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The former CEO of the NTMA and now Government-nominee to the board of AIB, Michael Somers made headlines a fortnight ago when he claimed that increased regulation was leading to international banks to hand back their licenses and exit from Ireland, taking their business and contribution to the economy with them. The comments were interpreted by a cartoonist in one newspaper with a helicopter emblazoned with “Goldman Sachs” taking off from the IFSC building beside Bus Aras bus station, with the Famine memorial in the foreground and some choice words about bankers and their pay, which was also cited by Michael as a reason for deterring recruitment and activity in state-owned banks.

But is there any truth to the claim?

This week in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to give detail on the number of banking licenses that had been given back. In terms of wholesale banking operations of the type we would associate solely with the IFSC, the number has declined from 30 in 2010 to 22 today, a decline of 8 or 27%.

Alas, Michael Somers didn’t provide detail on the regulation which IFSC banks found unpalatable, and there might be other reasons for the exodus, but it seems undeniable that there has been a steady decline in wholesale banks since 2010.

The parliamentary question and response are here:

Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm by year for each of end of 2010, end of 2011, end of 2012 and currently, the number of extant banking licenses issued to banks operating in the International Financial Services Centre; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: The total number of credit institutions registered in Ireland is 437. A full list of authorised credit institutions is available on the Central Bank website at http://registers.centralbank.ie/DownloadsPage.aspx.

It is difficult to clearly demarcate which banks participate in international financial services activity based solely on location in the International Financial Services Centre. The Central Bank has identified the key international financing operations which it considers to be IFSC type banking activities i.e. wholesale institutions carrying out non-retail banking activity. The number of wholesale institutions licensed for non-retail banking activities on 31 December 2010 was 30; on 31 December 2011 there were 26; and on 31 December 2012 there were 24. The current number of wholesale institutions licensed for non-retail banking activities is 22.

Take Paddy McKillen, pictured below right.

DrownedAndSaved

In 2010 and 2011, he fought tooth-and-nail in Dublin’s High Court and Supreme Court to stop NAMA acquiring his loans. In the end, the Supreme Court judges decided that NAMA could acquire Paddy’s loans but would have to consult with him beforehand. Despite swearing blind at the High Court that Paddy’s loans were “systemic”, NAMA abandoned the fight and decided not to acquire Paddy’s loans which remained at IBRC and Bank of Ireland.

Lucky for Paddy.

Because right now, Paddy has been given a window to refinance his IBRC loans – estimated to be €300m of personal loans and €550m of corporate loans. To refinance his loans, Paddy must repay them 100% and Paddy has been having a whinge through the press recently that IBRC is not accepting his most generous offers which are almost equal to what Paddy owes. Paddy’s window to refinance at 100% expires soon; originally, the liquidator at IBRC was going to have the loans valued by the end of May 2013 and they would then be offered to the market, unless they had been refinanced at 100%. That valuation of the IBRC loans by USB and PwC due at the end of May, seems to have slipped but regardless, it will be a matter of weeks when the un-refinanced loans are offered to the market.

Why is Paddy lucky? Because, even after his refinancing window closes, he will be able to bid for his own loans, and if his bid is the highest and if the bid is in excess of the independent valuation, then Paddy will be able to acquire his loans at a discount. So IBRC into which we have shoveled €34bn will be selling its loans to the market, and if the borrower is the highest bidder for those loans then the loans will be sold to the buyer at a discount, or in other words, the borrowers will receive debt forgiveness or a debt writedown.

To illustrate, if Paddy has personal loans of €300m today, he can refinance these today at 100%, that is pay IBRC €300m and any outstanding interest and fees. After the refinancing window closes, then IBRC will offer Paddy’s loans to the market and say the highest bid is €200m and this is in excess of the market value of the loans, then they will be sold to that bidder regardless of who that bidder is. If it’s Paddy, then he gets €100m of debt forgiveness, no questions asked.

Contrast that with NAMA which is prevented by the NAMA Act from selling assets back to debtors below their par values. So, if a NAMA debtor owes NAMA €300m and offers NAMA €200m for them, and if NAMA markets the loans and €200m remains the highest bid, then NAMA can NOT sell the loans to the NAMA debtor. Which brings us to Sean Reilly (pictured top above, left) who happens to owe NAMA about €300m according to press reporting. Sean is prevented by the NAMA Act from having an interest in buying these loans. The best Sean can do is show some leg to potential investors and try to get them interested in bidding for the loans, and the best Sean can hope for is to act as a consultant after the loans have been sold to someone else.

Minister for Finance Michael Noonan is clueless about all of this, he doesn’t know how much the NAMA proscription is costing NAMA and by extension the State. He also doesn’t know why there is one rule for IBRC disposals and another entirely for NAMA’s.

What an eejit, and given he is being advised by the Department of Finance on these policies, what a bunch of eejits are employed there.

The Minister was responding to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty. The response must count amongst the most nonsensical you’re ever likely to see.

Deputy Pearse Doherty: To ask the Minister for Finance the reason the Irish Bank Resolution Corporation borrowers will be eligible to buy their own loans at less than par value when such loans over €10m are offered to the market imminently, but that borrowers at the National Asset Management Agency are precluded by the NAMA Act from buying their own loans at below par value..

Minister for Finance, Michael Noonan: As previously advised, independent third parties are being engaged to independently value the loan assets of IBRC (in Special Liquidation). There is an obligation on the Special Liquidators to ensure that assets of IBRC are sold at a price that is equal to or in excess of the independent valuations that are being obtained. A process is currently being finalised that ensures that maximum value is extracted from the loan sales. The Special Liquidators are responsible for putting in place a liquidation process which fulfils their obligation under the IBRC Act and where applicable the Companies Acts.  It is a matter for the Special Liquidators to determine what bidders constitute qualifying bidders for the purposes of the sales process.

The protocol which is in place for the disposal of the IBRC assets is guided in a specified manner as the Special Liquidator will only be holding the assets for a limited period of time. Any assets that are not sold to third parties for a value higher than the independent valuations will be sold to NAMA at that price. Assets that are transferred to NAMA will then be subject to the protocol according to the NAMA Act 2009.

It is the objective of NAMA in any loan sale to achieve its commercial mandate of obtaining the best financial return on behalf of the State. In accordance with the NAMA Act procedures have been put in place by the Agency to achieve these objectives.

“It’s hard to make a man understand something when his livelihood depends on him not understanding it” Upton Sinclair

DBRS

How do ratings agencies make money? It may come as a surprise to some of you that ratings agencies get paid by companies to rate their debt and prospects. Which inevitably places ratings agencies in conflict between their desire to be retained to provide an assessment on one hand, and on the other the need to provide independent credible assessments to the market. But that’s how the business works, and the world’s biggest ratings agencies show no sign of withering away, despite the opprobrium heaped on them after failing to identify looming crises in American sub-prime mortgage lending and European bank debt.

The three main ratings agencies will be familiar to most of you – Standard and Poor’s, Moody’s and Fitch. A fourth ratings agency, Dominion Bond Rating Service (DBRS) might not be a household name but it seems to get disproportionate reference by the NTMA when pointing to how healthy our prospects are. DBRS recently produced an assessment of NAMA, covered here. Whilst it undoubtedly contained useful and factual information, for example the three year accounts analysis, its opinions on NAMA were eyebrow raising in their positivity.

DBRS said of NAMA that it has assembled a “talented team” with “deep experience” and with “the necessary skills to extract the best possible return from the loans and underlying property assets”. DBRS went on to say “NAMA has developed a robust and efficient infrastructure that allows NAMA the flexibility to develop individual responses to each debtor that bests maximizes the returns “

We find out today that although NAMA picks up some of the costs of the ratings agencies generally who rate NAMA’s bonds, that NAMA itself directly pays only one of the ratings agencies and guess which one? Yes, it’s DBRS! How much does NAMA pay them for their handsome compliments? Alas, that is confidential.

The information was revealed in the parliamentary question and response below:

Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm the sums paid by the National Asset Management Agency to each of the ratings agencies Fitch, Moody’s, Standard and Poor’s and Dominion Bond Rating Service in each of 2010, 2011, 2012 and to date in 2013..

Minister for Finance, Michael Noonan: Rating agency costs relating to NAMA are, in the main, paid by the NTMA as part of its overall sovereign rating programme.  NAMA directly bears the cost arising from the rating of NAMA Bonds by Dominion Bond Rating Service (DBRS).  NAMA advises that the terms of its agreement with DBRS are commercially sensitive and of a confidential nature.

SDNAMAsubpoenaed

So far, the bankruptcy in Sean Dunne’s bankruptcy case has sought to subpoena three companies and individuals – Credit Suisse, People’s United Bank and an employee of the property company Bruce Shaw called Andy Smyth. Today, the trustee, Richard Coan has made a fourth application for a subpoena and this latest application is seeking to have NAMA questioned on 28th May 2013 about matters relating to Sean Dunne’s bankruptcy.

You may have gotten the impression that NAMA was Sean Dunne’s sole creditor, but in fact Ulster Bank rivals NAMA for title of biggest creditor and the bankruptcy trustee has a duty to all of the creditors.  The trustee is seeking to question NAMA under a provision of the US bankruptcy code known as a Rule 2004 Examination which allows the trustee to question NAMA under oath and seek documentation.

The justification for subpoenaing NAMA is given by the bankruptcy trustee in the following terms

“the National Asset management Agency has information relevant to the assets of the Debtor and/or transfers made by the debtor. The National Asset Management Agency may have other information relevant to the administration of the bankruptcy estate of Sean Dunne.”

Sean Dunne’s creditors meeting has been postponed to 29th May 2013, so it would seem that NAMA can kill two birds with the one (airline ticket) stone by submitting themselves to the bankruptcy trustee on 28th May.

The full application for an order, which is likely to be approved by the judge, is here.

It says something about how atrocious Irish property companies are in that they have all singularly failed to replicate anything like the success of Allsop Space property auctions, and it really makes you wonder if they’re so dumb that they can’t operate a large scale auction, then how dumb are they in their provision of other services? How competitive are their valuations? How efficient are they at marketing? How good is their research?

Today saw the 11th Allsop Space auction in Ireland, and it was another stunning success with 88% of the Lots on offer sold at or after the auction. Although there were 126 Lots originally, 10 were withdrawn prior to today, two were sold prior to today which is a new development, and three were sold after the hammer came down with the reserve not reached. The success rate calculated on here is 88%. The total realized was €12,620,500 excluding the “Sold Afters” which was an average of 34% above the maximum reserves of €9,400,000.

Here are the results, you will find the links the Lot details here.

AllsopSpace15May13

The auction was again packed and at 3pm this afternoon, there were a few seats available but not many, the view here is that about 2,000 attended. There was a protest outside the Shelbourne Hotel at the start of the auction and there appeared to be more security in evidence than previously.

Two Lots were sold prior to the auction which is a new development and a request for comment has been made to the Allsop Space director of auctions, Robert Hoban, as previously Allsop Space had stressed that it would not sell Lots before the auction.

The maximum reserves of the 126 Lots was €16.3m and given the Maximum Reserves of the Lots sold today was €9.4m, that confirms that some of the unsolds were big. The 60 apartment development in Cavan whose Maximum Reserve was reduced today from €1.5-1.7m to €1.3-1.5m still didn’t sell. Nor did the period house on 51 acres in Murroe in county Limerick which has a reserve range of €425-450,000 but only reached €405,000 today.

Our friend Carol Tallon at Buyers Broker Ltd wasn’t tweeting highest prices for unsold Lots today so the above results are a little less useful than usual.

Other than that, a polished performance from Allsop Space; Gary Murphy was the master of ceremonies as usual, and although there was a dispute on one Lot, there was no significant protest from the floor today. Further analysis later, but there were actual residential yields there today of well over 10%, which indicates that residential prices may still be in for a correction, that or rents are set to reduce in some areas.

This afternoon saw the publication of the April 2013 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index 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.

IPDApr13Summary

The Index shows that capital values were flat in April 2013, which which follows declines averaging 0.3% per month since December 2011. Prices reached a peak in the UK in June 2007 and fell steadily until August 2009 when a rally started. Prices then increased by 15% in the year to August 2010 but have since been declining and are down by 3.5% in the last 12 months.

Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 6.3%. Commercial prices in the UK are now 37.1% off their peak in June 2007. The NWL index  remains at 777.1 which means that NAMA needs to see a blended increase of 28.7% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).

The table below shows the three subsectors in UK commercial property with an index for all three at NAMA’s valuation date of 30th November 2009 of 100. Retail has performed worst whilst offices have been relatively buoyant whereas industrial premises like factories and warehouses have been relatively flat.

IPDApr13Detail

It was September 2011 – 19 months ago – when the UK index last saw an increase and really since August 2010, has been flat and declining.  The prediction for 2013 is for flat prices, though there is an expectation of increases next year and beyond (see below)

The UK economy is suffering difficulties almost every bit as challenging as those in the EuroZone and Ireland. Sure, they have their own currency and they’ve printed GBP 300bn of it in an economy with a GDP of 1.5tn, to help inflate their problems away. And yet they appear poised for a triple dip recession.  On 20th March 2013, the UK’s independent Office for Budget Responsibility published its latest fiscal outlook which forecasts GDP for 2013-2017 at 0.6%, 1.8%, 2.3%, 2.7% and 2.8% (but as with all economic forecasts in the long term, all forecasters forecast a peachy outlook!). Deficit:GDP is forecast for 2013-2017 as 6.8%, 6.0%, 5.2%, 3.5% and 2.3%. Debt:GDP is forecast in 2013-2017 at 94.9%, 98.6%, 100.8%, 100.8% and 99.4%. Inflation is forecast for 2013-2017 at 2.8%, 2.4%, 2.1%, 2.0% and 2.0%. It expects residential prices to increase 0.9%, 1.9%. 3.6%, 4.0% and 4.0% in 2013-2017 and commercial property to change -0.1%, 2.6%, 3.6%, 3.8% and 3.4%.

SpotlightDebt

They’re still celebrating on Ormeau Avenue in Belfast after winning a BAFTA on Sunday for their powerful documentary “Shame of the Catholic Church” broadcast under the “This World” strand, this comes after winning an IFTA last year for the BBC Spotlight special on tracing the Quinn family assets around the globe. The Spotlight on the horse meat scandal this year was probably the best investigation that we saw, and a couple of weeks later, the Department of Agriculture withdrew a license from one of the meat companies featured.Tonight promises us another cracker – this time on the personal debt crisis and debt forgiveness. It will be on at 22.35 this evening for 30 minutes on BBC Northern Ireland. You should then be able to catch it on BBC iPlayer but if you’re watching online from the Republic or outside the UK, you will need fool the BBC into thinking your PC is in the UK, and you can do that with so-called proxy masking software, this one is recommended for general use.

The programme was previewed on Northern Ireland radio this morning, and it seems we are set to learn from presenter Ciaran Tracey that in Northern Ireland, which has a population of just 1.8m people, a total of GBP 1.7m (€2bn) was written off as a result of bankruptcies in 2011 and 2012. Yes, €2bn. Pro-rataed for our 4.7m population that would equate to €5.2bn over two years and remember we have a huge pent-up demand for resolving our personal debts. It seems that some 3,200 people in Northern Ireland filed for bankruptcy last year. Minister for Justice, Alan Shatter thinks that we will have 3,000 bankruptcies in the first 12 months of operation of the new Personal Insolvency Act from July this year.

The programme will also feature contributions from Nick Leeson, new recruit to debt advice company, GDP and best known to us for the thankless task of managing Galway United Football Club, though the rest of the world might know him better as the man who brought down Barings Bank in the 1990s. Nick’s company is helping the indebted deal with creditors, mostly banks, and it seems that debt deals are being done.

Almost as a footnote, despite its relevance to NAMA, the programme also has a contribution from the Northern Ireland Minister for Finance and Personnel, Sammy Wilson who criticizes the banks, Ulster Bank in particular, for not lending to businesses and he calls for a bad bank, a NAMA in fact in his own words, to be established to acquire Ulster Bank’s bad loans, so that the bank can return to its core business of lending.

It promises to be a cracker. 22.35 BBC Northern Ireland.

UPDATE: 15th May, 2013. The programme is available in two parts on Youtube – Part 1 here and Part 2 here.

The “independent valuation” of IBRC’s loans by PwC and UBS was originally supposed to be completed by May, but that might slip to June – remember NAMA still hasn’t got EC approval for 40% of its acquisitions from 2010, so this plan to value loans which had a par value of €27bn last June 2012 and a book value of €16bn, looks ambitious. When the “independent valuations” are complete, that is when the IBRC Special Liquidator will offer the loans to the market. Some borrowers are trying to refinance their loans now before the loans are valued and offered to the market, but they need repay 100% and meet any other contractual payments required under the loan agreements.

DBImageTwitter

One IBRC borrower who doesn’t look like he can refinance his loans 100% is star of the original production of the Dragons Den format on the BBC, Duncan Bannatyne (pictured above). If you’re not familiar with Duncan, he’s like our own Ben Dunne minus the coke and the prossies, having successfully built up a chain of fitness centres, though he has a varied background which includes mobile ice cream sales, nursing homes, kindergartens and writing. He is most recognized in the UK as one of the original investors and business angels on the BBC’s Dragons Den.

The Daily Mail today claims that Duncan has loans with IBRC and suggests that he might owe them GBP 122m (€144m). On Twitter this morning, Duncan is disputing claims made in the Daily Mail article

DBDMGuntrue

but states that he is trying to refinance part of a loan with IBRC, repaying 100% including all contractually owed amounts on that part. He doesn’t indicate what the “part” is but he does say that he hasn’t personal guarantees

DBNoPGs

 

and has only the one loan

DBNoAllOneLoanand is offering to pay all contractually due fees and interest on the part of the loan he is trying to refinance

DBAllFeesPaid

 

The Daily Mail this morning reports that Duncan was originally advanced the loan in 2006 by what was then Anglo, to buy 24 health clubs from the Hilton group.

Duncan is now in the same boat as Paddy McKillen, Denis O’Brien and a slew of other borrowers who have a window to refinance their loans at 100% or else face having to bid for their own loans and possibly – in the case of Paddy McKillen at least – see their loans sold to business rivals. And any unsold loans will eventually end up in NAMA, something that Paddy McKillen at least wanted to avoid at all costs previously.

Paddy McKillen has been making headlines recently with his well-publicised bid to refinance €179m of his loans at par. Paddy is understood to owe IBRC around €900m comprising €300m of personal borrowings and €550m of corporate borrowings. He was attempting to refinance part of these loans at 100% but says that the Special Liquidator insisted he pay 100% of the €179m loan plus €7m early repayment fees, and although Paddy says he was prepared to pay the former, he wasn’t prepared to pay the latter.

It is unclear why Duncan would only offer to repay part of his loan. Presumably it would give him greater leverage over the underlying health clubs, and it might deter bidders when the remainder of the loan is offered to the market. On the latter point, Duncan claims that no-one has been appointed to value his loan.

DBNoValuersAppointed

He didn’t respond to a Tweet that both UBS and PwC have been appointed by the Special Liquidator of IBRC, to value loans generally. KPMG won’t want to comment on a specific loan but it is understood that the option offered by KPMG to borrowers for refinancing of a borrower position is to refinance it at par.

With the Bus Eireann strike ending its second day, you might be interested to take a quick look at the finances of that company. It made a profit of €455,000 in 2011, the last year for which accounts are available. It has a balance sheet with net assets of €23m. The annual report and accounts for 2011 are available here. The profit and loss account and the balance sheet are shown below. Bus Eireann says there are no recognized gains or losses other than those shown in the profit and loss account.

BusEireannPL2011

BusEireannBS2011

This is an organization about which An Tanaiste Eamon Gilmore said last Thursday “Bus Éireann is in a precarious financial situation with the very viability of the company under threat”. Well, if that is the case, something shocking must have happened in 2012, but we don’t yet have the accounts for 2012. Looking at the five year revenue figures for Bus Eireann, the income from tickets looks pretty stable.

But contrast the fortunes of Bus Eireann with those of another state company, RTE. In 2011, RTE made a fully recognized loss of €70m, mostly comprising a deficit of €17m and a pension scheme loss of €50m. RTE had net assets of €68.5m at the end of 2011. We do know that RTE has been failing to maintain its commercial income which RTE blames on the recession. Here is the profit and loss, statement of comprehensive income and balance sheet:

RTE2011PL

Unlike Bus Eireann, we do have an indication of RTE’s results for 2012; it is said in press reporting to have run up a deficit of “at least €60m”, we don’t know how the pension scheme performed. But a €60m deficit will practically wipe out RTE’s balance sheet and reduce equity from €68.5m to €8.5m.

When asked about the finances of RTE, Minister for Communications, Energy and Natural Resources, Pat Rabbitte says that it’s nothing to do with him, he says concerns about RTE’s finances “are purely matters for RTÉ management. RTÉ has a direct obligation under Section 105 of the Broadcasting Act 2009 to ensure that its revenue is at the earliest possible date at least sufficient to meet all sums properly chargeable to its current account and to make suitable provisions with respect to capital expenditure. I am satisfied that RTÉ management is fully cognisant of this obligation and are taking all the necessary steps to ensure that the company continues to be in compliance with the terms of the provision.”

Contrast the Government’s stance on pay and conditions of employees at Bus Eireann versus those at RTE.

Tilman Brewin Dolphin, formerly known as Tilman Asset Management is understood to have sold a retail block on Kings Road in the upmarket Chelsea area of south west London, turning a €13m profit on the reported purchase price in 2004. According to commercial property portal, CoStar, the 15,000 sq ft 6-unit property – which houses five retailers named as Petit Bateau, Reminiscence, Accessorize, Vodafone and Timberland – has been sold to Cadogan Estates for GBP 29m (€34m). Cadogan Estates is the property company owned by the Earl of Cadogan who originally owned much of the freehold of property in the Chelsea and Kensington areas.  The initial net yield is reported to be a lowly 3.65%.

The property was reportedly bought by the Irish consortium in 2004 for GBP 18.3m (€22m) yielding an overall profit of close to €13m. The initial net yield of 3.65% in last week’s reported sale would equate to a net yield previously of 5.75% to Tilman. So, looks like a very profitable property investment.

Tilman Brewin Dolphin, based in Clonskeagh in Dublin, says of itself it “provides a comprehensive service for the management, protection and growth of client wealth”