True, I should have been more balanced in my myths! Just George annoyed me as did the headline saying €54 billion gamble. How are we ever to supposed to have a reasonable debate if people are just interested in scare mongering for the sake of it.
It's not that it's not a gamble, it's just that not all the 54 bn is at risk. There are assets, however dubious, underlying the loans. There are loans that are performing (40% of them we are told). There are borrowers that will pay back. There is a market for the loans even in their current distressed state (from about 20c on the euro given other distressed loan sales). NAMA has some tools at its disposal to increase the amount it recovers on repossessed assets (mostly the fact that it doesn't have to pay tax on any sale).How can it bee seen as anything other than a 54 billion gamble?
Myth No.7
If the taxpayer makes a loss, there will be a levy on the banks. The legislation makes no reference to a levy.
The banks will be able to argue that because the legislation did not contain a levy, an after the event levy is unconstitutional.Prior to January this year, there was nothing in Statute re. a pension levy, but we now have a pension levy.
Legislation isn't created for the purposes of keeping the media happy. If it were necessary to put something into the NAMA bill re. a bank levy, there would be something in the NAMA bill re. a bank levy.
The fact that there isn't doesn't mean there won't be a levy; its means that it isn't necessary to legislate for a levy at this point.
The banks will be able to argue that because the legislation did not contain a levy, an after the event levy is unconstitutional.
Governments change, ministers change, situations change. It the banks are taken over or reconstituted as new companies, how can a levy apply if it is not already in existence?
The banks will be able to argue that because the legislation did not contain a levy, an after the event levy is unconstitutional.
Governments change, ministers change, situations change. It the banks are taken over or reconstituted as new companies, how can a levy apply if it is not already in existence?
I am getting sick of politicians and reporters trying to grab headlines by trying to make NAMA scarier than it already is.
Myth No 1: Here is George Lee
http://www.independent.ie/national-news/lenihan-has-got-figures-all-wrong-1890230.html
Does he think the people in NTMA and their financial advisors are muppets? Of course they are taking into account rising interest rates. That is why I assume the bonds they issue will be FRN's to match the Assest's i.e. loans income streams which are usually based on a floating rate of interest. So as interest rates rise on the bonds, interest on the loans should rise to offset it. They can also use derivatives to offset any basis or interest rate risk. There is no €10 billion black hole. Credit risk remains the biggest danger to NAMA.
Sunny - I hope I don't feel like the monkey on your back but - with regards to the interest rate risk -:
Isn't there still some insiduous risk in there if , for example, the better of the "well performing loans" included derivatives, ie. interest rate swaps which insulate developers in the longer term from interest rate fluctuations ?
Were we to surmise that the more prudent borrowing developers transacted such derivatives as part of their bank loans. It could be that the more risk averse and credit-risky developers didn't.
So , if interest rates rise you could have a double jeopardy of the credit worthy developers still paying off their loans but insulating themselves against the interest risks and those also in the "good pile" of loans finding it impossible to meet their interest payment obligations on account of the rising rates ? I am guessing you will say that the FRNs will be carefully balanced or calibrated (sorry layman terms) to mitigate these risks but it seems to me that there is a perfect (and not unlikely) storm of risk buried in the whole package ?
I could be talking garbage here but to me I see plausability.
I'm just wondering if the whole "ingenious on the face of it" NAMA bonds in exchange for ECB credit trick could fall foul of its own ingenuity (if that makes sense!)
If they only enter the equation when the borrower defaults then I would agree that they arise out of credit risk rather than interest rate increases in themselves.
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