I attended his talk on Nama at the RDS this week. He gave a rundown on how the banks moved from fractional reserves (keeping 13.5% of all deposits back) to inter-bank borrowing to enable them to lend out for higher profits. He pointed out that there are serious miscalculations in the Govt. business plan for NAMA. His figures show, instead of 5.4b profit over 10 years, a far more likely loss which could go to 25b. over the time period.
The Govt. is relying on getting 100% in from the performing loans; however, an example he gave was of someone who borrowed 60m. 3 years ago to set up a retail park valued at 72m,; got all units leased out giving him 3.5m pa yield; this year AIB got revaluation and it was 52m so he is now in negative equity. All it takes is for some of his units to fail - and they are beginning to- and a performing loan will quickly become non-performing. Also, Govt. relies on getting 40% of non-performing loans but international experience says this is likely to be only 25% at best.
His solution is to sack all the banks' boards and bring new blood in; get them to write down their loan books to a realistic level; let the Govt. recapitalise them using bonds, same as NAMA but without the quango element of NAMA chasing the loans; each bank to set up a firewall dept to collect their own loans and with a realistic write-down, they can quickly start a momentum of monies in. He has had experience of this firewall dept. working. This leaves the shareholders paying first losses rather than the taxpayer. Once the banks get up and running in 4/5 years, the Govt sells its equity.
I am a credit controller and what he had to say made sense to me. The people who lent the money know their customer best. If NAMA start trying to recoup, there will be no foreseeable end and each year will cost us billions which we cannot afford.
(I hope I haven't misinterpreted any of the figures he gave; he was very easy to listen to but my poor brain is over 60 and NAMA scares me witless).
The Govt. is relying on getting 100% in from the performing loans; however, an example he gave was of someone who borrowed 60m. 3 years ago to set up a retail park valued at 72m,; got all units leased out giving him 3.5m pa yield; this year AIB got revaluation and it was 52m so he is now in negative equity. All it takes is for some of his units to fail - and they are beginning to- and a performing loan will quickly become non-performing. Also, Govt. relies on getting 40% of non-performing loans but international experience says this is likely to be only 25% at best.
His solution is to sack all the banks' boards and bring new blood in; get them to write down their loan books to a realistic level; let the Govt. recapitalise them using bonds, same as NAMA but without the quango element of NAMA chasing the loans; each bank to set up a firewall dept to collect their own loans and with a realistic write-down, they can quickly start a momentum of monies in. He has had experience of this firewall dept. working. This leaves the shareholders paying first losses rather than the taxpayer. Once the banks get up and running in 4/5 years, the Govt sells its equity.
I am a credit controller and what he had to say made sense to me. The people who lent the money know their customer best. If NAMA start trying to recoup, there will be no foreseeable end and each year will cost us billions which we cannot afford.
(I hope I haven't misinterpreted any of the figures he gave; he was very easy to listen to but my poor brain is over 60 and NAMA scares me witless).