Saturday 24 February 2018

Richard Curran: Nama's Project Eagle really landed nicely for Cerberus

The deals Cerberus has made with developers are good for the Northern property market (Stock picture)
The deals Cerberus has made with developers are good for the Northern property market (Stock picture)
Richard Curran

Richard Curran

While the Government figures out how to hold a Nama inquiry, Cerberus, the US private equity firm that bought the €6bn Nama Northern loan book for €1.6bn, is getting on with working its way through the properties.

Cerberus has been busy doing deals with property developers in the North who now owe Cerberus the money and not Nama. It has been allowing some developers to refinance their debts with other lenders and basically move on with developing the assets. This is good for the Northern property market and the Northern economy - but probably not great news for Southern taxpayers.

For example, Nama sold €6bn worth of loans to Cerberus for €1.6bn. It was a mixed bag of good properties, not-so-good properties and a lot of undeveloped land.

Nama lost money on the deal. It bought these loans from the banks for around €2.3bn. It took an impairment charge after it had bought them of around €600m. It then sold them for €1.6bn.

Let's say a developer owed the banks €100m. Nama might have valued his loans at €30m when it bought them. This was impaired and written down to €25m after it bought them. Cerberus might have paid €24m for those loans - a fraction under Nama's book value, as happened with the portfolio as a whole. The developer was not allowed buy his loans back from Nama, but he can buy them back from Cerberus.

So he borrows €28m from somebody else and pays Cerberus €28m. Cerberus has made a profit of €4m. The developer can carry on with new bankers on his old property - but instead of owing €100m he owes €28m. The Irish taxpayer takes a hit of €76m.

Of course, much of that loss had already happened when the property market collapsed, but could more of it have been clawed back? Nama doesn't think so. The Comptroller and Auditor General does.

Nama still has loans that originally amounted to €39bn on its books. The agency values them at just €6.6bn. These loans will be a lot more difficult to sell. With the closure of the Section 110 loophole, which added a further incentive for vulture funds, we may see fewer overseas buyers for these less attractive assets.

That means we could see more Irish buyers but at even greater knockdown prices. Many developers have been effectively trapped in Nama since 2009. They can't move on and they can't move out. The cleanest, most valuable and easiest-to-sell loans have been flogged off.

Between the investigations and the poorer quality of remaining assets, Nama's final phase could be even more colourful than the story up to now.

Keeping schtum about insurance premiums

Insurance companies look a little friendless after the last week. The Competition and Consumer Protection Commission (CCPC) launched an investigation into whether insurers were signalling price increases in an anti-competitive way.

The suspicion is not that insurance company executives sat in a smoke-filled backroom somewhere and agreed insurance premium increases. The question is whether consistent public statements by insurance executives saying they were going to put up premiums in the future were signals for others. One company executive says prices will go up by 10pc this year. Competitors take note of that and decide to do likewise.

CCPC executives told the Oireachtas committee this week that there can be unspoken co-ordination, which it wants to explore. It also means consumers are softened up for price increases and can be discouraged from shopping around because they just assume everybody is putting up prices by the same amount.

Price signalling is a relatively new concept in competition probes, and it has been quite controversial. It is also very difficult to secure a criminal conviction because it can be very hard to prove.

The alternative is for a probe to take place and the CCPC to take a Civil Court action.

The CCPC told the committee that it wrote to Insurance Ireland about the matter last October, but then just kept an eye on public comments by insurance executives in 2016, especially from firms that were back in profit.

Checking newspaper records, I found one executive saying in March how prices would go up again this year, but the rises would be lower on average than in 2015.

In June 2016 another insurance chief executive said he was going to increase prices by another 5pc by the end of the year, bringing it to a 10pc hike for 2016.

Price signalling legislation was introduced in Australia in 2012 and has been controversial. The Italians have been most effective with theirs, resulting in a number of investigations including one into a cartel of pasta producers who were found to have co-ordinated their price increases through press releases, press conferences and media interviews. In order for the CCPC to take a successful case, it would have to show that signals were given, that they were noted by competitors, influenced competitors and prices went up by more than they would have without the signalling taking place.

That would not be easy. But hopefully the existence of the probe and the demands for more transparency will give insurers pause for thought about future premium hikes.

If the CCPC is successful, insurance executives will stay quiet about prices in the future. What will they do instead?

A long way from 'did you get the press release?'

The world of PR is not what it used to be. Former Nenagh Guardian reporter Declan Kelly is scaling the heights of the global PR and corporate advisory world with a possible $1bn flotation of Teneo, the company he co-founded with Galway man Paul Keary and former Bill Clinton aide Doug Band in 2011.

Teneo has been buying up PR firms in the UK and elsewhere in the last 18 months in particular as the corporate advisory world consolidates.

Big global mergers mean big clients want their advisers to have an international presence. This has happened with accountancy, banking and is now happening with PR. These big clients also want lots of different kinds of advice from one provider. Hence Teneo is involved in investment banking, risk, security, restructuring and even sport. It has advised Fifa, BHP Billiton, Novartis and UBS on their battles with US prosecutors, plus a raft of Wall Street firms.

Former New York City Police Commissioner Bill Bratton is heading up Teneo Risk. Advisers to Teneo Risk include General Ray Odierno, former chief of staff of the US Army, and Lon Augustenborg, former chief of operations for CIA's counter- intelligence centre.

Those guys are a long way from asking "did you get the press release?"

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