NAMA & the IMF

Simon Carswell had an excellent page one piece in the Irish Times this morning. He wrote:

THE INTERNATIONAL Monetary Fund (IMF) told Minister for Finance Brian Lenihan last April that the National Asset Management Agency (Nama) would not lead to a significant increase in lending by the banks.

The comments, which appear in internal Department of Finance documents released to The Irish Times under the Freedom of Information Act, were made by senior IMF official Steven Seelig who will join the board of Nama in May.

Minutes of a private meeting at the department between Mr Lenihan and IMF officials on April 29th last state that the “IMF (Mr Seelig) do not believe that Nama will result in significant increase in bank lending in Ireland”.

The meetings were held for the purposes of the IMF compiling its annual economic assessment on Ireland in the so-called Article IV report published last June.

The Government has maintained that Nama’s purchase of bad loans from the banks with State bonds would increase the flow of credit in the economy since the plan was unveiled last April.

Constantin Gurdgiev has an excellent followup:

But what is new is the fact that this IMF opinion was known to the Government and its advisers who, having buried it from public view, have gone out on a prolonged PR campaign, in effect liberally treating the truth about Nama. Ditto for NTMA and Nama officials. That public representatives and officials engaged in such an act is a betrayal of public trust. It is, simply put, a deception of public opinion.

I have sought a copy of the FOI, but only received a single page of what was apparently a voluminous FOI. I will seek a copy of that FOI in a future request. The information is contained below, which I received from the Department of Finance.



Digest – Feb 2 2010

You know how we roll on Sunday nights/Monday mornings…

– HOME

Constantin Gurdgiev asks is Anglo riskier than Nama?

If you have ten minutes, read this speech made to a near-empty Dáil chamber by Fergus O’Dowd.

Edward McGarr of McGarr Solicitors on the DCC/Flavin stuff.

Formal submissions by TCD students to Oireachtas Committee on Electoral Reform.

Dublin Opinion drew my attention to this quite interesting theory.

The new 30kph speed limit in Dublin city centre is causing quite a stir. This post by Ferdinand von Prondzynski is a good round-up, the comments reflect the public feeling. Gerard O’Neill also writes on the topic. I’m in agreement with those who want to limit lifted.

Fair play to John Gormley for sticking to his guns… on one thing at least.

– WORLD Continue reading “Digest – Feb 2 2010”

That Ottawa residence

Foreign Affairs Minister Micheal Martin was on This Week today, defending the spending of large sums of taxpayer money on the residence for the Irish ambassador to Canda. The story had been highlighted by the Canadian media:

But prudence was not a consideration in the 15-month gutting of a modest stone house to recreate an abode of unbridled luxury for Irish ambassador Declan Kelly.

Coming in at more than twice the floor space of the Prime Minister’s official residence at 24 Sussex Drive with a reconstruction tab exceeding $7-million, the 24,000-square-foot, four-storey house is now the accommodation envy of the diplomatic corps in Ottawa.

Ireland embassy staff did not return repeated calls requesting an interview with Mr. Kelly and a tour of the residence, but a worker on the site proudly showed me blueprints of a project packed with every conceivable luxury and ornate columns rising to the roof.

“All that’s missing is a throne for Caesar,” the worker grinned. “I’ve never worked on anything like this before.”

Sounds like a nice pad. But where is it? Google answers. Here is a Google Streetview of the house, which was clearly at the time underdoing the renovations:


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Here is location of said house at or around 282 Park Road, Ottowa.


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And here is a picture of the completed house. Lundy Construction appear to be the cont

The closure of one man's tax relief

Shane Coleman reports on the closing of a controversial tax relief in today’s Tribune.

Section 4 of the Finance Bill, published last week, ends the benefit-in-kind tax exemption on employer- provided art objects introduced by [Bertie] Ahern, as a late amendment to the 1994 Finance Act, despite opposition from the Department of Finance and the Revenue Commissioners.

This tax exemption became a major issue over a decade ago when the Sunday Tribune revealed the measure had benefited businessman Ken Rohan and that it was applied retrospectively for the previous 12 years, effectively neutralising any efforts to pursue Rohan for back taxes.

Ken Rohan, a multi-millionaire property developer, was tapped for donations to Fianna Fáil while Bertie Ahern was finance minister between 1992 and ’94. He owned a mansion in Wicklow known as Charville House. The mansion was built in 1797 and is described by the National Inventory of Architectural Heritage as “one of the most memorable country houses in Wicklow”. As you might imagine, it’s worth a few quid.

Over a number of years Rohan decorated the gaff with many pieces of period furniture, antiques and artworks using money from his company Airspace Investments. The items were therefore owned by Airspace but Rohan was benefiting personally from them. The Revenue Commissioners thus defined them as being a benefit-in-kind of Rohan’s employment by Airspace and sent him a tax bill for 12 percent of the items value and two years of their use. This amounted to €150,000 per annum. Rohan disputed the bill. He knew that Revenue knew if they got payment for two years they could seek payment for the other ten years which he had personally enjoyed and used items bought by Airspace. Continue reading “The closure of one man's tax relief”

Jekyll and Hyde

Our esteemed Senators have been at it again. Hold onto your hats. Senator Donie Cassidy kicked it off:

Donie Cassidy (Fianna Fail): Senators Fitzgerald, Coghlan, Quinn and Norris congratulated the Jekyll and Hyde foundation for the wonderful work it is doing. Senator Fitzgerald outlined the huge difference between the cost of the services being provided by the foundation and those provided by the HSE. It is something we must examine—–

Frances Fitzgerald (Fine Gael): It is the Jack and Jill Children’s Foundation.

Dominic Hannigan (Labour): Jekyll and Hyde is something different.

Donie Cassidy (Fianna Fail): My apologies. It is the Jack and Jill Children’s Foundation….

Your tax euros hard at work there.

Tánaiste lies to the Dáil?

In September last year the Review Body on Higher Remuneration in the Public Sector said ‘performance-related’ bonuses should be suspended and pay cuts made on basic salary, Government continuously cited their report in relation to pay cuts. The Review Body did not recommend the ‘bonuses’ be included as salary. The Government, in the Budget, agreed. They stated cuts were to be made in the method detailed in the report – i.e. bonuses suspended and salaries cut. See Martin Wall’s report post-Budget report in The Irish Times here for more.

Then the Government, following lobbying, suddenly decided to change how the cuts would be implemented, but only for a small sector of the public service. That sector includes assistant secretaries and deputy secretaries in the the Civil Service, senior personnel in the Army and An Garda, and positions like Ombudsman and Director of Corporate Enforcement. Each would have been taking home somewhere between €130,000 and €200,000 including bonuses. Harry McGee wrote an explanatory article on the topic in early January. Since then the numbers included have expanded. On the latest count almost 600 people fall into the group (the public sector would have tens of thousands of staff, obviously).

Instead of suspending bonuses and cutting basic salaries it was decided that for this elite group alone the bonuses would be counted as part of their salaries. This, the Government said, was because the vast majority of them received ‘performance-related’ bonuses no matter how they performed, thus the bonuses were, in practical terms, part of their salaries.

The eventual outcome; the group did not have their take home pay slashed due to the suspension of bonuses and further cutting of basic salary, as recommended by the Review Body and supported in the Budget by Government. Now bonuses are being are included in their pre-Budget salary totals and this figure is being cut by between 8 and 12. Therfore their basic pay cut is something around 3 or 4 percent. A clerical officer will be cut 5 percent, there are no bonuses, performance-related or otherwise available at these lower grades. Persepective: A clerical officer’s annual salary would have equaled something close to an assistant secretary’s ‘performance-related’ bonus.

The Government’s change is quite clearly a U-turn. It’s quite clearly disgraceful. It’s quite clearly immoral.

Despite just how clear it is, this week the Tanáiste Mary Coughlan claimed “the review body on higher level pay indicated that the bonus was indicatively part of their salary” in the Dáil.

Considering her Fianna Fáil colleague, Martin Mansergh, had already read the facts into the Dail record when putting the Budget legislation through the House:

The Government has accepted the review body’s recommendation that there be no increases in the pay of the higher public service groups, including any adjustments that might otherwise arise under national agreements, before the end of 2012. It has also accepted the recommendation that performance related award schemes in the public service should be suspended.

… and that this view could only be accepted by anyone of sane mind upon reading the report, any logical person would have to conclude that the Tánaiste has either lied to the Dáil and/or is far out of her depth.

Or is not of sane mind.

George Lee's questions

Dail newbie George Lee has been asking lots of awkward questions. One of his more recent ones has led to a bit of an information dump by the Department of Finance. Mr Lee asked:

Question 205: To ask the Minister for Finance the names and addresses of all nominees to bodies or agencies under the remit of his Department that were appointed since 26 June 1997, detailing by whom they were appointed; when they were appointed; the amount paid by the Exchequer to each nominee each year from 1997 to 2009 broken down into income, expenses, overtime and any other relevant category; the money paid by his Department each year from 1997 to 2009 to cover expenses or incidentals related to the nominees, such as accommodation, travel and so on; and if he will make a statement on the matter. [5662/10]

To which Mr Lenihan provided quite an extensive reply. Maurice Ahern and Leonie Reynolds are two names that stand out for me. Comments please with extra info.

Anglo risk reports

I received the results of this request yesterday. I requested:

1. “The titles, dates and authors of all cost-benefit analyses, impact reports or preparatory reports that have been carried out by the Department in relation to Anglo Irish Bank. The date range for this request is January 1, 2008 to December 22, 2009, inclusive.

2. The titles, dates and authors of all cost-benefit analyses, impact reports or preparatory reports that have been carried out by people or companies working on behalf of, or at the request, of the Department, in relation to Anglo Irish Bank. The date range for this request is January 1, 2008 to December 22, 2009, inclusive.”

The results are here.

The FOI contains previously undisclosed names of recent reports carried out in relation to Anglo Irish Bank. The more curious sounding ones are “Project Europe” in December 2009, and “Project Stephen” in May 2009, both carried out by PriceWaterhouseCoopers.

I had previously FOId similar information related to NAMA. That FOI also contained previously undisclosed names of reports, such as HSBC’s Project Neo, and Atlas II (Island, Eagle, Able, Canal).

NAMA and conflicts of interest

This post was scheduled to go up at 6pm tonight but it’s on Liveline now, so…

This article from the Limerick Post is worth reading. It tells us a company whose owners owe massive amounts of money to Anglo Irish Bank will be providing legal advice to NAMA.

LIMERICK solicitors Dermot G O’Donovan, three of whose partners are directors of the Fordmount Group, now in receivership, have been appointed by NAMA to provide legal services.

Fordmount is believed to owe in excess of €100m to Anglo Irish Bank.

NAMA will appoint more than 50 firms to sit on a panel of legal advisors. Being on the panel does not necessarily mean a company will be called to provide advice. Indeed the reason NAMA would claim such a large number of advisors is required is – for want of better wording – to dilute any conflicts of interest. Still, if claims of conflicts of interest are raised, it’s worth taking a look at them.

The story is also perhaps illustrative of just how interconnected the various elite facets of Irish society have become in the last ten or so years.

Thanks to the people on Twitter who highlighted the story this morning.

The coming crisis?

It is early February 2010 and it is time again to look at our banking system. If you thought all of the problems had been sorted, then think again. There are really big problems coming down the road, and very few people seem to be talking about them. So let’s look a little closer at the potential fiscal problems Ireland, and our banks, face.

A number of issues have come to the fore in recent weeks, and over the coming weeks and months things could become somewhat – strained.

Yesterday the Minister for Finance Brian Lenihan decided to devolve more functions from the Department of Finance to the National Treasury Management Agency. The Opposition are critical of the move, arguing that Lenihan doesn’t trust his own staff enough. I’m not entirely sure this is the case. One thing that stands out like a sore thumb is the fact that unlike the Department of Finance, the NTMA is not subject to the Freedom of Information Act.

Indeed the Department have said to me several times over the past few months that my requests for information were being delayed because the Department was so busy with NAMA, and with other FOIs. Now, it seems, much of the decision making will be made in secret anyway. And the NTMA is secretive. They are a public body, but we don’t know what the pay levels are.

In the current fiscal crisis we are in, the NTMA is arguably one of the most important public bodies, yet we cannot FOI them. They are the body that issues our bonds, bonds that are keeping this country afloat. The Financial Regulator and Central Bank are also not subject to FOI. The Department of Finance is one of the few bodies in this area we actually can FOI – moving powers to the NTMA will only lead to less accountability for the public.

David McWilliams recently argued that we are facing a debt-fueled crisis, and I agree. There is something going on with our banking system that no one appears to be talking about and things could get very hairy indeed over the coming months.

Let’s take a closer look at the what might be happening in the Irish banking system.

If you’ve read Morgan Kelly’s excellent analysis of the Irish credit bubble you will be aware of the Irish banking system’s over reliance on international money markets for funding. When the financial crisis hit in September 2008, these money markets froze and Irish banks struggled to get day to day funding. This is what ultimately led to the bank guarantee, and to the opening of what’s called the ECB discount window.

Banks all over Europe were struggling with funding, so the ECB essentially enacted emergency measures to help fund the banks. Irish banks were one of the biggest beneficiaries of the discount (the interest rate charged by the ECB is sometimes called the discount or repo rate). Ireland’s banks have effectively been kept on life support by the ECB since 2008, as McWilliams also noted last year. Essentially Irish banks were buying NTMA-issued sovereign bonds with short-term lending, presenting that as collateral to the ECB and then borrowing cheaply from the ECB. Summed up here – 25% of our deficit in most of 2009 was indirectly funded by the ECB.

But these emergency measures will not last forever. And it appears NAMA was part of this methodology. It is entirely possible that in order for banks to be able to fund themselves once the ECB shuts the discount window, and get funding from commercial markets again, the plan is to transfer the crap to the Irish taxpayer in advance. This makes it more likely that banks will be able to fund themselves without the help of the ECB.

In November the ECB announced it would begin the process of winding down the emergency funding. In December the last 12-month repos were sold. We are now approaching the next phase. Next month, the ECB will close the 6-month window. The 3-month and 1-month repos will close after that. McWilliams put it well last week:

We don’t seem to realise that we are now in a phony war situation where our sense of stability is based on the European Central Bank (ECB) injecting soft loans into the banking system. This massive monetary injection was carried out all over Europe to make sure the European banking system survived last year.

The ECB is now unwinding this credit. Let’s just recap on the way the banking system works. If the banks stop lending to each other (as happened in September 2008), the Central Bank, acting as the ‘lender of last resort’, steps in. It says to the banks: ‘‘Give us what you call ‘assets’ on your balance sheets and in return we will give you money so that you don’t run out of money and go bust.”

In Ireland, the assets on the banks’ balance sheets are our mortgages and all sorts of loans to property. So the banks package all these mortgages into what is called an asset-backed security (ABS).

This product, which could be thousands of performing mortgages, is rated by the rating agencies and then given to the Central Bank in return for cash.

This cash goes into our ATMs and we spend it. The ECB did this all over Europe from September 2008, because every banking system was experiencing problems.

The pathetic spin put out by the government and believed by many is that Ireland has some sort of sweetheart deal with the ECB, whereby the Europeans looked favourably on Ireland.

This is not true. The ECB treated the Irish banks the same as any other banks in Europe. In fact, it could not have legally treated us any differently to any other country. It loosened its rules on what did and did not constitute ‘security’. So banks in Europe that couldn’t get money anywhere else went to the ECB and exchanged ‘assets’ for cash.

In normal times, the ECB will only accept assets with an AAA rating as collateral. In the past two years, it has loosened this and accepted any old trash in return for cash to protect the system. Look at the chart for Europe as a whole, and we see that the ECB provided over €500 billion in this type of financing across the eurozone.

In July, it intends to pull €442 billion out of the system, as it reverts to taking only AAA assets and signals to the rest of Europe that the banking crisis is over. But it’s not over in Ireland.

In the crisis, different countries needed differing amounts of cash, depending on how delinquent the country’s bankers and regulators were during the boom. It will come as no surprise that Ireland is the most badly affected. Today, Irish banks are getting €98 billion from the ECB in this type of ‘cash for trash’ funding. That is 17 per cent of our banking system’s assets, which are about €520 billion.

Nearly as fragile are the Greeks, who are getting €42 billion or 8.8 per cent of total assets. For Italian and French banks, only 0.8 per cent and 1.8 per cent respectively of their total requirement comes from the ECB. In other words, when the ECB changes its rules, it will have no effect in Italy and France, a nasty impact in Greece and a catastrophic impact on the amount of money in ATMs here.

The major problem for Ireland is that the ECB will accept only AAA assets from March, but we don’t have any AAA assets.

Our government debt, the least risky (apparently) asset in Ireland is not even AAA any more. The ABS packages of our mortgages are clearly nowhere near AAA and will be further downgraded as mortgage defaults rise.

So where are we going to get €92 billion and how much will our banks have to pay over and above ECB interest rates? Someone will lend to us – but at a huge premium and probably a rationed amount of cash.

The rating issue is important. Our banks were downgraded by S&P last week, which will make it more difficult to sell their own bonds. The assets they hold will also not be sufficient to take advantage of the last of the 6-month repos this month, since the ECB require that the assets they present as collateral for the issues need to be AAA rated by two credit ratings institutions. This is highly unlikely for any of the collateral our banks have – the collateral is essentially junk.

Everyone is talking about Greece right now, but to me Ireland is no different. It is probably worse. So with these deadlines looming, what is happening? Over the past number of weeks you might have noticed various headlines to do with NAMA delays. Why is this important? Could it be that unless the banks can transfer these junk ‘assets’ from their books, they could face funding difficulties on non-ECB markets?

I could well be wrong, or even cynical, but my feeling is that banks are desperate to get this stuff off their books, in order to be better able to fund themselves after the ECB shuts the discount window. If they don’t get them off their books, and onto the backs of the taxpayer, the banks could simply end up going to the wall, or simply being nationalised.

There is another angle to this story that is not getting much coverage. And that’s Anglo’s role in all of this. A number of questions arise and remember Anglo is a public body:

How much exposure does Anglo have to CDOs squared?
65% of Anglo’s loan book is ‘investment lending’, what is this composed of? (Atlas I report)
Who are Anglo’s bondholders, and why were they protected?
How did the S&P downgrade of Irish banking affect Anglo last week?
How much exactly did Sean Quinn own of the bank, and how much did he borrow from the bank? How much of Sean Quinn’s loans were backed using his group of companies, and what other collateral was used for his borrowings?

A number of issues arise. In June, Anglo received a €3.5bn recapitalisation from the State. At the time it said it might need a further €3.5bn. This is money to rebuild the bank’s capital base due to bad loans.

However, these figures are likely much higher. Anglo will likely need up to three times that figure. Combine that with AIB, INBS and Bank of Ireland’s funding needs, and the taxpayer will likely be handing over more than €22bn to our banks over 2010.

When you combine the shutting of the discount window, with the delays in NAMA transfers and ultimately our own State borrowing (indeed we have already borrowed €6.5bn so far this year – 33% of our bond issuance for this year was done in January) and with the likely writedowns of not 30% but 50% on the loanbooks, we are facing a serious crisis. And of course the other factor is the ECB raising interest rates at a time we need them to stay low.

My questions is this: how are we going to pay for all of this?