The Ominous Shades of NAMA

The Raven.

Is the government playing Russian roulette with the Irish taxpayers’ money?

I would be among the first to applaud any sustainable plan to address the ‘impaired’ loans of ruthless property speculators, and call a halt to any further unwarranted development. These are the same people who have already bulldozed our quality of life and peace of mind, by the horrendous destruction, on a massive scale, of our natural and built environmental heritage, concepts sadly lacking in these debates. In the process of all of this unprecedented, excessive greed, they subsequently played the major role in wrecking our economy.

However, the prospect of NAMA suggests speculation on a different and far more dangerous level:

This item in the budget should really have set the alarm bells ringing. The National Assets Management Agency (NAMA) is being set up to purchase the property loans from the banks in order to free them up to lend money. Those loans would be purchased at “an appropriate price” to be determined. This could be a financial time bomb that could destroy our whole economy.

Irish Examiner

Ivan Yates, who described himself as ‘a professional gambler, as a bookie’ said that ‘we are taking the biggest gamble ever.’ He went on to say that he ‘wouldn’t touch this bet’ and was not convinced that ‘we should be bounced into it.’

Source: [after 1:46] Today with Pat Kenny

I wish I didn’t have to get my head into this, as economics is not my field, but I have to say that I feel very concerned as regards NAMA, especially as the goalposts keep changing, and by their very nature will continue to do so.

Economist Peter Bacon says that Government policy states that the nationalisation of the banks is not a route they wish to go down. He says that it is crucial from the perspective of taxpayers that there be an exit strategy for the Government to reduce their stake in credit institutions once market conditions improve.

http://www.rte.ie/business/2009/0408/nama_av.html?2523202,null,209

However, :rolleyes:,

Finance Minister Brian Lenihan says the Government is prepared to take additional equity in the banks should they record further losses down the line.

Any thoughts on this?

SkepticOne

What I find worrying is the amount of spin that's being churned out by the politicians to get this past the public. For example, Lenihan, in an attempt to make the deal seem sweeter, saying that both performing and non-performing loans would be purchased by this body but failing to explain that "peforming" merely means that interest is still being paid on the loans for the moment.

There's also Peter Bacon's complete ommision of discussion of risk in his report selling the scheme and the notion that it is supposedly about the government getting tough with developers rather than bailing them out. Some people may have almost believed this until they found out that Peter Bacon is a director of one of the larger building firms in Ireland!

Then finally they tell us that the rubbish assets are going to be bought at a mere 15% discount on the now largely irrelevant book value of the loans.

aare

The details of economics tend to give me migraine and mild hallucinations, but on the overview...

...but it seems to me that this could turn out to be the scam of the century...either way...and I do not find the expression "15% discount" reassuring on that score.

LostinBlanch

OK I've come across two (possible) nightmare scenarios online recently regarding NAMA I'll put them in two seperate posts because they're both long.

nightmare 1:

A way that developers could scam us out of more money via NAMA. Her goes:
“Developer A and sons borrowed €220m (110% loan) for land “worth” in 2005 €200m.
The bank holds the deeds, but he owes them the money, money that’s now sitting in some Fianna Failure non-resident Farmer’s account who sold the re-zoned land.
Developer A the cute whore, splits up his assets and companies responsibilities by setting up 4 companies with different permutations of his children. Each company only has one unlimited shareholder. This shareholder is always poor Seamus, the young lad. All the time the shareholders are very well paid, on salaries from profits reaped on other similar but earlier schemes, making our politicians look like paupers. This cash is private, not company owned.
Now its 2009, property has collapsed, the land is valueless. Developer A and the 4 companies still owe €220m.
Superbank “the Irish tax-payer” comes to the rescue, and pays say €150m for the currently valueless land, then goes after Developer A and the gang of 4.
All the Developers companies declare themselves bust. The company’s assets are seized, this amounts to say €1m, Superbank goes after Seamus, the only one whose private property is up for grabs, and it is seized, valued and sold for €5m.
Seamus can’t be on the board of a company for 12 years, and still has a huge unpayable debt hanging over him, but he agrees to do his best and pay €200 a week. Don’t worry though Dad and family will look after him, living for a rent of €10 a month in a muck mansion owned by his sister Mary.
Meanwhile, the land won’t sell, maybe in 30 years? But the PAYE suckers have just paid the developers bank €150m, retrieving just €6m from the developer, losing 86% of our “investment”, the other cute developers catch on and we double our national debt!”

Scary if true! Because don’t you know that there’s plenty of them out there that would have the neck to try this!

LostinBlanch

NAMA Nightmare 2:

The taxpayer/citizen overpays for the assets (there’s no point otherwise).

Call that €50Bn.

The banks are clean. But they still don’t have cash to “fund small business” (as if Fianna Fail & The Green Party ever gave a ****).

Being clean of their toxic assets (and the associated liabilities) the banks are then sitting ducks for vulture funds. They buy AIB & BoI for less than they are worth (because they ALREADY HAVE the same information that Dr Peter Bacon refuses to divulge to the taxpayer/citizen).

They consolidate the banking system. Close branches, sack 5,000 workers, make €20Bn.

How?

Because the Franchise Value of a banking system in Ireland (if clean) is worth €40Bn.

That €40Bn is available right now to the Government. But it will be squandered by Fianna Fail & The Green Party.

All it takes is New Bank(s) / Insolvent Banks.

Rescind the guarantee and the taxpayer/citizen can fill a €40Bn hole in the National Finances.

Yes, the adjustment would not be painless. But the alternative is, in the words of that piece of shyte, Ahern, suicide.

I think Fianna Fail have just met with people who are more devious than they thought possible, and they just don’t get it.

EDIT BTW the above scenarios aren't mine. I don't know enough about tax avoidance /gombeenism / cute hoorism / f*cking everyone else over etc.

Mr.Micro

I don't like the idea of Bacon being a property developer therefore with a vested interest being the author of this report. As regards a price for the asset debts that is already decided, as the banks will say here is the debt and we need this amount to get solvent. Its an absolute travesty. The Government is going to give the 90 billion or so IMO and we can all pretend in future that our economy is solvent and us the public have to live in reality whilst the banks et al can pretend they are in the free market and independent, when the reality is they are grossly incompetent and in the real world they would have gone to the wall.

NewDubliner

IN&M is showing its true colours, last week running a story on the front page about the plight of rich people becoming less rich. (Accompanied by a 1/4 page advert for their friends at Irish Nationwide.)

This week, they're leading with the humanitarian disaster facing property developers if the NAMA handles their loans in a commercial manner:

Tycoons face ruin as State closes in
Developers seek one-way tickets as they face loss of own homes

They're deeply concerned that if the properties are sold off, it will drive prices down.:rolleyes:

This week's 1/4 page advert is for Mercedes Benz.

pH

As long as all this happens then fine, however these property developers have been at the heart of the FF machine for the boom, I'm hugely skeptical that they will be chased.

These people made huge bets and won, made one last on that lost horribly and now want to wriggle out of it. I can't believe that a state company would chase these people for the money as hard as a bank that's survival most likely depended on getting as much of this money back as possible.

I predict 'deals' sorted out with the developers, the usual excuses of "they'd only leave the country anyway and we'd never get their cash so why not let them live here and at least they can tip some of us for washing their Bentleys", that or the developers' barristers find some constitutional problem with the state collecting debts from them and tie up 1,000s of hours of court time (at our expense), with the inevitable tribunal looking into why this money was never recovered commencing in 2019.

LoveDucati2

Example 1

A builder owns a 5 acre site with planning permission to build 100 apartments and small shopping centre (like maynooth dunnes) to a value of €80 million Euro.

The banks have been handing him millions to support his super rich lifestyle over the last 5 years and he owes the bank €10 million, this was not a problem because he had alleged asset values of €20 million.

Now the centre will not be built, cannot sell apartments or shops anymore, so the land is worthless, it is just Ag land and the permission will run out next year.

The banks would have held this as a value of 20 million undeveloped and now it is a pittance of that.

If the government insist on pretending that 15% is a fair discount.

We are being shafted.

The real value of the land now is less than 10% of its 2007 potential value.
if it even is that high.

That means 90% or higher of the 90billion figure is gone.




The scariest thing here is that this idea is being talked about seriously.

Who is hiring the NAMA staff. Will it be run by the usual cabal of morons.

peasant

LoveDucati2 wrote: »

Who is hiring the NAMA staff. Will it be run by the usual cabal of morons.

see here: http://www.boards.ie/vbulletin/showthread.php?t=2055534526

This whole thing scares the beejayzus out of me. I constantly keep telling myself that this "recession" isn't really affecting me ...(I have no debts, I even have some very small savings). Not for much longer if this kicks in though.

LoveDucati2

peasant wrote: »

see here: http://www.boards.ie/vbulletin/showthread.php?t=2055534526

This whole thing scares the beejayzus out of me. I constantly keep telling myself that this "recession" isn't really affecting me ...(I have no debts, I even have some very small savings). Not for much longer if this kicks in though.

Your right, we could be back to 5 families living in 1 house to share costs.



BREAKING NEWS

NAMA will be staffed by ....

CEO Michael "fingers" Finglef*ck

bonus CEO S Ross (backup CEO Mr Quinn) each will be allowed 200 assistants who will be allowed ..

CFO Accountant Bertie (Fudge not BF or BT thats not my account, money resting) Ahem

Chief legal officer Michael Lynnnee

and a selection of delicious other fruit f*cks who will make sure we pay for the errant behaviour

ionix5891

there are other very "disturbing" things to note about NAMA (i do support the idea of NAMA as it gives confidence to markets and confidence means investment which means, faster exit out of this recession) that are on back of my mind flashing alarm bells

30billion ( 33%) of loans are in other countries such as Dubai, UK, Estonia
that means the government cant reposes the land if these nations tell them to get lost, thats the riskiest part of NAMA that can go very wrong

Unemployed bankers and ministers getting a job there as "professionals" or "advisers" leading to another pyramid scheme being built

we sort of joked about this in other threads but after some thinking it hit me home

ART6

LoveDucati2 wrote: »

Example 1

Who is hiring the NAMA staff. Will it be run by the usual cabal of morons.

What's the betting the top jobs will go the the five junior ministers who are being axed?

The Raven.

ionix5891 wrote: »

there are other very "disturbing" things to note about NAMA (i do support the idea of NAMA as it gives confidence to markets and confidence means investment which means, faster exit out of this recession) that are on back of my mind flashing alarm bells.

It is supposed to give confidence but:

The stock prices of AIB and BOI were both very volatile yesterday [8 April] as the market struggled to gauge the likely impact of the National Asset Management Agency (NAMA), with AIB having fallen as much as 39%, closing down only 5% and BOI falling 38% before closing down 7%. The main uncertainty remains over the hair-cut that is likely to be applied to the loans transferred to the NAMA, the likely equity capital injection into the banks required as a result and the on-going uncertainty over long-term ROEs as a result of a potential levy, should the NAMA be loss-making on wind-up (which could be as long 15 years away).

http://www.goodbody.ie/news/morn.html#2

I can see why the 'haircut' as little as an average of 15% has been proposed. The whole thing is so precarious and open to all kinds of manipulation.

30billion ( 33%) of loans are in other countries such as Dubai, UK, Estonia
that means the government cant reposes the land if these nations tell them to get lost, thats the riskiest part of NAMA that can go very wrong

Bulgaria, Dubai, Florida, and Latvia. These include apartment blocks, hotels, and retirement villages etc.

Unemployed bankers and ministers getting a job there as "professionals" or "advisers" leading to another pyramid scheme being built

Enter 'Rashers', AKA Peter Bacon. He cooked up the whole scheme.

Who better to advise the Government on such a bad bank than the gamekeeper-turned-poacher-turned-gamekeeper again?

http://www.independent.ie/business/irish/rasher-returns-1706001.html

It was decided not to reveal the names of the major bad loan developers due to economic sensitivity. However, they will have to tell us who our new employees are. William Butler Yeats referred to Ireland as 'a nation of shopkeepers'. However, things have changed since then and I think we can now officially refer to ourselves as 'a nation of bankers' !!


There is nothing about it in the newspapers today as yet. Has anyone seen the Tribune? It wasn't online the last time I looked.

The Raven.

Today's Sunday Tribune is now on line. This is getting even more scary:

Government NAMA plan 'should leave out smaller banks'.

EU guidelines say banks of 'systemic' value are crucial

The government plans to remove thousands of soured property loans from smaller lenders like Irish Nationwide and EBS via the National Asset Management Agency (NAMA) even though European Commission and European Central Bank guidelines advise that only banks of true "systemic'' importance should be included in asset relief schemes.


http://www.tribune.ie/business/article/2009/apr/12/government-nama-plan-should-leave-out-smaller-bank/

Irish Nationwide and EBS are banks that are used by most people for their home loan mortgages. Does this mean that if people get behind with their mortgages, they will be dealt with by NAMA :eek:??

The European Commission said countries with "scarce budgetary resources'' should only try asset management structures "on a limited number of banks of systemic importance''. EBS and Irish Nationwide are the country's two smallest lenders and many economists and equity analysts do not regard Irish Nationwide in particular as of "systemic importance''.

Trust Fianna Fail to ignore EU guidlines before they have even started this new scheme!!

Sand

It is very worrying. It seems to have been determined that Bank of Ireland, AIB and other Irish banking institutions have to be kept open - cant be allowed to collapse.

I am not sure why this is the case: The banks are no longer capable of performing the lending function that is required for the economy to function. Taking on their debt only transfers the risk onto the state as a whole at a time when the state is already in a crippling fiscal situation.

Its a pretty terrible deal: If the banks are forced to take a discount of 50-60% then it only means the taxpayer will have to intervene to recapitalise them again. So whatever saving the tax payer makes on the discount, they pay out on the recap plan. We're now creating agencies to manage the BOI and AIB loan book when that should be the job of AIB and BOI. They're not worth saving at this point.

If clean banks are required then create them. Instead of buying devalued, risky assets and throwing good money after bad, divert the cash to actual lending to the real economy. The government guarantee on deposits should prevent a bank run. BOI and AIB will collapse but thats inevitable.

The Raven.

There are so many twists and turns in all of this. Here’s another article from the Tribune:

Most toxic loans held by just 50 developers

It is quite bizarre. I would not think it could have happened," a senior government official said of the small group of property developers who account for most of the soured loans. The small number also suggests the write-downs in the nominal value of the €90bn of property assets that NAMA will seize will need to be more substantial than believed.

http://www.tribune.ie/business/article/2009/apr/12/most-toxic-loans-held-by-just-50-developers/

And here is one of the problems with cheaper ‘haircuts’:

But officials also fear that larger-than-expected write-downs could threaten the €3.5bn taxpayers' cash already injected into Bank of Ireland, and the €3.5bn that is proposed to go into AIB. The taxpayer is due to get an 8% interest payment on the preference shares which are part of this investment.

They are damned if they do, and damned if they don't :eek:!!

Mr.Micro

It is quite bizarre. I would not think it could have happened," a senior government official said of the small group of property developers who account for most of the soured loans. The small number also suggests the write-downs in the nominal value of the €90bn of property assets that NAMA will seize will need to be more substantial than believed.

http://www.tribune.ie/business/artic...50-developers/

Is that not incredible if true, that 50 chancers bring our state to the ground and will be bailed out and we will never hear about them after NAMA is set up, but we will be left with the stink for decades to come. They must be falling about laughing, who knows maybe they will even be the new executives of the NAMA board?

The Raven.

Mr.Micro wrote: »

Is that not incredible if true, that 50 chancers bring our state to the ground and will be bailed out and we will never hear about them after NAMA is set up, but we will be left with the stink for decades to come. They must be falling about laughing, who knows maybe they will even be the new executives of the NAMA board?

It is incredible. As for these blaggards becoming the new executives, maybe that is why they are refusing to tell us who they are !! Joking, but nothing would surprise me at this stage.

At the moment they seem to be running around like a bunch of headless chickens.

Some developers who have loans running into more than €100m have already admitted that they are insolvent. They say the new agency will destroy the boom's major developers.

"Most of them will be wiped out -- I think you'll be finding a rush of Ryanair tickets for the developers to places they'll be hard to find," one leading developer told the Irish Times this weekend.

"It is important to realise that although Nama buys the debt at a discount, the borrower continues to owe the full nominal value of the debts," he said.

"Hiring has already started for Nama managers, and you wouldn't want some of those applying sitting beside you in the dark -- this type of person is renumerated by recoveries, so boot in."

http://www.independent.ie/national-news/tycoons-face-ruin-as-state-closes-in-1706523.html

:eek::eek:!!

peasant

"It is important to realise that although Nama buys the debt at a discount, the borrower continues to owe the full nominal value of the debts,"

On paper, that is ...once that particular developer is broke and cleared out, that's it. He may continue to owe the debt, but nobody will be able to collect anything bar a field in Leitrim that's worth about € 2.75 / a sand dune in Dubai worth nothing at all.

The Raven.

Sand wrote: »

It is very worrying. It seems to have been determined that Bank of Ireland, AIB and other Irish banking institutions have to be kept open - cant be allowed to collapse.

I am not sure why this is the case: The banks are no longer capable of performing the lending function that is required for the economy to function. Taking on their debt only transfers the risk onto the state as a whole at a time when the state is already in a crippling fiscal situation.

Here is another article from today’s Tribune that I haven’t posted. I’m still trying to get my head around it. Maybe it might throw some light on the complexities of the situation. It is ironic that they have used the same expression that I used in their title. I hadn’t seen it when I wrote my post.

Its a pretty terrible deal: If the banks are forced to take a discount of 50-60% then it only means the taxpayer will have to intervene to recapitalise them again. So whatever saving the tax payer makes on the discount, they pay out on the recap plan. We're now creating agencies to manage the BOI and AIB loan book when that should be the job of AIB and BOI. They're not worth saving at this point.

If clean banks are required then create them. Instead of buying devalued, risky assets and throwing good money after bad, divert the cash to actual lending to the real economy. The government guarantee on deposits should prevent a bank run. BOI and AIB will collapse but thats inevitable.

I really don’t know what would happen if the two main banks closed down. I don’t like the idea of the government having so much control.

The Raven.

peasant wrote: »

On paper, that is ...once that particular developer is broke and cleared out, that's it. He may continue to owe the debt, but nobody will be able to collect anything bar a field in Leitrim that's worth about € 2.75 / a sand dune in Dubai worth nothing at all.

That is one of the main problems. The government could end up overpaying for these properties. I find it amazing that some of the loans are not even secured against anything! Now that the cat is out of the bag, there is nothing to stop them skipping the country.

I can envisage endless court cases at the taxpayers' expense.

peasant

The Raven. wrote: »

I can envisage endless court cases tribunals without any actual final outcome at the taxpayers' expense.

fixed your post

SkepticOne

Expect a large increase in the likes of affordable homes subsidies and "homechoice" loans after this scheme goes ahead in an attempt to keep these fifty borrowers in business as it will now be the tax payer that picks up the tab if they fail.

SkepticOne

The Raven. wrote: »

That is one of the main problems. The government could end up overpaying for these properties. I find it amazing that some of the loans are not even secured against anything! Now that the cat is out of the bag, there is nothing to stop them skipping the country

The FT summed it up nicely. The same result of capitalising the banks could be achieved if the government forced the banks to dispose of these assets at whatever the market would pay and then handing over the difference (i.e. the book value minus the "haircut") in cash. This would avoid the massive conflict of interest mentioned in my previous post but would be politically impossible. It would expose to the public in hard cash terms (40 to 60 billion) the amount they are handing over. The fact that the public are getting unvalued loans (a mix of peforming and non-performing) complicates the matter nicely in much the same way that CDOs did before the present calamity.

The Raven.

SkepticOne wrote: »

What I find worrying is the amount of spin that's being churned out by the politicians to get this past the public. For example, Lenihan, in an attempt to make the deal seem sweeter, saying that both performing and non-performing loans would be purchased by this body but failing to explain that "peforming" merely means that interest is still being paid on the loans for the moment.

Yes, that is cause for concern. He is a master of spin. It goes with the territory.

I read somewhere that in among these ‘performing’ loans it would seem (if I understand correctly), that there are some legitimate borrowers who are none too happy that, in spite of acting correctly, are being moved from the banks to NAMA. It is obviously done to disguise things.

There's also Peter Bacon's complete ommision of discussion of risk in his report selling the scheme and the notion that it is supposedly about the government getting tough with developers rather than bailing them out. Some people may have almost believed this until they found out that Peter Bacon is a director of one of the larger building firms in Ireland!

Did you mean Ballymore Properties? Apparently he left the company last year after the collapse of the property market. Anyone would think that he had nothing to do with the bubble. He was treated on Prime Time like some sort of economic genius.

The Raven.

SkepticOne wrote: »

The FT summed it up nicely. The same result of capitalising the banks could be achieved if the government forced the banks to dispose of these assets at whatever the market would pay and then handing over the difference (i.e. the book value minus the "haircut") in cash.

I haven’t read the Financial Times, if that’s what you mean, and I don’t subscribe to it on line, but I would like to read the article. It’s a pity it couldn’t be done that way, as it seems to make sense. They have touched on it in this article.

http://www.irishtimes.com/blogs/outsidein/category/economy/

This would avoid the massive conflict of interest mentioned in my previous post but would be politically impossible. It would expose to the public in hard cash terms (40 to 60 billion) the amount they are handing over. The fact that the public are getting unvalued loans (a mix of peforming and non-performing) complicates the matter nicely in much the same way that CDOs did before the present calamity.

Why are they complicating matters like this? Would it not be better to come clean at this stage when the taxpayers seem more ready than ever to accept the pain? Or is it even worse than they are telling us? They should forget about the danger of political suicide. They have committed that already.

The Raven.

peasant wrote: »

fixed your post

Thanks, Peasant. I'll call on you next time I need a post fixing !!

is_that_so

The Raven. wrote: »

Ivan Yates, who described himself as ‘a professional gambler, as a bookie’ said that ‘we are taking the biggest gamble ever.’ He went on to say that he ‘wouldn’t touch this bet’ and was not convinced that ‘we should be bounced into it.’

Ivan Yates, much as I enjoy listening to him can never resist a dig at FF , in the same way that Noel Whelan betrays his FF roots. If Ivan had picked the Grand National winner as a certainty then I might pay attention to this, otherwise he's no better than the rest of us Mystic Megs.

What is known about NAMA

It will be called NAMA
It will be a part of the NTMA, who have successfully been managing debt for a very long time
Banks will have to pay for any shortfall in asset value through a levy.
It will run for a long time. 10 years +
No legislation currently exists.
Its stated aim is to help create clean banks

What is not known

What the loan discounts will be or whether it will be consistently applied, even if Dan Boyle gives the impression that it is a done deal.
How long it will run.
If it will make any money.
How it will work exactly
Who will staff it

Now that's not a lot to go on at all yet bizarrely the endgame is crystal clear to an awful lot of people.

As for the FT, one always has to be careful with sources out of the UK, however esteemed they are. They do have a very UK-centric, snooty attitude to us. Aside from their Eurosceptic nature there is also that temptation to talk us down and hopefully make lots of money out of it. But the FT are better informed Mystic Megs than the rest of us and as this hasn't been done before they probably have no idea whether it will work either.

To me the risk to this, is effectively what's being speculated on in this thread and the potential of the likes of a populist Dan Boyle to land us in a scenario where the proper balance has not been struck.

Mr.Micro

The Raven. wrote: »

Did you mean Ballymore Properties? Apparently he left the company last year after the collapse of the property market. Anyone would think that he had nothing to do with the bubble. He was treated on Prime Time like some sort of economic genius.

So he saved his bacon.:D

Not so clever then that he did not see it coming, some genius. He came up with a developer saving plan and sold it to Biffo, now thats genius, the nation takes the pain for 50 entrepreneurs. Bacon is part of the establisment so its no wonder that Primetime fawn over him.

Sand

Banks will have to pay for any shortfall in asset value through a levy.

This is what seems self defeating: The banks are wary about lending because they need to maintain as much capital as possible to offset against the losses they expect on these loans.

The government takes the bad debts off the banks, with the intention of allowing them to start lending again without worrying about the massive losses hanging over their heads.

Except, woops - yes, if there are any losses the banks will still end up paying for them, so they need to plan ahead and build up their capital instead of lending. Theres no real changes except instead of taking some undefined loss in the future, the bank instead takes a hit now, plus some undefined loss in the future. Its just musical chairs. I dont see the point of it, even from the banks point of view they are still going to have some potentially immense loss looming over them for decades to come, which is exactly the situation they are currently in.