Archive for January 17th, 2013


Remember the launch of the “Succeed in Ireland” scheme at the start of March 2012? That was the one where €1,500 per job created was on offer to anyone who could bring jobs to Ireland. At the launch, An Taoiseach Enda Kenny forecast 5,000 new jobs would be created as a result of the scheme over a five year period. Fast forward to mid January 2013, and how many jobs have in fact been created?


Minister for Jobs, Enterprise and Innovation Richard Bruton was responding to the Sinn Fein finance spokesperson Pearse Doherty, in the Dail today.

So, does this mean someone is walking away with €15,000 for the ten jobs created? Not at all, they’ll need wait for two years to confirm the jobs created are sustainable.

On a less derisory note, the Minister claims that there have been 54 referrals. It is unclear why only two have been approved, but Minister Bruton’s tenure has been characterized by a lackadaisical performance where the primary concern appears to be if today is finally the day that Enda Kenny slips on a big enough banana skin to open the possibility of another leadership challenge.

The full parliamentary question and response are below.

Deputy Pearse Doherty: To ask the Minister for Jobs, Enterprise and Innovation further to the launch of the Succeed in Ireland programme as part of the Jobs Action Plan 2012, the total number of jobs created by the reward scheme; the number of referrals submitted by applicants for the reward; the number of jobs subject to the referrals; the total amount paid to date to referrers and the number of referrers to which that total relates.

Minister for Jobs, Enterprise and Innovation, Richard Bruton: I am informed by IDA Ireland that, since the launch of the Succeed in Ireland initiative on 8 March 2012, two projects, with the potential to create 40 jobs, have been approved and 10 jobs have been created.  There have been 54 referrals registered, with potential to receive a reward.  The potential number of jobs which may be delivered from these 54 referrals is in the region of 1,500.

No payments have yet been made under the initiative.  Fees become payable only on the creation of a sustainable job, i.e. a job that has been in place for 2 years.

An evaluation of the costs, benefits and impacts of the initiative will be undertaken by IDA Ireland later this year in consultation with my Department so that an informed decision can be taken on the merits of broadening out the initiative beyond a pilot scheme.


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Last October 2012, when NAMA was asked about its internal processes for selling loans, it was very coy with Minister for Finance, Michael Noonan responding on its behalf that revealing certain details would undermine the Agency’s commercial mandate. Today, we get a lot more detail on how NAMA does in fact sell loans.

We learn today that NAMA has now disposed of €2.4bn of loans up to the end of December 2012, up from €1.9bn to the end of March 2012. These are the original book values of the loans.

Just a week ago, the UK’s commercial property portal CoStar reported that NAMA was “currently in the process of assembling a €230m-sized portfolio” and there was a blogpost on here recently on Ireland’s burgeoning loan sales industry. So, loan sales have become big business and we should know more about how NAMA sells loans.

The Sinn Fein finance spokesperson Pearse Doherty today asked Minister Noonan if NAMA was selling loans off-market, and in response was told that only in cases where there is an offer to buy loans at their original book value plus accumulated interest would NAMA sell loans off market. So, taking Minister Noonan’s words at face value, NAMA has not been selling loans below book or par value, off-market.

There remains some question over whether NAMA can sell loans for a premium above their book values. Take the €800m of loans relating to Paddy McKillen’s Maybourne hotel group. These were sold by NAMA to the Barclay brothers at par, but there was no secret about the Barclays’ intentions of using the loans as a plank in their bid to gain overall control of the Maybourne hotels. They were a “special purchaser” and it remains the case on here that NAMA might have sold those loans for a premium above their book or par values.

These are the two full parliamentary questions and responses.

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Questions 179, 180, 181 and 182 of 16 October 2012, if the National Asset Management Agency sells loans without placing such loans. on the open market.

Minister for Finance, Michael Noonan:  I am advised by NAMA that its policy in relation to loan sales, as with the sale of properties by its debtors and receivers, is that they should, where practicable, be openly marketed.  For this purpose, two panels of loan sale advisors have been approved for loan sales in the US and in Ireland/Britain/Europe.

NAMA advises that, to date, it has chosen in a number of cases to sell loans through loan sale brokers in the US and in some continental European jurisdictions where the sale of loans is a widely practiced method of realising the value of the secured property.  In Ireland and Britain the sale of loans has mainly been in response to approaches to NAMA by third parties.  NAMA advises that, after receiving such approaches, loan sale brokers have been appointed to market the loans and to deal with offers from the original bidder and other interested parties.

NAMA advises also that in certain cases a loan sale may follow the open marketing of the related property. NAMA points out that in a limited number of cases where properties or portfolios of properties have been openly marketed, the preferred bidder has ultimately suggested acquiring the related loans rather than the properties, with the value of the loans fully reflecting the successful bid for the underlying property.

NAMA advises that in situations where an offer of full par value is received for a loan, there is no merit in further marketing the loan if NAMA has no entitlement beyond the full repayment of the loan.  In such cases, a loan may be sold without open marketing.

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Questions 179, 180, 181 and 182 of 16 October 2012, to confirm the original book value of loans sold by the National Asset Management Agency since his response.

Minister for Finance, Michael Noonan: I am advised by NAMA that the original par value of loans sold from inception to end-December 2012 is €2.4 billion.

I am further advised by NAMA that this is not a metric they would typically release in isolation as it does not reflect the true progress of NAMA’s resolution of its portfolio. I would encourage you to read the 2012 year-end review available on NAMA’s website which provides a more complete picture of NAMA’s progress to date.

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The headline this morning with S&P’s report on Ireland will be that Irish banks may need a few more “red cents” in addition to the sums shoveled in after the March 2011 stress tests – this sentiment echoes that of the OECD, the European Commission and received indirect support from governor of the Central Bank of Ireland, Patrick Honohan who said banks will need more capital if, and that’s probably an important “if”, they don’t get to grips with distressed loans.

However the focus on here is property, and S&P sees residential property declining by a piddly 1% in 2013 and then remaining flat in 2014, or in other words saying we are at the bottom but it might be another two years at least before property prices nationally rise. That’s the national picture, the report refers to nascent price rises in Dublin.

On commercial property, there’s no quantum mentioned in the outlook, just that there will be “resilience” for best quality assets and declines in poor quality or badly located property. It should be noted that S&P is misleading when it says that “the IPD Index shows commercial real estate (CRE) capital values down about three-quarters.” – the latest IPD index indicates we’re down 66% to end September 2012, the more recent Jones Lang LaSalle index for Q4,2012 indicates we’re down 67% from peak.

Fitch said last week that its baseline outlook for Irish residential property was for a further 20% decline to give an ultimate overall peak to trough decline of 60%. This is identical to the latest outlook from the third of the big ratings agencies, Moody’s, last summer.  So S&P appears to be saying it sees 50% as the ultimate decline from peak.

Minister Noonan last week criticised Fitch for not offering support for its outlook – though as far as I could see, they did refer to overhangs in supply, credit and mortgage distress issues. There is absolutely no support given in the S&P report at all for its outlook.

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This morning, Ireland’s Central Statistics Office (CSO) has released its inflation figures for December 2012. The monthly headline Consumer Price Index (CPI) rose by 0.1% compared to November 2012, and is up just 1.2% year-on-year. December’s results mirror those of November, October and  September and continue a subdued trend seen in recent months compared with the 2%+ that pertained before January 2011.


Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 14.6% in the past year, as ECB rate cuts and greater scrutiny of variable mortgage interest rates take effect. Just a few months ago, mortgage interest was rising by 20% per annum, and as mortgage interest costs account for nearly 6% of the basket which measures inflation, the impact on inflation was substantial. However there might be a spike next month when the January 2013 figures are made available as mortgage interest relief has now been curtailed or withdrawn for first time buyers.

Energy costs in homes on the other hand, which account for over  5% of the total basket examined by the CSO, have risen by 7% in the past 12 months, mostly driven by the 9% price hikes at the ESB, and in October 2012 at Bord Gais.


Elsewhere, private rents rose by 0.7% in the month of December 2012  – this after a 0.6% increase in November 2012, 0.7% monthly increase in October 2012 and a 0.9% increase in September 2012, a flat month in August and three months of declines in April-June followed by a small increase in July – and over the past year, such rents are up by 3.5% according to the CSO – there is some small rounding in the figures above which show 3.6%.

It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 6.7% increase (mostly recorded in February and October 2011 and February and September/October/November  2012).

Rent assistance levels have not been affected by the recent Budget 2013, neither the rates nor contribution have changed.

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It’s a little surprising that NAMA’s results for Q3,2012 which were published yesterday have not been reported on RTE or in the Irish Times or Irish Examiner, and there is scant reporting in the Irish Independent. NAMA is the biggest state agency and we – that’s us all – are exposed to it to the tune of €27bn still because we have guaranteed the IOUs it used to buy the loans off the banks in 2010 and 2011. But, not a dickey bird in most of the Irish media which might be a reflection of the cut-backs and shoestring budgets now imposed on the traditional media, but it might also be a reflection on how opaque NAMA’s accounts have become, This blogpost examines the latter proposition, and sets out why at this stage, we can’t really tell a lot from NAMA’s management accounts and report.

Before examining the subject, it’s worth saying that NAMA should be a relatively simple organization to monitor. It bought loans from the banks using IOUs. It collects interest on those loans. It pays interest on the IOUs. It collects repayment of principal on the loans. It forecloses on certain loans, appoints receivers who maximize the value of the loans and the underlying property. It advances new loans to developers to manage their property or to develop it. It keeps a close eye on the sale of underlying property. Okay, NAMA started out managing €74bn of loans which it had bought from the banks for €32bn, but in principle, what NAMA does is not very complicated.

So why can’t we tell how the Agency is doing from its management accounts?

(1) The “effective interest rate” (EIR) of calculating interest income means that NAMA’s reported profit includes an estimate of interest that NAMA will in future earn on a loan, but which hasn’t been received in cash yet. How good are NAMA’s estimates? Historically not great, at least when it came to its overall business plan. So can we believe a €141m profit.

(2) Profit on disposals. NAMA is prevented from accounting rules, it says, from recognizing the profit on the disposal of certain properties because NAMA must wait for the conclusion of the entire relationship with a developer before it can recognize such profits. Sound complicated? Take this example, John is a developer with two loans, one for €10m and one for €15m, with the first secured on an office block in London and the second on a shopping centre in Dublin. The office block in London is sold for €12m which means that NAMA will 100% recover the €10m loan and will have an additional €2m to apply to the €15m on the property in Dublin. But even though NAMA has made a “profit” on the first sale, it will not recognize this until the loan on the Dublin property is ultimately dealt with. NAMA has over €1bn of such profits. NAMA recognized €1,819,000 profit on loans in Q3, a relatively paltry sum.

(3) Derivatives. Most people glaze over when you mention “derivatives” but in simple terms, they’re insurance policies to guard against interest rate changes and changes to foreign exchange rates. But they dominate NAMA’s accounts. Interest income on derivative instruments came to €20,343,000 in Q3.  Interest expense on derivative instruments came to €7,366,000. Interest expense on derivative instruments where hedge accounting is applied came to €29,505,000. Fair value losses on acquired derivatives came to €22,093,000. Fair value losses on other derivatives came to €11,877,000. What does this all tell you about NAMA’s performance? Confused? Join the club.

(4) Foreign exchange profits and losses. NAMA had €92m of foreign exchange gains in Q3. That’s a massive figure and has nothing to do with NAMA’s underlying performance, that’s how rates between different currencies moved in the quarter. On the other hand, NAMA had foreign exchange losses of €117m, an even bigger number. But what has either number to do with NAMA’s underlying performance, even though the profit for Q3 would have been €25m more if there had been no foreign exchange gains or losses.

(5) No breakdown of expenses. How much is NAMA paying its staff, what pension provisions are made, have bonuses been paid, what’s the average salary. Forget it, you’ll see that the NAMA salary bill was just under €7m for the quarter but you don’t get anything else, not even a headcount so that you can work out average salaries. Quarter three was when NAMA had in internal investigation of the Enda Farrell purchase of a property from a NAMA developer which widened out into an investigation into an alleged leak of confidential information. How much did that Deloitte investigation cost? Not a chance that you can extract this sort of detail from the accounts. NAMA spent €1,488,000 on “other administrative expenses” in Q3,2012 – no detail whatsoever is provided.

(6) Capitalisation of costs. We learned late last year that NAMA has a little trick which might come back to bite us all on the bum. When NAMA spends money on court cases and lawyers’ fees, it generally doesn’t regard these outgoings as expenses. No, what NAMA does is assumes that most will be recovered from the developers that it is suing. So NAMA “capitalizes” the legal expenses and adds them onto the loan liabilities in its balance sheet. The recoverability of some of these expenses looks dubious. Do we seriously believe that NAMA is going to recover its legal costs of pursuing the Dunnes in the United States, remembering that Sean Dunne has a €185m judgment against him in favour of NAMA, and a €164m judgment in favour of non-NAMA banks. NAMA thinks it will, and that is presumably why it has capitalized the McCarter and English LLP legal fees.

(7) Disposals. We get figures for disposal of NAMA properties but we can’t tie these to the accounts because NAMA announces disposals and it can take months and even years for the cash to land on NAMA’s desk. Also a property might be sold, on which loans are owed to both NAMA and other banks. NAMA tells us that €1.3bn was received in cash from borrowers in Q3,2012 but this will comprise disposals and normal loan repayments.

(8) Impairments, NAMA now calculates impairments twice a year, in June and December. “impairments” are supposed to represent the deterioration in the value of a loan because of a decline in value of the underlying property or because of a decline in NAMA’s estimate of what the loan will generate in cash. Yesterday’s Q3,2012 accounts don’t contain any provision for impairment for Q3,2012 – the last impairment calculation was in Q2.

(9) Out of date, year end update. Yesterday’s accounts will be obsolete to many because NAMA has released an end-of-year update for the 12 months ending December 2012 which provides in a clearer, friendlier form, a summary of what the Agency is doing. So why bother wading through detail that is already three months out of date, when you have a clearer summary of the full year performance.

(10) No plans or objectives to measure actual results with. NAMA is largely a metric-free zone. They hate it when you try to tie them down to figures and dates. Remember the €2bn investment announced last May 2012? NAMA didn’t want to give a schedule of when it expected to spend that investment, and it took the IMF in December 2012 to reveal to us that NAMA was back-loading the investment. So, we don’t have any plans from NAMA against which we can measure the results yesterday, so we can’t conclude if NAMA is meeting its internal plans or not.

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