In my opinion, that is a very optimistic assumption as it is hard to see how borrowers can continue to service loans when the underlying assets securing the loan are falling in value and are more than likely generating little or no income. As more ad more loans in Nama stop ‘performing’, there will be a net funding cost to Nama. As time passes, this net funding cost will accumulate and if Nama is to break even (in other words, if it is not going to be a burden on the ordinary taxpayer!), underlying property values will have to increase to even greater heights to cover the deferred funding cost!!!

In my opinion, this is an aspect of the Nama proposal which has not really been explained and analysed. I would welcome comments.

PS Anyone have any idea at what rate the bonds would be issued?

the levy cannot be brought in as a part of the NAMA legislation, i believe, as it would mean that there would still be a contingent liability resting on the bank’s balance sheet, so there would in fact be no “clean slate” from disposing of the loans at the NAMA-ascribed values. Expect the levy, if it does come into existence, to be a more broad based one, and not enacted until the banks are well and truly on a sound financial footing and finished any of their likely capital raisings.

They already have the legislation for the levy, they were using it while allowing the banks to not pay DIRT and to use the capital, mainly cash evaded from the Revenue, in the banks’ capital. They can pass new legislation at any time too. The state tends to pick up the tab for security when conveying cash also.

Are you Robert Browne the famous society dentist?

In any case, no insult was intended and I fully acknowledge that I might be wrong here and that your approach may turn out to be useful. I’d encourage you to keep at it on those grounds, though maybe you might give some thought at some point to a prediction market for the final value of the NAMA assets.

See http://www.irisheconomy.ie/index.php/2009/07/07/lundgren-in-dublin-and-a-proposal-relating-to-nama/

Alan

Won’t be good news when the dust settles as there will be less banks to lend/compete.

I think we need some politicos to come on here anon and tell us…

Indeed, I’m sure the Taoiseach and MoF are aware of the desirability of NAMA breaking even. However, I can assure you that they are also trying to juggle other goals, one of which is minimising state ownership of the banks. You can either agree or disagree with that as a goal but to ignore that it is a goal, and will affect the pricing, is naive.

If future capital injections are required it will be done via other means. The government will suffer less political damage if this is a state-sponsored support rather than NAMA overpaying. However, with the banks presenting a lower risk profile to investors, it is more likely that foreign capital will fill this gap.
Alan

Having said that, I always took what I feel is a pragmatic view of the situation on this site and equally I have always stated that the the Govt. will probably overpay (http://www.irisheconomy.ie/index.php/2009/04/23/ahearne-on-nationalisation/ ) [even managed to get what I almost construe as a compliment from Karl W for being so frank about it]

As for carrying the can, it isn’t confined to NAMA, the way the state handled almost every area of fiscal policy has been found wanting, the lack of counter-cyclical planning is equally a joke, crashes are nearly always accompanied by the collapes in tax receipts we are seeing now so to harken back to McCreevy saying things like ‘I spend when i have it when i don’t, i don’t’ is totally depressing. People are starting to forget our deficit and focus only on NAMA, that is an error in my opinion as Joe Taxpayer is covering much more than just development loans.

having said that, i think it would be best to get something running and fine tune it en route rather than continue with the stagnation in both markets and politics that we have seen to this point, if nothing else there is the hope of progress now.

@brian lucey: Your research? I thought you had gotten those figures from Morgan Kelly? That’s what you said on this thread: http://www.irisheconomy.ie/index.php/2009/05/26/mcdonagh-and-bacon-at-dail-finance-commitee/

And then of course there is the issue of marking to market in the current time v.s. marking to model which NAMA will use, it’s apples and oranges. If I wound an individual up tomorrow who had a mortgage they would be in a similar situation, hence the need to cure the problem over time and not go on ‘liquidation today’ prices.

The difference is subtle: you stated on bloomberg that loans should be marked down by 50%, but this isn’t the repo-market we don’t have to prove ourselves in 24hrs, removing timelines from time factored lending can create that kind of figure but it is largely manufactured in the face of NAMA because that will remove the very problem you are talking about.

Obviously you also can’t use a single developer as a gauge of the entire market, and prices will be determined accordingly so I still don’t buy into a mass 50% writedown. Nor was every LTV on original loans as high as Zoe was getting - they were seen as a ’sure thing’ so lots of their book is likely at higher LTV’s reflecting the trust banks had in LC, many others would have been much less and depending on when the lending took place then even with massive market drops it will be a different situation.

There is a fundamental value in these portfolios and to seek market value at the bottom is as ridiculous as those who championed market values at the top, its just the flipside of the same deluded coin.

“Clearly, a valuation methodology that focuses on individual assets (as made clear in the draft legislation) will not be targeting an average cumulative reduction. This will only be known at the end of the acquisition process.”

I’m afraid Alan I do not think this is nearly as clear as you believe. The process will involve HSBC and Jones Lang Lasalle, paid consultants who have a good idea of the (pretty narrow) range of outcomes the government wants.

Do you really believe this process will involve hundreds of totally un-coordinated assessments, which will finally arrive on the Minister’s desk and then, and only then, he finds out what the average discount is when he adds them up? Perhaps you do. I don’t. I’m not sure how much the HSBC people really know about Irish property, but I reckon they’ve mastered addition.

My attitude to the prediction market idea is the same as before—you’d be better off to run a market on what people believe the final discount will be that the loans will end up fetching relative to original book value. This will be a concrete number, published in the final NAMA reports, and may give us an insight into what the assests are really worth. The NAMA pricing process is about something else.

I believe the confusion is further added to by comments that seem to indicate that the NAMA are seeking to establish a cumulative average discount in advance of transactions. For example, you previously claimed that a prediction market would have little value and that “A 15% discount relative to book value seems to be a popular prediction with stockbroking economists and their explanations for these predictions have little to do with asset valuation.” (see http://www.irisheconomy.ie/index.php/2009/05/26/a-prediction-market-for-irish-toxic-assets/). Clearly, a valuation methodology that focuses on individual assets (as made clear in the draft legislation) will not be targeting an average cumulative reduction. This will only be known at the end of the acquisition process. The problem is to establish accurate individualised asset values and not the cumulative discount percentage. Subsequent capital requirements will be met via other means.
Moreover, even if you do subscribe to the conspiracy theory that the government will overpay to meet capital requirements, given that multiple banks are involved your argument that the objective will be to meet a cumulative discount percentage still doesn’t make sense.

Garry,
It shouldn’t be necessary to hide the identity of the bank or developer for these assets. All information pertaining to assets being acquired on our behalf should be published in full. If this is done, then it is easy to initiate a prediction market and if a benefactor wishes to sponsor the contest, this may provide the necessary liquidity to establish more accurate predictions on what will be paid. The main research challenge is to determine the precise convex combination of prediction market and internal estimate to
apply for the workload minimisation/convergence rate trade-off.
But NAMA should utilise Machine Learning for their own internal valuation estimates in any case. As they proceed through the innumerable properties, they should be building up a database with which to calibrate decision trees and/or neural networks that can be used to accelerate the valuation process for subsequent properties.

Alan

Again, assuming the developers or banks identity could be hidden while showing sufficent details of the asset, this could help identify suprising values.

+1 to all efforts to validate the valuations.

It could also be very useful on identifying outliers on valuations that have been agreed or ideally even those proposed…

Outliers, i.e. valuations that are too low or too high to be explained by the myriad factors that professionals use to make their decisions….

While professional valuers may claim their methodology is complex, there is unlikely to be more than a few hundred variables that make the decision, Im sure the actual number is lower. and I suspect much much lower in a lot of cases

I have used some of these tools in the past, they are capable of handling thousands of variables. I would be more than happy to contribuite whatever expertise I have in this area for free to NAMA if it helps ensure a consistent valuation process.

I think it is clear to anyone following this debate anyway closely that when people talk about “the haircut” being applied to the assets purchased, that they mean the average haircut applied.

I would note also that people may think the valuation process is going to be a complex one involving painstaking assessment of each individual loan but I can assure you that all involved will be keeping an eye on the top line here—what’s the average haircut involved and how much new capital will the banks need after this is applied.

(if NAMA overpay for debt it would probably pay the most exposed Irish banks to simply buy all ACC’s debt, they will lose more if ACC torpedo NAMA by forcing liquidations….yet another example of blowback)

Then ACC wont need to make the same margins as everyone else just to survive…..a strong competitive advantage over the incumbents, a lower cost base and lower legacy costs. And hopefully a parent bank that has learned to keep them on a tight leash.

Offer a decent online service like Rabo, plus support for direct debits, ATM cards and they are in a pole position to become the Irish good bank.

That would be the best case scenario for the Irish consumer. Who cares if there are a load of zombie banks provided there isn’t a cartel of them.

If the NAMA are smart they will seek to adopt existing Machine Learning approaches in order to develop a scalable pricing mechanism, given the limited valuation resources. My view that a prediction market would enhance the accuracy, speed and transparency of this methodology is certainly reinforced by the draft legislation recently published.
A paper to be presented in UCD at AICS’09 in late August outlines this suggested approach. See http://www.4c.ucc.ie/~aholland/goto.php?w=publications/holland09predMkt.pdf for more details.

Alan

You may find a white knight will appear to buy off ACC. presumably that’s what ACC wants.

There is a LEVY alright and it is on the tax payer backs. I would love to gamble with other peoples money too! What about GA gamblers anonymous has he tried that! He is so optimistic that he must have attended a Tony Quinn indoctrination seminar!

What I’m asking is how these suggestions might be applied to Sections 1-187 of the proposed Bill as amendments to the current text, and any new additions particuarly in the areas of transparency, oversight and valuation.

Mr. Justice Kelly is correct in being sceptical.

Who will fund these half completed projects and new ones to begin projects on expensive sites?

Accountants were good at producing statements of affairs to support loan applications during the boom.

The judge correctly didn’t buy blue-sky scenarios when the market is “as flat as a pancake.”

It just illustrates that the official attitude of expecting a new dawn around every corner, could be the road to ruin.

As Eamonn Dunphy would say “RYan is a spoofer. He does not have the pace to beat a top class international defence.

What Ryan says is unimportant. It is the delphic utterances of Lenny the Lion that we must listen to

At the Greens talk on NAMA which you were at Eamon Ryan mentioned (for not the first time that I’ve heard publicly) that the government will not shy from increasing its equity shareholding to whatever necessary. So while you’re right it saying the government do not intend nationalisation as an outcome, I don’t think its so clear they’ve ruled it out when push comes to shove.