Archive for December 19th, 2012

It’s been a long year for the 69-year old Minister for Finance, Michael Noonan which has recently been capped by a very difficult budget, so you can understand that he might be demob happy for Christmas and in no mood to answer questions on his brief. His Department of Finance however should be fresher – after all, it was the Troika that was preparing the technical paper on debt restructuring, not the Department and it was An Taoiseach’s own hard graft and fearsome reputation in Europe which deters others from tangling with him which led to the game-changing debt deal in June; the Department has been twiddling its thumbs.

Yesterday in the Dail, Minister Noonan was asked a series of questions by the Sinn Fein finance spokesperson Pearse Doherty about NAMA and IBRC which can only have led the Minister to the inevitable conclusion that since they do the same job, are of a similar size, have the same expiry date of 2020 and they compete with each other for customers and resources, that NAMA and IBRC should be merged. And since NAMA appears to be a leaner, more adaptable, more profitable and better managed organisation, it should take the lead role in any merger.

However you will need be patient with the responses from the Minister, as he and his Department appear to have clocked off for 2012 and gave meandering and stonewalling responses. The summarised questions and suggested answers from here. are summarised below:

Why do IBRC staff earn more than NAMA staff?  It’s a mixture of sacrifice and waivers by the top NAMA earners, plus better cost control with appointments.

How much loans are NAMA and IBRC presently managing? At 30th June 2012, IBRC was managing loans with a face value of €28bn less  provisions of €11bn – in other words a net of €17bn. NAMA was managing €28bn by reference to NAMA acquisition values less provisions of €3bn post-acquisition or a net of €25bn.

When will NAMA and IBRC be wound up? 2020.

What are the latest profit figures for IBRC and NAMA? For the six months ending 30th June 2012, IBRC lost €504m whilst NAMA made a profit of €222m.

What are the objectives of NAMA and IBRC? Both are ultimately there to maximise the return to the taxpayer from the loans they are managing.

Do they compete against one another? Oh yes, for both resources and customers.

Maybe Minister Noonan might take a longer break from one of the most challenging financial roles in European politics – his tired responses betoken a minister who seems to have permanently clocked off. Here are the actual parliamentary questions and responses.

Deputy Pearse Doherty: to provide an explanation as to the reason there are at least six staff at the Irish Bank Resolution Corporation earning more than €400,000 per annum whilst no staff at the National Asset Management Agency earn salaries in 2012 of more than €400,000 per annum.

Minister for Finance, Michael Noonan: Following the appointment of the current CEO of IBRC in September 2009, the entire executive of the Bank was replaced with an appropriately skilled senior management team, to lead the newly formed IBRC (the combined former Anglo Irish Bank and former INBS) through the process of wind down. I have been informed that external search consultants were utilised in open and transparent recruitment processes, to identify and hire senior management with the requisite skills to deal with the challenges of working out the Bank’s distressed loan books. I have been advised that remuneration in IBRC complies with the recommendations put forward by CIROC with regards to the remuneration applicable to the positions of the CEO and senior management of the Bank.

Deputy Pearse Doherty : provide the financial quantum of loans net of provisions being managed by the National Asset Management Agency at 30 June 2012 and being managed by the Irish Bank Resolution Corporation at the same date.

Minister for Finance, Michael Noonan: I am advised by NAMA that the financial quantum of loans net of provisions managed by it is disclosed in the Section 55 accounts to 30th June, which are published on the NAMA website, http://www.nama.ie. IBRC’s 2012 Interim Report, which covers the period from January to June 2012, discloses the information sought. The IBRC Interim Accounts can be found at: http://www.ibrc.ie/About_us/Financial_information/Latest_interim_report/.

Deputy Pearse Doherty: provide the latest estimate of the dates by which the National Asset Management Agency and the Irish Bank Resolution Corporation will be wound up.

Minister for Finance, Michael Noonan: IBRC is working in accordance with a plan which has been approved by the EU for the work out of the organisation by 2020. It is important in this context to be clear the interim accounts produced by the bank refer to “winding up of the loan book in an orderly manner by 2020” as opposed to a winding up of the bank. This difference is important for technical reasons and also to provide options as to how the overall cost of the bank can be settled in an appropriate timeframe. I can confirm that, under current arrangements, the scheduled payments on the Promissory Notes are due to continue until 2031. I note that the NAMA Board has indicated that it expects to have completed its work by 2020.

Deputy Pearse Doherty: provide the profit or loss of the National Asset Management Agency for the six months ending 30 June 2012 and the profit or loss of the Irish Bank Resolution Corporation for the same period.

Minister for Finance, Michael Noonan: I am advised by NAMA that profit after tax was disclosed in the Section 55 accounts to 30th June 2012, which are published on the NAMA website, http://www.nama.ie. IBRC’s 2012 Interim Report, which covers the period from January to June 2012, discloses the information sought. The IBRC Interim Accounts can be found at: http://www.ibrc.ie/About_us/Financial_information/Latest_interim_report/.

Deputy Pearse Doherty: outline the metrics by which he assesses the ongoing performance of the National Asset Management Agency and the Irish Bank Resolution Corporation.

Minister for Finance, Michael Noonan: The Shareholding Management Unit of my Department monitors the performance of IBRC on a regular basis. The Unit fulfils this duty through a number of instruments including a Monthly Operating Plan Report, agreed between my Department and IBRC, which provides a detailed analysis of the financial performance of IBRC including its capital position, balance sheet deleveraging, asset quality and operating costs against both the agreed EC restructuring plan and also against management team’s own forecasts. In addition the Unit meets Senior Management in the bank on a monthly basis to challenge business performance and receive timely updates on deleveraging progress.

NAMA is assessed by reference to the objectives set for it by the Oireachtas as set out in Section 20 of the NAMA Act 2009. NAMA was, as the Deputy is aware, established to (1) remove systemic risk to the Irish banking system through the acquisition of land and development and associated loans from participating institutions and (2) to obtain the best achievable return to the State from these acquired loans. NAMA has completed the first of these major undertakings through the valuation, purchase and transfer of relevant loans from the participating institutions. In the process, NAMA has injected over 30 billion in liquidity into the Irish banking system. Alongside this, the establishment and development of the Agency itself to carry out the tasks mandated to it by the NAMA Act 2009 has been another important achievement.

NAMA is now fully engaged in its core role of managing and selling the assets under its control with a view to obtaining the best financial return for the state. The progress that is being made is exemplified by the fact that, since inception, NAMA has generated total cash flows of over €10 billion, circa €6.6 billion in asset sales, with a further €2 billion in the pipeline, and circa €3.5 billion in non-disposal income, mainly rental receipts from properties controlled by its debtors and receivers.

As a result of its current cash and liquid asset balance and strong cash-generation capacity, NAMA is firmly on course to meet its ultimate objective of redeeming over its projected ten-year life to 2020, at minimum, the Senior Bonds issued as consideration for the acquired bank assets in addition to recovery of its carrying costs and the working and development capital expenditure advanced in the course of its work. I am advised by NAMA that it has already redeemed €3.25 billion of its debt and is in doubt as to its ability to meet its end-2013 target of redeeming €7.5 billion in Senior Bonds. The achievement of this target, which forms part of the Troika programme, is important in terms of Ireland’s return to the debt markets.

Whilst these are the primary measures against which NAMA’s work is viewed, I also note that it is playing a vital role in helping to encourage activity in the Irish commercial and residential property markets through initiatives including vendor finance, €2 billion of which is expected ultimately to be made available to prospective purchasers of commercial property controlled by its debtors and receivers, and its 80:20 Deferred Payment Initiative for prospective house buyers. NAMA has also announced plans to invest up to €2 billion over the next four years in its Irish assets, which has significant employment potential and will ensure that we are positioned to meet the future growth needs of the economy through, for instance, delivery of the accommodation needs of future Foreign Direct Investment.

Deputy Pearse Doherty: further to Parliamentary Question No. 311 of 18 September 2012, when he said that the National Asset Management Agency does not compete with the Irish Bank Resolution Corporation for resources and customers, and following the statement by the chief executive officer of IBRC (details supplied) at the Oireachtas Finance, Public Expenditure and Reform Committee on 31 October 2012 when he said “we are not the only organisation in the country which has this type of portfolio, as we go through the process of building teams, they are at risk, they get poached, and not only by other State owned organisations but also by foreign organisations which have difficult and distressed portfolios which they need to work out” and his response to Parliamentary Question No. 256 of 6 November 2012 in which he confirmed that 14 staff had been recruited by NAMA from IBRC, if he will reconfirm his position that there is no competition between NAMA and IBRC for resources.

Minister for Finance, Michael Noonan: Many financial institutions will compete for suitably experienced staff in the Irish market, whether it is with the Irish covered banks, non-Irish banks or specialist financial services platforms. However I would not characterise the level of competition for resources between IBRC and NAMA as anything other than normal market competition.

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I think at this stage, we can conclude that Minister for Finance Michael Noonan has dropped the ball on remuneration in the banking sector and he just doesn’t have the stomach to confront the issue. The €120,000 Mercer expert report that was commissioned  six monhs ago was little more than a tactic to deflect attention and kick the subject into the long grass.

Meanwhile, any attempt to hold the Government to account on banking remuneration is dismissed, stonewalled or ignored. In July 2012, we learned that IBRC had appointed Kevin Blake as its chief risk officer but it was only in November 2012 that we learned that Kevin is being paid more than €500,000 per annum and that Minister Noonan had personally approved the salary. This was months after IBRC, in which Minister Noonan is the sole shareholder of 100% of the shares, had comprehensively spurned the Minister’s request for salary reductions. Surely the Minister wasn’t powerless on this occasion also.

So, we know IBRC is managing a loan book which is about 30% less than NAMA’s. We know it employs a similar number of people, has a similar lifespan and deals with similar issues. For every Sean Quinn at IBRC – in the sense of time taken with litigation – there has been a Paddy McKillen or Johnny Ronan at NAMA. Both NAMA and IBRC are work-out vehicles for mostly property loans and both will conclude their work by 2020. If IBRC has to pay €500,000 per annum for a chief risk officer, then surely it’s a reasonable question to ask how much NAMA pays for the same role.

You’d think.

In the Dail yesterday, the Sinn Fein finance spokesperson Pearse Doherty asked Minister Noonan who exactly undertook the role of chief risk officer at NAMA and how much were they paid. The answer? Look at the NAMA annual report, work it out for yourself and salary information is confidential.

You can see the NAMA organisation structure here, and it is not at all obvious who undertakes the role of chief risk officer or indeed if there is any such role at NAMA – and if IBRC is paying over €500,000 a year for the role, should NAMA be worried that it doesn’t have one? Donal Rooney is NAMA’s chief financial officer and the role may be subsumed in his role.We know that the maximum salary at NAMA is that of the CEO, Brendan McDonagh who is on €365,500 in 2012 after taking a 15% waiver for this year from his standard €430,000 a year. So,if there is someone undertaking the chief risk officer role at NAMA, they’re earning less than €400,000 which begs the question, why does IBRC have to pay more.

But for a finance minister who has dropped the ball, such matters are no longer of any real interest.

The full parliamentary question and response are here.

Deputy Pearse Doherty: further to the announcement by the Irish Bank Resolution Corporation in which he is the sole shareholder of 100% of the shares, that IBRC has engaged a person (details supplied) as chief risk officer and newspaper reports that he has approved a salary for them of more than €500,000 per annum, if he will identify the person or persons at the National Asset Management Agency who undertake a role equivalent to chief risk officer; and if he will confirm the salary or salary range payable by NAMA for those undertaking that function.

Minister for Finance, Michael Noonan: I am advised by NAMA that its Annual Report for 2011, which is available on the NAMA website, http://www.nama.ie, provides details on its organisational structure, staffing resources and operating costs. Details of remuneration bands have been set out in recent in response to Parliamentary Question 47865/12. The NTMA, which assigns staff to NAMA, does not disclose details of the remuneration of individual members of staff.

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Were it not for John Mooney at the Sunday Times in August 2012, we may never have heard of Sundays Well in Lucan, the property subject to a NAMA loan which was sold by a NAMA developer Thomas Dowd to a NAMA employee, Enda Farrell and his wife Alice Kramer (Alison Kramer). The property called Sundays Well in Lucan was sold for €410,000 in November 2011 to Enda while he was still an employee of NAMA.

And four months later, we remain in the dark about what valuation, if any, was undertaken by NAMA or the developer before the property was sold. The subject was covered in some detail here last week.

If NAMA had an independent valuation undertaken, then you would expect NAMA to have paid someone for that valuation – after all, auctioneers and valuers don’t provide their expertise, and expose themselves to professional indemnity claims, for free – they charge for valuations, especially if those valuations are “independent”.

Yesterday in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to confirm what, if anything, NAMA had paid for the independent valuation. The response was “get lost – that subject is closed”.

Here is the full parliamentary question and response

Deputy Pearse Doherty further to Parliamentary Question No. 139 of 11 December 2012, if he will confirm the fees paid by the National Assets Management Agency or its debtor for the provision of an independent valuation or independent valuations in the case of the sale of the property (details supplied).

Minister for Finance, Michael Noonan: As advised in my response to your Parliamentary Question of 11th December 2012 (55389/12), I do not intend to go beyond the extensive information that NAMA, based on legal advice, has already made publicly available in respect of this transaction.

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Thanks to Minister for Finance, Michael Noonan unilaterally agreeing to a new term in the Memorandum of Understanding with the bailout Troika in May 2012, it is now a condition of our bailout that NAMA redeem €7.5bn of its bonds by the end of 2013.

Remember NAMA acquired €74bn of loans from the banks and paid for those loans with IOUs, or NAMA bonds which were worth €32bn. About €2bn of the IOUs will only have to be honoured by NAMA if NAMA makes un ultimate profit by 2020, but the rest, the €30bn of NAMA bonds have to be redeemed or paid off by NAMA before 2020. NAMA has an informal schedule of when it expects to pay off these bonds, but in May 2012, Minister Noonan took the extraordinary step of putting the first step in that schedule, the repayment of €7.5bn of the bonds by the end of 2013, into the Troika’s Memorandum of Understanding. Unilaterally, that is, without anything obvious in return from the Troika.

Today, NAMA has announced that it has redeemed €1.5bn of these bonds which brings to a cumulative total of  €4.75bn of bonds redeemed against a target of €7.5bn by the end of 2013. As NAMA has been selling off overseas property and loans in bucketloads, it shouldn’t come as a surprise that NAMA is able to pay off bonds now. But let’s have some seasonal spirit and at least be grateful that NAMA has the wherewithal to redeem €4.75bn of bonds. If NAMA had been a complete disaster, then not only might it not have the funds to redeem bonds, but it might have been coming with the begging bowl for a bailout – let’s be thankful for small mercies.

In addition to redeeming €4.75bn of NAMA bonds to date, the Agency also managed to pay back an early loan from the Government of €250m, plus €49m of seed capital which was subsequently reclassified as a loan.

The NAMA chairman, Frank Daly had this to say about today’s announcement “Following today’s redemption and the prospect of a strong cash performance being sustained during the coming year, we are confident that we will meet our target of repaying €7.5 billion of Senior Bonds by the end of 2013”

Again, let’s have some seasonal spirit, but also bear in mind that the NAMA bonds cost NAMA a little over 0.75% in interest per annum – in other words, they are an ultra-cheap source of finance. And you might wonder if the cash used to redeem the bonds today might have been more usefully, and profitably, deployed in the economy – as long as NAMA covered its financing cost and had its money back by 2020 as agreed with the European Commission, then everyone could be a winner. Instead, what has happened is that NAMA has paid €4.75bn to the banks to redeem their IOUs, and the banks have repaid loans they received from the ECB secured on the NAMA bonds.

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propertyTaxAmendmentsSo, after a very rushed debate yesterday in which 88 amendments to the new property tax were debated over 210 minutes, and only one amendment relating to pyrite-affected homes adopted, it seems that the Finance (Local Property) Act 2012 will be  law before Christmas. Although the tax is to take effect from 1st July 2013, the speed with which it has been pushed through has been remarkable.

It was just the 5th December 2012 when Minister for Finance Michael Noonan confirmed details of the new tax in his Budget 2013 announcements, the next day the Thornhill Expert Report was published after languishing on Minister for the Environment, Community and Local Government Phil Hogan’s desk since June 2012 and the day after that, the 7th December 2012, the 70-page Bill was published to give effect to the new tax. It has now been rammed through with alarming speed which is curious given its practical implementation date is over six months away.

Here are five snippets from the Bill, soon to be Act, which might upset you a little

(1) Excluded from the definition of the chargeable value of your home is any amenity land over one acre – the Bill excludes the following : “so much of any such yard, garden or other land that exceeds one acre shall not be taken into account for the purposes of this definition”

So if you happen to be a certain Minister for Health with a country manor in countyOffaly with 150 acres of amenity land – amenity woodland, mostly apparently – then anything over one acre is to be excluded from the value of your home. And so also will some of the great country homes in the State. So all those lawns, gardens, private lakes and parkland that surround certain homes are excluded from the value of that home.

(2) Where you have a long term physical or mental impairment which is certified by a “medical practitioner” and your home is “vacated” then your home is excluded.

Why would that make you upset, seems humane after all. Indeed, but if for the sake of argument, you have a €10m home and spent some part of the year in sunnier climes and can somehow convince your army of medical helpers to say that the you have a long term impairment, even though you might occupy your home for just a small number of weeks a year.

So why didn’t the Government place a property value cap on this exclusion of say  €1m so that wealthier people, even if they can get medical practitioners to confirm an impairment would still pay?

(3) If you own a property worth more than €1m then you will pay the higher rate of 0.25% over the excess over €1m. That’s fine and people regard that as fair and progressive. But if you have two properties each worth €900,000 you will pay the lower rate of 0.18% on both rather than 0.18% on the first €1m of combined value and 0.25% on the excess over €1m, in this case €800,000.

Is that fair or progressive?

(4) Penalties under the Act are capped at €3,000 and you might say, thank goodness for that, at least there’s a limit to what they can come after me for. But if you have a €10m home on which over €20,000 a year in tax would be payable, would a €3,000 maximum penalty be a deterrent to you?

In fact, the maximum penalty of €3,000 almost encourages those with more expensive properties to try to avoid the tax, so meagre are the penalties should their malfeasance be uncovered.

So why a cap of €3,000?

(5) Although we await the valuation guidelines to be published by the Revenue Commissioners in the New Year, the Bill says the value will be arrived at

“in such manner and subject to such conditions as might reasonably be calculated to obtain for the vendor the best price for the property”

This is at odd with how a valuer would value a property, and if the following pattern of sales takes place on an imaginary street – No 1 sells for €200,000 and No 2 sells for €190,000 and No 3 sells for €210,000 but No 4 sells for €400,000 because at No 4 the buyer was a thicko and the interior of No 4 was extensively remodelled, then the Bill suggests that you will have to value your property at the best price, which would be €400,000. Professional valuers will normally value a property based on what a willing buyer will pay a willing selling in an open competition where both sides are in possession of perfect knowledge. That wording was eschewed in favour of something that may bite you on the bum.

There are other deficiencies in the Bill which are also a mark of the rushed nature of the legislation – for example, if you’re selling your property, your buyer will need get confirmation from the Revenue Commissioners that there are no outstanding charges on the property but there are no time limits mentioned for the Revenue providing that information, so you might see the conveyancing delayed by weeks or months and perhaps see the sale fall through as a result of delays on the Revenue’s part – there is no capping of deadlines in the legislation and that is one of many little deficiencies that we may live to regret in coming years.

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