McDonagh and Bacon at Dail Finance Commitee

All you NAMAphiles out there will be interested to know that Peter Bacon and Brendan McDonagh (interim Director of NAMA) appeared today before the Oireachtas Joint Committee on Finance and Public Service. (Updated stories now report that the Minister for Finance also attended.) So set your Sky Plus for Oireachtas Report!  Seriously, though, I will post a link to the full text of the meeting as soon as it is put up. Meanwhile, I can leave you with this interesting excerpt from the Irish Times breaking news report:

Mr McDonagh made a similar point today to the Committee saying: “We believe the Government is basically interested in keeping banks listed and relies on Nama to trigger a change of market sentiment”.

JPMorgan Chase analysts wrote in a note today: “We thus see sizeable chances of a smaller haircut to avoid further capital needs”.

Update: Here‘s the full text of the meeting.

Correction: It turns out that Mr. McDonagh did not say the line that the Irish Times had attributed to him (the updated version of the story no longer contains this quote.)  I had scanned the transcript to see did he say this line, which appeared a strange one to me.  In fact, this line is also an excerpt from the JP Morgan note.  Apologies for misleading readers by relying on our so-called paper of record.

10 thoughts on “McDonagh and Bacon at Dail Finance Commitee”

  1. NAMAphiles? I would equally call many here NAMAcides!

    Is it any surprise? I said it since the start – the possibility of overpayment, even the likelihood, exists because no bank will divest of an asset for less than they believe they can sell it for.

    Don’t agree? I’ll buy any of your houses for 20-30% less than today’s valuation in that case (but B Lucey’s for 50% as per his bloomberg comment, which I’m still awaiting the analysis on: please publish it!). I’m good on that offer.

    Apply it to yourself and you’ll find that ‘haircuts’ are easy to talk about but a different pill when you have to swallow it yourself! So why expect an institution to be any different?

    And either way, if, by 31/12/09 the bank hasn’t raised 1.5bn on the market then the state can buy in (to BOI for instance) at 20c a share, at today’s price that would be a windfall for the taxpayer (even at half of that it would be good), and there is the 8% interest they are paying to be considered too.

    I really don’t get the point? If the assets don’t perform then the state get to penalise the banks anyway, one way or another the pound of flesh gets paid.

    Personally, although I wasn’t a fan of NAMA initially I’m pleased to see progress being made, the markets need a sense of what discount will be applied and of progress, and it has to get moving, if the deal isn’t done in June it will be done in July but one way or another something has to be in place and running soon.

  2. Karl : even at 50% off peak my house aint for sale….I like it. (PS : its the MEDIAN fall from peak per the morgan kelly dataset…happy?)

  3. @ Karl

    The 8% is one of the great untold sagas.

    My understanding is that it can be paid in shares until such time as the bank pays a dividend. Give me control of those banks and I can assure you that I can get around that constraint once I have control.

    As it can be paid in shares, it cannot, by definition, be worth more than the stockmarket capitalisation (now up 7 times to nearly 3 billion after the government’s herculaen efforts by contributing 7 billion and promising much more)

    We paid 7 billion for 25% implying a pre-money valuation of 21 billion (and a current valuation of 28 billion, slightly more than 10 times the current market capitalisation.). It beggars belief

  4. Realistic haircut = (price + tax payers subsidy) less (price achieved for sale of assets underlying the loans X no years held to maturity) + Lenihan’s Levy.

  5. I’m interested in is comment that “€60 billion in loans and between €20 billion and €30 billion of collateral assets would be transferred to NAMA.”.

    Firstly, how did they banks lend out double or treble the value of the collateral? (and that’s an average!)

    Secondly, I thought we were talking about €80-90Bn. Are the banks holding onto €20-30 Bn. of good loans? In that case, what percentage of the €60Bn. loans will be non-performing, bearing in mind NAMA might have difficulty realising the €20-30Bn. if this collateral is in the form of development sites.

    RTE has a detailed account of his evidence.

    http://www.rte.ie/business/2009/0526/nama.html

  6. Nama is a lemon factory; the state will buy €60bn of loans having supporting collateral of upwards of €30bn (taken to mean written down asset values). The bet is if these underlying assets appreciate by 100%+ in value then Nama can sell them off and realise full payment of the loans + operating costs – but it may also have to provide finance to finish off half-complete buildings etc (the Lenihan Levy is about as useful as an ashtray on a motorbike). This is only for the big stuff – what price will be paid for the smaller speculative developments in midland bogs and provincial communter towns ? What price will be paid for idle retail space or see through office blocks? What price for empty hotels and thousands of “tourist” developments in the middle of nowhere?

  7. There is a report in the paper today that the levy (which is supposed to compensate the taxpayer if the loans are not fully repaid) will not be part of the legislation and the levy will be introduced as part of general finance bills later. (I am looking at http://www.independent.ie/business/irish/some-developers-owe-up-to-83641bn-says-nama-chief-1751721.html)

    This has two implications. 1. Taken together with the small haircut, this means that this is now a full-scale bona-fide bailout of small shareholders.

    2. (And this is much more serious) Rather than a levy on banks which loaned unsustainably, it looks likely to me that the levy is going to be on banks generally. It is hard to see how a finance bill could be used to introduce legislation which extracts a tax only from specific named institutions – I can see legal problems -. Having a levy on the whole sector means that new entrants to the banking market in Ireland will have to pay for the sins of the previous operators.

    This will hinder the development of the Irish banking sector for decades to come. The weak incumbents will be protected and new players will be deterred. SME’s and consumers will lose out.

    The Irish banking sector does not exist in a vacuum although a lot of people want to believe that it does. It is becoming part of the biggest single financial marketplace in the world.

  8. @bill – what you are describing is a tax on investment.

    Traditionally, businesses get income tax relief for loan interest, for the simple reason that governments generally want to encourage investment and growth. It would be a damaging) twist to actually charge a tax on loan interest.

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