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Archive for September 26th, 2012

“I am also advised that NAMA already employs a wide range of measures to prevent unauthorised disclosure of confidential data. These include practical measures such as the deployment of e-mail monitoring technology to prevent e-mail attachments from being forwarded to personal and non-corporate e-mail accounts. IT controls also ensure that data cannot be saved from the National Treasury Management Agency, NTMA, network on to external storage devices such as USB keys, CDs, etc.” Minister for Finance, Michael Noonan making a statement on NAMA during questioning in the Dail by the Fianna Fail finance spokesperson Michael McGrath on 25th September, 2012

It should be clearly said that all the former NAMA employee, Enda Farrell faces up to now are allegations by NAMA which are set to be heard in the Commercial Court division of the High Court in October 2012, though it should be said that the case is not yet listed on the Courts Service website. In addition, NAMA says that it has referred a matter to both the Gardai and the Data Protection Commissioner. Some commentary might suggest that Enda has been tried, judged and convicted but that is not the case at all, and the courts will go about their work to decide on the matter. Having said that, it is to be expected that some will conclude at this stage that there is no smoke without fire and assume the worst. But let’s remember the man and his wife – Enda Farrell and Alice Kramer – are innocent until otherwise established, and they are entitled to their good names pending the outcome of the court case and any Garda/Data Protection investigation. So we should all be careful with our comments and that includes Minister for Finance Michael Noonan who told the Dail yesterday that “it is unfortunate that in spite of these wide-ranging controls and obligations, NAMA has suffered a breach of trust”

Yesterday in the Dail, the Fianna Fail finance spokesperson Michael McGrath questioned the Minister for Finance Michael Noonan on the Enda Farrell affair, NAMA’s investigations and potentially negative consequences for NAMA and the taxpayer. You might recall that the usually even-tempered Deputy McGrath called for a Garda investigation as soon as the Sunday Times broke the story of Enda Farrell buying NAMA-related property on 5th August, 2012, though remember at that stage there was no obvious issue with the unauthorised removal of information. Yesterday Deputy McGrath criticised NAMA for not referring the matter to the Gardai in August, and it appears that the referral may only have taken place on 12th September 2012 when NAMA referred the matter to the Data Protection Commissioner. Deputy McGrath may be concerned with the potential loss of evidence which would not have occurred had the Gardai immediately been called in. Minister Noonan defended NAMA and its controls including its IT controls, though these would appear to have failed if NAMA’s allegations against Enda Farrell are correct.

Not for the first time, Deputy McGrath called for the practice of NAMA selling property off-market to be stopped. Deputy McGrath said “the practice of NAMA engaging in the private sale of assets under its portfolio without putting those properties up for sale in the open market stinks. It needs to come to an end. Will the Minister make that one practical change immediately?” Remember that two properties – both landbanks in and around Cork city – have been sold by NAMA or its representatives or developers without first coming onto the market. Minister Noonan again had no answer to these concerns.

The exchange in the Dail was brief but there were several parliamentary questions on the affair yesterday. The PQs are still being uploaded by the Oireachtas staff to the Oireachtas website but at time of writing, these are the only ones available that pertain to the Enda Farrell affair. You might recall that Enda Farrell’s wife, whose name is Alice Kramer, worked for Ernst and Young – it was reported last week that she had resigned from that firm a few days previously – and NAMA has an extensive relationship with Ernst and Young. The company is on NAMA’s panel for advising on the sale of loans, is on the panel to review debtor/developer business plans and is also a receiver which NAMA has had appointed to several of its developers’ companies where E&Y is charged with managing assets including disposing of them. The questions below are all from the Sinn Fein finance spokesperson Pearse Doherty to the Minister for Finance Michael Noonan.

Deputy Pearse Doherty: asked the Minister for Finance in relation to the alleged unauthorised disclosure of information at the National Asset Management Agency by a former employee, the controls NAMA has in place to ensure that the provision of loan advisory services by Ernst and Young is not compromised as a result of the alleged unauthorised disclosure of information.

Deputy Pearse Doherty: asked the Minister for Finance in relation to the alleged unauthorised disclosure of information at the National Asset Management Agency by a former employee, the number, original book value, sales status, sales value, sale completion dates of loan portfolios that in relation to which NAMA has engaged Ernst and Young to provide loan advisory services.

Minister for Finance, Michael Noonan: I propose to take Questions Nos. 107 and 108 together.

I understand that there has been full co-operation between NAMA and Ernst and Young in the investigation of this matter.

More specifically to your question, I am advised by NAMA that it has not to date deployed the firm of Ernst & Young as an adviser on potential loan sales transactions.

NAMA further advises that when making an appointment from the loan sales advisory panel, it is normal practice to invite three firms from the framework panel to participate in a mini-tender so as to minimise the transaction cost to NAMA. Before receiving any detailed information relating to the particular transaction involved, firms are required to confirm that they have no conflict of interest. A breach by any firm under this requirement would result in that firm’s disqualification from future assignments awarded by NAMA and would clearly give rise to significant reputational issues for the firm concerned.

 

Deputy Pearse Doherty: asked the Minister for Finance in relation to the alleged unauthorised disclosure of information at the National Asset Management Agency by a former employee, the number of companies to which Ernst and Young has been appointed as receivers at the behest of NAMA.

Deputy Pearse Doherty: asked the Minister for Finance in relation to the alleged unauthorised disclosure of information at the National Asset Management Agency by a former employee, if he will provide the value of disposals made by Ernst and Young of assets to which NAMA had that company appointed as receiver.

Minister for Finance, Michael Noonan: I propose to take Questions Nos. 109 and 110 together.

I am advised by NAMA that it has appointed Ernst & Young as receiver to 18 separate corporate entities across four NAMA debtor connections. I am advised that, to date, no asset realisations have taken place under these appointments. I understand that Ernst and Young was appointed by a syndicate of banks as administrator to Battersea power station and that NAMA recovered full debt through the sale of this asset.

UPDATE: 30th September 2012, the journalist who originally broke the story of Enda Farrell buying a NAMA-related property, today reports that Enda has lost his job at his new employers, Forum Partners. John Mooney at the Sunday Times (behind paywall) reports that Enda has been “sacked from his new job”

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[The BBC is now reporting this sale here]

It remains the position on here that IBRC – the “bank” which we 100%-own which was formed from the merger of Anglo Irish Bank and Irish Nationwide Building Society – is going to cost us a gross €52bn to bailout and not €35bn as commonly expected. The €17bn difference is the interest on the promissory notes which I believe Minister Noonan confirmed last week was to be paid in full, on schedule to IBRC. This view on here differs with other views, but the main reason for the disagreement appears to be over the forecast of IBRC’s losses between now and 2022. Some think that IBRC will break even in 2012-2022 but I think it faces additional losses, and the €742m loss in the first six months of 2012 was just a precursor to a decade long work-out of loans which will be costly and which will see additional major losses come out of the woodwork.

And in that vein, step forward today the Odyssey Pavillion complex in Belfast which comes onto the market via Savills with an asking price of GBP 10m (€12.58m). The developer of the property included prominent northern Ireland property man, Peter Curistan and the property had GBP 71m owing to Anglo when the developer was placed in administration.

So even if the asking price is realised, Anglo or IBRC as it is now, will face a loss of at least 85% on its loan, and given the foreclosure and recovery costs, the loss is likely to be more. Nearly 70% of IBRC’s loans are now impaired according to the H1,2012 accounts and the view on here is that IBRC still faces multi-billion euro losses as the legacy loans are worked out between now and 2020.

And remember that it costs us €300m-a-year to operate IBRC, a cost no doubt reflecting the €1m-CEO and the money-is-no-object approaches to the Quinns and David Drumm. And remember that IBRC has been paid €900m in NAMA subordinated bonds for its loans and these bonds will not be honoured if NAMA makes a loss, and the jury is still out on NAMA’s prospects. And remember IBRC lost a key case against bondholders in June 2012 in the UK which could expose it to massive losses if IBRC loses its appeal and other bondholders get antsy. And don’t even mention the disastrous INBS mortgage book absorbed into IBRC. Yes, the view on here is the literal interpretation of Minister Noonan’s response to a parliamentary question was correct – IBRC will cost us €52bn gross to bailout.

As for the Odyssey itself, according to Savills “The Odyssey Pavilion comprises a total of 15 leisure based units extending to a total gross internal area of over 242,000 sq ft and occupies a prominent quayside river position. It acts as a gateway to the ever expanding Titanic Quarter which now hosts the Titanic Belfast signature tourism attraction, the Paintworks Film Studio, BelfastMetropolitanCollege, Premier Inn, the Public Records Office (NI) and the Northern IrelandSciencePark.” The brochure for the property is here.

The Odyssey was developed in part by Peter Curistan who has been behind developments in Northern Ireland and mainland UK. He was also behind the Parnell centre on Parnell Street in Dublin city centre, where he was on the losing side in a battle to repay Anglo’s loans adjudicated in Dublin’s High Court earlier this year. In Northern Ireland, he was battling with Anglo in the courts claiming Anglo behaved improperly towards his company in favour of a company associated with one of the Maple 10, though it seems he lost his case there. All of this litigation is not cheap, and even if Anglo wins, it faces further a battle to recover its costs. I haven’t seen Peter Curistan associated with NAMA, and he appears to be a developer whose loans were left in IBRC by the Agency.

Yes, that €52bn bailout estimate for IBRC is looking correct even if the blogpost here last week caused consternation in some lofty parts of our Establishment.

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It seems that NAMA is getting personal with developers in recent weeks with applications against some of the biggest boom-time developers including Bernard McNamara and John McCabe. Today we learn that Master of the Shoebox Apartment himself, Liam Carroll has been targeted, after NAMA yesterday made an application in Dublin’s High Court. Liam was behind a  number of large apartment developments in Dublin during the boom including the Alliance building off of Barrow Street recently sold to Californian real estate investment company Wilson Kennedy for over €40m and Castleforbes Square where Allsop Space have been selling apartments in nearly all of their quarterly auctions.

The case reference at the High Court is 2012/3651 S [note, the way the Courts Service website works means that you may need enter the case reference again after accepting the terms and conditions of the website] The applicant is National Asset Loan Management Limited and is represented by Dublin-based Hayes solicitors. The respondents are Liam Carroll and Roisin Carroll. Roisin Carroll is the name of Liam’s wife. As is usual with recently-filed applications there is no solicitor on record for the respondents.

In the past, NAMA has taken legal action against individuals to enforce personal guarantees or to secure personal judgments, but it should be stressed that we do not know if either of these objectives lies behind the current application. NAMA generally doesn’t comment on individual legal cases.

So far this year, NAMA has launched 29 separate actions in Dublin’s High Court and has been on the receiving end of six.

UPDATE: 5th November 2012. NAMA has today obtained an order of €30.7m against Liam Carroll and together with Bank of Scotland has obtained a judgment of €32 million against the developer’s wife, Róisín Carroll, over some of the same loans. The case came before Mr Justice Peter Kelly and BoS said Liam was cooperating and that it has gotten involved in the same action alongside NAMA “because other creditors had begun to move against Mr Carroll”

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This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for August 2012. Here’s the summary showing the indices

  • at their peak (various months in 2007 depending on type of property and location)
  • the NAMA valuation date (November 2009)
  • 12 months ago (August 2011)
  • the start of this year (end December 2011)
  • last month (July 2012)
  • this month (August 2012)

The CSO’s indices are Ireland’s premier indices for mortgage-based residential property transactions. The CSO analyses mortgage transactions at nine financial institutions : Ulster Bank, Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank of Ireland group), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The indices are hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first-time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The indices are averages of three-month rolling transactions.

Cash transactions: Unfortunately, this month the CSO has still not published information on the overall size of the residential property market, nor the cash/mortgage split. It had been hoped that it would be available in September 2012. It is understood that the CSO has started to receive data from the Revenue Commissioners which shows all individual residential property transactions, but the data is still being validated and tested. Why is this information so important? Because at present, the CSO analyses mortgage-based transactions only, and cash-based transactions may be of a different nature, with the perception being that they will value property at a lower level than mortgage-based transactions. Personally I am skeptical because if, as some commentators suggest, residential property prices are in fact down 60% nationally from peak, then this would indicate the cash-based component has fallen by dramatically more than the mortgage-based component. In fact if cash comprises 50% of the market, and the average decline is 60% and the mortgage-based component is down just 50%, this indicates the cash-based component is down a staggering 70% which seems unlikely – what mortgage company valuer will value a property at 50% from peak, if he knows that there are significant numbers of cash transactions at 70% from peak?

Separately we are now expecting the Property Regulatory Services Authority will introduce the new House Price Database by the end of this week “at the latest”. In Northern Ireland, in August 2012 they introduced a residential property price index based on all transactions.

As for the key questions:

How much does property now cost in Ireland? The CSO deliberately doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, in Dublin in April 2007 at €431,016 and outside Dublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI prices as sound and comparable to prices captured by the CSO series, then these would be the average prices today:

Nationally, €156,879 (last month €156,157, peak €313,998)

In Dublin, €183,622 (last month €184,584, peak €431,016)

Outside Dublin, €144,189 (last month €142,316, peak €267,987)

I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series, as represented by its historical indices, closely correlates with the performance of the CSO indices.

What’s surprising about the latest release? Prices nationally have risen strongly in the month by 0.5% which is the largest monthly % increase since 2007 – yes there have been a few flat months, but this is the third month after May and July 2012,  since the boom that prices have actually increased. The increase however was mostly outside Dublin – Dublin houses fell by 0.7% in the month though Dublin apartments rose by 1.3% in the month, overall Dublin property fell by 0.5%.

 Are prices still falling? No, prices are up 0.5% nationally after an increase of 0.2% in July and a decline of 1.1% in June, an increase of 0.2% in  May following a decline of 1.1% in April 2012, it was flat in March 2012 which followed a 2.2% decline in February 2012, 1.9% monthly decline in January 2012, 1.7% decline in December 2011, 1.5% decline in November  2011, 2.2% decline in October 2011, 1.5% decline in September 2011 and 1.6% decline in August 2011.

How far off the peak are we? Nationally 50.0% (52.6% in real terms as we have had inflation of just 5.5% between February 2007 and July 2012). Interestingly, as revealed here, Northern Ireland is some 53% from peak in nominal terms and 59.5% off peak in real terms. Are forbearance measures by mortgage lenders, a draconian bankruptcy regime and NAMA’s (in)actions distorting the market? Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?

How much further will prices drop? Indeed, will prices continue to drop at all? Who knows, I would say the general consensus is that prices will continue to drop. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please drop me a line if you think there are any omissions].

What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. Residential prices in Ireland are now down 30.6% from November, 2009.  The latest results from the CSO bring the index to 802 (24.7%) meaning that NAMA will need see a blended average increase of 24.5% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index calculated from mortgage-based transactions. The long-awaited House Price Database is expected in the next few days. Speaking on RTE Radio “This Week” programme on 2nd September 2012, the Property Services Regulatory Authority CEO Tom Lynch said “at the very latest we will see it at the end of this month”. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here). In addition Phil Hogan’s Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end to which the transactions relate, and which is not hedonically analysed – it is next to useless. The “super” junior minister at the Department, Jan O’Sullivan said last week in response to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty on this series “the average house price series dates back to the 1970s and is the longest extant Irish house price data series. The series provides a simple average of prices with a breakdown between the main urban areas. Unlike the Central Statistics Office’s Residential Property Price Index the series is not mix-adjusted to take account of the different types of property sold. While there is a minor marginal cost to the Department in producing this series it is considered that, taking into account the historical continuity that it represents, it is worthwhile to maintain the series”

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Yesterday, the Irish pension industry held a key conference – the Irish Life pensions conference – and you won’t be surprised to learn that it is manoeuvring in advance of the Budget 2013 announcements in December to avoid further measures which will eat into its business – nothing surprising in that, and in fact the industry might be praised for getting its tuppence worth in early. You can expect lots of similar sabre-rattling and batons-on-shields in the next two months in the run-up to the actual budget announcement. However, yesterday distinguished itself because the boss at the Department of Finance delivered a speech and Charlie Weston at the Independent today reports “Secretary general of the Department of Finance John Moran told the conference the State had signed up to delivering a further €900m in savings from pensions in the period up to 2012, “including a move to standard rate tax relief on pension contributions over that time”.”

This is new.

The Memorandum of Understanding with the bailout Troika makes no reference to pensions at all, in the context of Budget 2013 – see below. So if the Independent’s reporting is correct, then it appears to be a major piece of news that pensions will yield such results in the forthcoming budget.

Last week in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to estimate the effect of reducing the allowance rate on pension contributions to the lower rate of tax, 20% and also reducing the earnings cap to €75,000. The response was that it would generate €540m per annum though there are caveats. This is the full exchange.

Deputy Pearse Doherty: To ask the Minister for Finance the earnings cap for pensions contributions; and the estimated return to the Exchequer if the earnings cap was reduced to €75,000 and pensions tax reliefs then granted at 20%.

Minister for Finance, Michael Noonan: I assume that the Deputy is referring to the current annual earnings cap of €115,000 which operates to limit the level of tax-relieved personal pension contributions in any one year. The annual earnings cap acts, in conjunction with age-related percentage limits of annual earnings, to put a ceiling on the annual amount of tax relief an individual taxpayer can obtain on pension contributions.

A breakdown of the cost of tax relief on employee contributions to occupational pension schemes is not available by income tax rate, as tax returns by employers to the Revenue Commissioners of employee contributions to such schemes are aggregated at employer level. An historical breakdown is available by tax rate of the tax relief claimed on contributions to personal pension plans — Retirement Annuity Contracts (RACs) and Personal Retirement Savings Accounts (PRSAs) — by the self-employed and others, to the extent that the contributions have been included in the personal tax returns of those taxpayers. There is, therefore, only a limited statistical basis for providing definitive figures.

However, by making certain assumptions about the available information, the Revenue Commissioners inform me that the combined estimated full year yield to the Exchequer from reducing the current annual earnings cap of €115,000 to €75,000 and confining tax relief to the standard rate of 20% in respect of individual contributions to occupational pension schemes, RACs and PRSAs would be about €540 million.

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