“3. As regards their property loan portfolios the six guaranteed credit institutions face cumulative economic impairment on their land and development loan exposures and associated property investment loans of around €XBn [Figure deleted. Market sensitive]”
So the Government have an estimate of the value of the banks’ loan impairments but they are not telling us what it is because it is ‘market sensitive’? Presumably if the impairment figure was not *too* bad they would be broadcasting it from the roof tops? One could only conclude that the figure is worse than generally supposed within the market and that additional private equity capital is still going to stay the hell away from Irish banks.
Is this not essentially a loan of the difference between the value of the resources the bank needs and the value of the resources the bank actually has? With an indeterminate term and an indeterminate interest rate? And is this not what is known as an offer that cannot be refused?
Are these terms not more like something you would see in a mob movie rather than in a modern commercial marketplace? Is this really better than nationalization? And to state the obvious, Irish banks need credit like an AA meeting needs a Guinness rep.
I can’t see how international institutions could have confidence in or advance funds to a bank that has got itself into this sort of situation. All commercial lines of credit are going to become very tight once the guarantee expires.
Bacon makes a fundamental (and in my view, wrong) assumption – that the Irish banking industry can go back to the way things were, that the banks will go back to making chunky profits, and a reasonable levy can pay for the clean-up of the great crisis of 2008.
There is a high probability that this won’t work.
There are fundamental changes happening in the European and international banking market, quite aside from the current turmoil. For example SEPA, which effectively abolishes local clearing and the need to have a bank account in every country where you do business; electronic money systems which reduce the need for paper and metal cash; the development of networks of financial advisors who can play the ‘soft’ role of the high-street bank; the development of a European-level regulatory regime (the Commission seems to be making it clear that it is not planning on a US-style country-by-country regime).
There is a high probability that before 2014, the structure of the international banking industry will be completely different. It may also turn out to be a far less profitable business, with greater competition and lower margins.
With all this going on, I wonder whether these banks will ever be in any position to actually pay the levy? Will the equity actually be worth anything significant at all? Bacon’s scheme requires the answer to both these questions to be ‘yes’. In reality, the answer to both questions is likely to be ‘no’.
Indeed, the levy is likely to deter parties who might take over the Irish banks if they didn’t have this hanging overhead. We will eventually have to call in consultants to explain to us how to dismantle our dodgy NAMA loan scheme, in order to facilitate a sale of the shells of the banks.
It will be significantly legally harder to dismantle the levy to allow a sale than it would be to sell a nationalize a bank (because you would have to remove the levy from all banks at the same time, not just the one that is being sold.)
3 replies on “FT on NAMA”
this plan is ….words fail me
Bacon report now here: http://www.ntma.ie/Publications/2009/NAMAsummary.pdf
“3. As regards their property loan portfolios the six guaranteed credit institutions face cumulative economic impairment on their land and development loan exposures and associated property investment loans of around €XBn [Figure deleted. Market sensitive]”
So the Government have an estimate of the value of the banks’ loan impairments but they are not telling us what it is because it is ‘market sensitive’? Presumably if the impairment figure was not *too* bad they would be broadcasting it from the roof tops? One could only conclude that the figure is worse than generally supposed within the market and that additional private equity capital is still going to stay the hell away from Irish banks.
Correct link for NAMA summary is http://ntma.ie/Publications/2009/NAMAsummary.pdf
Is this not essentially a loan of the difference between the value of the resources the bank needs and the value of the resources the bank actually has? With an indeterminate term and an indeterminate interest rate? And is this not what is known as an offer that cannot be refused?
Are these terms not more like something you would see in a mob movie rather than in a modern commercial marketplace? Is this really better than nationalization? And to state the obvious, Irish banks need credit like an AA meeting needs a Guinness rep.
I can’t see how international institutions could have confidence in or advance funds to a bank that has got itself into this sort of situation. All commercial lines of credit are going to become very tight once the guarantee expires.
Bacon makes a fundamental (and in my view, wrong) assumption – that the Irish banking industry can go back to the way things were, that the banks will go back to making chunky profits, and a reasonable levy can pay for the clean-up of the great crisis of 2008.
There is a high probability that this won’t work.
There are fundamental changes happening in the European and international banking market, quite aside from the current turmoil. For example SEPA, which effectively abolishes local clearing and the need to have a bank account in every country where you do business; electronic money systems which reduce the need for paper and metal cash; the development of networks of financial advisors who can play the ‘soft’ role of the high-street bank; the development of a European-level regulatory regime (the Commission seems to be making it clear that it is not planning on a US-style country-by-country regime).
There is a high probability that before 2014, the structure of the international banking industry will be completely different. It may also turn out to be a far less profitable business, with greater competition and lower margins.
With all this going on, I wonder whether these banks will ever be in any position to actually pay the levy? Will the equity actually be worth anything significant at all? Bacon’s scheme requires the answer to both these questions to be ‘yes’. In reality, the answer to both questions is likely to be ‘no’.
Indeed, the levy is likely to deter parties who might take over the Irish banks if they didn’t have this hanging overhead. We will eventually have to call in consultants to explain to us how to dismantle our dodgy NAMA loan scheme, in order to facilitate a sale of the shells of the banks.
It will be significantly legally harder to dismantle the levy to allow a sale than it would be to sell a nationalize a bank (because you would have to remove the levy from all banks at the same time, not just the one that is being sold.)