1. Restructuring Bank Individual Balance Sheets & Sector Generally
The first wave of the restructuring involved the transfer of “hard to value” and poorly performing commercial property assets out of the bank system and into NAMA. The second wave was, and continues to be, to identify and dispose of non-core assets by banks and this will continue into 2013. NAMA is the single largest asset management agency in Ireland and a significant credit institution. On 26 March 2013, NAMA published its statutory report for Q4 2012 and unaudited quarterly accounts for 2012 and proposals for 2013.
In Q4 2012, NAMA continued to generate significant cash through disposal activity and non-disposal income:
- NAMA generated €4.5bn in cash during 2012, including €1.2bn in Q4, bringing a total cash generated since inception to €10.6bn as at 31 December 2012 and in excess of €11bn to 26 March 2013.
- Q4 disposal receipts totalled €0.6bn, 2012 total of €2.8bn and since inception to €6.8bn.
- Cash generated during 2012 included non-disposal income of €1.4bn. Estimated average collection of €100m per month from recurring income (principally rental income).
- At the end of 2012, NAMA held cash and cash equivalent balances of €3.4bn.
In terms of NAMA’s contribution to, and participation in, the real economy, NAMA has committed to making €2bn in vendor finance available to prospective buyers of commercial assets controlled by its debtors and receivers. The first NAMA Vendor Finance transaction completed in 2012 and there are more in the pipeline.
NAMA expects to sell €3-3.5bn of assets in 2013. Currently there are 2 major property portfolio for sale.
- Project Aspen: €810million being sold through Eastdil Secured - 2nd May 2012, the day after our London breakfast briefing, RTE News announced that NAMA agreed a joint venture deal with Starwood for Project Aspen loans at sale price speculated to be c. €200 million; and
- Project Club: €350million for sale through agents CBRE.
Liquidators of the Irish Bank Resolution Corporation (formerly Anglo Irish Bank) ("IBRC") have dismissed reports in the media that they are putting up €2bn of property loans for sale.
NAMA and IBRC
The existence of NAMA, part of raison d’être and its future direction and mandate is inextricably linked to the IBRC. Pursuant to the Irish Bank Resolution Corporation Act 2013, joint special liquidators (JSL) Kieran Wallace and Eamonn Richardson of KPMG were appointed on 7th February 2013. At the time of our London briefing, the special liquidators had been appointed for less than 3 months and there is limited public reporting available at this stage.
The Minister for Finance commented that the removal of IBRC from Irish banking system will reduce the drag on the Irish economy and cost of funds for Ireland. On the day that the JSL were appointed, the Minister, pursuant to powers contained in the IBRC Act 2013 (s.13(1)) issued a number of directions to NAMA and the JSLs. In summary, 3 directions were issued on 7th February:
- Direction: NAMA/1/13/IBRC Act - NAMA to enter into an Assignment and Transfer with Central Bank (as seller) on or about 22 February 2013. 
Direction: NAMA/2/13/IBRC Act - The Minister instructed JSL to procure an independent valuation, using a standard valuation methodologies, of the IBRC assets in contemplation of sale (the “Valuation”); and NAMA to make a bid for the assets of IBRC at a price equal to the aggregate amount of the Valuation.
Direction NAMA/3/13/IBRC Act - NAMA to provide certain facilities and funding to JSLs.
- 11th Feb 2013:
NAMA established a new group entity, National Assets Resolution Limited, which was formed in response to the Ministerial directions.
2. Assess Embedded Losses to Ensure Robust Recapitalisation - Normalising the Banking System
The application of the stress tests in Ireland, as applied by Blackrock Solutions, were regarded as robust and thorough. The Central Bank of Ireland (CBI) is now planning further stress tests at the end of 2013, at the same time or possibly in advance of the pan-European exercise by European Banking Authority. Methodology and severity of 2013 CBI stress tests have yet to be agreed.
End of Eligible Guarantee Scheme (ELG) 
The Minister for Finance announced on 26th February 2013 the end of ELG scheme to be effective as of midnight on 28th March 2013. This is generally recognised as a positive indicator for Banks and a significant step in the normalisation of the Irish banking system and the removal of costly fees for covered banks should facilitate recapitalisation and cost reduction programmes. Total guarantee fees received to end Dec 2012 were €3.8bn in total.
Q4 2012 and Q1 2013 have also seen a cautious return to Capital Markets on the part of the Irish Government (NTMA) and Bank of Ireland and the Government is seeing a Return on its investments for the taxpayer in early 2013. For example (i) Sale for €1 billion of Bank of Ireland contingent capital; and (ii) sale of Irish Life for €1.3bn to parent of Canada Life.
3. Treatment of Troubled Loan Portfolios
The treatment and resolution of troubled loan portfolio is currently concentrated in 2 sectors (i) real estate mortgages, residential and buy to let (BTL) and (ii) small business portfolios.
The Code of Conduct for Mortgage Arrears (CCMA) was published on 1 January 2011. On 30 September 2011, the Inter-department Mortgage Arrears Working Group published their report, the “Keane Report”, which identified a number of potential issues with the Code; acknowledged the delay in implementation of resolution mechanisms; and recognised the need for bankruptcy reform in Ireland.
On the 25 April 2013, the Department of Finance, in response to Parliamentary question, stated that performance targets have been set for 6 credit institutions operating in Ireland: ACC; AIB; Bank of Ireland; KBC Bank Ireland; Permanent TSB; and Ulster Bank. These targets stipulate that banks should have proposed sustainable mortgage solutions of:
- 20% by end of June
- 30% by end of September
- 50% by end of 2013.
All product offers by the banks have been prepared in the context of the Central bank’s mortgage arrears resolution strategy. The performance targets and metrics have to be achieved in the context of compliance by the banks with the CCMA which itself is under review at present.
The Code of Conduct for business lending to SME’s was published on 1 January 2012.
In Ireland, SME’s make up 99% of enterprises by number in the private sector and employ approximately 70% of all people in private sector. This is consistent with percentages in EU jurisdictions. The European Financial Stability and Integration Report 2012, published April 2013, states that more than 99% of all European businesses are SMEs.
Traditionally SME’s have heavy reliance on bank financing. In the Euro area and the UK, bank loans account for 85% total non-financial corporate debt (SME). Corporate bonds account for only 15%. By way of contrast, the EFSTIR states that in the USA the proportion is 53% bank debt to 47% corporate bonds.
On 26 March 2013, the European Banking Authority commenced consultation process on supervisory report for forbearance and non-performing exposures to establish templates on forbearance and a set of definitions. Proposed definitions and templates once implemented will allow EU supervisors to:
- Assess the extent of forbearance transactions and their effects on asset quality and loss recognition
- Capture asset quality deterioration
- Compare asset quality on a more consistent homogeneous basis across EU institutions.
These templates will complement the Implementing Technical Standards on supervisory reporting, currently being developed by the EBA in the context of the Capital Requirements Regulation (CRR). EBA expects to finalise these standards by Q3, 2013.
Steps to achieve Resolution of Troubled Loan Portfolios – Q1 2013
The Irish legislature in Q1 2013 is working to equip banks and lenders to address the troubled loan portfolios. Examples of the measures to assist are:
- Personal Insolvency Act 2012 (PIA) was signed on 26 December 2012; (see Personal Insolvency Act – January 2013, Declan Black and Maurice Phelan, Partners Mason Hayes & Curran)
- Insolvency Service of Ireland Guidelines (ISI) were published in April 2013;
- Land and Conveyancing Law Reform Bill 2013 – correcting statutory issue highlighted in Start Mortgages Case and also facilitate the court adjourning enforcement and repossession proceedings relating to a family home so as to enable solution using PIA as an alternative to repossession.
For banks, the existence of PIA and ISI guidelines means that debtors and banks can engage in comparative exercise as to maximum achievable outcomes under PIA versus co-operative process or settlement.
We are now in the 5th year of financial crisis and during the period from 2008-2012 we have documented and negotiated an extensive range of forbearance, workouts and restructuring from non-contentious reservation of rights, standstill agreements, to restructuring, to contentious and adversarial settlements – trade down/split mortgages, asset disposal by agreement, debt for equity swaps and sometimes, debt forgiveness. In her speech in Dublin Castle on 8th March 2013, Christine Lagarde, Managing Director of IMF, stated that one of the key priorities for Ireland is “working out private debt”.
Ireland plans to exit the IMF programme at the end of 2013 and wants to demonstrate its ability to resolve its difficulties through application, innovation and collaborative engagement with all sectors of the economy. The Irish economy does not operate in a vacuum and is deeply embedded in the European Union and Eurozone.
Ireland is an open economy which welcomes and now, more than ever, seeks engagement by, and partnership with, international financial services entities to support and restore its economy.