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Archive for April 10th, 2013

It’s not often that we see the financial performance of Irish financial asset management companies so  AIB UK Loan Management Limited’s report and accounts for the period ending December 2011 – available here – which were filed in the UK last September 2012 is of interest as we get a full set of accounts showing how AIB in Northern Ireland and Britain has dealt with its problem loans, we also see that NAMA valued loans acquired from this AIB “NAMA” at values in excess of the valuation at AIB. Could this be the reason why there have been troubling delays in the approval by the European Commission of the later NAMA tranches eg the €19bn tranche 3 and 4 acquired by in June 2011 still hasn’t been approved by the EC, nearly two years later?

The accounts show that some GBP 4.1bn (€4.8bn) of par value loans which were “vulnerable, impaired and other non-core” were transferred into this AIB “NAMA” by the parent company, AIB, in 2010. AIB valued these loans at GBP 2.6bn and it is working them out in much the same fashion as NAMA. Coincidentally it sold GBP 843m of par value loans to NAMA in 2011, and NAMA paid GBP 42m than the loans were worth, which is interesting because the UK property market had been generally improving after November 2009, NAMA’s valuation date and although NAMA paid a 10% long term economic value premium, it also paid for 5% of the loans with subordinated bonds which will only be honoured if NAMA makes a profit when it is ultimately wound up. So why did NAMA pay AIB GBP 42m more than AIB’s valuation?

The AIB “NAMA”  made a loss of GBP 41m in 2011 but this was mostly driven by a tax charge of GBP 113m and an impairment of GBP 97m as the UK bounces along the bottom of its economic cycle. The company had operating expenses of GBP 22m or 0.8% of the loan valuations, compared to NAMA’s €200m on €30bn of loans or 0.7%, which seems to show that NAMA’s costs are around the right level.

Compared with NAMA, the accounts are not blighted with derivatives and foreign exchange losses and hedging.

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Although the principal members of the new Fiscal Advisory Council provide their services pro bono, the Council still manages to rack up costs of €0.5-1m per annum through its employment of economists and a “secretariat”. The Council was created at the behest of the bailout Troika, and the intention was to provide the State with an independent judge of government policies and their effect on the economy. It has been an unmitigated waste of money and attention since created, with its first reports acknowledged by the Government and then dismissed and ignored. The Council had been recommending faster “fiscal consolidation” or in layman’s terms bigger budget adjustments with more taxes and cuts.

Unlike its UK counterpart, the Council doesn’t provide independent predictions of the economy, it merely issues top-level advice to Government. The Council should have resigned last September 2012 when it issued its second pre-Budget report, which was the second to be dismissed by the Government, but no, they’ve held on.

This morning, the Council issued its second post-Budget report, and lo and behold,  it now thinks the Government was right to ignore its previous recommendations because, given the provisional economic figures for 2012, the State is doing far better in its journey to reach a balanced budget. So, not only is the advice of the Council ignored but, as it turns out, it was rubbishy anyway.

The 100-page report is here, and a quick perusal begs the question about its purpose. In summary, it thinks the Government, using the required budget adjustments in the Memorandum of Understanding is on the right track. Do we seriously need to spend between €0.5-1m per annum for this? Is this what the Troika had intended when it inserted the creation of an independent council into the Memorandum?

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“What I am very interested about is how the Ulster Bank had sought to have him declared bankrupt here in Ireland six weeks previously. They had some man over in America running around trying to serve papers on him and they didn’t manage to serve papers. Now I am a reporter in a newspaper (sic). If you told me tomorrow, go get on a plane, go find a man and put an envelope in his hand, I’d do that within 48 hours so I don’t understand what this guy from the Ulster Bank was on a per diem rate and he was working it up and saying if I run around for six weeks, I could just charge them a couple of hundred dollars a day, I don’t know. I mean all you had to do was sit in the car down the road from Sean Dunne’s house, wait until he comes out the gate, goes for a train or goes for a pint of milk down the road. “How you going Sean, here’s the papers, come back to Ireland”” Ronald Quinlan speaking on Tonight with Vincent Browne 9th April 2013

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Vincent Browne last night – 10 days after the subject had been talked to death elsewhere – addressed the subject of Sean Dunne and Irish citizens going abroad for bankruptcy. He was joined by a panel which included the Sunday Independent’s Special correspondent, Ronald Quinlan who claimed that Ulster Bank had engaged someone to serve bankruptcy papers on Sean in the US in the six weeks before Sean’s Good Friday filing for bankruptcy in Connecticut – remember in February 2013, Ulster Bank sought permission from the High Court to serve bankruptcy papers on Sean in the US. Ronald is baffled and said that if he had been told to go “find a man and put an envelope in his hand”, he could do that within 48 hours. And Ronald just doesn’t understand how the man from Ulster Bank was unable to serve Sean. After all, it was just a matter of waiting in a car outside Sean’s gaff and when Sean came out of his house to fetch “a pint of milk” it would be gotcha!

At a general level, what the programme didn’t really appreciate is that there is a financial difference between a 3-12 year bankruptcy in Ireland compared to a 5-month bankruptcy in Connecticut because in both jurisdictions, your earnings during the bankruptcy are seized with you left with just enough for basic living expenses. I don’t know what Sean’s earning potential is these days, but given his experience and bulging address book, it is likely well north of €100,000. So there’s a €250,000 difference (less basic living expenses) between an Irish and a Connecticut bankruptcy. And during the 3-year period there may be digging for undisclosed assets or scrutiny of transfers – this can also take place after discharge but during the bankruptcy period it is more potent. Okay, Sean might be out of work at present and might decide to sit around on his backside for the next three years in Ireland during an Irish bankruptcy, but for a man who has been dynamic throughout his adult life, that would be painful.

So, apart from claims about Ulster Bank trying to serve papers on Sean, not much light shone on anything else. British taxpayers who fund Royal Bank of Scotland which owns Ulster Bank might ask questions about the failure of their man to serve bankruptcy papers, but for us, it’s not really relevant.

And lastly, Ronald says in terms of transparency, what would be interesting would be if NAMA were to tell us the sheer level of indebtedness of developers on the day their loans were brought into NAMA. This information on the NAMA website might help there!

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