Tuesday 25 October 2016

Nama's sprint for the exit door could be very costly

Published 26/04/2015 | 02:30

Brendan McDonagh, Chief Executive of NAMA
Brendan McDonagh, Chief Executive of NAMA
Frank Daly, Chairman of NAMA

The Nama boys were in before the banking inquiry last week. Unlike anybody else likely to give evidence at the inquiry, Brendan McDonagh and Frank Daly had more interesting things to say about the future than the past.

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Nama is now running towards the exit door which will see it cease to exist by 2018. It could even wrap up in 2017 if things go well. Nama has been paying back its debts (€30.2bn in senior bonds) at a ferocious rate. It was supposed to pay back €15.1bn by end 2016 but had done so by the end of 2014 - two years early.

In a recovering property market, the faster it sells assets and pays back its debts, the greater the chance of missing out on a better price. Already several deals have come to the fore where Nama sold a building or a loan to an international buyer, at what is shown later to have been a knock-down price.

It has happened with the sale of Battersea Power Station in London, with assets of developer Sean O'Reilly and the sale of the One Warrington Place building in Dublin. This is where American buyers bought the building for €27m and then put it on the market for €40m. Nama lent them most of the money and all they had to do was put in €5m of their own money. It doesn't get any easier really.

Hindsight is 20/20 vision. Nama definitely sold off UK assets early on at rock-bottom prices. But they had to bring in some money from somewhere to start paying back their bonds. Inevitably, they would do some deals that with hindsight look bad.

In Ireland they appear to have kept going with sell-offs despite the rising market. Michael Noonan is strongly of the view that as long as Nama owes billions in bonds, it is a risk to Ireland's sovereign balance sheet.

He wants to de-risk Ireland Inc, by having Nama finished up and all its debt paid as soon as possible. Inevitably, rushing could compromise the price it might get for some assets.

But then again, what if there was a big external shock in the global economy and things headed south?

Do we really want Nama hanging around like a ghost of the crash?

Unfortunately, because of the way it was set up, there is little scope to determine what kind of deals the agency is doing. We don't know what it paid for particular assets so we don't know whether it has done a good deal or a bad deal on any transaction.

We will just get a final figure at the end which Nama believes could be a profit of €1bn. We can then subtract that off the €40bn bill for the banking crash - whoopee!

Once again, AIB has delivered for Fine Gael

AIB has delivered for the government yet again. If only it would deliver for the taxpayer!

Chief executive David Duffy announced a U-turn on cutting standard variable mortgage rates. He might as well accede to pressure from government given that he is almost out the door and Michael Noonan represents the 99pc shareholder in the bank.

A 25bps cut to variable mortgage rates will hardly de-rail AIB's flotation. The last 25bps cut it announced at the end of 2014 cost it around €40m. Reducing what it pays depositors will cushion this blow too, while also delivering a bit of political capital for the government.

But don't expect others to follow. They didn't after AIB announced its last cut. Bank of Ireland could drop €20m a year from such a cut and will think hard about it, given that the State is only a minority shareholder.

Permanent TSB definitely won't. It is close to doing its big public offering and institutional investors would not be happy at such a jittery U-turn at this point in time. In fact PTSB has been instructed to drive up its net interest margin from last year's 0.9pc to 1.7pc by 2018. That is part of the financial story it is selling to investors right now.

At least AIB will end up doing something for thousands of struggling mortgage customers.

Ladbrokes turnaround looks like a long shot

Ladbrokes can't be accused, like some other foreign multinationals, of using the Irish examinership process to simply reduce its rents.

The betting chain has more fundamental problems, both here and in the UK, than just boom-time prices on shop leases. Chief executive Jim Mullen remarked that not enough customers are walking through the door of some of its Irish shops.

Which begs the question, why did they buy them?

Ladbrokes' mistakes include late development of its online proposition, not investing sufficiently in the interiors of shops and not doing their homework enough on some of the shops acquired in Ireland.

Go into a Paddy Power or a Boylesports shop, and they really are very comfortable places in which to sit back and lose your money.

Ladbrokes has closed 11 shops in Ireland and is expected to shut 40 to 50 more of its remaining 196 through the examinership.

In terms of shop numbers, it is third in the market and in terms of turnover, it has about 20pc market share, after Boylesports' 26pc and Paddy Power's 43pc.

It is a long way back for Ladbrokes and it will have one chance to get this right. New CEO Jim Mullen wants to deliver on a new online strategy.

It is interesting how all bookies were hit by a particular run of football and other sporting results last year but the impact seems to have been higher on Ladbrokes' performance.

Bookies refer to one weekend last December as the "bloodbath" when all seven of the top English Premiership teams won their matches. In other words, all the favourites won.

Yet the impact on Ladbrokes seems to have been bigger, reflecting wider problems in the group.

One of the dangers is that punters might stop betting with Ladbrokes during the examinership. Footfall can drop sharply because punters don't want to bet on this September's All-Ireland final today, if they see the business has some difficulties.

If Ladbrokes gets this right, it can kick on from here both in the UK and in Ireland, where it is harder to promote a British brand to Irish punters. But if Ladbrokes gets it wrong, betting in Ireland could become a two-horse race as Paddy Power and Boylesports mop them up.

No room at the inn in Dublin's hotel boom

I had to go to Dublin at short notice this week. I rang several city centre hotels on Monday, asking about room availability for Tuesday night. They were all fully booked.

Then I rang the Burlington, now run by Hilton, which has 500 rooms - hard to fill on a Tuesday night in April - I thought. But it too was full.

But the helpful lady in reservations checked its sister hotel, Hilton Dublin.

She said it had a room available at €437 for bed and breakfast. I queried why it was so expensive. "They know all the nearby hotels are full tomorrow night," she said.

Hard to square this off with a special 9pc VAT rate for a sector in need of help. Fortunes are being made in Dublin city hotels.

I tried outside the city centre and got a room for €89.


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