Archive for January 9th, 2013

[30 second version – the Government has today sold €1bn of its stake in Bank of Ireland in a deal first announced at around 11am this morning where the stake to be sold was put at €500m to €1bn. This is the first the public has known of the sale. It’s a very large State transaction, and there has been little if any political oversight. There is now reporting that the full €1bn has been sold, but we don’t yet have further details including price]

You would have thought that the September 29th, 2008 bank guarantee would have taught us a lesson – a rushed overnight decision which has wrecked catastrophe on this State, but no, we – or rather, “they” – still make truly colossal decisions and the rest of us learn about them after the event. This morning at 11am, we learned that the Government was selling part of its investment in Bank of Ireland.

In July 2011 the State purchased €3 billion in Contingent Capital Notes in these banks (€1.6 billion in AIB, €1 billion in Bank of Ireland and €0.4 billion in Permanent TSB) as part of the recapitalisations. These Contingent Capital Notes are subordinated Tier 2 debt instruments with a five year and one day maturity and are convertible into ordinary shares in the event of the bank’s Core Tier 1 capital ratio falling below 8.25%. The Notes carry a fixed mandatory interest rate of 10% of the issue price payable annually. The first of these payments which total €300.273 million was made to the Exchequer in July 2012.

What was announced this morning was that negotiations “had concluded” on the sale of the €1bn of Contingent Capital Notes in Bank of Ireland. Apparently some un-named banks were handling the sale and this morning, all we were told was that between €500m and €1bn would be sold. This afternoon, the Irish Times, not the Department of Finance, is reporting that €1bn of the notes have been sold, but there is no further information, the buyers, the price, or really how we know that now was an appropriate time to sell and that we got a good price that reflects the 10% annual interest rate in a State which is otherwise paying less than 5% for long term borrowing.

The sale will come as news to most of the 166 TDs in the Dail.

When did we allow democracy and political oversight of State decisions to deteriorate to this extent?

There will be updates and analysis here as we get any more information.

UPDATE: 9th January, 2013. Snippets of detail continue to leak out. Minister for Finance  Michael Noonan has issued a statement welcoming the sale, indicating the sale price was €1.01bn plus accrued interest which will be about €50m from June 2012 to January 2013. It is being claimed that Ireland made a profit of €10m on the disposal. You can watch Minister Noonan’s statement on video here.  Bank of Ireland has issued a statement on the mechanics of the transfer to the new owners here. There were bids totalling €4.8bn for the €1bn of notes.

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[30 second version – CoStar, the UK commercial property portal, has this afternoon reported that NAMA has sold the €85m face-value mezzanine loan which had been advanced to Treasury Holdings’ Opera fund which in turn controls Merchants Quay shopping centre in Cork, an office block on Mespil Road in Dublin, Stillorgan shopping centre, South Bank House and “The Warehouse” buildings, both on Barrow Street. The buyer is US investor, Northwood. The purchase price is not disclosed but said to be “in single digits in the euro” and the purchase may place Northwood in a commanding position with respect to the control of the property portfolio]

The outworking of Treasury Holdings property dealings continues apace, with exclusive news today from James Wallace at the UK’s commercial property portal, CoStar, that NAMA has sold €85m of face-value loans associated with the Opera fund, to US investor Northwood.

We learned yesterday that liquidators were appointed to Real Estates Opportunities PLC, the Channel Islands-based property group in which Treasury Holdings – founded by the formerly-dynamic duo of Johnny Ronan and Richard Barrett – has a controlling interest. REO in turn manages the Opera property fund, a collection of 16 Irish properties including the Merchants Quay shopping centre in Cork and the Stillorgan shopping centre in Dublin. The fund is believed to have €375m of loans in addition to the €85m of junior loans controlled by NAMA.

The buyer is US investor, Northwood Investors which has in the past been sniffing around loans owed by Paddy McKillen’s Maybourne group of the three London hotels. Northwood was founded in 2006 by John Kukral, the former boss of real estate at our new bessie friends in Ireland, Blackstone, which has recently bought the Burlington hotel. The sale price has not been disclosed but is understood to be around €5m or as CoStar say “in single digits in the euro”

CoStar speculate that the purchase of the junior loans from NAMA may be a stepping stone to greater  control of the underlying property portfolio because of the consents required from the holder of the loans before anything is done with the underlying assets. Whether this has any foundation or not remains to be seen – none of the parties are providing comment – but it does have echoes of the moves at Noel Smyth’s UK property fund, Alburn Real Estate Capital where a mysterious company bought the loans of that group and acquired significant control.

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[30 second version – it has been announced this morning that NAMA has sold the Cultra Railway Station nearly Holywood in county Down which had been previously purchased for development by MAR properties. The new owner is County Down businessman David Crowe who plans to renovate the dilapidated 100 year old building into two houses and there may be further development on the site in time. The purchase price wasn’t disclosed]


BTW Shiells seems to be doing brisk business in Northern Ireland on behalf of NAMA, and this morning it has been announced that a dilapidated former railway station in the village of Cultra near Holywood in county Down has been sold by NAMA to a local businessman, David Crowe. The purchase price has not been disclosed, though BTW Shiells had advertised the property for “offers around GBP 450,000” (€552,000).

It’s a building, described by some as an “eyesore”, that has been derelict for 40 years that sits on 0.75 acres and has planning permission for conversion to apartments. The new owner however intends renovating the existing structure which will provide two houses, and there may be further development on the site over time. The asking price was no doubt influenced by the attractions in the local area – Ulster’s Folk and Transport Museum 5 star hotel Culloden Estate and Spa.

The property was formerly owned by NAMAed Northern Ireland developer, the MAR group, founded in 1997 by Noel Murphy (“M”), Adam Armstrong (“A”) and William Rush (“R”). The group developed residential and commercial property in Northern Ireland, Scotland and England. NAMA has acquired GBP 3bn (€3.5bn) of loans from Northern Ireland by reference to original par values and paid GBP 1.26bn (€1.5bn), and to date, it has advanced €125m to Northern Irish developers for the development of projects, though some of this money has been spent in the mainland UK.

Statements accompanying this morning’s announcement included:

David Crowe said “despite the dilapidated state that this building has sadly been left to degenerate to, as a local resident I couldn’t sit by and watch it go to further rack and ruin.

Not only will we be working to improve the area, which we will be doing immediately, but for far too long this has been an eyesore for locals and tourists alike. This is the main rail stop for the Ulster Folk and Transport Museum and this opportunity will further enhance the tourist attractions that this corner of north Down is famous for.

I must take this opportunity to commend the local councillors for their sterling work to ensure that this historic gem was not allowed to go the same way as so much of ourbuilt heritage.

I am now looking forward to sensitively restoring Cultra Railway Station in the months ahead.”

David Menary, Director of BTW Shiells said “the Cultra Station house has been in a very poor state of repair as far back as many of the local residents can remember, so it is great news that the original building is being restored. The regeneration of this historic Cultra landmark to a unique residential development is certain to attract significant interest when it is available on the open market.”

Howard Hastings, Managing Director of the Hastings Hotel Group said “Cultra Railway Station, which is adjacent to the Culloden Estate and Spa, is a beautiful building. I am only too delighted with the news that it will be restored to its former glory.

Mr Crowe’s ideas are very much in keeping with the area and residents and tourists alike will be able to view this beautiful building in the manner that the original architect intended. ”

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[The 30 second version is Fitch today issued a note on housing issues in Europe and predicts that Irish residential property prices have another 20% to decline, that’s the same as the prediction by rival ratings agency Moody’s last summer. Unlike practically all other participants and commentators, ratings agencies are independent, and although their predictions may not come to pass, it is worth examining them. The Fitch report is here]

Last June 2012, when ratings agency Moody’s predicted further major declines in Irish property prices, one of the country’s leading estate agencies was quick to rubbish the prediction.  Moody’s said in June 2012 that it believed there would be a further 20% decline nationally in Irish residential property prices which would bring the overall decline from peak from the current 50% to 60% – remember 20% of 50% is 10%! Mark Fitzgerald at Sherry Fitzgerald said the view was “misinformed”. We had a little fun with the innate nature of estate agents and ratings agencies here.

Since last June 2012, prices nationally have been relatively stable according to monthly indices produced by the Central Statistics Office and at the end of November 2012, prices remained 49% off peak. In the last quarter of the year, there was palpable ebullience on the part of estate agents who correctly pointed to an increase in transactions evidenced by the newly-launched Property Price Register, and mortgage lending picked up in Q3,2012 according to the Irish Banking Federation, though from a low base.

And in the past month we have had reports of Minister Noonan calling a bottom – though if you carefully read what the Minister said, it was more circumspect. NAMA last week said both the commercial and residential property markets were stabilizing, but NAMA has been saying that since June 2010 and has now repeated the claim at almost regular half-yearly intervals – you might recall that NAMA’s most senior property man thought commercial property was close to the bottom in late 2009, it has since declined 25-30%. Newspapers which are really suffering at the moment would love to see a return of confidence which would boost transactions, and consequently desperately-needed advertising revenues. Banks want recoveries to help boost balance sheets which are at risk from negative equity mortgages – in December 2012, a non-executive public interest director of Permanent TSB Ray MacSharry told an Oireachtas finance committee “ If house prices drop by 59% or 60% that capital adequacy ratio could drop to 6%, which is a real stress case.”

At this stage, there are very few who want to see property prices decline further – most of us have some skin in the game, either directly in property or in the economy which benefits from stable and slowly rising house prices.

Most of us do have skin in the game, but ratings agencies dont, and today Fitch has issued a downbeat assessmentt of prospects for our residential mortgages and property. It predicts prices will decline a further 20% from their current levels which are themselves 50% off peak.

Fitch sees poor prospects for economic growth in Ireland, and says that our real GDP will grow by a measly 1.5% in each of 2013 and 2014, that unemployment will continue at a high level over 14% and that mortgage arrears will continue to rise strongly. It says of our mortgage crisis – “Both countries [Ireland and Greece] have experienced dramatic performance deterioration over the past year. The outlook remains highly uncertain. “ It points to a general property oversupply and government cuts which will push down prices and push up arrears. It says there is “no end in sight to the deterioration”

It’s a sobering counterpoise to recent upbeat pronouncements Mind you, it is consistent with the view on here and the prediction of 10-15% declines in 2013.

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