ARE WE REALLY IN RECOVERY?

Over the last few months, we have been reading about how eventually after a very long time, the UK and ROI economies are back in recovery.  Unemployment is  decreasing, more jobs are arriving at these shores from overseas, and our housing market is starting to move forward.  The mood music has definitely changed and there is certainly a more positive feel about the place. 

However I wouldn't be putting the kettle on for a full scale recovery any time soon.  The fact of the matter today is that the island of Ireland is overflowing with debt.  There is still way too much sovereign debt, SME debt and personal debt.  Our banking system is still under serious duress, and access to finance to stimulate growth is extremely hard to come by.

In Northern Ireland for example, 42% of the total households are in negative equity.  That means that 42% of the households in the country are under some form of financial duress, and in many cases struggling to put food on the table and fill the oil tank.  The other huge challenge facing the island is that we are in the middle of a full blown austerity program.  NI finance minister Mr Simon Hamilton went on record in the last few weeks, warning people that this austerity program will continue to 2020, and that in his opinion, things are going to get tighter for people across the board.  This coupled with the accepted view that interest rates will rise in the next 6/9 months, does not paint a very bright picture.

So what is the answer or how can we solve this problem?  What I would suggest to anyone who is in debt right now, is to get the proper advice, weigh up your options and then take action.  Whether your a SME or an individual, its fundamental you do not bury your heads in the sand hoping the problem will go away.  In the last few years we have assisted hundreds of people and SME's though their debt challenge and all of them said the same thing in that they wished they had addressed the problem alot sooner.  Its not too late and there is good advice out there if you look hard enough.  So take control of your affairs as the sooner you do, the sooner you will be back on a financial footing that will allow you to move forward again.

Conor Devine MRICS

GDP EVENT BOUND FOR CORK AND KERRY

Fresh off the back of three very successful events in Northern Ireland, the GDP team have agreed to take their Banks, Ethical or Criminal roadshow to the Republic of Ireland.  The reason behind these events is threefold, namely to Educate, Inform and Empower debtors to take control of their finances.
The keynote speaker with be GDP Consultant Mr Nick Leeson, better known for his role in the collapse of Barings bank almost twenty years ago, however has been spending the last  twelve months assisting borrowers deal with their banking challenges in Ireland.

"We are really looking forward to the events in Cork and Kerry, as over the last twelve months we have been trying to assist people from all across the country deal better with their banking challenges.  The road show was a resounding success in Northern Ireland, so it made sense to carry it through to the Republic of Ireland.

The team will be in the Clarion Hotel in Cork on Tuesday 25th March at 7.30pm and the next day in Killarney Plaza hotel at 1pm.  The event is suited to anyone in debt  particular the SME;s who are struggling currently with indebted balance sheets.

"Debt Forgiveness, Debt restructuring, call it what you want, is not a new phenomenon, and has been on-going since banking business began.  However its something that your are not really supposed to be talking about - especially in this country" commented founding GDP Partnership partner Mr Conor Devine.  We hope to carry on the good work we have been doing in the last few years in this debt advisory space, by raising awareness that there are solutions to resolving debt challenges, and also ones that sit outside the formal insolvency legislation through Mediation.

If you wish to attend this FREE event you need to register with Katie@gdpni.com asap as limited spaces are available. 

We look forward to seeing you there

#GDP

Irish SMEs now under huge threat from Stress Tests

Yet again Professor Morgan Kelly has created a stir among the Irish Media predicting doom and gloom if the debt overhang associated with property in SMEs is not dealt with.

He is quite right in identifying that a lot of SMEs during the boom times did acquire quite a large property portfolio in the belief that this would generate substantial returns over a period of years. We all know that this turned out not to be the case and has now put their trading business in jeopardy.  In fact only 6 months ago the Central bank issued a statement telling us that there was €50bn of borrowings out to SME’s in Ireland and possibly over half of that impaired.  This is a very sobering thought.

We are glad to report that some of the banks that we are working with are rebasing, writing off or parking the debt for quite a period of time therefore not affecting the trade or businesses. However it would appear that unfortunately RBS under their GRG department are not engaging this form of discussion. Given the fact that they had such a large presence sectorally in the banking sector in Ireland this is having an ongoing adverse affect on quite a variety and number of businesses.

 

AIB and Bank of Ireland have already provisioned for a lot of these property loans and have written them down as we know by 65% to 70% as reflected in their accounts therefore they are in a much better position to engage more fruitfully with the borrowers.

We at GDP are glad to report that on a number of cases the banks have been very receptive to our proposals regarding a rebase and write off.  An important point to note here is that without the assistance of the bank insolvency was the only option by way of Company liquidation and/or bankruptcy.

Let us hope that Professor Morgan Kelly's contribution to this debate would be taken seriously by the banks, the Government and inform SMEs of the option available to them. If it were not for the low interest rate currently that SMEs are paying to service their property loans there is no doubt they would have potentially been put out of business. How long will these low rates last for some say a further 2 years. Therefore now is the time to deal with the property debt associated with being over geared and engage in the overall facing restructuring discussions with the Bank. 

As Morgan Kelly has pointed out, later this year Europe is running an experiment in terms of the Stress tests for Irish banks.  If they follow through with this and aggressively make the banks fall into line and clean up their own balance sheets, they will subsequently have to deal very aggressively with the Irish SME’s.  If this happens, a lot of trouble is pending down the line as the SME market is the lifeline of the Irish economy.  We watch this thread with interest.

 

JAMES GIBBONS LLB

DEBT FORGIVENESS: LETS GET ON WITH IT. . . . . .

Once again amazing times in the Republic of Ireland for Allied Irish Bank and First Trust. It is good news to see that the Bank is in on target to be investible in early 2015 as said by their Chief Executive Mr Duffy and that their losses from 2013 have halved. Once again the platform of AIB is to be good as the Bank is returning to an operating profit.

More interestingly for borrowers in Northern Ireland the Bank, AIB or First Trust are seeking to write of £3.5 Billion of bailout loans. Yes I will say that again £3.5 Billion.

Obviously this will accelerate the solvency of the Bank and no doubt put them on a sound platform moving forward. My question in this situation is always, why are AIB not seeking to write of smaller loans for borrowers including mortgage holders and SME's who have an exposure to the property sector and is hindering them from becoming more productive and revenue generators in our economy? Perhaps Mr Duffy would like to explain.

 We raise this point at this time simply because borrowers are becoming even more disillusioned with the responses they are receiving from our native Bankers in Ireland and the United Kingdom and their demands for settlements of guarantees or borrowings as a consequence of the crash that the Banks fuelled to such an exorbitant and stratospheric level. We would strongly urge all the institutions to be more pragmatic in their approach to bad loans and we would certainly suggest that "what is sauce for the goose is sauce for the gander" so if AIB are entitled to bailout write offs then why not the borrowers?

GDP are pleased to announce that they have achieved write downs to date but the Banks should come out in a public way now and say they are open to do business based on their ability to write down and/or write of loans as has been disclosed yesterday by AIB.

Can you imagine the reaction if the AIB Executives had of looked for bonuses for their performance over this last year. Then there would have been an outcry!

James Gibbons LLB

Home Mortgages Resolution

We certainly have been experiencing a turbulent time over this last number of months trying to ascertain both North and South where various lenders are. The approach for each lender is markedly different and this has been demonstrated recently by a number of Building Societies reducing the monthly payments for borrowers to less than the interest monthly payment, subject to individual circumstances. This has obviously been a welcome relief for overstretched borrowers at this time and this pragmatic approach we believe in the short term should be welcomed. However some of the local Banks as opposed to the English lenders are proving more difficult on shortfall sales. This means that when you sell your property and there is a residue owing to the Bank how do the Building Societies deal with same. English Banks are taking a pragmatic approach realising that people have run out of money and our doing full and final settlements. In Northern Ireland it is still the case that the Banks are looking for greater sums than most borrowers can lay their hands on.

What is the solution?

There is no co-ordinator approach across all Banks because their balance sheets are in various degrees of impairment and like most borrowers they do not want to face the financial reality of an ongoing black hole in their finances for the foreseeable future. They are taking the view why should we crystallise our losses now and impair balance sheets further rather than move forward. However with the right approach demonstrating affordability and the value of the asset GDP are making progress with a variety of lenders to address this unfortunate and unsustainable position for both lenders and Banks.

Now is the time to act because as the market moves, rates rise and the asset value increases and it will become increasingly difficult to  deal with your lender in the medium to long term.

It is refreshing to note that the courts are very much on the side of the borrower at present and are keen for people to remain in their properties in the short term but our cognisant of the fact that when rates rise future problems may occur for both borrowers and Banks alike.

There is a lot of talk in the market place about the upturn in the market and the sale of product but this is still at a very low level and property north of a £100,000 is still proving difficult to dispose of given the vast amount of negative equity still ruling to most properties. On a positive note deals are being done and our advice would be that now is the time to act. 

 

JAMES GIBBONS LLB

NI HOUSING MARKET IN RECOVERY - DONT TELL JOHN !

Yesterday on the Andrew Marr show, the new very slick and articulate Bank of England boss Mark Carney, went on the record to declare that the housing market in the UK was firmly in the recovery mode . . .except for Northern Ireland. This prompted a response last night from our Finance Minister and local economists today that Mt Carney must have been looking at the wrong data. In short and for the lay man the data in NI for the past 12 months has shown that there has been a very marginal increase in house prices in the region  of 2/3%.  Not a great deal but after 6 years of declining house prices of up to 50%, most people would take that.  So technically I would agree with the Norn Irn viewpoint that maybe on this occasion Mr Carney dropped the ball ever so slightly.

I am a chartered surveyor myself and worked as a commercial property consultant for over ten years.  I worked with many incredible people in the property market and got a real good grounding in business.  I cut my teeth in the noughties, when it seemed like every other person in Belfast was driving a Range Rover, suited and booted to the nines, and running around socialising at Down Royal.  It seems a long time ago now, but was only in 2005/2006, so not that long ago really.  How times have changed.  The Bentleys have gone, helicopters decommissioned, even the all year round tans have gone by a lot of the ones who had a great few years,  Another noticeable occurrence of the last few years has been the fact that the estate agents have been very quiet.  Many estate agents have went out of business, sold their business, have had problems within their business, etc etc, such a far cry form only a few years earlier when they were investing in their businesses and making a lot of money.

In the past six months though we have seen the return of the agent.  The slicker ones have their teeth whitened again, new suits, dazzling shiny shoes and beautiful cars to boot.  They are happy to tell you the market is back, houses are flying out the door and in fact there are now bidding wars according to one agent on radio today.  Bidding wars - I think I remember what they where??  This is all fine but I feel at times this type of reporting can be counter productive and too salesy!!

Anyhow, what I would say is we all need a sense of perspective in this country and in Republic of Ireland when talking about any kind of housing market recovery.  Yes there is now finally activity in the housing market, yes people are now putting their properties on the market and yes things are starting to move, however I wouldn't be clicking the champagne glasses anytime soon celebrating a full blown recovery in the housing market.  What I would say in my professional opinion, there will continue to be a serious correction of house prices up to 2016 as the banks maintain their policy of clearing the decks regarding property.

Let me explain :: I have a friend and for these purposes his name will be John.  John has a young family and bought a lovely house in Bangor around 2007 for £400,000.  He spent another £75,000 doing the house up before he would move in.  He has a mortgage of £425,000 today and its just went from a fixed rate payment of £1000 a month to variable rate of £1700.00 per month.  Johns hit financial trouble in the last two years as he was a professional and he lost his job.  He is now doing some contract work but every month is a struggle.  He stopped paying his mortgage last year and had to place his property on the market.  Johns house is agreed at £200,000.  If the sale goes through John will still owe the bank £225,000.  Not a nice situation, and John is weighing up his options.
My point here is there are 1000's of Johns across the country who are part of the negative equity club.  Overwhelmed by debt and struggling to fill the oil tank and provide for their families every month. Most people like John belong to the coping classes, and many of them are professionals like teachers, doctors, dentists, vets etc etc.... all living month to month doing the 4 o clock walk a few nights a week for good measure, stressed our of their wits - not good at all!!  

The big issue in N Ireland is DEBT, and sad fact is our our local government have no idea how big a problem this debt issue is for households.  They have no data on this unlike the Republic of Ireland and I find this incredible.  How are you going to fix a problem if you don't even know what it is... playschool economics by Stormont at the highest level.

Its great that finally we have some movement in the housing market.  Mostly in the sub £150,000 band, as houses over this price are still hard to shift.  If credit is to be come more readily available in the months a years ahead (hopefully) we should see this trend in the market continue.

Yes there is definitely a mood change in the market, and as we are nearly through the first quarter of 2014, lets hope this continues.  However I have always said that we will not have any form of consistent recovery, to our banks start getting involved in lending again.  This could be some time yet. 

A housing market recovery... just a little yes, but do me a favour, please don't be mentioning it to John!!

Conor Devine MRICS

PIMCO AFTER NAMA NI DEBT BOOK

It was reported today by the Irish Times that PIMCO, one of the worlds largest Real Estate Companies has made tentative approaches to buy NAMA's Northern Ireland loans portfolio.  Although none of the parties have confirmed or denied the story it is certainly a very interesting development in the world that is NAMA..
Effectively NAMA, the worlds largest property company, acquired up to £4bn worth of loans from Irish banks that related to Northern Irish borrowers.  On the face of it this is a considerable amount of property loans.  Rough guesstimates are valuing these loans today at around £1bn, which is still quite a substantial amount of money and real estate.  The million dollar question now is, What is NAMA going to do with these loans?  To date, they have done very little in Northern Ireland, only selling a few parcels of land and putting up some working progress money for other schemes.  It would be fair to say that by and large most borrowers have found the NAMA experience very difficult and certainly from an economic point of view, Northern Ireland has not seen much of an upside as there has been little activity within the NI book.

The facts are that NAMA are now very open to selling loans having completed a few loan sales in the South of Ireland recently, and it would appear that selling of the Northern Irish book would be quite desirable on their part and make some sense. 
The next big question therefor is that if a sale of the loan book were to go through, what would that mean for the borrowers.  Very simply their liabilities would fall with the new owner of the loan book, and they would have a new opportunity to come to some form of arrangement / deal on their loans.

I think for the most part, the consensus amongst the property world would be that they would be open to a loan sale, as there has been very little progress made to date with the loans.

From an economic point of view, if the loans to be sold to a PIMCO fro example, and they started to aggressively manage the loans, then that would certainly mean an upturn in economic activity and for us that can only be a positive thing for Northern Ireland.  We can see this thread developing in the weeks and months ahead . . . . . .

Lets watch this space ::

GDP Partnership