The Irish Independent reports that NAMA, the toxic loans agency, is prepared to demolish half-completed buildings which it believes have no value as commercial or residential developments.

The move comes as banks today receive their first notification of the kind of 'discounts' to be imposed on soured property loans. The banks due to receive notifications are Bank of Ireland, Irish Nationwide and EBS. NAMA is open to US-style demolitions of sites on the western seaboard, the Irish Independent has confirmed. The agency will have to deal with €21bn of work-in-progress assets and make decisions about the long-term potential of each project.

Demolition of some sites and returning them to strict agricultural use is among options being considered, a senior source said. The bulldozing of half-finished developments has been taking place in California and Texas over the past year, particularly on stock which has been foreclosed on by banks. NAMA planners said that in extreme cases similar exercises would have to be carried out here.

The overhang of residential stock in some counties will persist for decades, according to NAMA planners.

While the agency is prepared to sit on assets for several years, it believes that some are more likely to return value to NAMA as agricultural sites.

The agency's business plan, released late last year, said of development loans and work in progress: "Some of the projects originally envisaged under these loans will not proceed as they no longer make commercial sense."

Other projects will be advanced, however, with NAMA seeking out partners in joint-venture arrangements.

It has powers to borrow up to €5bn for this purpose, although this limit can be increased once a resolution to this effect has been passed by the Dail.

Lending

A large number of the work-in-progress sites are currently on interest roll-up, meaning that the owners are not meeting their interest payments.

In some cases, this means they are in arrears, while in others, it means the borrower is not due to pay any interest until the asset starts producing an income stream.

NAMA will effectively take a large swathe of land and development assets out of the property market.

However, at some point it will need a strong economic recovery in order for it to be able to release these assets back onto the market.

NAMA planners accept in private that the success or failure of the entire project rests on a strong economic recovery.

Meanwhile, ISME, the group which supports SMEs, said its members had no faith that NAMA would increase lending to cash-starved businesses.

It said only one in 10 of them believed NAMA would make a positive difference to bank lending. ISME called on the Government to force banks to honour their previous commitments to increase lending to SMEs.

The Irish Independent also reports that the number of scheduled airline passengers travelling between Ireland and the UK continued to decline last month by 14pc to 701,000 compared to February 2009.

The sharp decline comes on the back of a 17pc fall in the numbers in January compared to that same month in 2009, although widespread snow depressed those numbers.

Should the trend continue for the rest of this year, the total number of passengers on scheduled air services travelling between Ireland and the UK is likely to have slumped by about 1.75 million compared to 2009, to 9.15 million. That would be the lowest figure since 1999.

Particularly significant declines in passenger travel were recorded between the UK and a number of Irish airports, including Kerry, Shannon, Cork and Dublin.

Weather

Passenger numbers between Dublin and London Heathrow, the single busiest air route between Ireland and the UK, were down a further 2pc in February to just under 119,000. The numbers had declined 8pc year-on-year in January to 113,372, with the fall exacerbated by bad weather.

Amongst the biggest declines experienced last month was passenger travel between Kerry and Stansted after Ryanair scaled back capacity on the route more this winter compared to last. There were 4,489 passengers that flew between the two airports in February -- a 54pc fall on February 2009.

Between Shannon and Stansted, the figures were down 44pc to 14,694 in February compared to the same month last year.

Ryanair's traffic between Shannon and Liverpool rose 33pc to 6,173 last month, but its traffic between Shannon and Edinburgh was 44pc lower at 3,772. The airline's traffic between Newcastle-upon-Tyne and Dublin was down 41pc at 10,028.

Aer Arann was also hit. Its service between Bristol and Cork declined 25pc to 1,435 passengers last month, while its route between Waterford and Manchester carried 8pc fewer passengers, at 1,384, during February.

The Irish Times reports that the State's largest bank, Allied Irish Banks (AIB), could raise up to €400 million in fresh capital from an exchange of bonds announced by the bank yesterday, according to analysts’ estimates.

AIB has offered investors the chance to exchange euro, sterling and dollar subordinated bonds worth €2.9 billion for new, longer-dated bonds that pay a higher coupon but at a discount to the face value of the existing bonds.

Under the proposed exchange, investors are being offered new bonds at between 74 per cent and 91 per cent of the face value of the existing bonds which the bank is offering to exchange.

The existing AIB bonds are trading at discount to their face value in the bond markets.

Bank of Ireland made a capital gain of €405 million in a similar exchange of subordinated bonds last month when there was a 56 per cent take-up among investors.

Interest from investors in AIB’s bonds may be higher, analysts say, as the bank is offering a higher coupon than Bank of Ireland.

AIB is offering coupons of between 10.75 per cent and 11.5 per cent on its new lower tier two bonds, compared with the 10 per cent offered by Bank of Ireland.

The exchange, if successful, means AIB will make an upfront capital gain of between €300 million and €400 million but faces a higher interest bill on its debt through the longer-dated bonds.

A 75 per cent take-up would net AIB a capital gain of €429 million.

The purpose of the planned exchange was “to optimise the capital base of the bank”, AIB said.

Investors have until this Friday to decide to participate. The bank will announce the results of the debt swap next Monday.

“This is one of the obvious ways to raise capital in the short-term but they still have more to do,” said Sebastian Orsi, analyst at stockbrokers Merrion Capital.

Mr Orsi said AIB needs about €4.5 billion in further capital to boost its core equity ratio to 8 per cent, the percentage of assets that has become the capital threshold for banks internationally.

AIB has said that it will look at “self-help” measures such as selling businesses and seeking a strategic investor in the bank in order to raise capital before tapping shareholders in a rights issue of new shares in the bank or seeking a further State bailout.

The bank will transfer €23 billion in loans to the National Asset Management Agency (Nama) at a discount estimated at 35 per cent by analysts, leaving a capital hole to fill on the bank’s balance sheet.

AIB generated €1 billion in capital in a bond exchange last year.

The Irish Times also reports that construction output will decline dramatically over the next 12-18 months because the Government is not delivering on its capital investment programme, the Construction Industry Federation (CIF) has claimed.

The CIF estimates the aggregate value of Government projects shortlisted in 2010 will be about €1-1.5 billion – a figure that “bears no relationship” to the Government’s commitment in the budget to invest €6.4 billion in 2010, and €5.5 billion in 2011, 2012 and 2013 respectively, it claims.

The Department of Finance yesterday defended the Government’s expenditure on capital investment projects, pointing out that the 2010 capital expenditure allocation of €6.4 billion represents around 5 per cent of GNP, a figure that is “proportionally very high compared to levels of capital investment across the EU”.

The CIF based its research on an analysis of Government public procurement notices – the formal tendering process through which the State, and related State agencies, procure construction services. It plans to conduct a similar report on a bi-monthly basis.

The report states that the value of Government projects currently at the tender stage is substantially below its commitments, and that the conversion rate of tenders – ie the proportion of tendered projects that have commenced – may be as low as 60 per cent. It also claims that some projects have a time lag of between two and three years.

The Department of Finance said yesterday that the Government is aware that public sector construction contracts need to be awarded within a reasonable period of time following the short-listing and tender procedures, but that it is too early in the year to say that there will be a delay in any project in 2010.

The CIF’s director of policy and research, Martin Whelan, said yesterday that Government capital expenditure on infrastructure is well below the European average, and is of particular concern considering the country’s “major infrastructural needs”.

The CIF also criticised the Government’s decision to abolish its five-year capital investment “envelopes” in the last budget. “This is creating huge difficulties . . . for individual procurement authorities, who are unsure as to their budget allocations over the coming years”. The CIF estimates that construction-related employment will fall below 100,000 by the start of 2011, down from its 2007 peak of 400,000.

The Irish Examiner reports that according to the lettings arm of Sherry FitzGerald there are tentative signs of stability emerging in the Dublin city centre lettings market with the combination of a tightening of supply and resilient demand resulting in more stabilised rents.

The firm said highly sought properties are achieving stronger rents than in the closing months of 2009.

A one-bedroom apartment in the IFSC is achieving on average €1,000 per month, an increase of more than 10% on levels achieved in the autumn of 2009.

Rental levels of two-bedroom apartments in the IFSC have increased by more than 15% since the autumn, with rents now at an average of €1,400 per month. In the same location three-bed family homes are achieving monthly rents of between €1,200 and €1,700. This compares to rental levels of €1,100 and €1,600 in autumn 2009.

According to Sherry FitzGerald the stock of three and four bedroom family homes and well located one and two-bedroom apartments in Dublin city centre have tightened over the past six months fuelling this increase in rental levels.

It said poorer located and tired property in need of repair are taking much longer to rent with lower rental levels achievable.

Eileen Sheehy of Sherry FitzGerald Lettings said: "The market has strengthened considerably in recent months."

The combination of the fall off in the "buy to let" market and the resilience of demand has resulted in an increase in rents for quality properties in central locations.

That said, tenants remain vigilant and are quite rightly shopping around for good value and landlords are responding accordingly. As such properties in need of refurbishment or not accessible to public transport are no longer attractive to tenants.

CSO figures on privately owed rents show while rents have fallen by 10.9% nationwide in the 12 months to February 2010, the market has remained stable since December 2009 with rental depreciation of -0.7% in the two month period.

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The New York Times says that when the Mayans envisioned the world coming to an end in 2012 — at least in the Hollywood telling — they didn’t count junk bonds among the perils that would lead to worldwide disaster.

Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.

With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies.

The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.

Indeed, worries about the growth of national, or sovereign, debt prompted Moody’s Investors Service to warn on Monday that the United States and other Western nations were moving “substantially” closer to losing their top-notch Aaa credit ratings.

Sovereign debt aside, the approaching scramble for corporate financing could strain the broader economy as jobs are cut, consumer spending is scaled back and credit is tightened for both consumers and businesses.

The apocalyptic talk is not limited to perpetual bears and the rest of the doom-and-gloom crowd.

Even Moody’s, which is known for its sober public statements, is sounding the alarm.

“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit officer at Moody’s.

Private equityfirms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.

That is because the record number of bonds and loans that were issued to finance those transactions typically come due in five to seven years, said Diane Vazza, head of global fixed-income research at Standard & Poor’s.

In addition, she said, many companies whose debt matured in 2009 and 2010 have been able to extend their loans, but the extra breathing room is only adding to the bill for 2012 and after.

The result is a potential financial doomsday, or what bond analysts call a maturity wall. From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014.

The credit markets have gradually returned to normal since the financial crisis, particularly in recent months, making more loans available to companies and signaling confidence in the pace of economic recovery. But the issue is whether they can absorb the coming surge in demand for credit.

As was the case with the collapse of the subprime mortgage market three years ago, derivatives played a big role in the explosion of risky corporate debt. In this case the culprit was a financial instrument called a collateralized loan obligation, which helped issuers repackage corporate loans much as subprime mortgages were sliced, diced and then resold to other investors. That made many more risky loans available.

“The question is, ‘Should these deals have ever been financed in the first place?’ ” asked Anders J. Maxwell, a corporate restructuring specialist at Peter J. Solomon Company in New York.

The period from 2012 to 2014 represents payback time for a Who’s Who of private equity firms and the now highly leveraged companies they helped buy in the precrisis boom years.

The biggest include the hospital owner HCA, which was taken private in 2006 by a group led by Bain Capital and Kohlberg Kravis & Roberts for $33 billion, and has $13.3 billion in debt payments coming due between 2012 and 2014. Another buyout led by Kohlberg Kravis, for the giant Texas utility TXU, has $20.9 billion that needs to be refinanced in the same period.

Realogy, which owns real estate franchises like Century 21 and Coldwell Banker, was taken private by Apollo in the spring of 2007 just as the housing market was beginning to unravel and as the first tremors of the subprime crisis were being felt.

Realogy was saddled with $8 to $9 of debt for every $1 in earnings, well above the “$5 to $6 level that is manageable for a company in a highly cyclical industry,” according to Emile Courtney, a credit analyst with Standard & Poor’s.

Realogy has survived — barely. “The company’s cash flow is still below what’s needed to cover the interest on its debt,” Mr. Courtney said.

Realogy said it ended 2009 with a substantial cushion on its financial covenants and over $200 million of available cash on its balance sheet. “The company generated over $340 million of net cash provided by operating activities in 2009 after paying interest on its debt,” the company said.

Not everyone is convinced that 2012 will spell catastrophe for the junk bond market, however.

Optimists like Martin Fridson, a veteran high-yield strategist, note that investors seeking high yields snapped up speculative-grade bonds last year and early this year, and he suggests that continued demand will allow companies to refinance before their loans come due.

“The companies have nearly two years to push out the 2012 maturity wall,” he said. “Of course, the ability to refinance will depend upon the state of the economy.”

That is still a wild card, but even if the economy improves, companies with a lot of debt will be competing with a raft of better-rated borrowers that are expected to seek buyers of their debt at around the same time.

Chief among those is the best-rated borrower of all: the United States government. The Treasury Department estimates that the federal budget deficit in 2012 will total $974 billion, down from this year’s $1.8 trillion, but still huge by historical standards.

Most critics of deficit spending have focused on the budget gap alone, but Washington will actually have to borrow $1.8 trillion in 2012, because $859 billion in old bonds will come due and have to be refinanced in addition to the deficit. By 2013 and 2014, $1.4 trillion will have to be raised annually.

In the late 1990s, the federal government ran a surplus and actually paid down a small portion of the national debt. But with the huge deficits of the last few years, the national debt has grown to more than $12 trillion.

Next in line are companies with investment-grade credit ratings. They must refinance $1.2 trillion in loans between 2012 and 2014, including $526 billion in 2012. Finally, there is the looming rollover of commercial mortgage-backed securities, which will double in the next three years, hitting $59.7 billion in 2012.

Even if most of the debt does get refinanced, companies may have to pay more, if heavy government borrowing causes rates for all borrowers to rise.

“These are huge numbers,” said Tom Atteberry, who manages $5.6 billion in bonds for First Pacific Advisors, and is particularly alarmed by Washington’s borrowing. “Other players will get crowded out or have to pay significantly more, because the government is borrowing so much.”

The NYT also reports that the 1,336-page bill to overhaul financial regulation that Senate Democrats put forward on Monday with the backing of the Obama administration calls for Washington to play a more active role in policing Wall Street.

The plan would create a nine-member council, led by the Treasury secretary, to watch for systemic risks, and direct the Federal Reserve to supervise the nation’s largest and most interconnected financial institutions, not just banks.

But the bill, which would amount to the most sweeping change in financial rules since the Depression, would preserve much of the existing regulatory architecture, which has been criticized for being too fragmented. And it would rely on a new mechanism for seizing and liquidating a huge financial company on the verge of failure, one that would diminish, but not eliminate, the likelihood of future bailouts.

The proposal, which was put forward by Christopher J. Dodd, the chairman of the Senate Banking Committee, included significant concessions to Republicans, compared with an initial draft Mr. Dodd released in November. It also contained provisions urged by President Obama to restrict banks’ ability to engage in certain forms of speculative trading.

“This proposal provides a strong foundation to build a safer financial system,” Mr. Obama said, adding, “As the bill moves forward, I will take every opportunity to work with Chairman Dodd and his colleagues to strengthen the bill, and will fight against efforts to weaken it.”

Senate Republicans were muted in their response, saying they would introduce amendments to press their case on areas of disagreement, including the powers of a new Consumer Financial Protection Bureau that would set up inside the Fed.

But whether the legislation could pass in an election year, with a rancorous debate on health care looming over the Capitol, remained uncertain. Assuming all Democrats and independents in the Senate voted for it, at least one Republican would have to back it as well to avoid a filibuster.

“The stakes are far too high, and the American people have suffered far too greatly, for us to fail in this effort,” Mr. Dodd said. “This legislation will not stop the next crisis from coming. No legislation can, of course. But by creating a 21st-century regulatory structure for our 21st-century economy, we can equip coming generations with the tools to deal with that crisis and to avoid the kind of suffering we have seen in this country.”

Richard C. Shelbyof Alabama, the top Republican on the Banking Committee, warned against trying to rush the bill through committee next week, as Mr. Dodd has said he intends to do. “Given the magnitude, complexity and importance of this task, it is critical that we have sufficient time for a thorough review,” he said.

Any Senate bill would have to be reconciled with the House’s version. Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said, “There are some differences between the House-passed bill and Senator Dodd’s version, but they are more alike than they are different.”

A nine-member Financial Stability Oversight Council would subject to Fed oversight any nonbank financial companies that “pose risks to the financial stability of the United States in the event of their material financial distress or failure.”

The council would also direct regulators to raise capital requirements. It would rely on the work of a new Office of Financial Research, within the Treasury, to serve as an early warning system for systemic risk.

Just as the central bank’s creation in 1913 was partly a response to the Panic of 1907, the bill specifies that the Fed “shall identify, measure, monitor and mitigate risks to the financial stability of the United States.”

The Fed would have two vice chairmen, one of them dedicated to supervision. The president of the Federal Reserve Bank of New York, who is now chosen by the bank’s board and serves as the central bank’s eyes and ears on Wall Street, would be appointed by the president of the United States for a five-year term. Banks regulated by the Fed could no longer have their executives sit on the boards of the Fed’s 12 district banks or help select the district banks’ presidents.

The Fed would continue to supervise bank holding companies with assets of at least $50 billion; there are about 35, including Bank of America, JPMorgan Chase and Citigroup.

Smaller bank holding companies would be supervised by the Office of the Comptroller of the Currency, which oversees national banks. The Fed’s state-chartered member banks would be supervised by the Federal Deposit Insurance Corporation.

Mr. Dodd had initially proposed stripping the Fed of all bank supervision duties. Though he has backed away from that stance, Richard Spillenkothen, former director of banking supervision and regulation at the Fed, said the removal of more than 5,800 smaller and midsize banks from the Fed’s purview would be a mistake.

“A central bank benefits from knowing what sort of credit issues and pressures are building up in banks of all sizes,” he said.

The new consumer bureau would write rules banning abusive and unfair terms for mortgages and other financial products. Its director, appointed by the president for a five-year term, would set its budget, and the Fed would pay for it.

In a concession to Republicans, a consumer rule could be set aside if the council decided, by a two-thirds vote, that it put the banking system’s safety and stability at risk.

The bill would also create a $50 billion fund, paid for by the largest financial companies, for the orderly liquidation of a company that is collapsing and whose failure would have “serious adverse effects on financial stability in the United States.”

The provision for orderly liquidation would be invoked only as a last resort, if a company’s financial ties were too complex to be resolved through normal bankruptcy proceedings.

Such a liquidation would require approval of the Treasury secretary and a two-thirds vote of the boards of both the Fed and the F.D.I.C.