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European bank stress test scam!

European bank stress test – official estimates signify NAMA is unintentionally overpaying for loans and undermine DoF’s claims about the Bottom

namawinelake | July 24, 2010 at 6:28 am

The Committee of European Banking Supervisors (CEBS) together with the EC and ECB has published its eagerly awaited results of stress-testing 91 European banks. The two Irish banks included in the exercise, Bank of Ireland and Allied Irish Banks passed the stress-test which set out to examine the capital base of banks in two scenarios – a benchmark scenario and an adverse scenario. Good news for BoI and AIB – seven other European banks didn’t pass the test.

As stated in the report “the benchmark scenario was based on the EU Commission Autumn 2009 forecast and the European Commission Interim Forecast in February 2010, with several adaptations to reflect recent macro-economic developments in a number of countries. The adverse macro-economic scenario was based on ECB estimates”. The assumptions for Ireland are summarized below together with the calculation by the CEBS of the effect on commercial and residential property prices

For information, here is a round up of recent predictions/projections for the Irish residential market:

For information, the ESRI published this week recovery scenarios for the State  – the high growth scenario and the low growth scenario. Both scenarios forecast 2010 GDP to contract by 0.4% and unemployment in 2010 to reach 14%.

What makes the stress test fascinating from the point of view of NAMA is its forecasts for commercial and residential property prices. It’s benchmark scenario is for a 15% compound decline in residential in 2010 and 2011 with drops in both years, a 19% compound decline in commercial in 2010 and 2011 with drops in both years. There is no projection beyond 2011. NAMA has chosen a Valuation Date of 30th November, 2009 pursuant to section 73 of the NAMA Act by reference to which NAMA is valuing the loans being transferred from the financial institutions.

How much does property need recover by 2020 assuming

1. Prices stop falling at the end of 2011

2. All property is sold in December 2020

3. 67% of property is located in Ireland

4. 33% of property is located in the UK

5. Property in the Ireland and the UK is split 50:50 between commercial and residential

The table below what recovery needs happen if NAMA is forced to rely on the recovery of the property market to break even – remember in the draft Business Plan is that the recovery was a flat 10% over 10 years. With the CEBS benchmark scenario, the recovery would be 24.7% and in the adverse scenario 41%. Both of these represent significant changes to NAMA’s draft Business Plan. To emphasise, assuming prices stop falling after 2011, the compound rate of growth needed would be 2.5% per annum for each of the nine years in the benchmark scenario and 4% in the adverse scenario.  These compound percentages might be rendered meaningless if there is significant default and NAMA’s interest receivable falls below its interest payable.

Perhaps a more interesting implication from the benchmark scenario is related to the question of whether NAMA is overpaying for loans now by paying for loans according to the 30th November, 2009. The answer is a resounding yes and if you compare forecast prices at the end of 2010 with the 30th November, 2010, there is an implication that NAMA is overpaying by something in the order of €3-6bn again based on the following assumptions:

1. NAMA acquires the loans by reference to a valuation date of 31st December 2010

2. Price changes in the month of December 2009 have been ignored

3. The LEV remains at a constant 11% above CMV

4. 67% of assets are in Ireland

5. 33% of assets are in the UK

6. The split of assets between commercial and residential is 50:50

Now of course the above is very much a simplification. NAMA’s assets may not correspond to general commercial and residential forecasts – where is development land for example? NAMA will have 7% or so of assets in the Rest of World. NAMA’s LEV as a percentage of CMV may change. So far this year in Ireland residential is off 5% (to the end of Q1) and commercial 8% (to the end of Q2) and the UK is broadly positive, so we have some way to drop before we get to the EU benchmark scenario. There are other assumptions but it is a fair representation, I believe, to say that we are overpaying by billions for NAMA loans by reference to current values – some overpayment was planned via the Long Term Economic Value device but the overpayment being referred to here is on top of that.

Lastly this stress test report comes on the heels of the publication of the EU’s Decision in respect of the first Anglo restructuring plan which was submitted with the DoF’s imprimatur, to the EC in November 2009. The Decision (paragraph 41) revealed that Anglo was planning for property prices were seen to drop in 2009 by 15-19% [actual according to Permanent TSB/ESRI was 18.5%] and continue falling in 2010 and 2011 before starting to rise in 2012. The average decline in property prices in the plan is estimated at 47% peak to trough but in the worst case is 62%. And now with this stress test we have the official EC/ECB estimates that property will continue to drop this year and next. Of course a finance minister has a responsibility to instil confidence but Brian Lenihan’s Bottom statements in September 2009 and April 2010 are now looking distinctly disingenuous and more importantly damaging because the Bottom will come at some point but may overshoot because of a lack of confidence in advice from the government.

source http://namawinelake.wordpress.com/2010/07/24/european-bank-stress-test-%e2%80%93-official-estimates-signify-nama-is-unintentionally-overpaying-for-loans-and-undermine-dof%e2%80%99s-claims-about-the-bottom/

comment

Needless to say this whole stress test episode is just a political stage show for the benefit of Joe public  in Euro land .The sad fact is that this test has absolutely no value whatsoever as it does not take into consideration the real dodgy bonds and loans that are the cause of the banking crises in Europe 

The various European politicians have jumped on this and are telling us and the markets that there is no financial crises with our banks and the  European Banks and it’s all a bad dream  that we are all collectively having!.

Cowen and Lenihans assurances that we have turned the corner in 2009 and again in April of this year were lies and dam lies!

How anybody will ever believe a word out of their lying mouths again I will never know!

We now need to wake up and start spending again and where are we going to get the money to spend when we are out of work, when the gangsters in the same “sound banks” are hiking interest rates and pushing people out of their homes as a result of their gambling

The government having poured billions into these same Toxic Banks, are desperately trying to get those of us that still have a little money to invest in these bankrupt banks so they can again start the whole rotten pyramid cycle all over again.Now that the country  is practically bankrupt, they are now about to sell off the last vestiges’ of silver ware the country has left, along with proposed new toll, s on the National roads network, along with home rates and water charges where can we go from here?

500,000 people are out of work and for the last two years none of the politicians in power or the crony independent TD, s that are propping them have done anything for the unemployed

The current government’s unemployment policy is to” let them eat cake “and waffle on about the smart economy

That’s smart all right 60,000 young people left the country last year and the ESRI believes at least 200,000 more will have left by 2014

Clearly the unemployed are only receiving lip service and are way down in the pecking order!

We need a complete change of the political system

Help get rid of the gombeen, s running this country,

Get active on the ground in your own neighbourhoods and do not vote the same leaches back into office

it’s time to change  the system!

we need reform now!

The current Irish Government are responsible for the financial disaster the country is in,
With the establishment of NAMA the Government is trying to socialize the enormous losses that the Banks and their Developer buddies have encored.
Corruption is rife and now a new monster burocratic system is being created, where X politicians will have jobs for life and the same corrupt developers will be able to manipulate the housing market all over again
While the people are being robbed of their homes, savings, pensions, and education for their children, that same gangsters are running the country
This has to stop!
Join the CAB to-day and get things moving
Come on! Get active in your own area now!
We as a country need new faces and not the same old tired faces that have being around using the system to suite themselves.

FAS Gravy Train

Comptroller and Auditor General Special Report on FAS

 



 

Internal Summary of Findings

 

The examination reported below focused on the processing of transactions at FÁS Head Office and governance arrangements for the organisation. It also reviewed the management of the Competency Development Programme and the administration of foreign travel and business expenses.

Overall Examination Findings

The examination found that FÁS had a governance structure that is consistent with its governing legislation and with the Code of Practice for the Governance of State Bodies. It had also a plan of internal control, which, if fully implemented, would have provided sufficient assurance that its transactions were processed in a safe and regular manner.

However, failure to fully implement elements of the plan of control exposed FÁS to the risk of losses as well as the risk of failing to achieve best value for money. The exposures arose from the fact that

authorisation limits were breached when certain transactions were being initiated

there were deficiencies in the conduct of tender processes when goods and services were being acquired

payments were made in the absence of supporting documentation

confirmation orders for purchases already effected were issued in many instances

the system of risk management adopted by the Board in 2005 did not function effectively.

Key units failed to detect or react appropriately to non-compliance with internal procedures.

Notwithstanding these procedural deficiencies, the examination found, based on substantive testing of 2008 transactions initiated by Head Office sections, that payments for the transactions sampled were properly chargeable in the FÁS financial statements.

FÁS has begun taking steps to address the control deficiencies identified and, in particular

the Board has approved a revised set of procurement procedures that include a requirement for managers to make annual declarations of compliance

training workshops have been held to increase the level of awareness of those procurement procedures

policies relating to the use of credit cards and revised procedures governing foreign travel were adopted by the Board during 2009 and the use of credit cards curtailed.

The examination also found that considerable scope exists to improve the depth and quality of reporting both in regard to rule compliance and business performance.

In one relatively new programme – the Competency Development Programme – the examination found that

in its administration, monitoring visits to external training providers were not as frequent as envisaged under FÁS’s own procedures

programme output was not recorded in terms of results such as persons achieving certification

there was no evaluation of the extent to which the training objectives of the programme were achieved.

Specific Findings

The findings of this examination would suggest the need for adjustments to systems, procedures and practices employed by FÁS. These arise in the following areas:

Risk Management

Ongoing identification and mitigation of risk based on an analysis of the control systems and experience derived from transaction processing is key to safe administration of public money.

Responsibility for drawing up individual risk registers lies with the divisions in FÁS while responsibility for compiling and maintaining a consolidated register lies with the Risk Management Committee (the Executive Board). Coordination of the risk management function is the responsibility of Internal Audit. Risk management in FÁS has not operated as envisaged when the Board approved the current risk policy in 2005 – risk registers and action plans were not kept up-to-date, reporting procedures approved by the Board have not operated as envisaged and there has not been any annual review of the effectiveness of the risk management system.

 

Full report can be seen at following link http://www.rte.ie/news/2010/0128/fasreport.pdf

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