Archive for January 24th, 2013

This afternoon, British commercial property portal, CoStar has published details of two loan portfolios which it says NAMA is currently readying for sale. As with the sale of Lloyds and AIB loan portfolios last year, the two NAMA portfolios have been given names – Project Aspen and Project Club.

CoStar says that Project Aspen has loans with a nominal value of €800m. We don’t know what NAMA paid for the loans but remember NAMA has paid an average of 43c in the euro for loans acquired from five Irish banks and building societies. Remember also, that Irish commercial and residential property has declined by about 30% – see graphic at top of this page – since November 2009 which was the date used by NAMA for the valuation of all the loans it was acquiring. Remember too, that NAMA paid a so-called “Long Term Economic Value” which averaged 10%. So the €800m par value loans might have been acquired by NAMA for €344m and the underlying commercial property might only be worth €228m today. Although CoStar does not say it, it is believed on here that the underlying property in Project Aspen belongs to loans connected to David Courtney of Spain, Courtney, Doyle fame.

The second portfolio, Project Club, is reported to have a par value of €230m.

CoStar says that Eastdil Secured has been selected by NAMA to sell Project Aspen. Last weekend, the word on the street was that Eastdil had been in the frame to handle the sale, but that it had not been ultimately engaged.

We don’t have any further information at present about Project Club, that is, we don’t know anything about the loans or the company engaged by NAMA to sell it.

NAMA had no comment on the report at time of writing.

UPDATE: 24th January 2013. It is understood from sources that the second portfolio, the smaller Project Club comprises loans to developer Eamonn Duignan and that CBRE in London has been chosen to manage the sale. It is further understood that NAMA paid €80-100m for the loans, which have a par value of approximately €230m.

UPDATE: 13th February, 2013. James Wallace at the CoStar commercial property portal has the skinny on Project Aspen, the €810m, 30-property portfolio connected with David Courtney. He writes that first round bids are expected by the end of February 2013, with Kennedy Wilson, Delancey, KKR expected to be amongst the bidders. James writes that the portfolio is likely to generate 30/40c in the euro of €240-320m. In addition to the properties first named above – the Shelbourne and Merrion Gates – James says the portfolio includes a Garda station – presumably not one of the 100+ that justice minister Alan Shatter HASN’T shut! James says that NAMA is not providing recent valuations which James views as a false economy. Given the circulation of valuations in the Enda Farrell scandal, such valuations mightn’t really be needed though!

UPDATE: 5th March, 2013. Gavin Daly wrote in last Sunday’s Sunday Times – not available online without subscription – that Starwood Capital was closing in on Project Aspen after some 40 bids were received for the €810m par value David Courtney loans. Starwood has USD 22m under management at present and Gavin claims that the bids for the portfolio have come in around the €200m mark, or 25c in the euro. The rent roll from the properties securing the loans is said to be €15m per annum. Importantly, Gavin writes that the portfolio excludes loans associated with the Shelbourne Hotel and the Elm Park development in Ballsbridge. As regards the Eamon Duignan Project Club loans, it is said that Patron Capital is to the fore in the race for this portfolio which may only realise €50m.

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The National Treasury Management Agency (NTMA) is presently sitting on a cash mountain of nearly €25bn. It places it on deposit in the Central Bank of Ireland and receives interest at a rate of just 0.1% per annum – yes, just zero point one per cent! The €25bn is either borrowed or could be used to pay down borrowings which cost us an average of 3.5% per annum. In other words, this State is sitting on a cash mountain costing us €875m a year in interest and if you deduct the €25m we get from the Central Bank, in net terms this mountain of cash is costing is €850m! Per Year!

Now, there is a reason why the NTMA does keep a cash reserve. Ireland is in a precarious financial position with a general government deficit over €10bn per annum and our deficit:GDP was about 8% in 2012 which is horrendous. And at the end of 2013, the funding from the €67.5bn external bailout from the so-called Troika comes to an end. And we have colossal borrowings which we need to repay – previously issued bonds and repayments to the Troika.

So the NTMA calculates that it needs some reserve or buffer. It calculates that if markets know there isn’t such a buffer, then those markets will demand higher rates of interest than they otherwise would on new issuance of bonds. Which all seems rational.

So, we’re buying insurance for the funding of the State which is costing us €850m per annum.


Is €25bn too big a cash buffer? No, according to the CEO of the NTMA this afternoon when he appeared before the Oireachtas Finance, Public Sector and Reform committee at Leinster House. John Corrigan (pictured above) said that he and his colleagues at the NTMA looked around and saw that other countries keep similar levels of reserves and indeed there is evidence of countries keeping 18 months of reserves.

But does Ireland need such reserves at this challenging time, when €850m could cushion austerity or provide a stimulus? And more importantly, when there are two potential sources of alternative funding in the guise of contingent facilities from the Troika and the so-called Outright Monetary Transactions (OMT) scheme at the ECB – this is where the ECB said it would buy a country’s bonds if the country was “regaining bond market access” and was willing to submit to ECB conditions.

This afternoon, John Corrigan confirmed that the State is in talks with the Troika over contingent funding arrangements when the official bailout funding is exhausted at the end of 2013. He could not be coaxed into providing details of the talks, but plainly if such stand-by funding were available from the IMF and the new EU fund, the ESM, then that should reduce the need for a cash reserve.

The NTMA CEO claimed that no-one really knows the criteria for the ECB providing OMT funding. This week, Minister Noonan bizarrely claimed the ECB simply required a country to issue two 9-year bonds or equivalent – “The preliminary steps would be to have two issuances of nine-year paper or its equivalent, and then we’re in a position to apply” he is quoted as saying in Brussels by the Financial Times.  But even Greece could probably do that today at high interest rates and with a small amount of bond issued.

So right now, confusion and uncertainty about the ECB’s OMT and the IMF/ESM contingent or stand-by funding means that we are still maintaining a €25bn cash mountain.


The Labour back bench TD, Kevin Humphreys (pictured above) has noticeably been asking some useful questions in the Dail of late, and yesterday asked a series of questions about the cash holding at the NTMA. The response from Minister for Finance, Michael Noonan was hardly very helpful, but the Deputy did put the important questions on record – are we holding too much and would it not be better to deploy a reduced interest bill in the economy rather than paying interest on such a large cash mountain.

The full parliamentary questions and response are here.

Deputy Kevin Humphreys: To ask the Minister for Finance if he will provide the Exchequer cash balance at the end of December 2012; the source of these funds, specifically the quantum raised by the National Treasury Management Agency and the amount drawn from the Troika assuming that all tax revenues service spending, and that the cash balance is provided from borrowings, and if he is concerned at the very high costs incurred by the State in holding such large cash balances; and if he will make a statement on the matter.

Deputy Kevin Humphreys: To ask the Minister for Finance if he has considered delaying the draw down of funds from the IMF and EU funds and bilateral loans, which are being held as cash balances, until the moneys are actually required to reduce the costs of maintaining such a large Exchequer cash balance, recognising the need to raise market funds through the National Treasury Management Agency when conditions are optimal but reducing the overall cost to the State of these activities; and if he will make a statement on the matter.

Deputy Kevin Humphreys: To ask the Minister for Finance his views on recent media reports that the estimated cost of maintaining an Exchequer cash balance in excess of €20 billion results in a cost of approximately €35 million per billion euro on deposit, and that the State could find better uses for the annual sum that would be in excess of €700 million that is wasted due to this policy; if he will consider mechanisms to reduce this cost; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan:  At end 2012, the Exchequer had €19.3bn on hand in cash and deposits.  As the proceeds of all borrowing, including borrowing under the EU-IMF Programme, as well as revenues including tax and non-tax, are lodged to the Exchequer account to fund general expenditure, it is not possible to disaggregate the balance on that account by source or derive a single robust cost figure in relation to the balances maintained.

Funds in the Exchequer are used for the ongoing payments necessary for running the State. Budget 2013 estimated that the cumulative Exchequer deficit over the years 2013-2015 would be close to €35 billion. In addition to these day-to-day costs, there are large debt redemptions that are scheduled from early 2013, including a €5.1 billion bond repayment in April 2013 and a €7.6 billion bond repayment in January 2014. The continuing budget deficits and debt redemptions must be adequately and prudently funded.

Decisions on the level of cash reserves, which are a matter for the NTMA, take account of various factors in addition to the cost of maintaining such reserves. These factors include considering the potential cost of not maintaining an adequate and prudent cash balance. This includes the risk that the Exchequer would be unable to meet its obligations and that market interest rates would possibly be higher than would otherwise be the case due to the perception that the State had a precarious liquidity position.

Exchequer cash reserves are an important component in bolstering investor confidence in Ireland as it continues on the path to full independent market access at sustainable interest rates. The EU/IMF Programme ends this year making such market access of critical importance. With regard to the drawdown of remaining funding from the EU/IMF Programme, I will continue be regularly advised by the NTMA, who manage the country’s debt, as well as my officials on Irelands debt strategy. However, it is fair to highlight that given the projected cost and duration of funding available under the Programme of external assistance, we would expect to fully draw down the remaining scheduled funds, in line with that provided for in Budget 2013.

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It was almost looking as if NAMA might see out the month of January 2013 without initiating new litigation, but yesterday the Agency lodged an application against an individual called “John Fraher” at Dublin’s High Court. The case reference is 2013/213 S and the applicant is National Asset Loan Management Limited represented by Hayes solicitors. The respondent is merely named as John Fraher and as is usual with recently filed applications, there is no solicitor for the respondent.

We don’t know any more about the respondent John Fraher. There is a “John Fraher” who was a director of a company, Peleton Limited to which NAMA had RSM Grant Farrell Sparks appointed as receiver in June 2011. It is one of Jack Ronan’s companies. However, IT SHOULD BE STRESSED that there is no indication that this is the John Fraher being sued by NAMA now. In Ireland, the court service does not provide information on applications, so we don’t have any address or other information which might assist us in identifying the respondent. NAMA generally doesn’t comment on individual cases, not even to identify the respondent.

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.

This is the first application by NAMA in the Dublin High Court in 2013 and there has yet to be an application against NAMA this year. Last year, NAMA initiated about 40 cases in the High Court and was on the receiving end of about 10.

UPDATE:  22nd March 2013. Fair play to the current issue of The Phoenix magazine – not available online without subscription – for rooting out what it reports as the background to the above case. It says that the “John Fraher” who is the subject of the NAMA application is the Tipperary businessman, and a business associate of Jack Ronan, of the Ronan dynasty who was recently the villain in the Vita Cortex pantomime. John, says The Phoenix, is based in the UK and was served with the application by NAMA there.  The Phoenix reports on the Jack Ronan/John Fraher business history where they were together involved in La Plagne Limited who owned supermarkets in Ireland, but the pair has apparently fallen out. The NAMA case against John Fraher is said to involve “more than €5m” and partly relates to loans on the Poppyfield Retail Business Park in Clonmel and a retail development in Ballincollig, county Cork.

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“You wanna hear a great story”


So starts the Bloomberg TV interview with David Tepper, an American hedge fund manager and the founder of Appaloosa Management. Zerohedge has the video here, though the focus of the Zerohedge blogpost is not what we’re interested in here. David tells us about his dealings with Bank of Ireland subordinated bonds, from about 15:00 into the video and here’s the abridged transcript

“We invested in the Bank of Ireland… and we bought their bonds, subordinated bonds…They [BoI] wanted to ‘cram us down’ … So we took them to court.. We were gonna go into the English and Irish courts to fight the Bank of Ireland, and fight the Irish Government for that matter…We finally won at the beginning of this year… The debt was trading at 40/50 cents…..So the Bank of Ireland this year, goes and issues a new issue, of the same debt…. a month and a half ago….the debt is now trading at 115..The only reason it is worth buying, is because we fought it, and we won.”

He also says that he was willing to invest in the equity of Bank of Ireland at what appears to be the same time as Minister for Finance Michael Noonan sold 35% of the bank to the consortium of North American investors including Wilbur Ross. It seems as if that deal might benefit from some further scrutiny to see exactly how good it was for the country which has shoveled €4.7bn gross into Bank of Ireland.

But the interview also begs the question over how haircuts on subordinated bondholders were arrived at, and when Minister Noonan was quizzed on this last week, he merely said “I understand that these transactions were commercial decisions for the Institutions following consultation with their financial advisors”

So how effective was the subordinated bondholder buybacks in 2008-2012 when €26bn of subordinated bonds were redeemed for €12bn and there were total haircuts of €14bn. Could we have achieved billions more?

[See here for details of the burning of subordinated bondholders]

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The Michael Torpey matter is not going away.

Eyebrows were raised last week, when it was announced that the head of the sub-department at the Department of Finance which is responsible for managing our stakes in the banks left to join Bank of Ireland, days after the State had sold €1bn of its stake in Bank of Ireland. No suggestion of malfeasance or wrongdoing was leveled at Michael Torpey, the head of the Shareholder management Unit who has left to become at Bank of Ireland “Chief Executive of its Corporate and Treasury Division and as a member of the Group Executive Committee”

In the Dail yesterday, the Sinn Fein finance spokesperson again probed the issue with Minister for Finance Michael Noonan and established that three Department of Finance officials who were seconded from the National Treasury Management Agency had left to join the banks. Aside from Michael Torpey, the other two are believed to be Danny Buckley who left for Bank of Ireland and Enda Johnson who left for AIB.

Minister Noonan said these people were not employees of his Department of Finance, they were employees of the NTMA and were merely seconded to his Department, where they would presumably have picked up detailed and unparalleled knowledge of the banks and Government policy. So although they will be in possession of same knowledge as some other civil servants, they are not deemed to present a conflict of interest risk!

The Irish Times reported this week “In July last year Danny Buckley – who dealt with Anglo Irish Bank – left to join Bank of Ireland’s group finance department. His departure followed that of Enda Johnson who left to join State-controlled AIB in May. Mr Johnson was subsequently appointed to the role of head of corporate affairs and strategy on the bank’s new management team”

And what is to stop the NTMA boys from exploiting their intimate and powerful knowledge of the Irish banking sector, in their new roles? Minister Noonan says the NTMA Act and the Official Secrets Act! The NTMA boys must be made of better stuff than most humans, who would be tempted to exploit their knowledge when faced with challenges. Minister Noonan has waved that concern away.

The full parliamentary question and response is here.

Deputy Pearse Doherty: To ask the Minister for Finance the number of officials in his Department that have moved into jobs in the financial sector in the last two years and the cooling off period which was applied to these officials during their moves.

Minister for Finance, Michael Noonan: No officials from my Department have moved into jobs in the financial sector.

I understand that three members of my Department’s Shareholder Management Unit, seconded to my Department from the NTMA, who resigned from the NTMA subsequently took up employment in the financial sector.

The position in respect of the Head of the Shareholder Management Unit is as I set out to the Deputy in the House last week.  In the case of the other two employees they served the notice provided for in their contracts.

All employees of the NTMA are subject to section 14 of the National Treasury Management Agency Act, 1990 which prohibits an employee from disclosing any information obtained while carrying out their duties as employees of the NTMA. NTMA employees are also subject to the Official Secrets Act. Contravention of the NTMA Act and the Official Secrets Act is a criminal offence and the prohibition on disclosing confidential information applies indefinitely and extends to former employees

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