Archive for February 19th, 2013

If you were to believe the Government, what unfolded on the afternoon of 6th February, 2013 was the execution of a long-planned orderly wind-down of Irish Bank Resolution Corporation where extensive resource had already been devoted to ensuring the wind-down would be smooth. We were told that the Attorney General Maire Whelan approved the IBRC Bill before the end of 2012.

I don’t believe a word of it.

It’s not just that IBRC mortgage holders are still left dangling without an account to which to pay their monthly mortgage. It’s not just the spectacle of one of our most formidable judges in the land fumbling around hearings on the basis of legislation which he hasn’t seen. Nor is it the subtle signs that the deal will be chipped away at by Europe who may demand that we sell the bonds used to swap with the promissory notes, sooner rather than later.

It’s the unverified claims received on here that law firms are withholding contracts which have been drafted over a period of weeks, because substantial legal fees are not being paid by the Special Liquidator. Might this be a reason why there is uncertainty about the sale of the Project Delta portfolio of €2bn of IBRC loans?

Indeed there have been reports that Irish law firm McCann Fitzgerald is owed a whopping €8m. For a firm with total annual revenue of about €100m, that outstanding sum of €8m, if confirmed would represent a grave loss. [UPDATE: 19th February, 2013. It is understood that the €8m reported in the press is significantly overstated] It is ironic that McCann Fitzgerald produced a briefing on the liquidation without referring to the position of unsecured creditors.

This morning’s Financial Times raises the spectre of some unsecured creditors suing IBRC for having deliberately dissipated its assets. After all, it handed over €27.7bn of promissory notes to the Central Bank of Ireland in return for bonds worth €25bn. That is apparently why most of the bank’s capital base has been wiped out, but now, unsecured creditors might get bolshie and sue IBRC and perhaps the Minister for Finance, Ireland and the Attorney General over the IBRC liquidation.

Project Red, the name given to the secret plans to liquidate IBRC, despite being the subject of intensive planning for over six months, is beginning to look raggedy with a mounting number of loose threads.

McCann Fitzgerald was asked for comment on the reported sum owing of €8m and about claims of work withheld from IBRC, but at time of writing, there has not been any response.


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There will be much debate as to whether the phasing out of tax relief on mortgage interest for first time buyers at the end of 2012 had a significant impact on the Irish residential property market, and perhaps next week when the CSO publishes its property price indices for January 2013, we will have more a steer on what is happening. But this morning, in statistics released by the Irish Banking Federation, there is no doubt that there was a rebound in mortgage lending in the three months ending 31st December 2012.

The Irish Banking Federation says it represents lenders which together comprise more than  95% of the Irish mortgage market, and its series of statistics are the most detailed provided at a level where you can distinguish first time buyers, movers and buy to let activity as well as remortgages and top-ups.

In summary, mortgage lending in Q4,2012 is up just over 50% by volume and value compared with Q3,2012 and up just over 56% on Q4,2011. Volume and overall value of lending is still down from the peak, generally in 2006, by 90%. So although there has been a rebound, it is from very low levels of lending.

The IBF publishes volume, value and average value statistics which are reproduced below together with the comparisons at the top of each table from here.


Overall in 2012, mortgage lending was €2,636m which is up slightly from the record low €2,463m recorded in 2011 and is down from the record high €39,872m recorded in 2006.

First time buyer activity is particularly strongly up on the previous quarter and year. This can be interpreted in a number of ways, from there being increased confidence in the Irish residential property market and that the risk of future declines is limited, to the phasing out of tax relief on first time buyer mortgages at 31st December 2012. Speaking to estate agents, I tend to plump for the latter explanation, but in the second half of 2012, property prices did show some evidence of stabilization so you can’t rule out the former explanation. However property prices declines by over 1% in December 2012, wiping out much of the previous gains, and we will have to wait until next week to see how prices performed in January 2013.

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Minister for Finance Michael Noonan is so far resisting the release of the unaudited accounts for Irish Bank Resolution Corporation for the year ended 31st December 2012, so the best we have at present are the interim IBRC accounts for the six months ended 30th June 2012. Below is the balance sheet.


For you non-accountants, the balance sheet at 30th June 2012 doesn’t look too bad. There are net assets of €2.7bn, and that is after IBRC has booked over €10bn of provisions for losses on its €27bn of loans. Yes, only 30% of IBRC’s loans are performing but IBRC is also receiving interest on the promissory notes, so you might have expected IBRC to be breaking even on its operations.

But no, not only is the Department of Finance saying that the €2.7bn of net assets at 30th June 2012 have been wiped out, but the Department is saying that IBRC will need an additional €1bn of capital in 2013 to cover losses from the Eligible Liabilities Guarantee – that’s where bonds and depositors were guaranteed from December 2009 until mid 2013.


IBRC is set to be finally wound up in August 2013, so that means that in the space of just 14 months, it has made a loss of €3.7bn.

That’s €3,700,000,000.

How on earth is it making such a loss? Was there gross mis-reporting at 30th June 2012? Has there been a massive fraud? At this stage of the property market cycle, hasn’t most of the bad news come out, so for IBRC whose main loans are still property related, how on earth is it now expected to make such a colossal loss? Remember NAMA is expecting to deliver a profit in 2012 and 2013, and NAMA has a larger loan book.

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The regular audience on here will know that NAMA doesn’t do targets very well, data, dates, deadlines. Its annual set of objectives is practically a metrics-free zone. After all, what organization willingly submits itself to the rigour of targets against which performance is measured, unless it really has to. It is just begging for trouble.

The regular audience will also be familiar with Minister for Finance Michael Noonan’s stock response when questioned about NAMA’s targets = “they’re commercially sensitive”. Particularly sales targets which it has been claimed by Minister Noonan in the past would place NAMA at a commercial disadvantage if disclosed.

On here, before Christmas, there was a blogpost when the IMF issued a report which confirmed that NAMA would have €2.6-2.9bn of staple finance sales in 2013-4, and that was the first time, we had any such target.

But today, courtesy of the Irish Independent – and NAMa has just confirmed the figures and that they are for 2013 and that the figures refer to “current values” – we learn that NAMA has a sales target of €3-3.5bn in 2013. That equates to up to €70m per week or €300m per month over which there is very little external scrutiny.A NAMA spokesperson is said to have confirmed the target to the Independent.

Be the hokey!

But why is NAMA now confirming a sales target when it was so reticent in the past?

This blog has been bombarded with confidential messages in the past few days about Irish Bank Resolution Corporation and its assembly of a €2bn loan portfolio which carries the code name “Project Delta”. The latest from the Special Liquidator of IBRC, KPMG yesterday is that the sale of the portfolio has been put on hold pending an independent valuation and that “there is a decision pending”.

The British commercial property portal CoStar is today reporting “Then later last night, KPMG said a decision has yet to be taken, although CoStar News has heard consistently from sources that Delta is expected to come to market in a form not significantly different to the present composition.”

NAMA competes with IBRC, and any unsold loans at IBRC will be transferred to NAMA in August 2013. So, by “letting slip” that NAMA has a sales target of €3.5bn in 2013, it enables NAMA to have adopted a position that the loan sales market is already crowded and that any large disposal by IBRC might just push prices down generally which is bad for NAMA and bad for the taxpayer. Of course, it would be good for NAMA to acquire as many IBRC loans as possible in August 2013, so putting it out there now that it had already targeted itself with disposing of €3-3.5bn of loans might deter IBRC from ramping up its sales.

Of course, it might be that NAMA has turned over a new leaf and is becoming less paranoid over what is commercially sensitive. But conspiracy theorists might not see it that way.

UPDATE: 19th February, 2013. It has been pointed out that the Wall Street Journal and the International Financial Review on 6th and 2nd February 2013, had already referred to a sales figure for 2013. So, conspiracy theorists can apparently stand down for now. Meanwhile there appears to be a storm of activity happening around the IBRC Project Delta sale, with intense speculation over whether it is on the market, or has already tentatively agreed a sale.

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