More views on NAMA

In today’s Sunday Independent, Brendan Keenan writes about the potential payoff from NAMA’s long-term investment horizon (you can read it here), while Jane Suiter writes about the internal tensions among the various policy entities involved in setting up NAMA (you can read it here).

16 replies on “More views on NAMA”

“The Government ……. want the taxpayer to pay €63bn for something that may be worth about €23bn if it were to go on the market today. That is a difficult sales job.” Jane Suiter

Difficult sales job. You bet.

Even if you could get 50% more on these distressed loans (ie €34.5bn) the taxpayer would still be down €28.5bn.

Factor in the time it will take for these loans to improve the cost to the taxpayers (in increased taxes) and the citizens (in reduced public services) the overall cost of NAMA could be much higher than the €30bn that is regularly cited as the likely cost of Nama to the public.

I not in more than one article in today’s papers the figure of 60-63billion has been mentioned as the price to be paid for the 90billion portfolio. If this turns out to be true, it is a significantly bigger haircut that the 15-20% mooted by some Dublin stockbrokers. It is still far short of the 50% figure used by Dan Boyle in some public utterances.

Has the government been forced by the EU or indeed by public pressure to more from a totally unrealistic valuation level to a plain unrealistic level?

If they’re trying to reassure investors, the last paragraph in Jane Suiter’s article won’t do much to do that. If there is a danger over the next 12 months that the government on a friday afternoon could nationalise one of the banks it will be a serious drag on the shares.

Basically there are better places to put your money and have the prospect of a decent return than a share that overnight could be worth zero.

PS I do have some BOI shares but I view them in the same way as Elan! Actually Elan might be less risky.

The single most awful piece of puff NAMA economics is today penned by Alan Ahearne in the SBP. The tactics of the Dark Side are becoming clear: first, set up a straw man. Argue that NAMAs opponents are setting up a choice between NAMA as proposed and financial anarchy. Second, selectively cite any external (non-Irish) source of support. Egregiously selective is the assertion that the IMF supports NAMA. It does, but only in the context of nationalisation. Which is also the Whelan critique: NAMA is necessary and can work. But giving a freebie to shareholders is not the way to do it. Nobody is arguing that we should not take the bad assets off the bank in an orderly way. Nobody suggests that the taxpayer is not going to have to pay up. But the taxpayer must be able to share in the upside.
Investors always look for the idiot in the room. CIBC has found him.

I did not read the article but if your analysis is correct it is disturbing that an eminent economist would pen such drivel. Anarchy should be the concern if the proposed wealth transfer to banks of 30-40 thousand million takes place whilst simultanously cutting social welfare and implementing tax increases for everyone. If I remember correctly the IMF put the cost of the bailout at 35Billion.
I listened to Dan Boyle on the Rachael English show this morning and it appeared to me that he was saying that NAMA as proposed was not going to get Green support and that the draft legislation needed safeguards. He seemed in favour of NAMA 2 as proposed by Prof, Holohan.
As regards Brenden Keenan’s article, it appears to be about the philisophy of Property bubbles. But comparing London, Stockholm and Paris with Dublin seems a tad unreal.
The last sentence in Jane Suiter’s article “However, a spokesman for the Minister for Finance insists that the Government is determined to avoid nationalisation at all costs” should raise serious concerns amongst the Greens and indeed all taxpayers. It looks like the banks have taken over the DoF.

Stephen Collins on the IT website writes that the Nama legislation will have to be amended to reduce the risk to the taxpayer. Much more accurate report of the interview than that on RTE news.

“the cost of office space initially fell by 95 per cent.

Anyone with the cash and nerve to buy at those prices would have seen a tenfold profit in just three years.”

Except NAMA’s not buying at that level, and nerve is for speculators playing with their own money. The Government doesn’t need nerve – it can and should nationalise and rationalise – and must do so to protect its own interest in its guaranteeing of depositors.

NAMA version 1.0 was a freebie to shareholders with a small haircut on the pool of assets to be transferred, resulting in a limited need for re-cap. This had Dublin stockbrokers salivating at the prospect of inserting snouts trotters & tail into the trough. However this week it looks like NAMA V1.0 is struggling to remain alive.

We are now looking at a writedown in excess of 30% on average between on the pool of assets to be transferred. Why might this be so? I think there are a number of reasons for this including
*the possibility that 30% is the minimum the European commission will wear under state aid rules.
*the possibility that there is a serious division in the Cabinet on a slight haircut-some Ministers may now realise that Version 1.0 could bring down the government or at least the leadership
*the possibility that the Greens could walk.
Next week will be interesting. If the haircut has budged from 15% to 30%, there is no knowing how much further it goes. FF are nothing if pragmatic-they are not going to go into opposition for a bunch of bankers.

NAMA 2.0 is, of course, ready as an off-the-shelf proposal as put forward by Honahan. Pragmatically, if the NAMA critics – who seem to dominate this blog – sincerely want the government to do the right thing, we might best occupy ourselves with figuring out how they might do this without looking like they have changed their minds (again).
The trouble with cute hoor politics is that a position once adopted must be defended at all costs – fight the good fight in Lenihan’s immortal words – even if they can’t remember why they dug that particular ditch. Rear echelon generals do, ultimately, shift position but only when their own safety is threatened. And that moment, as you suggest, seems to have arrived. One assumes that the bodies left behind in the trenches will include the pet economists only recently adopted by FF.

Surprisingly, Brendan Keenan seems not to have taken into account the time value of money in his analysis. If I buy a property today for 70 million euros, and sell it in 10 years for 77 million euros, an untrained observer might admire my investing acumen. ‘Irish Economy’ readers, however, will see that I will have had to pay interest over those ten years. The result of this is that I will in fact have made a loss of around 40 million euros (@5 percent interest).

I think Honohan’s idea of making the banks take an equity stake in NAMA to align their interests with those of the taxpayer. At the same time, the State should take a majority stake in the banks to hedge against overpayment. Laying off some of the bet to an outsider could then be considered.

However, linking the pensions of senior civil servants in the DOF to the performance of NAMA might increase the rigour applied to setting the price at which the assets travel.

@ Antoin

in fairness, shouldn’t you also be taking into account any rental income over the 10 years as well, at least in the case of fully constructed projects?

Eoin: It’s mainly development land that is the problem, rather than fully constructed developments In general, development land attracts very little rent, because it is undeveloped. It’s economic value is potential, rather than real.

@ Antoin

well in terms of NAMA, the supposed split will be equal 33/33/33 between developed assets, development assets, and landbanks, so there will be completely different ways of valuing and managing each asset. One will throw off cash (hopefully) from day one, one will actually require a cash injection to get it to full potential, and the landbanks will probably be parked for the next 5-10 years with little or no income, but hopefully a rise in capital value. All im saying is that while Brendan Keenan’s examples didn’t take into account time value of money, your retort didn’t take into account rental income either, thats all.

I strongly feel that whatever NAMA type scheme is adopted that it is imperiative that the taxpayer does not have to pay for the bailout of the banks and the developers. This can be achieved by building in a clause whereby if say NAMA pays say 60 billion for assets which eventually yield only 45 billion that the banks will have to repay the 15 billion shortfall plus interest over the longterm. Banks will no doubt be very profitable over the long term so they will eventually have the resources to pay for the bailout.

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