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Archive for November 29th, 2012

The regular audience on here will be aware of the faux concern previously shown for the legal profession, which followed the publication of the NAMA accounts for the first and second quarters of 2012 – only €23,000 was spent in Q1, 2012 on legal fees and although Q2,2012 was better for the legal fraternity with €887,000 spent on legal costs, it was still a drop in the ocean compared to the NAMA budget of €25m for legal costs in 2012.

And why has NAMA spent so little on legal costs? Doesn’t the Agency realize that hordes of Dublin solicitors and barristers might be reduced to chasing ambulances to replace expected business from NAMA, who else will pay their fees which, after Moscow’s, are the highest in Europe?

Minister for Finance Michael Noonan was asked about this worrisome state of affairs. And his reply in September 2012 was

“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.”

However, we find out this week that NAMA has in fact been spending many millions on legal fees this year. It’s just that the Agency has not been showing these costs in what would be considered the usual place in its financial statements – the profit and loss account. No, because the Agency has in the main been spending the money on lawyers who have in turn been dealing with NAMA’s lending to developers, what NAMA has done is assumed it will be reimbursed the legal fees and NAMA has been adding the legal fees to the developers’ loans which are shown in the balance sheet. No, seriously, that’s what NAMA have been doing. Not only that, because there is no breakdown of loans in the balance sheet, we have hitherto been unable to appreciate this phenomenon, or the extent of it.

And as for Minister Noonan and his “NAMA was being prudent with its assumptions”, it seems negligent of Minister Noonan to comment on just €23,000 shown as spent by NAMA on legal fees whilst ignoring €7.766m being incurred by NAMA and added by NAMA to loans owed by its developers. The analysis of €7.766m spent to date this year by NAMA is shown below:

NAMA’s real legal costs were revealed in a response from Minister Noonan to the Sinn Fein leader Gerry Adams this week. The response isn’t online, but is contained in this letter from Minister Noonan to Deputy Adams. The letter was previously reported in the Irish Examiner, though they failed to realize the significance of the revelation in relation to NAMA’s accounting or previous reporting.

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The Nationwide Building Society has published its UK House Price data for November 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 163,853 (compared to GBP 164,153 in October 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). UK prices have declined by 1.2% in the past 12 months and are now 11.9% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of November 2012 being GBP £163,853 (or €202,663 at GBP 1 = EUR 1.2346) is 29% above the €157,360 implied by applying the CSO October 2012 index to the PTSB/ESRI peak prices in Ireland.

With the latest release from Nationwide, UK house prices have risen 0.7% 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 790 (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 26.7% for NAMA to breakeven on a gross basis.

The next forecast from the UK’s Office for Budget Responsibility which independently monitors and comments on the UK economy is due out on 5th December 2012. According to the OBR’s current forecast, 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 nearly 18% since their peak in October 2007 whereas in Ireland inflation has been subdued and is less than one third of that – the UK has pumped GBP0.3tn of “quantitative easing” into its GBP1.5tn economy and another GBP50bn has recently been announced. UK interest rates may increase later this year to combat inflation – the base rate has been 0.5% since February 2009.The UK economy is officially projected to grow by an anaemic 0.8% in 2012 in real terms, close to our own Department of Finance’s projection for Ireland at 0.9%.  However both the Bank of England and the Confederation of British Industry have recently projected nil growth or recession in 2012.

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I wonder does Sean Quinn senior have access to the internet in Mountjoy? If he does, I hope he doesn’t choke on his cornflakes this morning if he reads the breaking report from Simon Carswell at the Irish Times  which states that IBRC, formerly Anglo and Irish Nationwide, is suing its former auditors, Ernst and Young and the “case relates to the firm’s role as auditors before the bank’s nationalization” Later in the article, the Irish Times states “The timing of the action is thought to be aimed at beating a six-year legal time limit that would have blocked the action.  Ernst & Young signed off the bank’s accounts for the year to the end of September 2006 on December 5th, 2006. These accounts are believed to be crucial to the bank’s legal action.”

So when Sean’s big case against IBRC comes before the courts next year, this action against the auditors might be crucial, and no doubt Sean’s legal team – if he has one, beyond his son-in-law – will surely seek discovery of the details of the newly lodged claim. Next year, Sean will be arguing that he doesn’t owe IBRC some €2.4bn of loans provided to him by Anglo, apparently for the purchase of Anglo shares. It has been a continuing theme pushed by the Quinn camp that Sean was relying on false accounts when making his investment decisions, that and the claim the loans are “tainted with illegality”. It is hard to see how IBRC’s case against Ernst and Young won’t be relevant to Sean’s big case next year.  Sean was reported to have built up a 5% stake in Anglo by January 2007, though by mid-2008 he had amassed an interest in the bank which could have led to him controlling 28% of the shares.

On here, there is relief that IBRC has at last been prodded into action. In September 2012, Minister Noonan responded to questions in the Dail and incredibly claimed that IBRC couldn’t identify the “principal person or persons” at Ernst and Young responsible for the audits. Minister Noonan was just about able to identify the auditor at Irish Life and Permanent who signed off the accounts. In June 2012, Minister Noonan (again!) washed his hands of mistakes in loan documentation at the banks which meant that NAMA acquired €455m of loans without paying a cent. There just didn’t seem to be interest at an official level in pursuing the auditors, at least to establish if there was any culpability in signing off the accounts based on poor records or inaccurate information.

Last week, it was reported that Ernst and Young’s revenues in Ireland have rocketed to €130m a year. This is the company which until recently employed Alison Kramer (Alice Kramer), wife of disgraced former NAMA employee, Enda Farrell.  To many people, it will be amazing that it is four years after the disastrous banking guarantee to stop the banks collapsing, that the first-known legal action has been initiated against an auditor of a bank. Here’s a reminder of the auditors in the banks during the boom/bust.

In a separate but related matter, there doesn’t appear to have been any progress in the case taken by the administrators of Quinn Insurance against its former auditors, PwC.

UPDATE: 29th November 2012, the Daily Business Post is reporting a response from Ernst and Young which reads “We have consistently said we stand by the quality of our work performed in the Anglo audit and will vigorously defend any such proceedings” – It should be remembered that at the moment, Ernst and Young are at a disadvantage because they have not yet seen the application by IBRC, which highlights another backwoods aspect of the Irish judicial system: the whole world can know that you are being sued, and the suing party can issue a statement, yet you might not see the application from the courts for some time. It never ceases to amaze how we can have such an expensive legal system with such third-world standards.

UPDATE: 11th December 2012. In the Dail today the Minister for Finance Michael Noonan was asked by the Sinn Fein finance spokesperson Pearse Doherty to provide an outline of the case being taken by IBRC against Ernst and Young and to describe the remedies sought in the application. The Minister point-blank refused to answer the question. So we have a position in Ireland where a 100%-state owned entity is suing a company and we cannot obtain details of the application from the Court Service and the Minisrer who is the sole shareholder in the bank refuses to provide any information. This is the full parliamentary question and response.

Deputy Pearse Doherty: To ask the Minister for Finance further to the recent application by the Irish Bank Resolution Corporation in the High Court where a company (details supplied) is named as the respondent, if he will provide an outline of the application and remedies sought by IBRC..

Minister for Finance, Michael Noonan: IBRC have advised me that it issued proceedings on 27 November 2012 against the company referred to in the question. These proceedings relate to the role of that company as auditors to Anglo Irish Bank Plc. pre-nationalisation. As this matter is now the subject of litigation, it would be inappropriate for me to comment further at this time.

UPDATE: 17th December, 2012. RTE reports that the case came before Judge Kelly in the High Court today, that IBRC is suing Ernst and Young for “in excess of €50m” which is a little less than E&Y’s annual revenue of €130m in Ireland.  RTE reports that the case relates to “so-called “bed and breakfasting” transactions that are alleged to have taken place over a period of years”. Judge Kelly has agreed that the case be transferred to the Commercial Court division of the High Court and set a hearing for 20th May 2013. No further detail is given on the meat of the case so we don’t know if the “bed and breakfasting” relates to directors’ loans being redeemed at year end via transactions with Irish Nationwide Building Society or if the “bed and breakfasting” relates to €8bn of cash deposits at year end from Irish Life and Permanent which had the effect of allegedly flattering the accounts of Anglo – the “bed and breakfasting” might relate to either, none or both of these matters.

UPDATE: 18th December, 2012. The usually-reliable Mary Carolan in the Irish Times today elaborates on yesterday’s proceedings. The application relates to the chairman Sean Fitzpatrick’s personal lending from the bank which had been masked in the accounts with year end refinancing at Irish Nationwide Building Society. It is reported that at in November 2006, Sean had €69m of loans and afterwards was advanced an additional €58m and now, all of Sean’s lending is classed as impaired and the bank expects to suffer losses of “well over €50m”, according to the report today. Ernst and Young are blamed for not picking up on the annual refinancing at year in 2006, and the implication is that if they had, then the bank might have taken steps to reduce the exposure before the property and bank crashes, and ultimately Sean leaving the bank and being declared bankrupt.

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Rather than over-extend your indulgence, it should be said upfront that the number of NAMA properties or indeed any other properties bought by non-Irish nationals in return for a visa, is NIL. This follows the launch of two schemes in January 2012 by the Minister for Justice, Equality and Defence Alan Shatter. When announcing the schemes, the Minister said visas would be made available in return for investment in Irish business, investment in a bond issued by the NTMA or the purchase of Irish property including property in the NAMA portfolio.

So how many thousands of visas have been issued and how much have the wealthy foreigners invested in Ireland?

Well, hold onto your seats. So far, three visas have been issued – one to someone from North America, one for Africa and one for Asia. And how much property have these three furriners bought? Err, none actually. And how many millions have they shoveled into the national coffers by buying NTMA bonds? Again, none, nada, nichevo. What the three have done is committed to invest at least €75,000 in an Irish business over the next five years.

In fairness to the hapless minister, he has overseen the creation of the new bond at the NTMA which pays 1% per annum for a fixed five-year term. Shocking really, that none of the three amigos have bought any of said bonds.

Spain has recently announced that it may sell property to Russian and Chinese nationals in return for visas; this after Spain claiming it has at least 700,000 vacant homes after its Irish-like construction boom in the 2000s. Based on the Irish experience, the Spanish shouldn’t bank on making any real dent in its property stock from such initiatives.

Minister Shatter was responding to parliamentary questions on Tuesday this week from the Sinn Fein finance spokesperson Pearse Doherty. The full exchange is show here, and it should be available shortly online at the Oireachtas website.

Deputy Pearse Doherty: To ask the Minister for Justice and Equality further to his announcement on 24 January 2012 of the Immigrant Investor Programme and Start-up Entrepreneur Programme; the number of visas issued to date with respect to both programmes, and an analysis of visa numbers by country of origin of visa recipients..

Deputy Pearse Doherty: To ask the Minister for Justice and Equality further to his announcement on 24 January 2012 of the Immigrant Investor Programme and Start-up Entrepreneur Programme; if he will provide an update on the creation of the special low interest Irish bond, referred to in his announcement.

Deputy Pearse Doherty:To ask the Minister for Justice and Equality further to his announcement on 24 January 2012 of the Immigrant Investor Programme and Start-up Entrepreneur Programme; the overall volume and value of property sold to date by the National Asset Management Agency to visa recipients..

Deputy Pearse Doherty:  To ask the Minister for Justice and Equality further to his announcement on 24 January 2012 of the Immigrant Investor Programme and Start-up Entrepreneur Programme; the overall total investment to date in Irish business by visa recipients..

Minister for Justice and Equality, Alan Shatter:  The Immigrant Investor Bond is one of the investment options available to potential candidates for the Immigrant Investor Programme which has been open for applications since April of this year.  Details of the bond can be viewed in the Guidelines for the programme which are available from the web-page of the Irish Naturalisation and Immigration Service, http://www.inis.gov.ie.  The bond has a term of 5 years and pays an annual interest rate of 1%.  The bond has been created by the National Treasury Management Agency and cannot be traded or transferred during its term.

Details of the options on property investment are also outlined in the Guidelines for the Immigrant Investor Programme.  My officials inform me that, to date, no candidates have applied for consideration of investments in property or bonds as eligible investments under the Programme.

On foot of recommendations from the Evaluation Committee meeting of 9 August 2012,  I have approved immigration permissions for one successful applicant under the Immigrant Investor Programme and two successful applicants under the Start-up Entrepreneur Programme.  The Deputy will be aware that I cannot give details of individual immigration cases, however I will say that the three successful candidates originate from North America, Africa and Asia.  Both projects under the Start-up Entrepreneur Programme fulfilled the requirement for a minimum of €75,000 funding for their respective high potential start-ups.  The investment proposal in an existing Irish business approved under the Immigrant Investor Programme significantly exceeded the requirements of the scheme.

My officials have informed me that the Evaluation Committee will meet later this week to consider four applications under the Immigrant Investor Programme and thirteen applications under the Start-up Entrepreneur Programme.  The Irish Naturalisation and Immigration Service continues to receive a significant level of inquiries on these programmes.

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