Inside the world of business
Stress tests pessimistic enough on commercial rents
THE LEGISLATION to unravel upward-only rent reviews is now in the works, according to Minister for Justice Alan Shatter. According to a Dáil question he answered on the issue the proposal is in the limbo which fills the space between Government departments and the Attorney General’s office.
It could be there for a while given the complex legal issues involved, but the debate about the consequences of allowing existing commercial tenants to get out of upward-only clauses in their leases will continue unabated. Its opponents are predicting truly apocalyptic consequences for leveraged commercial property investors and the banks that have backed them. The National Asset Management Agency (Nama) is not very keen on the idea either, arguing in a letter sent last year to the government that it would depress the market.
Interestingly enough, the Central Bank, which has just completed the stress test to end all stress test on the banks, made no special provision for such an eventuality in their assessment of likely losses on the Irish banks’ €40 billion worth of commercial real estate loans. According to the bank, its advisers Blackrock fundamentally reassessed three-quarters of the largest loans (above €50million) and made predictions about defaults on the rest based on something called “current net operating income” which one suspects has some sort of non-trivial relationship to rent rolls.
They came up with a loss figure of 25 per cent over the life of the loans under the stress scenario and 20 per cent under the base case which translates to 22 per cent and 17 per cent over the three horizons employed by the Central Bank. The banks themselves had a rather more optimistic 14.3 per cent and 10 per cent in mind.
It would appear then that there is probably enough pessimism built into the stress test to cope with the consequences of commercial tenants being able to wriggle out of upward only clauses. And even if the estimates prove inadequate there is the €2.3 billion capital buffer built into the recapitalisation plan to absorb such shocks.
A zombie by any other name . . .
So it seems that Anglo Irish Bank has finally started the process of shedding its name. The frosted outline of the bank’s name has been removed from the glass windows of the bank’s head office on St Stephen’s Green in Dublin and from some of its regional offices around the country.
The bank said last week that it would change the name of the bank once approved by Minister for Finance Michael Noonan.
So, soon, the names of both Anglo Irish Bank and Irish Nationwide Building Society will be no more as they are merged and run down as an asset recovery bank.
One name considered during a light-hearted moment within the bank was CSI Bank after the popular Crime Scene Investigation series.
The issue of names is an interesting one for the future of banking, given the upheaval the sector will go through over the coming years.
Allied Irish Banks may well be keen on retaining EBS as another brand – once they are merged under the two-pillars plan – given the marketing drive chief executive Fergus Murphy has embarked on over recent years with the society’s family-focused savings products.
The strength of the EBS brand certainly encouraged former AIB chief executive Eugene Sheehy to fire off a letter to the building society’s then chief executive Ted McGovern back in the boom days of 2006 to see if he was interested in a merger between the two.
Sheehy left the door open back then, saying that AIB would be keen to buy EBS at any time in the future. The terms of AIB’s forthcoming acquisition of EBS would not be what Sheehy would have expected.
Dublin’s law firms still charge with the best of them
The latest list from online publication TheLawyer.com shows again that Dublin’s top law firms are up there when it comes to charging for their services.
That such a relatively small city, in an economy that is suffering such extreme distress, can take four of the top 30 places on a list that covers firms from here to Moscow surely says something about the Irish legal profession. And there is no reason to believe that other professions in the sheltered sector might not score equally well, if that is the correct description, were such an exercise to be conducted in other fields.
Revenue per partner is €1 million or more in each of the top five Irish firms, with the sixth, Mason Hayes and Curran, coming in at €720,000. (Revenue, of course, is not the same as profit.)
However, it must be agreed that the Irish firms look more reasonable when compared with Russian firm Egorov Puginsky Afanasiev Partners, which had a turnover of €97.2 million. As only five of its 186 qualified lawyers are equity partners, the firm’s revenue per equity partner, at €19.5 million, is almost equal to the turnover of some of the smaller firms listed.
Also the firm does not have any female partners, a distinction it shares with two Italian firms. Swiss firms also fare badly in this regard, with women making up less than 4 per cent of the partnership in the featured entities.
Today
Representatives of the International Monetary Fund, the European Commission and the European Central Bank arrive in Dublin to conduct the first quarterly review of the Government's success in implementing the terms of the EU-IMF bailout.
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