Archive for February 8th, 2013

The Impact Analysis produced by the Department of Finance this morning should have been available on Wednesday evening, a few hours before TDs and senators voted through emergency legislation. The analysis gives an overview to the benefits and risks to the deal.

But if the Impact Analysis is correct with its figures, then we should be able to cut austerity in 2013 by €500m, equivalent to two times the expected revenue in 2013 from the new property tax.

This is the table produced by the Department of Finance.


The “fib” is the payment of interest on the €25bn of new Government bonds. Whilst it is true that the Government will be paying interest at about 3.3% or €800m in total, it will be paying that to the Central Bank of Ireland. The Central Bank of Ireland must pay 0.75% to the ECB, or €188m but the remainder is GIVEN BACK to the Government, that is, the Central Bank hands back €612.5m. [UPDATE AND CORRECTION: The Central Bank will be foregoing interest on the Exceptional Liquidity Assistance provided to IBRC at present, and the Department of Finance says that in 2013, this will balance with the new income from the Government bond. That is still not correct, as the Central Bank charges 2.5% interest on ELA and will now be paid 3.3% on the Government bond, that is, there should be a saving of 0.8% of €25bn or €200m, so not as big as above, but still substantial]

So the Government should be able to make its commitment to the Troika in 2013 and keep the general government deficit below 7.5% of GDP but it will have €612.5m* to spare which could be used in all manners of ways, but the most economically valuable would be in stimulating the economy, with the aim of creating and safeguarding jobs.

Y’know, like the Government claims is its primary focus.

*The positive effect seems to be just €200m because the Central Bank will now be losing interest on ELA, which partly offsets the gain on interest on the new Goverment bond.


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This morning the Department of Finance issued an impact analysis that tries to provide some detail on the IBRC scheme announced on Wednesday. The analysis leaves more questions than answers as regards the involvement of NAMA.

The impact analysis states “Payments to NAMA to cover any shortfall arising from the disposal of assets – The Minister for Finance will be required to compensate NAMA if the amount generated on the sale of assets by the Special Liquidator is insufficient to cover amounts due to NAMA.  It is not possible to determine the quantum of this potential shortfall until the asset sale process is concluded”

And elsewhere in the analysis there is a line for what is called “NAMA true-up” which is apparently supposed to represent the difference between what NAMA will pay for the IBRC loans up front, and what the Special Liquidator will realize for them.

So, the scheme appears to anticipate the following sequence:

(1) Minister for Finance to issue a Direction to NAMA to acquire IBRC loans for a specific value. Eg, if IBRC still has €16bn of after-provision loans as it had at 30th June, 2012, then Minister Noonan might direct NAMA to issue €16bn of NAMA bonds to the Special Liquidator as an upfront payment for the loans.

(2) Between now and “mid-2013” the Special Liquidator sells the IBRC loans. It is not clear how the Special Liquidator will decide if the price offered for a loan is acceptable. For illustrative purposes, let’s assume that the Special Liquidator sells €13bn of after-provision loans for €12bn and that the remaining €3bn of loans will be transferred to NAMA but that NAMA values these €3bn of remaining loans at €2bn.

(3) The Special Liquidator will give NAMA €12bn which represent the proceeds from the sale of €13bn of after-provision loans. NAMA will have a shortfall of €1bn on these loans, as it will have paid €13bn but received just €12bn from the Special Liquidator and NAMA will claim that €1bn from the Government.

(4) If NAMA acquires the unsold €3bn of after-provision value loans from the Special Liquidator and pays just €2bn based on the NAMA valuation, then again there will be a shortfall, and NAMA will claim the €1bn shortfall from the Government.

(5) So in this example, NAMA will end up with €3bn of after-provision value loans for which it will pay €2bn. NAMA will temporarily issue €16bn of bonds to IBRC but in six months when it receives €12bn from the Special Liquidator and €2bn from the Government, it will redeem €14bn of the €16bn bonds.

Can the Special Liquidator dispose of anything like €12bn of loans in just six months. And given that NAMA has already appointed loan sales advisors and NAMA has an infrastructure to manage loans until 2020, then why the hell are we going through the expensive charade of allowing a Special Liquidator sell the loans for whatever he can get for them. It is understood that NAMA will acquire any IBRC loans at current market value, that is, it will not pay a premium for so-called “Long Term Economic Value”

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There were 40-odd NAMA initiated High Court cases reported on here in 2012 but this one slipped through the net, because of the format used by the Court Service in recording the name of the applicant. So, to catch us up..

On 2nd March 2012, National Asset Loan Management Limited initiated a case in Dublin’s High Court  – case reference 2012/821 S – where the respondents are shown as Tipperary developers, Pat Moloughney and Philip De Vere Hunt, both represented by Kilroys Solicitors. The Court Service recorded the applicant as “NALM Limited” – NAMA is represented by JW O’Donovan and Co, which is interesting because that firm doesn’t appear on the NAMA panel of legal firms used for “certain legal services” relating to enforcement.

In December 2012, according to The Phoenix magazine published yesterday, Philip de Vere Hunt, a farmer and auctioneer, died. It seems that the case is proceeding and is next due for mention in April 2013.

The Phoenix reports that NAMA is pursuing the pair for €30m in respect of an AIB loan for the development of the Clonmel Town Shopping Centre in 2007, which opened in 2008 with Tesco as the anchor tenant. The shopping centre was developed by a company, BDP Property Development, owned by the pair who had other business interests together including an aviation company.

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With domestic events dominating the headlines over the past two days, the progress of the Paddy McKillen appeal in London was overlooked, though the outcome of the appeal might be rendered moot by developments here, specifically the prospect of NAMA taking over any loans Paddy may still have with IBRC. This blogpost catches us up on the hearing at the Court of Appeal in London.

The hearing has now concluded before the three Court of Appeal judges with judgment reserved. On Tuesday, Paddy’s side set out their arguments and that was covered on here.

On Wednesday and Thursday, lawyers for the Barclay brothers attacked Paddy’s appeal and there was some toing and froing yesterday between the two sides.

The view on here is that Paddy has a very strong case, and it was reasonably argued. The Barclays are maintaining that a series of events and facts, with the odd Paddy McKillen claim thrown in for good measure, do not amount to circumstances whereby Derek Quinlan’s shares should have been offered to Paddy. They also maintain that Paddy would not have been able to afford the GBP 60m-odd in 2011 to buy Derek’s shares.

It was all very predictable really, and despite the obvious strength of feeling and position on both sides, there was little mud slung over the course of the three days, though Mark Hennessy in the Irish Times today reports that “Mr Auld [barrister for Derek Quinlan] said Mr McKillen had made “an inappropriate and unpleasant application” against Mrs Quinlan’s wife, Siobhan, for disclosure of the family’s personal finances. “That was dismissed with indemnity costs will give the Court of Appeal an insight into Mr McKillen’s approach.””

One matter that was again noted was the apparent precariousness of Derek Quinlan’s finances, evidenced by judgments including judgments in Irish courts and the return of the Quinlan yacht to its lender. Despite selling €800m of corporate loans in the Maybourne group to the Barclay brothers, NAMA is understood to still retain an iron in this fire with its continuing control over some lending to Derek Quinlan.

[Mark Hennessy from the Irish Times covered the hearing from Day 2 onwards in some detail, with  Wednesday’s and yesterday’s proceedings reported here. Shane Hickey at the Irish Independent reported Wednesday’s proceedings ]

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