CANTILLON: INSIDE THE WORLD OF BUSINESS:THE PROSPECT of a multi-billion-euro private fund snapping up distressed property loans at discount from the Irish subsidiaries of foreign banks will at the very least inject some life into the zombie Irish property and debt markets.
Asset Recovery Corporation (ARC) – the private fund to be launched imminently by former Bank of Scotland (Ireland) chief executive Mark Duffy and property fund manager Kevin Warren – will target foreign-owned Irish bank subsidiaries and therefore not compete with Nama.
While ARC may involve sums of several billion – flush with cash from long-holding UK institutional investors and borrowings – it has the potential to disturb the already controversial valuation process underlying Nama. The fund may not have Nama’s €54 billion debt pile, but even with a few billion euro it could become a so-called “scale player”, muddying the waters on market values.
For example, take two €100 million loans on adjoining properties – a domestic bank has a loan on one, a foreign bank on the other. The domestic bank can sell into Nama at a 30 per cent discount (for €70 million) but €3.5 million is retained under risk sharing. A levy also hangs over the bank. Next door, the foreign bank doesn’t qualify for Nama. However, ARC – or another private bidder (as there are many more sniffing out bargains) – could offer €60 million for its loan. This is tempting as it brings certainty to the bank, erases a bad loan and helps shrink the overall loan book.
This deal could force Nama to take a greater hit on its loan in the short-term as the entry of a private buyer introduces a price setter into the market buying well below the long-term economic value. However, all this will help kickstart market activity, which may ultimately assist Nama.
The benefit for the foreign bank is that, with ARC or any private rivals, they have buyers. However, price will be everything and ARC will only buy if it is low enough. For the likes of Rabobank’s ACC, which wants loans back as quickly as possible, this is an out. Other foreign banks may prefer to wait for better value, but at a time when deposits and funding are expensive, loan redemptions are crucial. For some banks, private deals for large chunks of their loan books will be very tempting.
Best bits blacked out
Faced with an inevitable deficit in intelligence about the background to the Government’s extraordinary interventions in the banking sector, your correspondent deployed the Freedom of Information Act in an attempt to dig deeper into the mire. The schedules released by the Department of Finance provide a tantalising glimpse into the workings of the Government apparatus at a time of grave crisis, but the juiciest data and a lot more besides was withheld.
Access was refused to 519 pages on Anglo Irish Bank and 176 pages on Bank of Ireland. And that doesn’t include the records that were released only in part, with the most interesting bits blacked out. A file on AIB is eagerly awaited, but it seems there will be more non-disclosure than disclosure.
Scant surprise there, you might think, given the sensitivity of the issues raised by the flame-out in the banking system. Still, the degree to which the banks are leaning on the State and the European Central Bank is such that only a far greater level of disclosure can meet the public demand for transparency.
Don’t hold your breath. If Brian Lenihan’s argument against fully nationalising the big two banks includes the line that stock market scrutiny is superior to the secretive machinations of State, only a fool would expect anything other than the strictest control over data on Nama. When it comes to Freedom of Information, the bad bank will operate within a reinforced bomb-proof bunker. The black markers will be busy.
Newstalk one up on UTV
Executives at Newstalk must have been chuffed this week to land the contract to provide news and sport to 18 local radio stations for an initial six months. This follows the collapse of Independent News Network (INN).
The value of the contract wasn’t disclosed but this deal will help offset the substantial expenses associated with Newstalk’s newsroom activities. It also gave rival UTV a bloody nose.
Newstalk already provides news services to 4FM in Dublin and Dan Healy’s iRadio stations. It is now in pole position to land the contract on a long-term basis in the new year. Following this deal, Denis O’Brien will have control over news services provided to 21 local stations in addition to his own portfolio of companies, including Today FM and 98 FM. He also owns more than 26 per cent of newspaper group INM.
Interestingly, the deal between the 18 stations and Newstalk did not require regulatory approval. Those close to O’Brien dismiss the suggestion that he will have undue influence over the news provided to local radio. They argue that it is ultimately up to each local station to decide how much content to broadcast from Newstalk. And he has little influence over INM, as recent events have shown.
Meanwhile, UTV is pressing ahead with plans to set up its own centralised news service based in Dublin. This will provide news to its own radio stations in Dublin, Cork, Louth and Limerick while also seeking out other contracts. The likelihood is that UTV and Newstalk will carve up the market between them in the years to come. Whether or not that is good for listeners remains to be seen.
Next week
Data from the CSO, on external trade and wholesale prices, will be closely watched to see if the resilience of the export sector is being maintained in the face of the recession. The €1 billion government bond auction on Tuesday will indicate how overseas investors are viewing our path to economic recovery.
Online
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