NAMA – THE STATES DRAGONS DEN

When Frank Daly the NAMA CEO and his team were pitching his business plan to the Irish people in 2008 to bail out the banks, like every investment, you cannot really analyse it until you get a better understanding of the actual return on your money. 

If my memory serves me well, the return on this investment after the 10 year period 2010 – 2020 was earmarked to be in the region of €6bn.  Considering the investment in the project by the Irish people was upwards on €32bn that would equate to just over a 18% return on their money. Not terrific considering the huge sums and the risk involved, but not bad all the same, considering the times we were in globally.  The other important point to consider was the benefits of the business plan namely that by bailing out the banks, the country would return to growth as the balance sheets of the banks would be repaired enabling them to start lending again.  Note there was no referendum on this one, as it was deemed for example not as important as the gay marriage debate, however the government pushed ahead and the Irish people bailed out the banks and in the process created the biggest property company in the world - NAMA.   

Worryingly in 2010 NAMA came out to say that they have had to revisit their figures and they felt that after its lifespan, the investment would return the reduced figure of £1bn to the Irish state.   This is a significant drop of over 15%.  Even more worrying is the fact that Brendan McDonagh, the head of the national agency, told an Oireachtas committee in October 2013, that it was now aiming to only break even by 2020 rather than make the €1bn profit that had been included in its earlier business plan.

Now if you were Duncan Bannatyne or Debra Meaden at this point in the Den, you wouldn’t be very impressed at all as the prospects of getting no return on your money appeared quite high, what a downer.   The other aspect of the deal you would be asking yourself is has the country returned to growth and are banks’ lending again.  Answer to the first question we would hope is yes……. and on the whole the answer to the second part is a resounding NO. 

In fact in Ireland right now, the foreign banks are packing up their files, clearing their desks and running for the hills.  In the last few months we have seen announcements by ACC and Danske to join a host of others who have decided that Ireland is a now a no go zone for banks.  This is extremely damaging for the country as we need a stable banking structure to have any chance of turning the corner anytime soon.

 Back to Nama – The level of return from Nama assets will depend on the performance of loans and the property market in Britain and Ireland over the next seven years. It would be interesting to know what forecasts or assumptions Mr McDonagh has built into the current business plan that he is so pessimistic about the outcome., a very sobering thought altogether. While Nama continues to make operating profits, namely taking in more money than it pays out; further impairment charges keep hampering its financial progress. By the end of last year, it had made total impairment provisions on its loans of  €3.26bn, less than two years after buying them. In effect, this means the agency has overpaid for the assets by €3.2bn (modest figure if you ask me).

You often hear NAMA representatives come out declaring how well they are getting on, the new finance they are injecting into the economy and very proud of the fact that they are not in the business of fire selling properties.  Again you really have to question each of these points.  In fact NAMA is now doing what it said it would never do – sell Loans.  If you were watching this situation play out, you might come to the conclusion that they are making it up as they go along.  Who could argue with that point?  For me as an employer and an investor – it’s all about the return on your money, and my feeling is that NAMA will fail miserably in this department and the Irish taxpayer will lose billions of euros in this opportunity – I genuinely do hope I am wrong.

To date NAMA has brought in around €9.2bn by selling off assets, 80% of which were based in the UK, and described by some as the low hanging fruit. 63% of the sales have occurred in London, in fact which is a rising market as it is still seen as one of the safest places in the world to place your money.  A dragon might question this model as the London commercial property market is now very much on the up and if Nama could have hung on, it probably would have got a much better price today, and in the years ahead.
Imagine Brendan McDonagh is correct for one moment, and NAMA does end up breaking even. In 2020, we will look back at how Irish citizens took on the risk of setting up the biggest property agency in the world, with over €70bn in loans, finances by  €32bn in bonds, paid back the  €32bn and the interest and then shut up shop.

 The tax payer would have absolutely nothing to show for it – 0% return on its money. With the benefit of hindsight, maybe if this was a real dragons den scenario, they would have been better putting the €32bn on a horse at Cheltenham – as time goes by, I am struggling to see the difference.

 

Conor Devine MRICS

DONT BANK ON YOUR BANK.....

The Office of Fair Trading (OFT) has asked Banks to disclose historic errors involving loan agreements after it become alarmed that the problem is endemic amongst a large number of Banks. Northern Rock, the Co-operative Bank and Barclays have all recently paid out several hundred million pounds in compensation claims.

The OFT have put up to 50 banks and building societies on notice after the three banks admitted to having to refund some of their personal loan customers because their paperwork did not comply with the Consumer Credit Act.

Northern Rock paid £270m to 150,000 people in December 2012, and in September it emerged Barclays faced a bill estimated at £100m to repay as many as 300,000 customers. Last month, Co-operative Bank revealed it had increased its provisions for customer redress, in part to cover "an identified breach of the Consumer Credit Act".

The errors occurred because the Borrowers were sent incorrect documentation in a breach of the Act. The OFT has now stepped in following recent failures by some banks to fully discharge their obligations.

These revelations further confirm what everybody has come to learn over the last 5 years, that the Banks do not always do everything correctly and are also not very likely to own up to their mistakes.

The question then arises; how do you hold the Bank to account if you have a suspicion that you have been treated unfairly in relation to your borrowings?

Firstly you should seek professional advice from professionals who are familiar with the consumer credit act and how this act applies to your borrowings. The next set is for your professional to mediate a return of funds or compensation.

GDP Partnership specialises in this form of mediation with the Banks and has recently secured refunds for several clients in relation to errors in lending practises and miss management of accounts.

Author : Louis Waters ACA

Last bank out - turn off the lights!!

Thursday 31.10.2013

Hot on the heels of ACC Bank announcing an exit from the Irish Banking market we now have Danske Putting on their running shoes and making for the exit. Who can blame them?

Last week, ACC the Irish subsidiary of Dutch banking giant Rabobank said that next year it will close all its branches and business centres to the public and give up its banking licence. Danske Bank, this morning has announced that they will be pulling all of their services bar those to their corporate and institutional customers.
Both have suffered significantly with the deterioration of the Irish property market over the last five years.  ACC Bank posted losses of over €200 million last year. Danske Bank have shown losses of €31.4 million for the first nine months of 2013 and added impairment charges of €22.8m. There just seems to be no end to the pain and the foreign banks have had enough.

ACC will now focus on debt recovery.  The former National Irish Bank shifts their attention solely to their more elite customers. Both have very publicly reached the conclusion that the situation is unsustainable and that they need to take action now.

It really begs two questions. Who will be left to participate in the Irish banking market? And what of the timing?
Very few banks are left.  PTSB appear to be in the banking wilderness with no clear direction on what they will look like. Allied Irish and Bank of Ireland remain but appear hamstrung at their apparent inability to lend. The only bank emerging with any sign of growth is KBC, but clearly they are another bank whose allegiance to these shores may not be as resilient as the domestic banks.
The question I find more fascinating is, why now as opposed to earlier or later? With Ireland allegedly poised to exit the bailout plan towards the end of this year, I think there is a little more to it than is immediately seen. Contrary to their performance over the last ten years, bankers aren't naturally stupid.  All are deserting the ship that has been sinking but there are clearly those in the know who possibly think it has further to go.
Against a background of a number of people championing the spectacular recovery in Ireland, the action of both ACC and Danske would suggest a slightly different landscape. If everything was rosy in the garden why exit after weathering five years of pain? The problem that we have foreseen all along is the manner in which the pillar banks are looking to resolve their own impaired debt books. Placing mortgages on interest only periods and offering split mortgages is only like putting your finger in the dam to protect the tidal wave that is ultimately coming. Stemming the tide is not what this country needs. Address the debt issue or it will continue to take control as it has done for the last five years. Those in power, both in government and banks are operating in the belief that if we slowly removed the finger stuck in the dam, the outcome won't be that bad. They are very wrong.

Danske and ACC, rightly or wrongly are addressing their issues, the pillar banks are not. Kicking the can down the road may have worked in the past but the enormity of the problem remains overwhelming both to the individual and the borrower.  We shall watch this space with interest.

Nick Leeson

Facts or Fiction - The Housing Market

Wednesday 30th October 2013

A dictionary definition would state that Propaganda is a form of communication aimed towards influencing the attitude of the community toward some cause or position by presenting only one side of an argument. For Propaganda to work it is usually repeated and dispersed over a wide variety of media in order to create the chosen result in audience attitudes.

Once again we are being told that demand for property is outstripping supply in Dublin and that prices are being pushed higher and higher. Official figures are showing that the rise in prices is as much as 12% this calendar year. It also outlines it’s the fastest rate of growth since 2007 and is entirely driven by the Dublin market, however there appears to be evidence that it is creeping outside the capital.

As much as anybody else I would be looking for signs of improvement in the market but I would also be acutely aware of how easy it is to manipulate a market. For five years, every market commentator has been looking for the smallest sign of a 'green shoot' of economic recovery. As some of the statistics now appear to be confirming.  Any housing market is largely based on sentiment. Sentiment, if powerfully driven by media is largely irrational. As soon as you make decisions based on sentiment, you need to be fully aware of the facts.

Propaganda often presents facts selectively to encourage a particular synthesis, or uses loaded messages to produce an emotional rather than rational response to the information presented.

The way that these latest set of statistics from the Central Statistics Office (CSO) have been presented do exactly that. It’s important to remember that

·         The divergence between Dublin and the rest of the country suggests a market supported by a lack of supply – this will very quickly not be the case

·         An influx of cash buyers currently into Dublin supported by tax exemptions and above average yields is currently compensating for weak mortgage lending.

·         There are well over 100,000 distressed mortgages in this country which need to be dealt with. This figure is rising… fast!

We all want to believe that the market is changing. Heaven knows I spent three years at a desk in Singapore, hoping that each change of direction wasn’t the false dawn that the last one was. Unfortunately those Eureka moments are very few and far between. Talk of property prices increasing is providing some people with the hope that there is a light at the end of the tunnel, an end to their problems. Talk of solutions that revolve around interest only periods or split mortgages that rely almost entirely on a revival in the property market are not solutions at all – they only delay the inevitable.  Similar to putting a sticking plaster on the Niagara Falls on many occasions.

The more worrying point is that we are seeing people in our debt advisory business who are now thinking that their investment portfolio of houses is going to come back to where it was – very simply, this is not going to happen.

Any attempt to boost confidence in the property market, any attempt to sway sentiment with limited observance of the facts, any such propaganda should be treated with the utmost care.  Movement in the property market in Ireland, absolutely and must be welcomed.  Putting the kettle on for prices to recover to where they were…. Well I think most would accept this is more of an illusion than reality.

 

Nick Leeson

A Zombie Nation

 

Wednesday 30th October 2013:

Ending the zombie business crisis plaguing the economy would be a cheap and easy way to boost growth, argued insolvency professionals, urging George Osborne to push banks to take the plunge on bad debts and write down the debt to aid any projected recovery.

Around 50,000 firms are thought to have no hope of repaying their loans in full, and are seen by some as a drag on growth, tying up bank and labour resources unproductively.  It has been reported that there is in excess of 100,000 others with good growth potential but that are struggling in the weak economy.

The time has finally come whereby Banks are having to address this issue either aggressively through the insolvency legislation or through mediation and working with the businesses to achieve an amicable solution. Whichever approach is taken by banks, the emphasis will be on business owners to demonstrate that their business can grow and succeed.

GDP Partnership has been pioneering the mediation route for the last three years and has achieved many successes from both the perspective of the borrower and the bank.

Unfortunately the main cause of a lot of these businesses woes are that they borrowed heavily in the last ten years against assets which have now fallen dramatically in value, and in this part of the world it has largely been on property. This fall in asset value has now caused the borrowing to be unsustainable and significantly impairing their balance sheets. It is this now unsustainable debt which is holding the company back from growing and adding value to the greater economy.  The net result of this is the banks on many occasions are draining the what was once a progressive business, of any cash to prop up the bad loans in the company.  Even more worrying is a trend which has been on-going for the past while is that banks are draining company's of cash to prop up loans that directors of the company took out in their personal names.  This is not right and is suffocating the business and any chance of it growing and in many occasions continuing to trade.
 

An equitable and fair solution to this problem is for both borrower and lender to share some pain. In many cases there is an opportunity for the lender to re-base the loan to an affordable level that the company can service; this level may or may not be equal to the market value of the asset, however to get the bank to play ball it must be a better proposal to the nuclear option namely winding the company up and appointing a receiver to sell the assets. If it can be demonstrated and presented properly that by agreeing to re-base the debt at a figure which is a better option for the bank than the doomsday scenario, then most banks today will listen. 

In the past few months our team have reached a number of agreements with the banks on this basis, which is a very positive development.  However the health warning here is we need the banks to move faster and be more transparent in their dealings.

It makes so much sense to approach the debt problems facing the country with a solutions hat on as opposed to that of a funeral director.  There are now thousands of zombie companies across the nation from Derry to Cork and unless, those in this unfortunate position bring the solutions to the banks, their futures are going to be in serious jeopardy. 
From a banking perspective let’s hope the industry becomes a lot more proactive in this regard and takes a more pragmatic view when it comes to writing down the debt, and letting businesses get back on their feet again.  We need a more medium to long term approach to be adopted for this to happen.

Conor Devine MRICS

Austerity - The Low Hanging Fruit !!

As the dust starts to settle on the seventh austerity budget in five years, the ripple effect of many of these measures will take many months to really hit home. Once again those affected are the most vulnerable and those most in need of help – the low hanging fruit which are easiest to reach and place in the bucket. In a country crippled by debt, there had to have been other options but the elected voice of this country failed again to act.

The last five years has seen one laceration after another inflicted upon the back of those with the most heaviest burden. Has it ever been any different? Hundreds of years ago, the same class of people would have been at the front of the line, cannon fodder for any opposing army. The Generals would have held back in the rear, still enjoying the finery's of life whilst everyone else laid down their life in a bloody mess. Its not much different today, the politicians pontificate in Leinster House, protecting their brethren, flexing their muscle and letting others bear the pain. I'm as far from a socialist as you can imagine but I laugh at modern day politics. Twenty years ago in the City of London, every time an election loomed, every trader and banker was making plans to move location if Labour won as the higher rate of tax was set to rise. They didn't have far to go, Dublin would have been fine as the Labour here is really a sheep in wolf's clothing and wouldn't have been worth bothering about

Yes, the Budget complies with Troika guidelines but in taking from those most in need is not only not addressing the real debt problems in this country, is adding to them. Banks are now remodelling your debt, some may call it restructuring but don't be fooled. Right now its all about compliance, a box ticking exercise to make sure the Troika is on side. Never forget the banks have the security of your home if you have a mortgage. Unless there is meaningful restructuring with an element of write down, you will likely find yourself back in a situation where you can't afford to pay at some time in the future, now very possibly, the very near future. The bank's will not care if they have to move on your house in one, three or five years time, they always have the security of your bricks and mortar. When the dust settles on the 'Troika' era in Ireland, the banks have ticked their boxes and been complicit. I can guarantee two things

The banks, if not already will make huge profits with little recourse to the taxpayer, and secondly

banks will be far more aggressive in the repossession of homes in the future.

That's their way of saying thank you.

Nick Leeson - Partner GDP Partnership

 

A Clean Slate - Debt, The New Cancer

The Insolvency Service of Ireland started taking applications for its new personal insolvency measures this week. I get the impression that there was nobody beating the door down, nor a long queue forming. That’s no surprise but not for the reasons that you hear many commentators making. Nothing affects people quite like debt, historically it has a dark and sinister undertone that the majority of people keep as far away from as possible. The financial tsunami that we have experienced in Ireland means that it is affecting far more people than it ever has done in the past. Many people will find it easier to talk about a lump that they have found somewhere on their body than be willing to talk about their struggles to pay or not pay their bills. Unfortunately that is the way that it has always been.

There is no doubt that the new legislation has been met with consternation, confusion and a certain amount of resentment because of the limitations that it imposes. Equally so there is no questioning that it has spectacularly under-delivered in relation to the most important aspect – bankruptcy. But it still represents real opportunity for those who use it correctly, whether that is by implementing one of the measures or by using the options that are available as a bargaining tool.

 

Unless you learn about the options available, educate and empower yourself to use them where applicable, it is impossible to make informed decisions about your path forward. Debt brings with it huge social and personal cost. Look around you, you can see it everywhere. We cannot control what the government does with budgets and austerity measures to put the country back on track but you can regain control over your personal situation. Granted it will take a little time and any new insolvency legislation does take time to bed in. Look at the United Kingdom, there was the same consternation, confusion and resentment when the legislation was changed ten years ago but now it is an efficient system that allows people to start again. It has it's critics but it works!

Right now Ireland is at the start of that cycle and it may well take five years to bed in, as it did in the United Kingdom but everyone has the right to avail of the legislation and in my opinion, should.

So whilst most commentators will tell you that the new legislation is an unmitigated disaster, with the exception of the bankruptcy component, I'd say that it can work. But if you don't understand it, don't educate yourselves about the options available, the Insolvency Service of Ireland will sit idle. Please don't allow that to happen.

 

Debt is quite simply an affordability issue

•                     If you can afford to pay, you should

•                     If you can't afford to pay, you simply can't and a solution has to be found.

 

With the education that is required in this area, there also needs to be a fundamental shift in the way that people approach mortgage debt and the family home. In part, this is included in the new legislation. Some simple examples, A couple living in a three bedroom house on their own with no children who cannot afford to pay the mortgage should simply downsize to a property that they can afford to pay for. If you are living beyond your means, for your own financial and healthy well being, you have to make a change. Much is being made of protecting the family home at all costs. In many cases this is ridiculous, split mortgages, warehoused sums and 20 year claw backs are a waste of time. Everybody owes it to themselves to achieve a realistic, sustainable solution. All mortgage debt is secured, banks will expect to receive back all of the money that they have secured on your property. Who can blame them? But they as well as you have never experienced the degree of difficulty that individuals are now facing.

 

Rest assured, there is always a solution, Don't Panic.

Author :: Nick Leeson Principal