Archive for May 2nd, 2013

This morning, Ireland’s number one residential property website, Daft.ie published its quarterly rental report which showed asking rents has increased by 2.7% in the past year. This supports the results of the monthly CSO  index which shows actual private sector rents had increased by 3.4% in the past 12 months. Rents are rising, it seems, albeit at a relatively modest pace. The CSO doesn’t analyse rents by area, but Daft.ie does and it says that rents in Dublin are up 5% in the year whilst provincial rents are up just 0.2%.

A question often asked about NAMA is whether or not it is distorting the rental market by withholding property.  This is an understandable question, after all NAMA is a colossal company, now controlling €23bn of loans (down from €32bn which was its acquisition value and the original par values were €74bn).

But NAMA does not really have a very large impact at all on the residential market. We previously learned that NAMA has 14,000 homes securing loans under its control. This is in a State which has 2m homes in total. And of the 14,000 homes, 10,000 are already rented out mostly in urban areas. The other 4,000 are available for sale or rent.

When asked in the Dail last week, the Minister for Finance Michael Noonan pointed out that the last Census 2011 results showed that there were approximately 320,000 private rented properties in the country, so NAMA’s 4,000 which are vacant and available for sale or rent are not sufficient to distort the market.

As Daft.ie’s economist, Ronan Lyons says today, it really does seem that there are supply constraints in some areas which are driving up prices. Unfortunately with existing building costs, there is no sign of waves of development to meet the demand, so it would seem in some areas prices may be set to continue to rise until it becomes attractive to build again.

The parliamentary question and response are here:

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 91 on 21 March 2013, if he considers the 4,000 homes that the National Asset Management Agency controls which are vacant to be distorting rent levels in the urban areas where NAMA says the majority of its housing is located. [18450/13]

Minister for Finance, Michael Noonan: As advised in the response to Parliamentary Question No. 91, all properties securing NAMA’s loans are ultimately available for rent or sale. As advised in my response to Parliamentary Question 91, of the completed residential property securing NAMA’s loans, approximately 10,000 units are currently rented, primarily in the private rented market. The residual NAMA residential stock is being actively marketed for rent or sale by NAMA debtors and receivers at market prices or has been made available for social housing or is currently being marketed under the Agency’s 80/20 Deferred Payment Initiative. According to the most recent Census there are over 320,000 private rental properties in the country. Therefore, the scale of NAMA’s vacant homes is not large enough to distort the market.


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This morning, NAMA has issued a statement about the sale of Project Aspen – the statement is here on the Gordon MRM website but get it quick because the “archive” feature on the Gordon MRM website frequently doesn’t work. Project Aspen is the portfolio of loans relating to Dublin property developer, David Courtney and relate to a number of properties in and around Dublin. The loans have a par value of €810m. NAMA doesn’t say this morning how much the loans have fetched – sources here last week credibly claimed it was €180m. I see the old media is today claiming it is €200m. Eastdil marketed the loans from January 2013, and there were 60 interested parties.

Who is the buyer? As expected Starwood Capital is the buyer. Or more accurately, one of the buyers. The NAMA statement says that the buyer is a consortium and “other members of the consortium include Key Capital Real Estate and Catalyst Capital” It is not clear if there are other members.

But there are two major surprises this morning:

(1) The buyers are receiving staple finance from NAMA to purchase the loans. Remember “staple finance” is where NAMA provides the buyer with the funding to buy assets. NAMA says this morning “NAMA will provide a senior secured loan (vendor finance) to the joint venture, with an initial loan to value of less than 60%. The loan will carry a commercial rate of interest, and is expected to be repaid within five years.”

 (2) NAMA is entering into a joint venture with the consortium to manage the portfolio! NAMA says this morning “Under the terms of the agreement, NAMA will sell the loan portfolio to the new joint venture entity, which will be 20% owned by NAMA and 80% owned by a consortium led by Starwood.”

So, NAMA is getting €57.6m in cash now on my source’s information on the sale value – being €180m at 80% at 40% – , or €64m based on what the old media says today, so it is getting 7c in the euro on the par value of the loans today and an overall total of less than 25c in five years.

NAMA says this arrangement “enables NAMA to capitalise on the current robust interest from global investors in Irish commercial property assets and at the same time participate in the continuing recovery of the Irish commercial property market”

The “continuing recovery of the Irish commercial property market” is questionable. Figures released last week by Jones Lang LaSalle and IPD/SCSI showed that commercial property declined by 0.6%-1.0% in Q1,2013, this after a 7% decline in the past 12 months. Commercial rents declined by 3.2% in Q1,2013.


There will be some head-scratching as to why NAMA is actually disposing of these loans. It is providing most of the funding and retaining a 20% interest. Why doesn’t the National Asset Management Agency act like an agency and manage its own assets. Why should a US investment group be able to generate a better return than NAMA? Of course, it is joined by local asset managers, Key Capital, but is this transaction an admission by NAMA that its asset management skills are inferior to those of a relatively small Dublin asset manager?

There will also be some questioning as to the involvement of David Courtney himself in the sale. Remember, these are David’s loans. The Sunday Independent reported on 31st March 2013 that “David Courtney, a top Nama client, has teamed up with US investment firm Starwood and local finance house Key Capital to bid for the loan book”

I don’t know if this is true or to what extent it is true, but in the Dail last week, Minister Noonan responded to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty which set out in detail the NAMA rules, and it is accepted by NAMA, according to the response, that borrowers may cooperate with potential buyers, as long as it is not “during the sales process”

Based on the experience of the sale of the €250m of Donal Mulryan loans to Morgan Stanley, it seems to be accepted by NAMA that borrowers can work alongside buyers after the sale, but this area appears murky and given NAMA cannot sell property to defaulting debtors, it seems inconsistent that defaulting debtors would otherwise derive benefit from the property.

The parliamentary question and response, referred to above, from last week is here.

Deputy Pearse Doherty: To ask the Minister for Finance following news that the National Asset Management Agency is selling large portfolios of loans which bundle together loans to a single borrower, if he is concerned that the borrower may derive a benefit from providing pre-sale advice to certain bidders.

Minister for Finance, Michael Noonan: I am advised by NAMA that it cannot preclude market participants from approaching debtors to discuss their property assets or to indicate potential interest in acquiring either properties or loans. Nor can NAMA preclude debtors from engaging with such potential purchasers. To do either would be counterproductive and could stifle normal commercial discussions in the property market and in particular could discourage international investors from exploring acquisition possibilities in Ireland.  However, NAMA has very clear rules regarding the open marketing of loans or of properties on which it holds security.  

As set out in response to recent Parliamentary Questions on the topic of NAMA loan sales [44286/12, 44287/12, 44288/12, 44189/12, 1549/13, 8753/13, 8754/13], NAMA has adopted a very thorough approach in line with accepted international market best practice for the sale of loan portfolios.   As part of the formal sales process, potential purchasers are required to provide an undertaking that they will not engage with the debtor or other obligors at any stage during the sales process. Both debtors and potential purchasers are aware that the infringement of agreed protocols or undertakings may have an impact on NAMA’s decisions as to whether and to whom it sells a particularly portfolio.   Furthermore, where NAMA approves the sale of any loan or approves the sale of any secured property by a debtor, it requires a confirmation that the purchaser is not connected to the debtor or other obligors.    

Having ensured, as far as possible, that the sales process is conducted on the basis of all parties having equal access to the necessary information at the same time and that such primary sales are not made to the relevant debtors or to connected parties, NAMA advises that it has no legal right to intervene in any further future management or sales of the loan or underlying property in question post disposal.

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The regular audience on here will know that there is deep skepticism about the recently announced targets to deal with distressed mortgages. Although the announcement on 13th March 2013 was trumpeted by Minister for Finance Michael Noonan, he has since been eager to pass the buck for monitoring the targets to the Central Bank of Ireland. In the Dail this week, he stated that the person responsible for monitoring the targets and enforcing action was the deputy governor and Financial Regulator, your friend and mine, Matthew Elderfield who is scheduled to join Lloyds Bank in October 2013. And beneath Matthew, the person responsible is Fiona Muldoon, the Paddy-Power-favorite to eventually take over the deputy governor role.


So, at the start of July 2013, we should see how effective an employee Fiona – pictured above – is. If the banks fail to offer “sustainable solutions” to 25,000 mortgage account holders equating to 20% of the 125,000 principal residence and buy to let mortgages that were in arrears at the end of December 2012, then the trumpeted targets will not have been met. The view on here is that this target is fantasy but if it is meaningfully met, then perhaps Fiona is really the woman for the job.

However, we also learned this week that the Central Bank’s main stick – forcing banks to assume nil future cash flow on distressed mortgages, save for the value of the associated property – may be utterly useless. This is a “stick” because if banks have to write off a large part of their loans, they will make big losses and may need new capital. Remember, there are already questions over whether this approach by the Central Bank will conflict with International Financial Standards. Now we find out that banks which don’t like the stick can simply upsticks – no pun intended! – and change their regulator. For example, Ulster Bank could change its regulator from the Bank of Ireland to the Bank of England, and this is not pie-in-the-sky, there were rumours in 2012 that Ulster Bank was considering the change, well before these targets were mooted.

The information above is based on parliamentary questions and responses. Deputy Doherty’s are from this week, the Deputy McGrath question (with emphasis added in bold on here) is from 2012:

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 252 of 16 April 2013, if he will confirm the name or names of the principal person or persons at the Central Bank of Ireland responsible for setting and monitoring targets at the banks for dealing with distressed mortgages.

Minister for Finance, Michael Noonan: I am informed by the Central Bank that setting and monitoring targets in this area is the responsibility of the Deputy Governor (Financial Regulation) of the Bank who will delegate operational responsibility to the Director, Credit Institutions & Insurance Supervision and the Divisional Supervisory teams.

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Questions Nos 64 of 12 July 2012 and 251 of 16 March 2013, the power the Central Bank of Ireland has to compel banks to write down the value of problem loans to the value of underlying security if the bank changes its primary regulator, for example, if Ulster Bank changes its regulator to the Bank of England and the British Financial Services Authority..

Minister for Finance, Michael Noonan: The Central Bank (CBI) has informed me that where a bank’s operations in this country are conducted under a licence granted by a regulator in another country (e.g. the UK in this example), the CBI does not have the prudential powers to set problem loan provisioning rules for that bank

The Central Bank’s Code of Conduct on Mortgage Arrears applies to mortgage lending activities with borrowers in respect of their principal private residence in the State. Compliance with the Code is mandatory on all mortgage lenders regulated by the Central Bank.

Deputy Michael McGrath: To ask the Minister for Finance his views on the impact for customers of suggestions that Ulster Bank is moving its regulatory supervision to the Bank of England; and if he will make a statement on the matter. [34206/12]

Minister for Finance, Michael Noonan: I have been informed by the Central Bank that it has not received any formal application to change the regulatory or legal status of Ulster Bank Ireland Ltd from that of a subsidiary of Royal Bank of Scotland Group. However, there are some informal indications that Ulster Bank Ireland Ltd may change its regulatory status and be subject to regulation by the Bank of England and the UK Financial Services Authority as in the case of its parent, Royal Bank of Scotland.

That option is available for all banking groups in terms of how they operate in jurisdictions under European regulation, whether as subsidiaries or as branches.

The Central Bank has full prudential and conduct of business supervisory control over licenced banking subsidiaries. For banks that would opt to operate as branches, the Central Bank would retain powers over conduct of business regulation and liquidity requirements. Accordingly, the Central Bank would maintain its full consumer protection remit over all banking entities operating in Ireland irrespective of their regulatory configuration

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