State to benefit big from NAMA

B

BrianODohert

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NAMA is a loan, from the banks, to the State
The State has spun it as something else...a bail out for the banks by the taxpayer...even something that has caused the State's fiscal crisis (-- which is actually something far bigger than the banks recapitalisation problems)
In reality, while there are goodies for the banks in NAMA--certainty, quick sort out of bad loans, new funding, etc..the State itself will be a big winner, maybe to the extent of billions of euros.
Our society is in effect ripping off c. 150,000 Irish shareholders of the main banks, typically golden generation, who are losing wealth and dividends, to supplement their pensions, pay nursing homes, etc.
My latest post on this is at my BrianODoherty.ie blog, where I discuss todays acknowledgement by the EU Commission of the fact that the State is being "remunerated" in the NAMA scheme.
 
you aint got a clue. the bank shareholders are been bailed out and the banks should be bankrupt a long time ago. without state funding there would be no aib or boi.

what about the 4 million residents in ireland who are been ripped off by nama.
 
"what about the 4 million residents in ireland who are been ripped off by nama. "

What's being ripped off them, Ecstatic?
 
BrianODohert said:
"what about the 4 million residents in ireland who are been ripped off by nama. "

What's being ripped off them, Ecstatic?
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If NAMA does end up costing money it will be the residents of Ireland who will pay for it either through higher taxes in future and/or reduced public services due to reduced spending.

As has been pointed out without the Goverment supports (Guarantee/Capital injections and potential of NAMA) then the banks would be bust by now so any small value bank shares have right now is actually better than the alternative which is that they would be worthless.

If the banks do eventually recover then the State might make some profit (and thats a big might) but that would be a just reward for the capital expended to rescue the banks.

If the existing shareholders could have funded the vast amounts of capital needed entirely by themselves e.g. by way of a massive rights issue then perhaps then they would deserve to participate more in the recovery, as it is they will participate somewhat just they have been significantly diluted as they were not prepared to stump up the needed capital.
 
Of course, if NAMA ends up "costing money",. it will be residents of Ireland who will pay. These include the shareholders who are already paying--a discount on sale of their property of c. 10 bn (-I refer to shareholders of the two main banks, not Anglo or Irish Nationwaide-) and who are lending the State the property at such a low interest rate that the State saves c. 6 bn extra over a ten year period, over its normal cost of borrowing. The transaction is a loan until it is paid for, when it becomes a sale.The Business Plan does not call for the bonds which banks receive to be fully redeemed for ten years. Meanwhile they are not to be tradeable at par value (if at all!). The ECB may only accept them as security for very short term funding.

The reason for State investment of 3.5 bn in each of the two main banks was not because they were bust but to shore up their capital in a crisis situation, caused, in Ireland, mainly by the management of and run on a third bank, Anglo Irish. Some also argue that the States reaction to that run was foolhardy...and had the effect of tarring all our banks with the same brush as Anglo. (And don't forget that after Anglo's nationalisation, the State had to "order" AIB/BOI to provide c. 8 bn. to Anglo, to replace lost deposits in the State-owned bank)

Anyway, since these events, the two main banks have continued to make good profits. Then they have applied these profits as provisions against future losses, due to valuation write downs. The lesser the value NAMA puts on their property, the more they must write off.

So, they will suffer very big write offs, but, in reality many of these loans do not mature for many years, so it is unfair that they have to take the full hit up front. (Under new proposed accounting rules, banks will be allowed spread expected losses on loans over the remaining maturity period of the loans...which is much fairer). It could be that market conditions will change dramatically in the next few years and these loans (or underlying security) will ultimately realise much more than their initial NAMA valuation. (This could mean substantial cash inflow for the State, and considerable profit on the banks' property). Some economists already predict that UK, US and even Eurozone governments will adopt the inflation route as being the only way out of western world debt.

In these circumstances, the State will be a big winner through its dealings in banks' property. But the banks and their shareholders are virtually barred from sharing in that win, while at the same time they are virtually indemnifying the State against loss, and lending their property in the meantime at a ridiculously low interest rate for Irish sovereign borrowings (- five times lower that the same State is taking from them as an annual dividend on its preference share investment). I don't think that's fair and proper.
 
Sounds like you bought big into BOI shares Brian? There were plenty of opportunities on the way down to cash in. As a previous poster has pointed out, without the taxpayers money the banks would have fallen, so the shares would have been worthless anyway. Tough medicine but the rest of us aren't exactly over the moon about our money being used to prop up the likes of Anglo either
 
For bank share holders to complain about NAMA is simply cheek of the highest order. NAMA is there to bail out banks and, corresponding, increase the price of what should be worthless shares.
 
To Seantheman

No, I never bought BOI, but it may now be time to do so. For those with loose cash--that excludes me !- it could be the opportunity of a lifetime. Rememebr, you never make real money following the herd...be a contrarian !

Especially this week it could be time to buy AIB, before their results are announced. In my humble opinion, all possible downside risk to the share price is already factored in...a few times over. You can buy a share for c. 40% of its expected core profits per share. !!!. That's probably the amount it would normally pay out in dividends...So, you buy on a notional dividend yield of 100% (- or is it 1?...I'm not sure how its described)

Of course AIB will have to face its NAMA -related write downs. Up to 8 bn. it seems. But I think it has already provided half of this from 2008 and expected 2009 profits. So that leaves 4 bn more--maybe the next two years profits?...After that you've got a bank earning 2 euros per share, which should therefore be valued at 20 euros +, just applying other Eurozone bank p/es. So, discount that by 50% to be safe...and you've got ten times profit on your investment, certainly within a few short years...its a no brainer

Oh, Yes...they must dilute their equity to bring in more capital...Em...maybe!...But at what price? They would be crazy to bring in private capital at one euro per share...They will do a deal at 5 euros, with some "strategic investor", who will take, say, a third of the new equity, secured, if necessary, on the Polish or US operation. (The mechanism might be the new "coco" hybrid bonds, or a combination of these and other arrangements.)

This solution might be predicated on the EU not forcing AIB to sell off Poland or US. But I don't think the EU has any case against AIB or BOI, considering that they're paying 8% (!!) on the State's preference share injection, and considering what easier deals banks all over the EU have received from their governments, in the way of State aid. (Also considering how much ordinary Irish individual shareholders have lost--all those people who voted for Lisbon !- compared to the much smaller percentage losses of other comparable eurozone banks in difficulty)

So, NAMA, plus debt management + the new strategic investor, if required, will fix the immediate write down problem and free the bank to make profits and apply them to repaying the preference shares and to get back to paying dividends within three years. The (bigger) funding problem will also be greatly assisted by these developments. Then, some will say, the bank must face the problem of valuations on the residential mortgage book. But, in that matter, we must keep in mind that accounting rules for treating banks impaired assets (mortgage loans for example) are very likely to be changed this year, permitting banks to spread the "expected" losses over the maturity periods of the loans. Given that most of these mortgages are for 30 year periods, the bank only has to take 1/30th of a hit to the P/L and Capital account in any year. Then, the bank should re-estimate the likely losses every year and make appropriate adjustments...so, the losses in earlier years will gradually be written back as profits in later years.

In summary, buy the banks now, quickly ! (BUT...I'm not an investment adviser, nor an investment or finance specialist in any sense...Follow my advice at your own risk)...I think I'll copy this to my own blog

By the way, buying the bank shares now is the patriotic thing to do!. The banks are both currently majority owned by individual Irish residents, not by foreign funds or speculators. Let's keep it that way, so that the management and deployment of a couple of hundred (?) billion Irish owned deposits will stay in domestic hands and may be used for Irish economic development as a priority
 
BrianODohert said:
In summary, buy the banks now, quickly !
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This is very dangerous advice. Irish bank share prices are so low at this stage (with good reason) that the impending rights issue would dilute existing shares so much to the point where the state could easily own up to 80% of each bank. This is not an easy situation to get back from.

BrianODohert said:
By the way, buying the bank shares now is the patriotic thing to do!
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How can buying bank shares be in any way patriotic? I don't think any significant part of the population would care if all of the Irish banks were owned by foreign companies. These are large corporations at the end of the day and put their profit ahead of absolutely everything else. They couldn't care less about Irish people. Why would Irish people care about them?
 
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