NAMA has receivers appointed to major Irish property company

There seems to have been a relaxation in the intensity of NAMA’s foreclosure activity in recent weeks, ahead of the judicial review of its dealings with Treasury Holdings’ loans which is set to kick off at Dublin’s High Court on 3rd July, 2012. The judicial review seems to be quite wide-ranging and challenges the very core of NAMA’s operations. If it is successful – and the betting is that it won’t be, but you never know with the Irish judicial system – then it will have a fundamental impact on NAMA’s activities including past enforcement actions. Meanwhile, there is still a drip-drip of enforcement action.

According to yesterday’s edition of Iris Oifigiuil, NAMA has had receivers appointed to Wexford-based Ellen Construction Limited. Declan Taite and Anne O’Dwyer, both of RSM FGS Partnership were appointed joint statutory receivers on 14th June, 2012. Ellen Construction was controlled by brothers Michael Doran and Martin Doran, and Carmel Doran and is the company behind Bewley’s hotels at Dublin Airport and Leopardstown, a holiday home scheme in Wexford, and apartment complex developments in Dublin including Island Key apartment complex.It has been in  financial trouble for some time, and the company was already in receivership and liquidation, so the appointment of NAMA’s receivers merely better protects NAMA’s interests.

Remember you can see a comprehensive list of Irish foreclosure action by NAMA here and in this regularly updated spreadsheet.

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Minister confirms that NAMA is forgiving personal guarantees

“Another misplaced claim made during the debate is the legislation represents a bailout for developers. This is just not so. Let us be clear. NAMA is not designed to be, and will not be permitted to operate, in practice as a bailout mechanism for developers who have operated irresponsibly. The amount a borrower owes will not change because of the transfer of a loan from his bank to NAMA. The agency will have a statutory duty to maximise the taxpayer’s return and will, therefore, be expected to use its entire means to this end. The Bill also provides the agency with the wide range of powers it needs to pursue borrowers and enforce security. In some cases, this will mean borrowers’ personal assets will have to be assumed by NAMA and, in such circumstances, I cannot understand how the misconception that the agency will bail out developers continues to run other than pure political mischief making” Former Minister for Finance, the late Brian Lenihan during the second stage debate on the NAMA Bill on 14th October, 2009

Last week, the Minister for Finance Michael Noonan told Sinn Fein’s finance spokesperson Pearse Doherty that “debt forgiveness has not formed part of these agreements” – the “these agreements” meaning the agreements NAMA was reaching with its developers for the repayments of loans.

But a week is a long time in politics.

This week, Minister Noonan is saying that NAMA will release developers from “personal guarantees or personal recourse” which to many people will sound a lot like “debt forgiveness”!

Minister Noonan was responding to questions in the Dail yesterday from the Fianna Fail finance spokesperson Michael McGrath and from Pearse Doherty. The full exchange is as follows:

“Deputy Michael McGrath: To ask the Minister for Finance if the National Asset Management Agency has agreed deals with debtors which involve a reduction or dilution in any form of any personal guarantee the debtors may have given in respect of their loans now held by NAMA; if he will provide details of the number and nature of such deals; and if he will make a statement on the matter.

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 226 of 12 June 2012 wherein he said that debt forgiveness has not formed part of agreements entered into by the National Asset Management Agency with debtors, if he will confirm if NAMA has entered into agreements where personal financial commitments and obligations by debtors have been reduced or waived as part of any agreement.

Minister for Finance, Michael Noonan:  I am advised by NAMA that it did not pay any consideration to participating institutions for personal guarantees attached to acquired loans. This is because it did not consider that such guarantees had any residual value in the vast majority of cases as the amounts potentially recoverable were limited to the value of secured assets.

The policy of the NAMA Board from the outset has been to pursue all personal guarantees to the greatest extent feasible where there is value to be obtained. I am advised by NAMA that, with respect to co-operative debtors who have made full disclosure of assets and liabilities, it may, on a case-by-case basis, consider the release of personal guarantees or personal recourse two years after the value of all assets have been realised. I am also advised that the NAMA Board has recently decided that it will review this issue again in the light of any revised personal insolvency regime that may be introduced following enactment of legislation by the Oireachtas.”

What you are getting above is a reluctant response that has to be draaaaagged out of the Minister, and his response last week may seem to some to be downright misleading. He may well now couch his response in conditionality – NAMA “may” and “consider” and “case by case” – but the bottom line is that NAMA is writing off personal guarantees and personal recourse. NAMA may not have paid anything for these personal guarantees but you and I certainly have with the €42bn losses notched up by the banks when they transferred €74bn worth of loans to NAMA and only received €32bn in return.

What does this mean for NAMA? Not a great deal, it makes commercial sense for the Agency to maximise returns from its loans and if it forms the view that incentivisation – be it profit shares or forgiving personal guarantees or recourse – of specific developers will lead to such a maximisation, then that is in line with the Agency’s remit.

Politically this is dynamite of course. Remember former Minister for Finance, Brian Lenihan and his solemn commitment that developers would not be allowed walk away from their debts? Citizens that have borrowed to buy homes may feel they are being unfairly treated by not being given the same deal as developers – the deal being that they work as best they can with their borrower for a couple of years, then walk away from their mortgage keeping their personal assets.

Minister for Justice, Equality and Defence Alan Shatter has another eight days to publish his Personal Insolvency Bill. Yesterday’s revelations have just upped the ante for him to deliver a system which will be regarded as equitable and fair for the debt-burdened in this country.

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Exclusive: At least 1 in 6 Irish hotel rooms is under bank control, and 56% of these are controlled by NAMA, and NAMA banks

If you haven’t stayed in an Irish hotel recently, chances are you won’t appreciate the terrific value for money that is now available, especially via deals offered on the internet. For the foreign audience in particular on here, there are eyebrow-raising hotel prices available in what is still a modern European country with bucket-loads of craic, culture and commerce. In fact some deals are so good that you would wonder how the hotels can offer them at a profit. Remember this is a country with a relatively high minimum wage (€8.65 per hour compared with about €7.54 per hour in the UK), industry labour agreements which mandate special payments for overtime/weekend work, reputedly high business rates, and high costs for oil and gas. And yet you can find trendy three-star hotels for €60 a night per room inDublin city centre, including a great breakfast. And you can find five-star two-night deals with breakfast and one dinner for €130 per person sharing. And Irish five-star hotels earn their five stars! So why is there almost unbelievable value available in Irish hotels?

Certain industry sources seem to know the answer and believe hotels are being operated on a loss-making basis to avoid sales of the underlying property which would crystallise losses for banks which lent vast sums to the sector during the mid-2000s credit- and tax break-based boom. So for example, if you are Bank A and lent €100m to Developer A to develop Hotel A and Hotel A is now worth only €40m with Developer A likely to be in default – technical default because of the collapse in property prices which means the loan has broken its loan-to-value covenant, or actual default because revenues don’t cover operating costs let alone loan repayments  – then you can (a) call in the loan and dispose of the hotel and crystallise a €60m loss or (b) you can financially support the hotel as a going concern, even on a loss-making basis, in the belief that in a year of two, the hotel might be worth €50m. You could also theoretically mothball the hotel pending a hoped-for upturn in the property market, but that would mean an established hotel would lose goodwill – brand-related and specific customer-related goodwill – so that it would lose even more of its current value.

According to the widely-cited Bacon report – authored by economist and economic consultant Peter Bacon – there were 915 hotels accounting for 59,965 rooms in the State in 2009. Through an exhausting and exhaustive analysis of receiverships and foreclosure action as well as annual reports, it can be exclusively revealed here today that at least 81 hotels are today under bank control (and that includes NAMA) and these 81 hotels account for 9,714 rooms. To put it another way, more than one in six hotel rooms in Ireland today is under bank control; “bank control” means more than just a hotel having a working-capital overdraft facility with a bank, which practically all hotels have, or having a loan which is being repaid in accordance with the loan terms; it means the hotel is in the hands of a receiver or is reputedly owned by a company which is subject to enforcement action by a bank, or is reportedly dependent on bank support to operate, something which is sometimes revealed in annual accounts. Because the analysis presented here depends on positive reporting, the analysis is likely to under-estimate the number of hotels subjected to bank control – hotels may be under-water with their loans, but if banks have not taken action or if the hotels have not revealed their dependence on the banks in accounts, then they will have been excluded from the analysis. NAMA has said that there are 90 Irish hotels subject to NAMA loans, but its foreclosure list has less than 25 in Ireland You should read the *notes below in conjuction with the data which is shown in extract form below and is available in a spreadsheet here.

 

 

NAMA would like you to believe that its influence on the hotel sector is over-blown in the media, and that you should look elsewhere – particularly at non-NAMA bank, Bank of Scotland (Ireland) – for concerns about the bank-controlled sector. However the analysis would seem to indicate that NAMA has a far bigger influence with 49 hotels representing 5,396 rooms, foreclosed by NAMA or by NAMA banks – the NAMA banks being AIB, Anglo, Bank of Ireland, EBS and INBS. To put it another way, 55.5% of hotel rooms under bank control inIrelandtoday are under NAMA, or NAMA bank control. It should be emphasised that NAMA may not have acquired all hotel loans from the NAMA banks, for example, Sean Quinn’s Slieve Russell hotel in Cavan had receivers appointed by Anglo which is a NAMA bank, but like other Sean Quinn foreclosed property is not controlled by NAMA.

The traditional hotel sector is – naturally enough – keen to defend its business. The hotel business is not an easy business and the last thing independent operators need, is to have prices undercut by bank-controlled hotels who might be tempted to run loss-making operations in the hope that the value of the underlying property or the business will pick up, leading to a better overall financial result for the bank. Failte Ireland has already alluded to the sorts of issues being faced by “traditional” hotels which can’t afford refurbishment and investment on current margins (or losses) but bank-operated hotels seem to have no problem with “replacing curtains and carpets”. Tourism minister Leo Varadkar’s predecessor,Mary Harney, met with NAMA to discuss the concern but NAMA says it is not supporting loss-making businesses.

The traditional hotel sector hasn’t sat on its hands and kept its suspicions to itself and in 2010/11,Ireland’s Competition Authority apparently investigated the issue but concluded there wasn’t evidence of anti-competitive behaviour by bank-controlled hotels, and that bank-controlled hotels were seemingly profitable, or no less profitable than non bank-controlled hotels. There is no formal report on the matter by the Authority available from its website, seemingly. The Authority was on Wednesday asked to comment for this blogpost on its activities in this area, but has so far not responded beyond acknowledging the request for comment. If there is a substantive response, it will be posted as an update below.

Despite the work undertaken by the Authority in 2010/2011, it is claimed the Authority was not forthcoming on the range of costs it took into account when assessing the profitability of hotels, and suspicions seem to have lingered that some costs were excluded from the Authority’s analysis. Two such costs include local authority business rates and payments to banks for loans which may be for working capital or for building programmes like extensions or for capital purchases. And of course there is the cost of managing the hotel as opposed to running it, and inIrelandwe have a few specialist management companies that are engaged by the banks to manage foreclosed hotels eg Dalata and Tifco. A traditional owner/operator typically manages the hotel themselves, perhaps with family members or perhaps with professional managers, but regardless, this is a real cost for the hotel.

There is speculation in the industry that Ulster Bank is about to offload a portfolio of 12 hotels including two of Sean Dunne’s Ballsbridge hotels, Jury’s and the Berkeley Court. Separately, Savills presently has a portfolio of at least nine NAMA hotels but they appear not to be for sale yet, and mightn’t be for some time – the recent Comptroller and Auditor General special report on NAMA indicated it was NAMA strategy to “hold” Irish hotels, in other words to operate the businesses until some future date when hopefully the market will have recovered. However, it seems that lenders generally are presently undertaking calculations and weighing up the cost and lender-management time in supporting a hotel in the hope of an increase in value in the building or business, and they are comparing this cost with the estimated future value of the business or property in an economy still plagued with high unemployment – currently 14.8%, but even the forecasts point to 12%-plus in 2015 – anaemic economic growth with respect to GDP and contracting GNP and economic issues in key source countries for overseas visitors. Lenders may be concluding that it is better to crystallise losses today than throw, potentially, good money after bad. The removal of potentially artificial funding-supports to hotels through a sale may mean there is a contraction in the number of hotels/rooms available or that prices may need increase to cover costs.

And to visitors and potential visitors to Irish hotels, you might never find such incredible value again!

*Notes to the data produced on “bank-controlled” hotels.

(1) The information is generally based on press reporting or statements in annual accounts. The source for classifying any hotel as “bank-controlled” is shown in the comments field of the hotel title.

(2) The information is believed to be accurate today, but receivers may dispose of hotels at any time in the interests of creditors which would generally mean the hotel was no longer bank-controlled. For example, the Sand House Hotel in Donegal was subject to foreclosure action, but was sold at auction last month – apparently to a manager of the hotel – so it is no longer “bank-controlled”

(3) Hotels under bank control may be operating on a normal basis as far as suppliers, employees and customers are concerned.

(4) Association with a NAMA Participating Institution – AIB, Anglo, Bank of Ireland, EBS and INBS – does not necessarily mean the hotel is subject to a NAMA loan; for example, Sean Quinn’s Slieve Russell hotel is understood to be controlled by receivers acting at the behest of Anglo, and the underlying loan has not been transferred to NAMA.

(5) If any error is spotted in the list, please inform the blog using the confidential contact form here, or email to jagdipsingh2008[at]hotmail[dot]co[dot]uk. Any valid correction will be made expeditiously.

(6) The list may understate the presence of bank-controlled hotels because it is based on positive news reports and statements in annual reports. Not all receiverships and foreclosure action may be reported, and even if it is, it is not always apparent that it relates to, or is associated with, an hotel. Not all annual reports make reference to hotels owned by a company being dependent on bank support, even when that might be the case.

(7) It is not asserted that the prices available at the listed hotels are in breach of competition law. And prices at non bank-controlled hotels may be just as – if not more – competitive.

UPDATE: 6th July, 2012. The original spreadsheet of data has been amended to reflect corrections and additions/removals, the new data are shown above.

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The true state of the Dublin commercial property market? Sale of landmark office block falls through despite 13% yield – sources

One of the most valuable commercial properties presently on the market in Dublin may be providing one of the most accurate insights into the true health of the market in 2012. St Martin’s House at the intersection of Waterloo Road, Upper Baggot Street and Pembroke Road in central Dublin has been on the market with an asking price of €37.5m. It is a 76,000 sq ft 1960s refurbished office/retail block plus 156 car-parking spaces. The property is multi-tenanted and presently taking in €3.6m per annum. So on the face of it, a yield of just under 10% is suggested by the asking price. Savills is marketing the property and sales details are here.

Sources say that contracts had been issued at €28m, suggesting a 12.7% yield but even at this rate of return, the sale appears to have fallen through. The schedule of tenancies in the sales brochure suggest office rents of €40psf which is probably €15 psf above current market levels. Leases expire between 2016-2027. There is a mix of office tenants that includes reportedly-NAMAed Spain Courtney Doyle, about whom the brochure notes “Spain Courtney Doyle is a private limited company and have not published latest accounts for a credit score to be available.” As reported on here in April 2012, Spain Courtney Doyle now appear to have a London address, and one of the founders Bernard Doyle declared bankruptcy in the UK last month.

The building is understood to be owned by Treasury Holdings which is in the wars with NAMA at present, though it is not clear if this building is associated with any NAMA lending. [CORRECTION: 19th June, 2012. The building is in fact now wholly owned by Friends First Managed Pension Fund Limited and managed on its behalf by F&C Reit]

Savills hasn’t commented at time of writing.

UPDATE: 19th June, 2012. For the avoidance of any doubt, the selling agents advise that the leases/tenancies are fully performing.

UPDATE: 9th January, 2013. Jack Fagan reports in the Irish Times today that the property has now been sold to two unidentified German businessman, introduced by Davy, who paid €22.5m for the 75,000 sq ft property comprising retail and office space. Jack says this represents an initial yield of 13.26% but if the rent is still €3.6m, then I make the €22.5m price equivalent to a yield of 16% exactly.

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NAMA sues Tom McFeely and wife in Dublin’s High Court

Developer Thomas McFeely (or just plain “Tom McFeely”) looks set to become a locomotive generator of legal action on both sides of the Irish Sea. Last Friday in London’s High Court, an Irish creditor who had secured a judgment against Tom in Dublin succeeded in having Tom’s UK bankruptcy bid derailed – perhaps only temporarily, as it seems the UK bankruptcy authorities are reconsidering Tom’s bankruptcy bid in light of new information about his debts, and it seems Tom himself is complaining his human rights are being interfered with. There has been a number of separate legal cases – here and here – that have recently come to a head in theUK, where it seems Tom has been on the losing end.

And on this side of the Irish Sea, Tom has not left the headlines since he was accused of not being able to build a snowman last October 2011, not to mention a block of flats as evidenced by the farce and tragedy of the residents of Tom’s Priory Hall complex in north Dublin. NAMA has recently been pursuing possession in the Circuit Civil Court of Tom’s €10m home onDublin’s upmarketAilesbury Road, and the latest had been that the McFeelys were ordered to leave the house by the start of August 2012, on condition that they put buildings insurance in place.

Yesterday, NAMA made an application to Dublin’s High Court – reference number 2012/129 CA – against Tom and his wife, Nina. NAMA is represented by a fairly small firm of Dublin solicitors Whelan Murtagh, which I think is the first time this firm has been used by NAMA. And, as is usual with the processing of new applications by the Courts Service, there is no solicitor showing on record for the McFeelys.

We don’t have any details at this stage about the subject of the application, though it seems it may be related to a lower court case in the Circuit Court and it may well be associated with the possession order for the McFeely house onAilesbury Road. In the past, NAMA has taken action in the High Court against individuals to seek personal judgments and to enforce personal guarantees. But it should be emphasised, we do not know if that is the case here.

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NAMA renews appointment of Northern Ireland duo to NAMA advisory committee

“NAMA’s appointed management company have sent someone out to cut the grass but we’ve had nothing else happen in terms of getting street lights. “We even had to fight to get someone out to collect our bins, and that’s despite the fact we pay quite high rates,” confirmed Mrs Kiernan. While issues such as bin collection and landscaping may sound frivolous, more concerning are aspects of safety. With gaping holes in the street, not to mention unfinished pavements and no street lights, accidents are a major concern” Life on a NAMA estate in county Armagh, reported by the Ulster Gazette

For political and economic reasons, much attention is focussed on the Northern Ireland dimension of NAMA’s operations. According to the press release that marked last Friday’s meeting of the North South Ministerial Council, there was discussion of NAMA but alas the press release doesn’t provide any further details. It would seem that the re-appointment of Frank Cushnahan and Brian Rowntree – profiles and photographs here – to NAMA’s Northern Ireland Advisory Committee did come up, as today NAMA has announced the duo have been re-appointed for a further two years until April 2014, the tenure of their first term having apparently expired. The re-appointments followed consultation between NAMA and Minister for Finance, Michael Noonan and the Northern Ireland finance minister, the sometimes-bohemian Sammy Wilson.

There is still no news on the search for a non-executive director to replace Peter Stewart who resigned from the NAMA board last October 2011, and the vacancy for which the Department of Finance advertised with a closing date for applications of 6th March, 2012. The Department is responsible for filling director roles at the Agency.

It would appear from the recent Comptroller and Auditor General report on NAMA’s asset management phase that our neighbours across the Border have been getting their way, with NAMA disposing of a proportionately small number of Northern Irish properties, thereby avoiding fire sales presumably. On the other hand, it would appear that Northern Ireland is getting a proportionately small amount of NAMA investment funds.

We had a reminder last week in the Ulster Gazette that ghost estates are not just a Republic phenomenon, when the Gazette reported on a NAMA estate, Limestone Square on Rock Road in county Armagh, a Sam Thompson development, The report painted a picture of woeful neglect which corresponds to the picture of such estates on this side of the Border, though we know that NAMA has set aside specific funds here to complete the construction including estate lighting and footpaths. Seems like those re-appointed Northern Ireland representatives may need to give NAMA a nudge…

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NAMA’s secret debt forgiveness programme

When the Comptroller and Auditor General published its special report on NAMA in May 2012, we learned quite a lot about NAMA’s operations. The above extract introduced many of us to the term “connection management agreements” which plainly provide for what most of us would commonly refer to as “debt forgiveness”.

By way of example to explain what we’re talking about – imagine you are Developer A and you have a company called “Developer A Limited”. Your company borrowed €100m from the bank to develop a site. The bank required you as Developer A to give a personal guarantee of €5m secured on your own house. The property sector collapses and your €100m loan is transferred to NAMA which wants its €100m back. Trouble is, the site for which you borrowed the €100m is now only worth €20m, so NAMA hasn’t a hope-in-Hell of getting its €100m back from that. And your personal guarantee of €5m won’t make a huge dent in the outstanding debt either, but you are on the hook for it. So NAMA says “right Developer A, if you manage your site which is worth €20m today so that we can sell it for €50m in three years time, we will not come after you for your personal guarantee”. Developer A really doesn’t have a choice – he either works with NAMA or loses his house now, so he says “yes”. And this agreement will then be written up and referred to as a “connection management agreement”.

However, citizens of this country will want to know more about these agreements. After all, developers whose debts crippled this country when the Government decided to guarantee the banks, will walk away from their loans without having to give us the assets pledged under personal guarantees. In the above example, it makes financial sense for NAMA to forgive these personal guarantees if, through the labour and sweat of the developer, the site appreciates in value from €20m to €50m in three years. NAMA gets an extra €30m and in return “pays” the developer just €5m in waiving their personal guarantee. So the above might be a sensible commercial decision.

It is political dynamite however, because every under-water mortgage-borrower in the country might rightly conclude that their asset is worth just 50% of the mortgage outstanding and their “other assets” – which the bank might have recourse to if it forecloses – are practically worthless, so why won’t the bank offer them a deal over three years as well. Why is there one rule for the developers and another rule for other borrowers?

That is presumably why Minister for Finance, Michael Noonan was apparently unwilling to give Sinn Fein’s finance spokesperson Pearse Doherty a straight answer on the matter in the Dail during the week when Minister Noonan cryptically said that “debt forgiveness has not formed part of these agreements”. The full exchange is here:

“Deputy Pearse Doherty: following the recent publication of a special report by the Comptroller and Auditor General, the number of connection management agreements the National Asset Management Agency entered into with debtors; and the amount of debt to be forgiven in such agreements.  [27956/12]

Minister for Finance, Michael Noonan: I am advised by NAMA that two-thirds of all debtor cases are going forward on a consensual basis, with terms signed in 187 cases. Connection management agreements, to which the Deputy refers, are used only in very specific circumstances where significant restructuring is involved: NAMA advises that, to date, it has signed connection management agreements with two debtors, agreed terms with a further four debtors and is in negotiation with an additional two debtors. The most common form of agreement between NAMA and debtors is a Letter of Support. I am advised by NAMA that debt forgiveness has not formed part of these agreements.”

Those last two words in the exchange above – “these agreements” – ambiguously could refer to “Letters of Support” but the question asked was whether or not, connection management agreements provided for debt forgiveness, so you would expect a forthright answer to confirm or deny if debt forgiveness forms part of connection management agreements. And waiving a personal guarantee is, in the eyes of most people, debt forgiveness.

NAMA won’t want to confirm it is offering debt forgiveness. The Government won’t want to confirm it either. But the Comptroller and Auditor General has confirmed that “These agreements, known as Connection Management Agreements (CMA), set

out the incentivisation arrangements including arrangements in respect of personal guarantees that will apply if the debtor meets the targets agreed with NAMA and complies with any other terms set out in the agreement.”

Where are the “incentivisation arrangements” for the little people?

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Of the Week..

Quote of the Week

“Dear Greeks, create clear political conditions. Vote courageously for reforms instead of angrily against the necessary, painful structural changes. Your country will only be able to keep the euro with parties that accept the conditions of the international creditors. Resist the demagoguery of Alexis Tsipras and his (radical-left party) SYRIZA.” Front page of German edition of The Financial Times on Friday. Not generally welcomed by Greeks!

“All quantitative targets for the review were met, maintaining the strong performance in earlier reviews.” The IMF Sixth Review of Ireland’s bailout programme published yesterday. It’s no mean feat to have met quantitative targets, but the fact remains that qualitative targets like reforming personal insolvency, reforming competition in the professions and placing the Fiscal Advisory Council on a firm statutory footing have not been met. Elsewhere the IMF says “structural reforms are advancing as envisaged” but that’s not true in the sense of reforms are missing the deadlines outlined in the original Memorandum of Understanding.

Wake-up call of the Week

“Nonetheless, as a share of GNP, the net exchequer [public sector] pay and pensions outlay in 2015 is projected to be 0.4 percentage points below the 2008 level, representing a relatively modest decline.” The IMF Sixth Review of Ireland’s bailout programme confirms that savings in current pay to the public sector are being made with redundancies and cuts to allowances. However pensions have rocketed with a startling 53% more public sector pensioners in 2012 compared with 2008, and the net result is the cost of public sector pay and pensions is staying in line with 2008 levels, which in itself represented a 118% increase since 2000, comprising increased public sector employees of 35% and increased pay of 61%.

Image of the Week

Five days after the publication of the new Bacon report, there are people still in wonder at the judgment of economist and economics consultant, Peter Bacon and his thinking in getting/allowing NAMA nemesis Treasury Holdings to “commission” a report which included high-profile recommendations on NAMA. The report seems to have quickly disappeared from the national conversation, but what may be seen as the unpleasant whiff of opportunism might linger for some time to come.

In the Dail on Thursday, Independent TD Mick Wallace was granted 15 minutes to make a statement about his tax affair where previously he admitted to knowingly making a false declaration of €1.5m in VAT. That the national parliament gave time to such a statement, which was uploaded to Mick’s website here where it could just as easily have been read by anyone interested, says more about our parliament than perhaps it does about the Wexford deputy. Mick’s 15-minute contribution was described as a “Personal Explanation by Member” in the Dail schedule reproduced in part above. Wags were suggesting a different meaning of the word “Member” in this context.

Unbelievably the chairwoman of the Revenue Commissioners, Josephine Feehily (pictured below) has not been summoned before an Oireachtas committee to explain in general, if not specific, terms, the actions of the Revenue Commissioners which seemingly allowed a company director to walk away scot-free from a VAT under-declaration of €1.5m which will not now, seemingly, be paid. Josephine was summoned before a committee just after Christmas after pensioners had received letters threatening a claw-back in overpaid pensions.

Chutzpah of the Week

In Greece tomorrow they will be holding a re-run of their general election, and the betting is that there will either be stalemate (again) or an anti-Memorandum government will emerge which will lead to Greece’s short-term exit from the euro. One of the parties contesting the election is a controversial neo-Nazi group which gained its first national seats in an election in May. A week ago, its spokesman attacked two female politicians on a TV show, one woman was punched three times and the other had water thrown at her. It emerged this week that the attacker was suing his victims for “unprovoked verbal abuses”! There are possibly very elderly gentlemen inParaguay reading this and wondering if they might sue the Jews for the cost of temporary food and board 70 years ago.

Runner-up this week goes to the Independent TD for Wexford, Mick Wallace (pictured above) who was eventually allowed 15 minutes in the Dail to deliver a statement on his tax affair, the affair where Mick says he personally under-declared VAT, entered into a subsequent settlement with the Irish tax authorities, the Revenue Commissioners and admitted the settlement was unlikely to be discharged. Mick’s 15-minute speech received a quiet, sporadic applause after he had finished, and he did indeed offer up half of his Dail salary to discharge a debt which officially belongs to his company, and which legally it seems, he has no obligation to personally discharge. Mick also said his fate as a TD rested with his constituents in Wexford but there is no sign of him placing that fate in their hands until the next scheduled election in 2016. He magnanimously thanked the people of Ireland for their messages of support. His sister chipped in “His heart and soul is in the Dáil. He loves it: I don’t think he’ll give up”  Others were aghast at the chutzpah of someone who admitted bilking this State out of €1.5m in VAT, money paid to him by buyers of his property but which was used to pay banks and the operating expenses of his company including presumably the €290,000 combined salaries of Mick and his son Sasha. Mick seemingly will still keep €46,000 of his Dail salary, plus an Independent’s allowance of €40,000 plus travel and accommodation of up to €36,150 per annum plus a public representation allowances of up to €15,000 (unvouched) to €25,000 (vouched) plus a pension based on the €92,000 salary plus a host of other perks including the ability to hire family members for secretarial/research duties.

“Feck off and stop meidhering me” response of the Week

NAMA was subjected to some intense questioning in the Dail this week. And one question related to an income of €15.9m recorded in the NAMA management accounts for Q4,2011. Now in a country where we have gotten used to a national discourse in economics involving billions and tens of billions, €15.9m is probably generally regarded as piffling, but if the estimate reported by the BBC for providing free wi-fi and superfast broadband to Belfast is accurate, then €15.9m should be enough to do the same for Dublin AND Cork – it is a sizable sum of money. The only description or explanation provided by NAMA for the €15.9m income was that it related to “hedge ineffectiveness adjustment” Ask most accountants in this State what that is, and you’ll get a mass display in head-scratching. And so NAMA was asked for an explanation of the loss. Here’s the full exchange

“Deputy Pearse Doherty: further to the publication by the National Assets Management Agency of its 2011 management accounts and its report for the fourth quarter of 2012, if he will provide an explanation for the €15.9m of income in the quarter booked in the accounts of National Assets Management Limited classified as hedge ineffectiveness adjustment.  [27944/12]

Minister for Finance, Michael Noonan: I have been informed by NAMA that the ‘hedge ineffectiveness’ adjustment of €15.9 million relates to interest rate swap contracts which were entered by the National Asset Management Limited Group (‘the Group’) to hedge its exposure to cash flow variability arising from interest rate risk in its portfolio of debt securities. These interest rate swap contracts were formally designated into hedge relationships during 2010 when the fair value of these derivatives was an unrealised loss of €30.4m. This unrealised loss was recognised as a fair value loss in the income statement in 2010. In accordance with the Group’s accounting policy for derivative financial instruments and hedge accounting (as per note 2.10 of its Q4 2011 accounts), this loss is being amortised from the Income Statement to the cash flow hedge reserve as ‘hedge ineffectiveness’ over the remaining life of the derivatives.”.

Somehow, you can’t help but think this clear-as-mud response was calculated to provide a response other than to the direct question asked!

“Suppression of information” villain of the Week

In Scotland, a blog operated by a 9-year old pupil, Martha Payne which photographically chronicled her school dinners was suppressed by the local council in Argyll where the school was located. This followed a newspaper report which referred to the blog and which criticised the Dinner Ladies who prepared the meals at  Lochgilphead Primary School. Following a public outcry which included celebrity chef, Jamie Oliver tweeting his support to the 9-year old Martha and urging his 2.3m Twitter followers to do like-wise, the council reversed its decision, and the blog continues to be updated. So far it has received 2m views and generated GBP 46,000 in charitable donations which have created facilities in Malawi, Africa. The blog is called “Neverseconds”

In Ireland, the Economic and Social Research Institute (ESRI) was acting the villain by taking the reportedly “unprecedented step” of removing a working paper by a trio of academics including the respected Professor Richard Tol, from its website. The working paper examined the additional costs that a working person incurs in Ireland, such as childcare and transport, costs which an unemployed person would be spared. The working paper concluded that 15% of childless households would be better off on the dole rising to a remarkable 44% of households with children. The paper found that Ireland had the most expensive childcare costs in Europe. After the working paper – available here – was reported in the press, the ESRI took the “unprecedented step” of withdrawing it from its website. Its lead-author Professor Richard Tol was unimpressed and expressed his views on the matter here. The ESRI has now issued a press statement and a detailed explanation for its actions. Ironically the ESRI’s actions have lead to what is mostly a pretty obscure and wonkish paper being widely read, and its contents have become part of the national conversation. The suspicion remains that the ESRI which is substantially funded by the Government acted to obstruct a debate on both the cost of benefits and government policy on employment activation/incentivisation measures.

Word of the Week

“Peer-reviewed” This was the week where it seems many people became expert in the term “peer review” after the ESRI pulled a working paper by a trio of academics including Professor Richard Tol, from its website, a working paper which claimed that up to 44% of households in Ireland would be better off on benefits than at work. There were vague suggestions of criticism of the methodology in the report but the central criticism developed into the fact that the working paper was not “peer-reviewed” People who I am convinced have never mouthed the term “peer-reviewed” before in their lives suddenly adopted the term into the vocabulary where it competed with more common words like “the” and “and” in their utterances. I wonder will the “peer-reviewed” mania spread to other parts of our society? At Mass tomorrow, will someone stand up before the sermon and say “Sorry, Father but before you begin, can you lay before this congregation the names, qualifications and experience of those who peer-reviewed your sermon. Surely you didn’t make it up all by yourself?” And before Eamon Dunphy opens his gab to opine on Ireland’s footballing performance on Monday, will someone stop him and demand to know “who peer-reviewed that contribution, sunshine?”

Paradox of the Week

“NAMA has advised that in the case of purchases of residential property controlled by its debtors and receivers the Agency does not and has not provided financing…. I am advised by NAMA that it would not rule out in individual circumstances arrangements that include an element of deferred payment in respect of residential property transactions controlled by its debtors and receivers. NAMA have advised that they will look at other requests for financing on a case by case basis”

Okay, it’s not up there with “The following statement is true. The previous statement is false” but there are many who are still scratching their heads at NAMA’s response to questioning about its financing initiatives in the Dail this week. On one hand, NAMA says it doesn’t (in the present tense) or hasn’t (in the past tense) provided residential financing but on the other hand, it says that it will treat on a “case by case basis” requests for deferred payment by potential buyers of NAMAresidential property. A head-scratcher which requires a bit more consideration perhaps.

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Why didn’t NAMA need to get EU approval of its staple financing initiative?

Some of this blog’s audience will have little experience or interest in commercial property, and may be more interested in residential property and NAMA’s activities in that area. In truth, NAMA’s 13,200 Irish dwellings represent a small drop in an ocean of 2m Irish dwellings of which 290,000 are vacant and where there is a vacant overhang estimated to be 80-100,00 dwellings. Given that NAMA has until 2020 to deal with Irish residential property, the annual impact of its activities in this area will not be huge. Contrast that though with commercial property where NAMA says it paid €9.25bn for loans relating to Irish commercial property, property now estimated on here to be worth €6-7bn. Given the total Irish market was worth less than €0.5bn in 2011, you can readily see that NAMA is a major, if not dominant, player in commercial property or Commercial Real Estate (CRE) as the professionals call it.

So NAMA’s introduction of so-called “staple financing” or “vendor financing” in 2011 for its CRE was noteworthy. “Staple financing” is where NAMA converts part of the sale price into a loan which the buyer pays to NAMA over a period of years. For example, NAMA might sell a property for €100m and the buyer puts down €30m in cash, the remaining €70m becomes a loan which the buyer pays to NAMA, with interest, over a period of years. So far we know about one NAMA property sold with staple financing –One Warrington Place bought byUS investor Northwood earlier this year for about €27m.

NAMA also has a financing scheme for residential property which it launched in May 2012, generally called the “negative equity mortgage” but referred to by NAMA as the “80:20 Deferred Payment Initiative”. This was initially announced in the first half of 2011 but it took a year to get approval for the scheme, including approval from the Competition Commissioner at the European Commission – a formal request for the approval documentation has been made on here and the results are expected next week.

But NAMA didn’t seemingly seek European Commission approval of its staple financing arrangement, which may have a far greater impact on the Irish property market than the negative mortgage product for residential property. This absence of approval may shortly become a problem for NAMA.

NAMA’s competitors are privately asking how they can compete with NAMA in disposing of their property when, because of their smaller size, lack of Government backing, lack of cheap financing – remember NAMA is mostly financed by “senior debt” bonds which cost NAMA about 1% per annum – they can’t offer their property with staple financing.

On Wednesday this week in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance, Michael Noonan to lay before the Dail the standard terms of a NAMA staple finance deal. Minister Noonan said there wasn’t a standard set of terms. The full exchange is here

“Deputy Pearse Doherty: the full terms under which the National Asset Management Agency provides staple financing or vendor financing to buyers; and if he will lay a copy of the standard terms for the provision of such financing before the Dáil.  [28479/12]

Minister for Finance, Michael Noonan: I am advised by NAMA that there is no single standard set of terms for stapled debt which NAMA may offer to parties acquiring commercial property from NAMA borrowers or receivers. Terms quoted will vary to reflect the attributes of various commercial property categories and individual properties, the varying strengths of tenants and leases, and the strength of counterparties/property purchasers. NAMA advises that only strong and reputable counterparties will be considered for stapled finance. For instance, NAMA advises that for prime investment properties, that is properties whose investment characteristics include, for instance, good location and strong tenants on leases with long maturity at realistic rents, which would qualify for the most generous loan terms, NAMA may offer up to 70% of the purchase price for a period of 5 years at a typical interest margin of 3% over cost of funds.”

Financing Irish property, residential or commercial, is notoriously difficult at present with suggestions that only Bank of Ireland, and to a much more limited extent UKlender Barclays Bank, active in the CRE market. NAMA has announced that it will make €2bn available for staple financing which means that perhaps one half of its Irish CRE portfolio will be sold with this benefit. NAMA says it doesn’t have standard terms so we don’t know, for instance, if it requires guarantees or security over borrower assets. The absence of EU approval of NAMA’s staple financing scheme is curious and NAMA may find itself on the wrong end of a competition challenge in the not-too-distant future.

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Treasury Holdings suggests to NAMA “let’s talk”

There’s a midly vulgar expression we use in my neck of the woods “you have your shite” which roughly means “you have no chance whatsoever” as well as implying criticism of your efforts. I have a feeling – unconfirmed, I should stress – that this expression or something similar is being muttered at NAMA HQ this afternoon.

This afternoon, Dublin-based developer Treasury Holdings which is involved in colossal legal wrangles with NAMA has called – presumably “called” on NAMA – to appoint mediators to deal with Treasury’s loans now controlled by the Agency. Treasury is the company founded by Richard Barrett and Johnny Ronan and is understood to be one of NAMA’s Top 10 developers. NAMA has appointed administrators and receivers to Treasury assets on foot of over nearly €2bn in outstanding loans. NAMA is also pursuing Messrs Barrett and Ronan for up to €20m following a transfer of assets by the duo on the eve of NAMA taking over its loans and NAMA has obtained security for costs in its legal battles (should Treasury lose of course). On the other hand, Treasury itself is suing NAMA over its dealings with the Battersea Power Station inLondonand is also pursuing a judicial review of NAMA’s dealings generally with its loans. During this past week alone we learned that the NAMA v Treasury court case involving the so-called TAIL transaction is to be heard in October 2012, whilst Treasury’s judicial review is set to commence in July 2012. Treasury is a formidable company led by “big beasts” but NAMA has not shied away from its objectives and seems to be giving as good as it gets in the ongoing legal battles.

This afternoon, Treasury has released its version of its dealings with NAMA. In response NAMA has not yet commented on the publication today and I don’t think it will, but it goes without saying that NAMA may not necessarily agree with the Treasury interpretation of events. Treasury’s version is available here as a MS Word document, and it says “its aim is to question NAMA’s refusal to engage with it or potential investors in order to maximise the return to the taxpayer and keep intact what is currently the only full spectrum property asset management and development company in Ireland.”

Treasury has also called for “third party mediation” to help sell Treasury’s loans owed to NAMA and the company recalls that it has previously engaged with at least three non-Irish investment companies to help resolve its loans owed to NAMA.

There is a personal statement from what are described as “current shareholders of Treasury Holdings Richard Barrett and John Ronan” who say

“The property crash has brought a new reality to this company.  One part of it is that if a deal is done to bring new investors into Treasury Holdings or to sell our loans, the company will then be controlled by others, and not by us. Any deal will have to be approved by NAMA.

What we will get out of any deal is the satisfaction of seeing this company and its unique collection of skills and expertise kept intact and continuing to provide the top quality office and other accommodation that Ireland, and potential foreign direct investors, need. We will also see the jobs of the 300 people who work for Treasury Holdings safeguarded and the company playing a role in Ireland’s economic recovery”

Treasury’s version of events doesn’t appear to add very much to the content of affidavits previously discussed on here, and the nature of the interactions between Treasury and NAMA would suggest on here that these matters will conclude only through a legal process. To stress, there has been no response from NAMA to the developments this afternoon, but the view on here is the unspoken response will be “you have your shite”

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