Archive for April 24th, 2013

NAMA has this afternoon published its management accounts and quarterly report for the three months ending 31st December 2012. So we finally have the unaudited picture for 2012. There will be detailed analysis tomorrow but here are the headlines for 2012. The report is here and the accounts are here.

(1)Profit after impairment and tax of €230m

(2) Impairment in 2012 of €518m

(3) Tax charge in 2012 of €69m

(3) Admin costs of €119m but remember this excludes legal costs which NAMA thinks it will recover from developers. It also excludes the cost of receivers, liquidators and administrators whose costs are charged to the developers’ companies.

(4) 18% of loans are performing, similar to Q3,2012

(5) 223 loans with a nominal value of €867m were enforced in Q4,2012 with receivers in each case.

(6) NAMA initiated six legal cases in Q4,2012 as follows


(7) NAMA sold €2.8bn of assets in 2012

There will be a detailed analysis on here tomorrow, remember these are unaudited accounts and in previous years, the final audited impairment charge has been considerably higher than the figure in the management accounts.


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It would make for a good t-shirt slogan

“Our Taoiseach went to Davos and all he talked about was communications investment in Burma and Bill Gates’s foundation”

When Enda Kenny was on his feet in the Dail on 12th February 2013, responding to questions about the forthcoming G8 Summit in Fermanagh, he rambled on about world affairs and meetings and mentioned his recent trip to Davos in January 2013 for the annual World Economic Forum. You can read what he said here but in the dozen sentences on Davos, he mentioned two topics only – communications investment in Burma (Myanmar) and Bill Gates’s foundation’s crusade to eradicate polio.

Now we know Digicel’s Denis O’Brien was at Davos, we know Digicel is pursuing a once-in-a-lifetime mobile phone licence in Burma, and we know that An Taoiseach has stated he accepts the conclusions of the Moriarty Tribunal in their entirety, a Tribunal whose report made adverse findings against Denis O’Brien who rejects those findings. We also know Burma is a pretty nasty place though it has been opening up in recent years and the military’s grip on the country has been relaxed, and just this week, the EU voted to lift all sanctions on Burma with the exception of the arms embargo and embargo on equipment which might be used for internal oppression.

We know that Digicel has recently won through to the final round in the competition for two mobile phone licences in Burma, and that in June 2013, the two licences will be awarded to two companies from the field of just 12 applicants whittled down from 20. Digicel has said that it may invest USD 1bn in Burma if it is awarded one of the licences. Whilst Digicel is a sizable company providing communications services in the Caribbean, central America and around the Pacific, this licence in Burma would double the subscriber base. It’s huge. It has been confirmed that Digicel does not have a presence in Ireland, doesn’t invest here, pay taxes here or employ people here. It is headquartered in the Caribbean.

After Enda Kenny made his statement in the Dail on 12th February, 2013, he was questioned by the Opposition and ultimately refused to say if he met with Denis O’Brien or representatives of Digicel or representatives of the Burmese government or president. An Ceann Comhairle said An Taoiseach was not required to provide that information under Standing Order 34 governing the conduct of Dail business. Standing Order 34 says “Relevancy of Questions: Questions addressed to a member of the Government must relate to public affairs connected with his or her Department, or to matters of administration for which he or she is officially responsible (including bodies under the aegis of his or her Department in respect of Government policy).”

So, the Opposition submitted a Freedom of Information request, seeking An Taoiseach’s diary for 21-27th January 2013, a period which covered the Davos meeting on 23-27th January 2013. In addition it sought briefing notes for Burma and lists of attendees at certain meetings. Today, we have the response which is attached in full here.

First, let’s play a game. Which of the meetings detailed by An Taoiseach below do you think would give rise to his statement in the Dail on 12th February 2013 “When speaking to people in Davos, the issue of the opening up of Myanmar, the former Burma, arose. It is a country of which we do not have great knowledge, although there were real connections between Ireland and Burma as it was called. That country of 60 million has a huge range of natural resources, yet some 58 million of its people have never had access to communications. That country will move from what might be termed ground zero to cloud computing and cloud access straight away. The scale of the investment there will be enormous”


In the response to the Freedom of Information request, it is stated that An Taoiseach did not meet with Mr Denis O’Brien. This wasn’t asked in the Freedom of Information request. In the parliamentary questions that were disallowed, An Taoiseach was asked “if he had discussions or other interaction with Mr Denis O’Brien, the chairman of Digicel Group at the recent Davos summit” and “if he had discussions or other interaction on the subject of Myanmar (Burma) at the suggestion of Mr Denis O’Brien, the chairman of Digicel Group or his representative or representatives, at the recent Davos summit” and “if he had discussions or other interaction on the subject of Myanmar (Burma) at the recent Davos summit with representatives of the government or president of Myanmar” [ends] So in the FoI response, we have an answer to a question not asked, on An Taoiseach’s own terms. If the PQs were disallowed under SO 34, but An Taoiseach was now willing to provide a response, then why not respond to the PQs as posed?

So, it is stated that An Taoiseach did not “meet” with Denis O’Brien but we do not how wide that term “meet” is, and whether or not An Taoiseach had any interaction at all with Denis, as was asked about in the parliamentary question.

The response to the Freedom of Information request refuses to provide names of people at the IDA event on confidentiality grounds and says there isn’t a record of attendees at a lunch.

So, the mystery deepens. With whom was Enda Kenny talking “when speaking to people in Davos, the issue of the opening up of Myanmar, the former Burma, arose”

I doubt that you have heard the end of this matter.

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The stormy AGM of Bank of Ireland is taking place right now at the Burlington Hotel in Dublin, and the old media is dominated by the decision of finance minister Michael Noonan to abstain from voting on CEO, Richie Boucher’s €843,000 package, covered in detail on here last week.There are other matters at BoI that should be causing us some concern. Last month, the bank published its annual report for 2012 and there was a total recognized loss for the year of €1.5bn and the detail of the accounts show that the BoI pension scheme now suffers from a €1.2bn deficit, up a stonking €0.8bn in 2012.

When a deficit arose at AIB last August 2012, the State shoveled €1.2bn of assets in to fill the hole. We are continuing to find out bits and bobs about the AIB pension bailout, we only recently found out it involved the transfer of €1.2bn of par value mortgages from EBS to the AIB pension fund. But there was uproar last year, because we have shoveled €21bn into AIB/EBS and its former senior executives who had been at the helm when the bank crashed, were still making out like bandits in retirement.

What about Bank of Ireland’s pension scheme? According to Minister Noonan last week, discussions are presently taking place in BoI to address the deficit. At least in the case of BoI, there will be close scrutiny on its decision-making, but the State remains exposed to the bank with its 15% shareholding and €1.5bn of preference shares.

The State is exposed to Bank of Ireland in other ways. The Central Bank has recently threatened banks who fail to meet targets to reach “sustainable solutions” to distressed mortgages will be forced to write down the value of the mortgage to the underlying property and with property prices down 50% from peak, such writedowns may be substantial. What happens if these write-downs eat into the banks’ capital bases and more capital is required. Who will pay?

A third matter of concern is the rumour, and no more than that, that Bank of Ireland may decide in the near future to pursue a rights issue to raise more capital from its shareholders,which include the North Americans who paid €1.1bn for 35% of BoI, buying shares at 10c a pop, shares which are worth 17c today. If BoI does pursue a rights issue, the State would be offered shares reflecting our 15% shareholding and if we declined, we would see our stake diluted. For the time being, Minister Noonan says that BoI has not indicated to the market or his Department that it is planning a rights issue, but if one were to be pursued, Minister Noonan would decide at that time whether or not to pour more money into Bank of Ireland.

So, although the headlines today will be dominated by Richie Rich’s pay packet, we may be facing multi billion decisions at Bank of Ireland imminently.

Information above is in part derived from parliamentary questions and responses last week.

Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm the current deficit in the pension scheme of Bank of Ireland, in which he owns 15% of the shares and in which he owns a substantial preference shareholding; and if addressing the deficit may result in demands to the State to provide additional capital.

Minister for Finance, Michael Noonan: According to the 2012 Annual Report of Bank of Ireland which was published last month, the pension deficit at 31 December 2012 was €1.2bn, an increase of €0.8bn from 2011. The primary driver of this increase was a reduction in discount rates due to the significant fall in yields on high-quality corporate bonds rather than the underlying scheme assets which actually appreciated in value.

It is my understanding that the Chief Executive Officer of the bank is currently in discussions with his staff and the pension trustees regarding options to address the pension deficit. I will await the outcome of these discussions, however, I do not envisage the State having to inject more capital into the bank as a result.

Deputy Pearse Doherty: To ask the Minister for Finance if he will estimate the additional provision that will need to be made in the accounts of Bank of Ireland; if that Bank has to write down the value of non performing loans to the value of the underlying security; and if he will confirm that such a write-down will result in demands to the State to provide additional capital..

Minister for Finance, Michael Noonan: The Deputy may be aware that the rules relating to the correct level of provisioning are determined by the relevant accounting standards. It is the responsibility of the Bank’s Board of Directors to ensure that these rules, including the correct value of the underlying security for provisioning purposes, have been properly applied and that this is subject to independent external audit review. Nothing has been brought to my attention to suggest the Bank has not applied the rules correctly and accordingly I am not aware of any requirement for the State to provide additional capital.

Deputy Pearse Doherty: To ask the Minister for Finance his position regarding providing additional capital to Bank of Ireland, should that Bank decide to pursue a new rights issue.

Minister for Finance, Michael Noonan: Bank of Ireland has not indicated to the market or my Department that it has any intention to raise more capital from shareholders at this time. I can, however, confirm for the Deputy that, should Bank of Ireland decide to do so at some point in the future, I would naturally consider the options open to the State in this regard at that time. If the mechanism chosen was a rights issue, any decision in relation to exercise of rights attaching to our current holding would be made having assessed the best interests of the State.

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This looks serious.


The court-appointed bankruptcy trustee handling Sean Dunne’s bankruptcy in Connecticut has sought a subpoena from the bankruptcy court which would compel Swiss banks to submit themselves for questioning about Sean Dunne’s affairs. The 2-page application is here and an extract is shown above.

The banks in question are all part of the Credit Suisse group, namely, “Credit  Suisse  Securities  (USA)  LLC, Credit Suisse Group, and Credit Suisse Financial Corporation (“Credit Suisse”)”

The application yesterday by bankruptcy trustee, Richard Coan, in part, states

“Credit Suisse has information relevant to the assets of the Debtor and/or transfers made by the debtor. Credit Suisse may have other information relevant  to the administration of the bankruptcy estate of Sean Dunne.”

The application asks that the banks can be quizzed under the US Rule 2004 which allows the trustee to quiz the banks and demand documents, and it asks that the questioning takes place on 3rd May 2013.

Credit Suisse was NOT named as a creditor of Sean in bankruptcy filings, but it was the bank involved in the purchase of the €4m apartment in Geneva. We don’t know what information the trustee is seeking from the subpoena.

As we have seen in the David Drumm bankruptcy in Boston, the bankruptcy trustee owes a duty to creditors and can adopt a hostile stance towards the bankrupt as they pursue the bankrupt’s assets. NAMA has previously pointed out that bankruptcy trustees in other jurisdictions have established- expertise in locating assets, and that is one reason why it is in general neutral on the jurisdiction in which the developer files for bankruptcy.

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Jones Lang LaSalle (JLL) has this morning published its Irish commercial property indices for the three months ending 31st March 2013, and unsurprisingly prices continue to decline, by 0.6%% in Q1,2013 compared with Q4,2012 and by 6.9% for the past four quarters. Prices are now down 67.3% from peak and 27.4% from November 2009, the NAMA valuation date. The report should be available online at the JLL website shortly.

By reference to the €9.25bn paid by NAMA for loans underpinning Irish commercial property, which relate to values in November 2009, this morning’s release means that the underlying value of NAMA’s loans by reference to the asset value has decreased by another stonking €56m. For those of you who remember the former finance minister, the late Brian Lenihan, suggesting prices were bottoming out in September 2009, the near 30% decline since highlights the poor planning of NAMA. And although Brian Lenihan might have shuffled off this mortal coil, John Mulcahy, the current NAMA Head of Asset Management whose advice to Brian Lenihan is understood to have led to the prediction of the bottom, still walks amongst us.

There is some eagerness at JLL to emphasise that the index is a general index covering all 29 properties in its portfolio that are analysed every quarter – 29 might seem like a small sample, but there is a very strong correlation between the JLL index and the 300-strong property SCSI/IPD index. JLL does say that some prices in some subsectors are stabilizing – prime property with new leases – but declines in older property especially with pre-March 2010 leases continue to drag the overall capital values down.

Although not stated by JLL, there appears to be some firming up of values of prime property with post-February 2010 leases which are not subject to Upward Only Rent Reviews. However, as old UORR leases expire and rents fall to current market levels, capital values on such properties dive.

Rents are down 3.2% in the quarter and 6% in the past year and are down by nearly 51% from peak. Because most pre-March 2010 leases in Ireland contained so-called Upward Only Rent Review clauses, older lease tenants may still be paying rents today which are more than double the market rent.

Hannah Dwyer, Head of Research at JLL says “retail rents continue to be under pressure, with stabilisation only evident for prime rack rented units on main high streets and strong-performing centres. Other types of retail and other locations struggle in comparison. Office (-0.2%) and Industrial (-0.1%) Rental Values only recorded small decreases in the quarter which is reflective of greater stability in prime rents in these markets.”

The JLL series is one of the two Irish commercial indices referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page. The other quarterly Irish price series is published by SCSI/IPD and will be available on later on today; because it is generally published after JLL’s, it is not used here to help compile the NWL index, but the SCSI/IPD index does historically show a very close correlation with JLL’s.


With the latest release from JLL, Irish commercial property prices have fallen 27.4% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 776  meaning that average prices of NAMA property must increase by a weighted average of 28.8% for NAMA to breakeven on a gross basis.

UPDATE: 24th April, 2013. IPD has now published its indices for Q1,2013 and show an overall 1.0% decline in capital values. This is the comparison between JLL and IPD incorporating the latest index results published today.


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