# Has perception of NAMA changed?



## BrianODohert (27 Nov 2009)

The nay-sayers, including the G46 economists, seem to have gone quiet.

Is this because the Draft Business Plan and the EuroStat/SVP development finally made it clear that- far from having to borrow 54 bn or so to give to the banks, or to "bail out the banks", as various politicians and commentators used to declare- NAMA is actually a transfer of assets, valued somewhere between, say, 47bn and maybe twice that, _from_ the banks and _to_ the State, with repayment in the form of cash, let's hope, in some years time, at an interest rate of only 1.5%. This is a big benefit to the taxpayer in Ireland:
*the billions he borrows means he avoids having to borrow the same elsewhere, at an interest rate of c. 4.5%
*the interest rate differential, alone - 1.5% v. 4.5%- over the ten years is hard to estimate but probably worth €5 bn to the borrower, (and €10 bn interest opportunity cost to the banks' shareholders)
* if the asset sales do not completely fund the repayment/redemption commitment, then the banks will be hit for the shortfall (or the bonds will simply not be redeemed)
* if, as is more likely, a substantial profit is made on the sale of the assets, even after high management and advisory costs, all but c.2.5% will be retained by the State.

Its surely a no brainer for the State, and rather harsh on the 150,000 Irish small shareholders of the two main banks, who are now the majority owners of them, and who also have to pay out €560 million annually to the State (8% of preference share capital invested in AIB/BOI) AND 25% of their equity, for the privilege of a State guarantee. (I dont think shareholders of other banks in the EU, also in receipt of government guarantees and capital, have been treated so harshly). Also, the two main banks seem to have had to provide c. €6-8 bn (?) in funding to the State's bank, Anglo Irish...

The campaign against our two main banks - whose "sins" of over-optimism were minor compared to those of their competitors in the US/UK and elsewhere - has been very effective in keeping down the share prices, valuing both banks equal to or less than one years core earnings (!!) (EU banks are still trading at 15-20 times core earnings )..and perhaps setting them up for take over by some foreign banks seeking a juicy source of cheap (depositors) funds.

Do we really want our banking industry to come under foreign management? (We see now the foreign lenders pulling home their funds, under pressure from their own governments..is that not a lesson to us?)


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## mooney76 (27 Nov 2009)

It does seem rather unfair that the uk government could literally print money tomorrow to buy irish banks if it chose to do so. Recent revelations about RBS and hbos being given secret bailouts of over 60billion in bail outs, and shady deals with anglo....with hindsight it really hammers home the principle of sticking to what you know and not investing in banks.Hard to believe no-one has been strung up yet


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## z107 (28 Nov 2009)

> * if, as is more likely, a substantial profit is made on the sale of the assets, even after high management and advisory costs, all but c.2.5% will be retained by the State.


I find all this NAMA stuff quite confusing. I have a couple of questions:
To make a profit, does it mean that the assets will have to go up in value?
Are the assets all the toxic property loans?


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## darag (28 Nov 2009)

It's signed into legislation.  It's too late to do anything about it.

NAMA is not borrowing at 1.5% over ten years.  It is borrowing at a margin over Eurobor.  The ECB rate has never been lower in history.  It is certain to rise.  Every six months the rate will be reset.

NAMA is not purchasing between 47 and 96 billion of assets; where do you get 96 billion from?  It is buying 53 billion worth of loans - and the maximum value of a loan to a bank is it's book value.  If the assets backing the loan are worth more than the loan itself then the loans are not defaulted on; the assets are liquidated and the loan is paid off.

Whatever about fantasizing about some future miracle property bounce back we had cold hare real evidence of the downsides.  The Irish Glass Bottle site, which was purchased for 412 million is currently valued at 60 million.  Liam Carrol's empire with 1.2 billion of debt had less than 300 million worth of assets.  A 85% and a 75% loss in value respectively.  Requiring a requiring a 22% and a 15% rise in value PER YEAR over 10 years just to break even.  These are boomier rates than during the height of our recent boom and you think these rates will kick in next year and go for the next 10 years?

The draft business plan is a complete joke and in fact even the strongest proponents of NAMA have avoided trying to defend it - presumably out of embarrassment.

The idea that the Irish banks are "paying" for the guarantee is rubbish.  First of all, no payment has yet to be made and secondly the government is committed to continuing to pump equity into the banks (both the basket cases and the ones with some hopes) as their losses mount.  The banks could offer to pay the government 10 billion for the guarantee as far as the reality is concerned as it would just add 10 billion to the next recapitalization bill.

Both the big banks have officially said not to expect any marked increase of credit post-NAMA which goes against the entire justification for the scheme.

More than half of the NAMA borrowings are going to be shovelled into Anglo - a zombie bank which has no future anyway.

Calling it harsh on shareholders is an absolute joke.  If you buy shares in an enterprise which goes bust you lose your investment.  Every penny of market capitalisation of the banks is due solely to the guarantee, the equity injection and NAMA.

Irish government CDS spreads are steadily increasing.  We are now seen as being almost as likely to default on our national debt as Greece.  The ultimate irony will be if Ireland ends up defaulting on national debt after most of the bank's bondholders have made their exit with their capital intact.

The beneficiaries of NAMA?

NAMA stated policy is to provide an initial 3 year window for struggling loan holders where no interest/payment will be demanded.  If 2/3s of its loan book in non-performing this will provide a interest holiday worth about 4 billion to developers.

Both of the main banks have managed to promote insiders to the CEO's position so there has been no reform or restructuring of the banks.  Huge numbers of people are losing their jobs in the real economy yet the banks have been protected. 

NAMA will spend at least 2.7 billion (this is an estimate by the "business plan" authors, so I expect it is about as realistic as the business plan is itself) on consultant solicitors, valuers and other professional services.

NAMA will buy time for the present government with it's high risk floating interest rate borrowing leaving a future government and taxpayers to come up with the 53 billion balloon payment it will be required to make to the banks in 10 years time.

In fact we know that that is not what is going to happen.  Like the original guarantee there is no clear exit strategy.  This time last year I argued that it was absolutely impossible for the government to hold to the original 2 year deadline for the guarantee.  And sure enough the guarantee has been extended.  It's the same with NAMA - in 10 years time, it will be so underwater that another fudge will be cobbled to it in order to avoiding facing the inevitable loses.

In the mean time, NAMA will attempt the impossible (stated by BL) which is to provide some sort of floor and add stability to the commercial property market.  This is the dream being sold to the "little people" - that their houses will stop losing value.  Historical precedent has shown that an immediate write down of values post-bust is the most effective way of getting an economy going.  Instead Ireland is committed to 10 years of  Japanese style slow deflation (which already kicked in) and economic stagnation.

Playing the nationalist card ("do we really want our banks to come under foreign management"?) is weak. Ireland is an open economy which benefits from interaction with the global economy.  And in reality, all of the foreign banks which operate here are largely staffed and managed by Irish people.

NAMA is a truly awful idea.  Just because it looks like being a fait accompli (and no - it hasn't gotten over the Euro hurdles yet) doesn't make it any better.


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## Duke of Marmalade (28 Nov 2009)

darag said:


> NAMA is not purchasing between 47 and 96 billion of assets; where do you get 96 billion from? It is buying 53 billion worth of loans - and the maximum value of a loan to a bank is it's book value. If the assets backing the loan are worth more than the loan itself then the loans are not defaulted on; the assets are liquidated and the loan is paid off.


 
NAMA vital statistics: 
MV = Market Value = €47Bn
LTEV = Long Term Economic Value = €54Bn
BV = Book Value = €88Bn

So OP wasn't that far off.

_There is no other way_


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## onq (28 Nov 2009)

Duke of Marmalade said:


> <snip>
> 
> _There is no other way_



They used to say that about the Catholic Church, didn't they...?

ONQ.


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## BrianODohert (1 Dec 2009)

@ darag : NAMA is borrowing at the special rate set for Euro Zone banks plus a half percent, making 1.5%. This compares to the Irish sovereign rate these days of c. 4.5% and likely to rise. It is therefore a gratuitous rip off of the banks. And, that gap alone- even when all rates are revised upwards later- represents billions of hidden benefit for the State at the expense of the two main banks' shareholders. (In the case of Anglo, the State is just taking from its own bank, albeit quite improperly)

Further, the banks property is being valued at very distressed market values- almost no market value. And, while the State envisages a ten year life for NAMA it has in fact as much time as it will take to sell that property at a profit, in aggregate. Until then, the banks shareholders will not be fully repaid.  The State has an incentive to hold on to the property, and any cash it gets from  its sale, for a very long time, given its interest rate benefit. Meanwhile, the banks will be unable to resell the bonds for anything approaching their (distressed-market) par value. 

I have no idea what the final proceeds of the liquidation of the banks' property will be. Nor do you.  I threw out a figure of 96 billion, because it is highly likely that over ten years or more values will rise that much, as they always do in gently inflating western economies. In fact, there is a real prospect that shareholders, when they eventually receive their final pay off, will have received in total only a small fraction of the value of what the State has taken from them in NAMA. 

Yet, they are told in no uncertain terms that if NAMA fails to earn enough to pay them 47 bn  (plus a nominal interest), then the risk is on the shareholders. Yet, their participation in the (much more likely) profit that NAMA could make--where "profit" is defined as surplus after selling the State bank's (Anglo's) rubbish also, and after paying enormous billions out in fees - is to be limited to 2 billion or so. That is simply immoral.  That's the State--at no risk to itself--the taxpayer does not have to lay out a penny up front !-  setting out to bully 150,000 ordinary Irish citizens out of their money and rights.  How other citizens of a democratic society can let that happen--even cheer the State on-  is quite astonishing. 

In reality the State is using the resources of AIB and BOI to help bail itself out !.  And without a thank you. The politicians have very neatly fooled most of the population: they have passed publically perceived responsibility for the State's own desperate fiscal crisis to the banks. "How can we give 54 billion to the banks and then turn around and reduce the workers' wages...?", etc.  Even star media commentators believe this garbage. The banks, who may need up to 10 bn more in capital,  as a one time payment, mostly from own resources, are the cause of the problems afflicting the State, which needs c. 25 billion per annum, maybe 100 bn. in total !.  This is how Mr. Lenihan has very successfully spun the reality of the State's desperate financial mismanagement, blaming the evil banks, while  quietly taking billions from them in NAMA, on top of 6-8 billion for bailing out Anglo, more billions for regular State funding, and, in fact profiting greatly from the guarantee and preference share injection. (In fact, he should put his preference shares on the market now..and apply his instant profit towards his upcoming budget)


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