Michael Noonan: I am advised by NAMA that the expense category ‘Other Administrative costs’  comprises principally insurance premia, external project costs, bank fees and charges and sundry expenses.

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The members of the so-called “Maple 10” – the 10 customers of Anglo who were apparently loaned €450m in total to buy shares in Anglo – are experiencing mixed fortunes these days. Paddy McKillen is dealing with an epic defeat in London’s High Court and now faces a €25m legal fees bill though Paddy’s Belfast Office Properties did get the green-light last week to build a major extension to the Ards Shopping Centre, John McCabe is in the wars with NAMA with NAMA freezing his assets in a Dublin High Court case which is set to resume in October 2012 and indeed word on the street is that John has just returned from Bahrain where he had a hairy time trying to get fees back from a company, Western Gulf Advisory. But today we learn that one member of the Maple 10 at least is having some good luck.

Paddy Kearney’s PBN Property has today been given the green-light by the Northern Ireland environment minister Alex Atwood to develop a town centre scheme including a shopping centre in Carryduff, a small town 10 kilometres south of Belfast in countyDown. Paddy is one of the Maple 10. His company PBN is derived from the initials of its principal owners (P)addy Kearney, (B)rian McConville and the former head of Anglo in Northern Ireland, (N)eil Adair.

According to the press release – not available yet online – from the Department for the Environment, the development “involves the demolition of the existing Carryduff Shopping Centre and construction of new mixed use development comprising an overall retail floorspace of 8,825 square metres consisting of 19 units at ground floor level and 150 apartments above the retail element” Carryduff might be generously described as a town that could do with some regeneration.

The planning application for the scheme was submitted in 2007, and although PBN is in NAMA, it is unclear if NAMA will be funding this particular development, which would be expected to create 100+ construction jobs plus retail jobs when the development is completed.

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Cast your mind back to Autumn 2009 when NAMA was being set up. Its then-interim managing director, later CEO, Brendan McDonagh oversaw the preparation of the draft NAMA business plan and you might recall that it estimated that 40% of the loans being acquired by NAMA would be performing – repaying principal and interest.

Fast forward to March 2012 and the actual figure is just 17% of NAMA’s loans are performing by reference to the original loan agreement and the original loan value. Some acquired loans were “restructured” and by reference to all loans including “restructured” loans, 19% are performing.

The 19% figure has been in the public domain since NAMA published its Q1,2012 accounts in July, but the 17% figure is new and was revealed in a parliamentary question this week, from the Sinn Fein finance spokesperson Pearse Doherty to the Minister for Finance Michael Noonan. The full exchange is below at the bottom of this blogpost.

The 17% figure is significant because with such a low level of performing loans, NAMA is now severely at risk of not being able to cover its costs. Because NAMA is selling “low lying fruit”, this worrying state of affairs may take some time to become obvious because NAMA’s trouble with non performing loans is being masked by profits from the sale of better quality loans and properties.

Remember if NAMA is generating interest of about 3% per annum on 17% of €74bn book value of loans and it is paying close to 1.5% including hedging costs on €32bn acquisition cost plus it has operating costs of €200m, then the only thing that will keep NAMA in the black is profit from the sale of loans/property and when those profits are exhausted, NAMA’s problems will be fully exposed. It should be said that NAMA has already had quite a number of disposals so the €74bn and €32bn figures above will have reduced but the principle stands. It should also be said that NAMA generates some income on some non-performing loans but this appears not to be significant.

The non performing loan rate at NAMA has steadily increased with the continuing deterioration of the Irish economy and with NAMA’s disposal of the better quality loans. At the end of 2011, 18% of loans were performing by reference to the original agreement, so there was a 1% deterioration in Q1,2012.

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question 213 of 12 June, 2012 and following the publication on 25 July 2012 of the National Asset Management Agency report and accounts for the three months ending 31 March 2012, the proportion of loans that are now performing by reference to the original loan agreement..

Minister for Finance, Michael Noonan: I would like to direct the Deputy to page 9 of the NAMA Section 55 Report for the first quarter of 2012 which states that, as at 31 March 2012, 19% of the loans acquired by NAMA were classified as performing by reference to the nominal loan amount (i.e the original loan agreement). These include restructured loans. NAMA estimates that the loan restructures enhance the proportion of loans classified as performing loans by 2%. It should be noted that this classification of performance is primarily by reference to legacy loan facility obligations. It should be noted that the 19% cited above, translates to 29% by reference to acquired loan value.

NAMA advises that one of its key objectives is to manage its debtors and receivers so as to capture, for debt servicing purposes, income (principally rental income) from their property assets. Such income capture was not widespread prior to NAMA’s acquisition of the loans and NAMA has launched a major drive to achieve this objective. NAMA measures its performance, in part, by the extent to which it captures such income on an on-going basis and not wholly on the extent to which a debtor is in compliance with the terms of legacy loan facility arrangements which predate NAMA loan acquisition.
Please also refer to Section 22.5 of the Annual Report for further information regarding the credit quality of loans and receivables.

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Ask any competent developer what property he expects to bring on-stream in the next couple of years, and you will be probably get a reasonably clear and detailed response. Of course these days in Ireland, developers have very limited access to funding and there are still serious economic uncertainties plus there is an oversupply in many sectors.

However if you were to ask NAMA the same question, you would expect robust estimates. After all, NAMA is sitting on a mountain of cash and even after paying back 25% of its bonds by the end of next year, it should still have a mountain of cash until 2017 when it needs repay the majority of its bonds. Not only is finance NOT a problem at NAMA, but NAMA assures us that it has “reviewed” 97%-plus of developers’ business plans. Plus NAMA has specifically committed to investing €2bn in Irish property development in the next four years. So you would expect NAMA to know what property it was bringing on-stream in the next couple of years.

But you’d be wrong to expect such information.

In the Dail on Tuesday this week, the Sinn Fein finance spokesperson Pearse Doherty asked Minister for Finance Michael Noonan for NAMA’s construction plans in 2012, 2013 and 2014. Given that we are constructing so few homes (see graph above from the September economic bulletin from the Department of Finance), NAMA has the potential to be a major builder or at least a major financier, and given that it has “reviewed” nearly all developers’ business plans and remember it acquired the first loans 2.5 years ago, you would expect it to at least be able to estimate what building was going to take place under its auspices. We know that NAMA is funding the completion of homes on the former Dun Laoghaire golf course, the Charlestown shopping centre and the building of a major new office block in Dublin North Docklands. But is NAMA going to be behind the building of 50,500 or 5000 homes in the next three years and how many million sq feet of commercial premises is it planning. Clueless.

Deputy Pearse Doherty: To ask the Minister for Finance the number of residential units in the State which the National Asset Management Agency plans, either itself or via its receivers or its debtors, to construct on or on which to complete construction in 2012, 2013 and 2014.

Deputy Pearse Doherty: To ask the Minister for Finance the square footage of commercial units in the State which the National Asset Management Agency plans, either itself or via its receivers or its debtors, to construct or on which to complete construction in 2012, 2013 and 2014.

Minister for Finance, Michael Noonan: I propose to answer questions 296 and 297 together.

I am informed by NAMA that it has no current plans to become directly involved in commercial and residential construction projects but that it will continue to support debtors or receivers with loan finance for viable projects. In that context, it has announced plans to provide loan finance of up to €2 billion over the next four years in commercial and residential assets located in the State, subject to identifying commercially viable projects from among those controlled by its debtors and receivers. NAMA may, where appropriate, enter into joint venture arrangements on certain projects. To date, NAMA has approved advances in Ireland of over €610 million to complete projects in residential, commercial, retail, leisure, and healthcare sectors and almost €400 million of this has been drawn down.

At this stage, NAMA is engaged with its debtors and receivers in the process of identifying projects which may be commercially suitable for development with a view to meeting prospective market requirements over a medium-term horizon and, in the light of this evaluation, its Board will determine its project financing plans.  NAMA is also reviewing existing planning permissions and, where appropriate, will engage with planning authorities, through its debtors/receivers or directly, in cases where modifications may be required to render projects commercially feasible.

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