September 2010


Brian Lenihan’s full statement on banking released this morning also has a section on NAMA.  Interestingly it states:

The Government has decided, having consulted with the NAMA Board and the European Commission, that where the total exposure of a debtor is below a €20 million threshold in AIB and Bank of Ireland, that debtor’s loans will not now be transferred to NAMA. The threshold had previously been set at €5 million. … I have been advised by NAMA that there are 650 debtors with property-related debts of between €5m and €20m in these two banks. They account for just €6.6bn of the aggregate €80bn volume of NAMA eligible loans.”

So, €6.6bn worth of smaller loans will not be transferred to NAMA after all, as “Loans of this size can be efficiently managed by the banks themselves through their network of local representation and relationships.”   Which makes one wonder why they needed to be transferred in the first place?

It would be interesting to know the geography of these €5-20m properties.  One assumes that there is a lot of housing and land outside of the principal cities which have just exited the potential NAMA portfolio.  What will be left is the more viable, larger developments in more prime locations (along with the more marginal stuff transferred from Anglo, Irish Nationwide and EBS).  One assumes this means that a large chunk of the marginal sites and the owners who have less experience and weaker or no business plan have fallen out of NAMA’s remit.  This will certainly make the life of NAMA easier, and make it more likely to succeed, with the banks themselves left to work out what to do with the properties.  Presumably they will either try to make them going concerns or off-load them at a loss.  It will be interesting to see how such offloading might affect the work of NAMA given that these impaired assets will no longer be coordinated by a single entity.

Rob Kitchin

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Joan Burton, quoted in the Guardian, describes this morning’s announcement about the latest bank bailout costs as ‘Ireland’s Black Thursday.’  Patrick Honohan announced this morning that the final bill for bailing out Anglo Irish Bank, all being well, will be €29.3bn, another €3bn is to be pumped into AIB (making the State the majority shareholder) and another €2.7bn into Irish Nationwide.  The figure for Anglo could rise to €34.3bn if the haircut being applied to the remaining loans being transferred into NAMA exceed 67%.  The State is now the majority shareholder in four banks (AIB, Anglo, Irish Nationwide, EBS).

Quoted in the Irish Times, ‘Mr Lenihan said today’s final figures for repairing Ireland’s banking system would provide reassurance to investors:  “The overall level of State support to our banking system remains manageable and can be accommodated in the Government’s fiscal plans in the coming years.”‘

Manageable?  Well, hopefully, but at what cost?  A year’s tax receipts at present is €33bn.  The €29.3bn that’s gone into Anglo has disappeared into a black hole never to be seen again.   Another €15.4bn has been pumped into the other banks (Bank of Ireland, AIB, Irish Nationwide, EBS), which hopefully will be recovered over the long term.  The €40bn or so going into NAMA may or may not pay back depending on the nature of the assets transferred in and whether the Irish property market recovers sufficiently over the next 10-15 years.   The government are presently borrowing €20bn per annum to bridge the gap between tax receipts and the cost of running the country.  Since the bank guarantee two years ago, the Irish state has borrowed a fantastic amount of money, so much so that the Guardian reports that government debt now exceeds GDP, with the deficit 32% of GDP (easily the highest in Europe).  If there is a reason that overseas investors are nervous, this is it.  Our economy has shrunk markedly, our unemployment and welfare bill grown significantly, our austerity measures do not seem to have worked, the banks have been financial blackholes, and we owe a fortune. Yet we are committed to reducing the deficit to 3% of GDP by 2014, committed to the bank guarantee, and to paying back our debts in full.  Hardly reassuring.

The government are trying to draw a line under the bank bailout.  Lenihan, again quoted in the Guardian, ‘insisted that these were the final figures, adding “this bring the crisis to a closure”. “We’re quite satisfied that the balance sheets of the banks have been cleaned up and restored and the banks are ready and fit to go back into business”.’  That said, the government has insisted that the bank bailout would only cost so much before, and the banks were sound, and everytime it has been woefully wrong and had to announce another round of expensive bailouts.

It is not unsurprising then that citizens and international investors are wondering whether this really is the last time; whether this is the last black day in a string of such days.  For all our sake’s let’s hope it is, because it’s going to take a generation or more for the Irish taxpayer to pay back the debts of bailing out the banks.  And paying it back is not going to be easy unless there is a radical transformation in the present state of the Irish economy and it will involve quite a bit of pain (get ready for the tightening of belts come budget day).

Rob Kitchin

Recently, an increased amount of attention has been given to the role of architecture and design at both a national and the local level. This has been highlighted by the introduction of a Government policy on architecture, and the establishment of the Architecture Foundation, whose role is to promote the importance of architecture and urban design in society. The annual Openhouse Dublin and now Openhouse Galway illustrate how such bodies can play a role at the more localised level. Such strategies are furthered by the introduction in recent years of a ‘Public Choice’ award by the Royal Institute of Architects in Ireland (RIAI), and indeed, the opening of darcspace, a gallery orientated towards the built environment.

To a large extent, widening the debate about architecture and design in Ireland is timely. Given the poor quality of many of the developments of the last two decades, it is now possible to rethink the relationship between planning, development, architecture, urban design and the social spaces which they help to create. There are a number of ways of looking at these areas. The approach taken is of crucial importance. Take the aim of the Architecture Foundation for example: “the IAF is all about promoting a better built environment for everyone’s benefit. We strive for an Ireland in which the importance of architecture is widely acknowledged, and in which people are able to relate to and influence the built world around them, and where high standards of architectural design are appreciated by all.” A key question is therefore related to what better architecture is? Can it be a democratic process, or is it inherently given to the few who are trained in the area of design?

From a normative perspective, perhaps it is time to cast open questions about the role of architecture and query what makes better places for people to live in, and indeed how our ways of life should influence future design and planning practice. This is not just a matter of the admiration of the latest award winning projects, or architecture as art, but instead placing the focus on how we can create a more democratic and inclusive built environment. In this regard the launch of Dublin’s bid to become the Design Capital in 2014 might act as a point of departure. Although not exclusively aimed at the built environment, It offers an opportunity for individuals to submit ideas with the aim of winning the design capital status. The debate about how the spaces of NAMA can be integrated into such a bid is surely crucial to its potential success. As well as allowing for reflection on how an over-inflated property market has negatively impacted upon our cities, suburbs and towns, it might also help to widen debates about the role of architecture as just one element of the built environment. The future of the country is reliant on the process of planning, designing and building becoming a public good for the benefit of society as opposed to the unpredictable outcome of extreme forms of speculation.

Philip Lawton

N.B: As part of Openhouse Dublin, a debate entitled ‘Does Size Matter’ will take place in the new Lansdowne Road stadium on the 7th of October at 7pm

 

The Irish Times - Front Page - 29/09/10

 

One of the headlines of the Irish Times today (29 September 2010) reads: “Ireland will not need emergency funding, says EU commissioner.” That’s according to Olli Rehn, European Economics commissioner, who does not foresee the need for the Irish government to seek emergency financial aid from supranational institutions such as the EU or the IMF to rebuild the international investors’ confidence in the country.  An optimism shared by Taoiseach Brian Cowen who also dismissed the idea yesterday that Ireland will need to resort to external financial help to sort out its economy. So Ireland does not appear in such a bad situation from the EU standpoint, compared to, say, Greece or Spain, for example.

That may not be the case for long if we are to judge by another headline of today’s Irish Times (ironically placed right next to the other one cited above on the printed edition – see on the right-hand side) which warns that “Anglo Irish ‘worst case’ bill may top €30bn.” I thought the ‘worst case’ scenario was a €20bn bill, or maybe it was €25bn? My confusion probably comes from the fact this figure (and others) keeps changing, and seems to be always on the rise. So can we take that €30bn seriously? In the same Irish Times article, financial correspondent Simon Carswell points out that “this will meet minimum capital rules up to the end of 2012 but the banks may need more capital beyond this date should losses rise.” How and where would we find more capitalat that point? More bonds? But how can we afford issuing more government bonds when interest rates on 10-year bonds have already risen close to 7%? So, I wonder, can we completely dismiss the idea that Ireland may need to seek help from the EU and/or the IMF at some point?

Delphine Ancien

After three years of rapidly rising unemployment, and 22 months after the government published Building Ireland’s Smart Economy – A Framework for Sustainable Economic Renewal, it has finally set out a plan for job creation (three years since the crisis started and 22 months between vision and plan is poor progress to say the least).  Earlier today the Taoiseach launched Trading and Investing in a Smart Economy: A Strategy and Action Plan for Irish Trade, Tourism and Investment to 2015, which details plans for programmes and investment to generate trade and tourism (how tourism constitutes being part of the ‘smart’ economy I’m not sure, but we’ll leave that to one side for now).    Effectively the strategy and action plan is the implementation phase of the Forfas report, Making it Happen – Enterprise Growth in Ireland.

The aim of the plan is to put focused effort into seeking new inward investment and expanding exports of indigenous and foreign-owned businesses.  Specifically it hopes over the next five years to:

  • Create over 150,000 direct new jobs in manufacturing, tourism and internationally trading services, with another 150,000 spin-off jobs
  • Increase the value of Irish exports by indigenous agency-assisted firms by one third
  • Increase the number of overseas visitors to Ireland to eight million (growing by a million)
  • Diversify the destination of indigenous exports
  • Attract an extra 780 foreign investment projects through IDA Ireland [780 is a nice specific figure, why not go for a round 1,000?]

Key actions to support the implementation of the Strategy include:

  • Developing a strong international reputation for Ireland in high-growth markets and repositioning our reputation in existing markets through a joined-up approach;
  • Developing cohesive marketing messages for distinct markets combining economic, tourism and cultural identities;
  • Developing and internationalising our enterprise base
  • Developing Ireland as a hub for global high-technology enterprises and clusters;
  • Maximising the effectiveness of our overseas diplomatic and agency representatives in key markets; making effective use of EU diplomatic resources, the Irish diaspora and country/state specific collaborative agreements and fora;
  • Improving the environment for trade, tourism and investment by expanding our international access and air connectivity, and driving the deployment of next generation broadband nationally;
  • Internationalising our banking links; further developing our international network of tax treaties;
  • Aligning visa entry requirements with our trade, tourism and investment priorities;
  • Developing joint actions and partnerships with other countries to promote trade, investment, and market access.
  • Exploiting the potential of EU Free Trade Agreements and WTO trade agreements, while advancing the strategic interests of key indigenous sectors.

The strategy is to focus attention on the following sectors: services, tourism, food, education, life sciences, software, creative industries, Next Generation Network-enabled sectors, clean technology and green enterprise, construction and the built environment, ‘silver’ technologies (loosely meaning ‘stuff for older people’).

The plan will be driven forward by a new agency, the Foreign Trade Council comprising representatives from all relevant government departments and agencies.

“The intention is that joined-up thinking will lead up to joined-up action, and that all of the available resources are used to ensure that our trade, tourism and investment sectors are well positioned to respond smartly and effectively to emerging opportunities as the global economy returns to growth” (p. vii)  Thankfully, I have faith that Forfas, IDA, EI, and some government departments, if not ministers, can do joined up thinking and action; hopefully the Foreign Trade Council will be more Forfas/IDA/EI than Fas Interesting Fas (Ireland’s National Training and Employment Authority) is not mentioned once in the document and nor were they represented on the high level group that put the plan together – one would think that given its remit it might have a role to play in creating a smart economy?).

Section 6 (pages 43-54) is the key part and there’s good stuff in there.  I’m sure there are other good ideas that could be added by opening it up to wider consultation.  What is missing are time frames, goals/targets and milestones.  Without these there is every possibility the plan will slip (and if the lead up to the plan is anything to go by, the slippage will be significant).  Indeed, it will be interesting to see in a year’s time how many of these initiatives are underway in any meaningful way.  It is critical at this stage that all the initiatives in this section start as soon as possible.  Like now.  We’ve waited long enough for the plan, we don’t need another long delay for implementation, we need action.

Rob Kitchin

The front page of the Irish Times today is a piece detailing Brian Lenihan’s speech to a conference yesterday in which he stated that there has been a ‘remarkable turnaround’ in the Irish economy over the past year.  Earlier in the week Brian Cowen argued that Ireland is on the road to recovery.  Hmmm.  This after the economy contracted by 1.2% in Q2 2010.  The following data struggle to show stabilisation, let alone a turnaround or recovery.

Ireland vs Germany 10 year government bond yield spread (source: Bloomberg)

Government balance, % of GDP (Source: ESRI)

Quarterly GDP and GNP constant market prices (Source: CSO)

% unemployed (Source: CSO)

House prices (Source: PTSB/ESRI)

Net-migration (Source: CSO)

When the lines/columns on these graphs reverse their present trajectory in a sustained way then we might start talking about ‘remarkable turnarounds’.  There is nothing remarkable about the Irish economy at the minute, other than how badly it has fared over the past three years.

And yes, these graphs do not show a very postive picture.  And yes, this post could be accused of being negative, and such negativity may be damaging to the reputation of Ireland (as a number of commentators have lamented this week, not least the government), but realism and positive action are going to get us out of the hole we’re in not spin and bluff.  If where we are at at the minute is in the middle of a ‘remarkable turnaround’ then god help us; it’s not even clear that we’re at the start of one.

Rob Kitchin

A couple of weeks ago we suggested that one possible use for the landbank being assembled by NAMA and the DEHLG would be to use it for the building of new schools and for other public infrastructure.   The Irish Examiner reports today that the Department of Education is in consultation with NAMA to try and procure sites for up to 50 new schools, predominately in the east of the country given changes in the growth (increased birth rate and immigration) and distribution of the population over the past two decades.  And the changes have been pronounced in and around Dublin, with between 1996-2006 a growth in households in Fingal of 68.5%, in Meath of 69.3%, in Kildare of 56.1%, in West Meath of 40.8%, in Wicklow of 37.1%, and in South Dublin of 30.5%, though growth in Dun Laoghaire-Rathdown (11%) and Dublin City (10.3%) was relatively modest.

The Department of Education has long known about the school places crisis and has already committed to building 20 new schools this year, along with extending 32 others, to create 23,500 places (14,500 at the primary level, 9,000 post-primary) at a cost of €579m.  It has also appointed design teams to another 51 projects.  Clearly this programme needs to be stepped up if it is to cater for existing and upcoming demand.  The capital programme will also provide a stimulus to the economy through construction activity.  The Dept of Education should also engage in talks with the Dept of Environment given that they are now in possession of 2000+ hectares of land at 600 plus sites transferred to it by local authorities who’d originally purchased the land for social/affordable housing (see here).

50 sites three or four years ago, when land in Ireland was the most expensive in Europe (see here for comparison graph), would have cost the taxpayer an absolute fortune.  We now have the opportunity to purchase them at a fraction of that cost given the 75-90% drop in development land prices.  As per our last post, all government departments who are planning capital projects over the next few years should be talking to NAMA/DEHLG with regards to procuring suitable land at a reasonable price to ensure maximum value to the taxpayer.  It would be a folly for NAMA to offload land to the private sector, which the state then has to purchase back from in the future for a premium, especially when it knows that it will in all likelihood need it.  This is the whole rationale of state landbanking – to ensure long term planning can unfold in a coordinated way for the public good at a reasonable cost without being a hostage to the free market.

Rob Kitchin

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