Comments on: Property Loans: Development, Investment and Rolled-Up Interest

By: Carrigaline

Carrigaline — Fri, 07 Aug 2009 15:04:45 +0000

“And for those of a paranoid disposition consider this : theres nothing to stop , it appears, loans being reclassified or allowed roll up to get over the 5m “its a NAMA” threshold.”

Indeed, it may even precipitate the bad debt situation further. It’s akin to throwing good money after bad, with the guarantee that you’ll get it back.

By: Brian Lucey

Brian Lucey — Wed, 05 Aug 2009 19:17:51 +0000

And for those of a paranoid disposition consider this : theres nothing to stop , it appears, loans being reclassified or allowed roll up to get over the 5m “its a NAMA” threshold.

By: podubhlain

podubhlain — Wed, 05 Aug 2009 18:35:55 +0000

It seems that a lacuna in the proposed NAMA legislation is identified in relation to the rolled up interest element of the toxic loans set to be acquired by the State. As the reports of the Zoe Court applications show, the banks have agreed to roll up interest and forebear for a period of three years. Thus, NAMA is saddled with this and possibly many more forbearance agreements of this type. If the Zoe loans are taken over by NAMA then Zoe management remain in the driving seat. With a high probability that our genius bankers entered into many more such agreements running NAMA is likely to be a nightmare of the type alluded to by Dr. Somers in his evidence to PAC. It is only the actions of ACC that have illuminated this dubious banking practice. Mr Justice Kelly aptly quoted the saying - if you owe the bank etc. He also

By: Rolled up interest reduces size of discount, banks get more for duds - Politics.ie

Wed, 05 Aug 2009 15:57:30 +0000

[...] has to be added on top of the bad loan, and then the discount is made, for what the gov will pay, The Irish Economy Blog Archive Property Loans: Development, Investment and Rolled-Up Interest __________________ [...]

By: Pat Donnelly

Pat Donnelly — Wed, 05 Aug 2009 13:33:38 +0000

NaMa is not a foregone conclusion. The legislation may be amended or not passed, particularly as the political consequences become more apparent.

Liquidate all these loans and if the banks fall also then use the examinership process. We cannot afford to encourage speculation with the proviso that those involved will be rescued later.

Remember Easter Island!

By: Ahura Mazda

Ahura Mazda — Wed, 05 Aug 2009 13:30:04 +0000

I think anglo and inbs latest accounts provide detail of the proportion of interest income that is rolled-up. I think it was a third for anglo.

I thought I read a comment that nama expected 50% of assets would contribute towards the coupon. So perhaps it could be read as 50% roll-up.

With this type of product, you need to check the property purchase price against the valuation. There is a temptation to ensure the the loan’s ltv never goes above a conservative threshold

By: LorcanRK

LorcanRK — Wed, 05 Aug 2009 13:10:34 +0000

@Brian Lucey, perhaps a fact reflected in AIB €2.37bn provisions this morning.

http://www.rns-pdf.londonstockexchange.com/rns/8370W_-2009-8-4.pdf

By: xman

xman — Wed, 05 Aug 2009 13:05:34 +0000

Good points there Karl.

Here’s a canny chap who paid €171 million four years ago for a car park.

http://www.independent.ie/national-news/it-cost-8364171m-four-years-ago-now-its-a-car-park-1850020.html

By the power of compound rolled up interest that car park may be worth as much as €208 million today @5%pa.

Cha-ching !!

By: Brian Lucey

Brian Lucey — Wed, 05 Aug 2009 12:42:54 +0000

Problem is that if we ignore the potential hundreds of millions of rolleupes then the banks are at the loss of these too.

By: Gregory Connor

Gregory Connor — Wed, 05 Aug 2009 12:37:06 +0000

@Karl: Incisive analysis. The rolled-up interest problem and its effect on book value and haircut calculations (relative to collateral price falls) is important. Thanks for the reference to the Gurdgiev blog entry. The NAMA haircut should be calculated against book value without accrued interest. Potentially offsetting this effect, have some of the loans already seen a full or partial write-off? This would create an effect in the other direction, with current book value of the loan book falling below the sum of initial initial loan amounts.

It seems we should all be rooting for ACC Bank against Carroll and the domestic bank cabal, in order to get some clarity on Irish bank loan exposures and help give the taxpayers a better deal in the eventual (now inevitable) NAMA purchase.

By: bill hobbs

bill hobbs — Wed, 05 Aug 2009 12:24:31 +0000

Consider the Carroll case: the banks buy out creditors, agree to fund build completion and forebear on repayments for years- until the market price improves allowing for a sell down of property assets to repay loans - or restructure once again. Will NAMA be bound by similar agreements reached as it takes over loans? Is it not the case that NAMA will be bound by developer/banker restructured loan agreements? And could it not act as a clearing house for similar work out arrangements - just who are the people/entities who will subsequently buy its repossessed property assets and who will be funding them?

By: southofdub

southofdub — Wed, 05 Aug 2009 05:11:41 +0000

This is probably the Irish bank’s version of the “Option ARM”

The rest of the option ARMs remain on lenders’ books, where for now they’re generating huge phantom profits for some lenders. That’s because, according to generally accepted accounting principles, or GAAP, banks can count as revenue the highest amount of an option ARM payment — the so-called fully amortized amount — even when borrowers make only the minimum payment. In other words, banks can claim future revenue now, inflating earnings per share.

http://www.businessweek.com/magazine/content/06_37/b4000001.htm