Brian Lucey has a new article on NAMA. While the article is partially a response to Alan Ahearne’s column of Saturday, I think it is useful that it also focuses on the core issue of the fairness of the proposed approach to pricing the assets to be transferred.
114 replies on “Lucey: The Immorality and Unfairness of Nama”
It’s even more unfair. Banks get their toxic assets paid for (nama) and the rest of us have to pay more for our toxic assets (property taxes).
Is there such a thing as political malpractice.
Yet again, a very good article.
Following on from the article by Karl the previous day. In language that the general public, and more importantly, our elected representatives, should find easy to understand.
It concerns me now that with two former leaders of FG having come out in favour of the Nama roadmap, that the current FG proposal will have already been ditched in the minds of the public.
When you consider the amount of press inches that have come out of the so called ivory towers, I think it could be argued that FG have not been pro active enough in using the media to explain their plan.
I am sure that as with FF, few Tds in the FG party even understand what the issues at stake are.
Lazy politics. It can never lead to a healthy economy or good government.
Brian has to commended for highlighting the Nationalistic streak that has been running through much media comment since the crisis broke.
Blame it on the foreign banks, Tesco, Thomas Cook and that dirty little Dutch bank that threatens to expose the real value of Irish property.
A great advert for attracting inward investment.
I do not think the 46ers could have done much more.
Thanks to the bloggers here for very useful feedback and comment on Alan’s Saturday piece, some of which I gleefully used. Thanks also to those who commented on original drafts esp Karl and Constantin.
Now let the ad hominum comments begin…..
Presumably you will be on the radio today with this.
Dont take prisoners..
Your have to be right andwin the debate too!
Another excellent piece.
One argument I think needs to be highlighted though is the extent to which Nama allows the current management structures of Irish banks to remain intact.
From a business best practice point-of-view it is a very bad thing to allow those who have run a business into the ground to remain at the helm.
At the very least, incompetent managers should be sacked and replaced. Otherwise, what incentive do they have to do any better once the clean banks are operating again?
Dunno. I suspect PK wont be calling…..I dont take prisoners, the geneva convention doesnt apply! All they will get from me is name rank and PPS number….I am on Vincent Browne wednesday.
Yes – as you may know i have for months been urging wholescale cleanout of the banks. But we have had at best modest cosmetic changes.
I think when we look back at this event in whatever form of bondage we end up in, we wont be looking at the banks thinking incompetence.
Wouldnt it be interested if international warrants were served against a few?
Well said – your reference back to this site is interesting. Do you think that the way in which information is disseminated so quickly, arguments dissected, good points made = technological progress? Or is it just a huge noise/signal problem?
By the way, I think its ad hominem. 🙂
Banks, like other corporations are accountable to their shareholders.
We the taxpayer, via the Government, now have a big say. It is up to every citizen in the country to pressurise our elected representatives in demanding change in our banks.
Unfortunately, most of us cannot be bothered. We have never bothered to seek competant management of Aer Lingus even though we have a 25% stake.
We like to have a good moan, then get back to watching reality TV shows.
Mea Culpa! Poor ole brother ryan would have the leather out for that
There is far more signal here than most sites. Thats its beauty and its usefulness. Its also interesting that this is an emergent property. Best not investigate too close as it may vanish.
On the article – its interesting when I read AA’s piece that we have now had three or four reasons why we cant nationalise. Whatever happened to the “we cant get liquidity” argument?
In his article on Saturday, Prof Alan Ahearne used a working example to illustrate the economics of the price NAMA pays for bank debt. His illustration was based on “a 50 per cent fall in prices from peak.”
But commercial property price falls have already exceeded this amount. Read this extract from a research note by NCB Stockbrokers dated 17.02.09:
“CBRE’s Q4 Dublin Office Market View paints a grim picture of the market. Although there were no new prime office transactions reported in Q4 2008, CBRE believes that yields on prime office moved out by 375bps in 2008 (and by 200bps in Q4). With rents down circa 7% in the year this implies that prime office prices declined by 50% – 60% in 2008. CBRE believes the yield shift in retail was even more stark increasing from 250bps to 650bps over the course of 2008 (with a 200bps change in Q4) which implies that prices have fallen by at least 62% … With retail commercial property prices down by at least 62%, we believe peak to trough declines could well match the circa 85% declines experienced in Japan after its property bubble burst in the early 1990’s.”
A number of points arise from this:
1. already in February, commercial propoerty prices had fallen by at least 50% from peak.
2. prices today (Sept 09) are lower still.
3. eventual price falls of the order of 70-85% would completely transform the economics of NAMA from those set out by Ahearne.
4. % price falls on development land will considerably exceed those on commercial and retail property.
5. Ahearne is playing a central role in designing the largest single investment ever undertaken by the State but seems unaware of detailed price movements in the relevant market. One assumes that the same applies to the other policy-makers involved.
Ahearne’s example supposed that €60b was paid by NAMA for loans which were secured on properties were worth €120b at the peak. If the maximum peak to trough fall in commercial property was 50% then that transaction would generate a breakeven for the State (and deliver considerable benefits in reliquifying our banks and stimulating our economy).
But if the peak to trough drop in commercial property prices equalled 70%, a loss for the State of €24b would be generated (equivalent to €12k for every person employed). And if the peak to trough drop in commercial property prices equalled 85%, a loss for the State of €42b would be generated (equivalent to €21k for every person employed). These possible outcomes are surely far more likely than the result suggested by Ahearne.
Everyone knows that taxpayers will have to take a hit here. The question is, why should they take a hit bigger than is required? And an even bigger puzzle is: how on earth will the politicians be able to sell expenditures cuts and tax increases to the public this winter, on the basis that there is no more money in the coffers, while at the same time handing billions in taxpayer money over to private investors? I just don’t get the politics of this.
As you have already pointed out, it is all about muddying the waters. Keep repeating the mantra and eventually even your own party will believe it.
Dare I call it TOSIT as proposed by a bunch of……..
Cormac Lucey Says:
September 7th, 2009 at 8:42 am
Good point Brian. On the issue of shifting sands as regards the “real reason” not to nationalise, I’d note McManus’s article in the IT today.
He expresses the downsides of NAMA well. He then characterises the matter as the downside (bad news for the taxpayer) versus the upside being that NAMA is the best way to go “for the State’s credit rating and the related cost of borrowing.”
However, this is not an argument that I have often heard from the government. Nor do I think it makes much sense. If NAMA is bad for the taxpayer (i.e. it increases the fiscal pressure on the Irish govenment) then how can it be good for sovereign default risk?
McManus is a good journalist. Unfortunately, journalists are hard-wired to believe the best way to present issues is in a “balanced” manner. If that means imagining up a case for NAMA, then so be it.
In relation to TOSIT (or its mutant twin TOGIT) Gene Kerrigan summed this phenomenon up well in his piece yesterday:
I put together a kind of rebuttal checklist, with what I think are the ten most common pro-Nama arguments here:
Keep up the good work Brian, Karl et al.
The emperor has no clothes but Brian Lenihan, Alan Aherne, Eamon Ryan and the usual suspects keep on trying to cover up the unfairness and immorality of NAMA.
I am not an economist and cannot make a meaningful contribution to the ongoing debate. However, I am a Payroll System programmer with significant input into several large payroll systems in the state.
Last December, I applied system changes to facilitate the Income Levy deduction to several payroll systems and itemised it accordingly on the payslips. At the time, I whinged that creating a new ‘tax’ in this fashion created an excessive amount of programming work but in hindsight, it provided a transparent modification to employee’s take home pay that was readily understandable to the masses.
In the case of NAMA (or its alternatives), I believe that the tax should also be itemised via the payroll calculations and made available on all payslips. In this way, we, the shareholders of the new entity have clear visibility of our contributions and it facilitates easy calculations at individual, company, region and state level.
P.S. In case you are cynical and think that this is a ply to create work for my profession, I will point out that (a) the programming would be easier this time ’round as it could be modelled on the existing levy; and (b) most payroll systems are supported by large software companies who provide the legal amendments free of charge to the end customers; and (c) the budget is going to create payroll changes regardless of my suggestion.
Delighted that someone is questioning the 25% deposit figure for developers. Are we really to believe that in this era where traditional banking rules have been thrown out the window that a deposit figure of 25-30% was maintained ?
The other assumption that worries me is this argument that property prices will rise back to near-peak levels and therefore we can ignore current market values.
This ignores the whole basis of markets and the valuing of assets. Is property really a risk-free asset that can only increase in value ?
If you had 60bn to invest whats the last place you would put it ???
Apart from the sheer immorality and unfairness of Nama, we are in serious danger of creating a precedent here.
As in the U.S. we are binding ourselves into the too big too fail theory.
Perhaps now is the time for some cross-campus policy initiatives to start making the dangers of this economic blackmail better known in Ireland.
The debate is already raging in the states. Too big to fail or Too big has failed.
We need to look beyond the end of our nose and see what is coming down the line.
There is already media speculation of a forced merger of the smaller financial institutions here to create a third banking force.
In ten years years time, will they all be considered too big to fail? We will be back at square one.
The difficulty is everyone is making assumptions on both sides. The main ones are:
1. Property has bottomed
2. Property values will recover in a 10 yr time frame
3. LTVs were 75%
Any one of these if incorrect throw Nama as currently proposed out the window.
No one knows who is right.
We need safeguards and that means not paying upfront based on all of the above being correct. No sane person would.
Keep fighting guys. You never know something may be seeping through though they’ll never admit it.
“The other assumption that worries me is this argument that property prices will rise back to near-peak levels and therefore we can ignore current market values.”
I agree with you and there are some terrific logic leaps being made around current prices:
– we have already reached the trough (has anyone ever successfully predicted the end of a housing/property bust? has the trough ever been reached when inflation was rising?).
– rents will remain stable (aren’t they falling at the moment? – see Cormac Lucey’s post above)
– existing performing loans can withstand the stress of interest rate rises (as BL covered in his piece).
Taken separately, none is more than assertion or assumption. Taken together they are wishful thinking on a grand scale.
“You never know something may be seeping through though they’ll never admit it.”
Guess we will have to wait for 2039 and the release of the cabinet papers to see what difference we did make! Assuming NAMA is over by then….
@ Frank Quinn
There is also the question of whether a return to property price increases is in our long term interest.
It has been the greatest example of gobshite cannibal capitalism in the states history: completely unsustainable and self sacraficial.
@ Brian L. feel free to use that: ‘gobshite cannibal capitalism’!
I have just read a BBC report that at a meeting of the Bank for International Settlements (BIS), which consists of the world’s central banks, there has been a pledge to increase bank’s capital requirements.
Held yesterday, it might just mark the beginning of a return to financial sanity.
Kathleen Barrington had an interesting article in yesterday’s SBP, highlighting some other problems with the NAMA proposal:
great post – did’nt the IMF put the cost of this debacle at 35billion
which seems to fit with your numbers.
@ Karl Whelan: “Unfortunately, journalists are hard-wired to believe the best way to present issues is in a “balanced” manner. If that means imagining up a case for NAMA, then so be it.”
There is another difficulty: the desire to present a story, complete with beginning, middle and end: situation, problem, solution. Powerful folk — whether in politics or in business — employ fabulists to create stories, which can then be served up, nicely garnished, to journalists. And reproducing those stories, with a quote or two from a known critic or opponent to provide “balance”, is far easier than thinking things out.
I don’t direct this comment at John McManus but it has struck me that certain other media folk, especially RTE radio presenters, will always go for the commonsensical story (created by the powerful) and just hate being forced to think about their beliefs.
Excellent article Brian. On the point that NAMA will pay for itself I think it is worth highlighting the pressure that must be on rental income in the NAMA “portfolio” as landlords are forced to cut rents to keep tenants. Will this be factored into the governments calculations.
NAMA will also create a conflict of interest. Lower rents are in the interest of the economy as they reduce the cost of doing business and increase our competitiveness. Higher rents are in NAMA’s interest to increase income from the “assets”. No amount of transparency can square that circle.
@Brian J Goggin
Totally agree. Lazy politicians allied to lazy journalists equals botched policy decisions
“Values for some properties might reasonably be expected to experience some uplift when the current extremely high cost of financing purchases of property eases.” A Aherne
How can this reasoning hold?
If NAMA can be pushed thru before the ECB starts raising interest rates…
this is the most puzzling statement by AA. Decoded, to me it sounds like this (but I hope im wrong)
“the banks are making life fierce hard for people trying to purchase property, we need to get them to back off, its costing a bomb”
“With no track record, yielding a coupon rate well below that of State bonds, these bonds will almost certainly trade at well below face value. I assume the Nama bonds will be issued with a maturity which approximates assets of 10-year duration or longer. The assumption that the bond markets will swallow whatever amounts of Nama bonds are issued is untested and unbacked by anything other than hope or assertion”.
Could some of the trader posters give an opinion on this aspect. The AA strategy of trading these on international markets seems doomed to fail. Who in their right mind would accept 1.5% instead of 4.8% on a ten year sovereign bond given the risk of default is the same.
On the property valuation front Mark Keenan had an interesting article in the Sunday Times which compares the past utterances of Prof. Kelly and the other witness in the Zoe case, K.McDonald.
If one talks about “fairness” then one must be fair to all parties.
I think we need to think more carefully about shareholders and senior debt holders.
1. Being fair to shareholders
I, as a purely hypothetical shareholder, may have bought and held on to shares in an Irish bank because I have confidence in the institution, in its management practices, in its recruitment policies, in its IT infrastructure and forward planning, in its pension arrangements and in its tradition. I have invested in a company and an enterprise rather than investing in inanimate assets. I may see now that the bank is in a precarious position but I still back it because I believe that it will come good.
Now I am entitled to persist with my investment if I wish. The State’s right to seize my assets at market value without my consent is limited. The State’s right to seize my assets and then later to try to pay me less than market value is probably non-existent. That is the way it should be. I am a free Irish person who is entitled to spend my money as I see fit and to hold private property.
Furthermore, the bank has no right to sell its assets in a way that does not maximise their value. If the bank can survive and get more out of the loans than market value then the bank has a duty to me to maximise their return. I have invested in a company that is currently able to access funding and to meet its debts as they fall due. I may have thrown a few eggs at people I felt had betrayed me but I have decided to stick with the rest of them.
Who is to tell me that the state has a right to force me or to force the Bank to hand over assets at current market value in order to get the real economy going? Let the Govt and State worry about the real economy and I, the shareholder, and the bankers will worry about the bank and the shares.
If the Govt wants to lend to SMEs then let it fund that itself and let it lend itself. I am nobody’s slave.
But, the Govt tells me, that the bank cannot trade out of this. “Prove it”, I say, “Prove to me that the assets the bank has will not keep it afloat.” It is my view, as a hypothetical shareholder, that if the State nationalises the bank and then values the bank assets they’ll surely tell lies about the long term value (i.e. the value that I as a shareholder have invested in).
The only proof will be how surviving loans actually perform over the coming years. I will keep an eye on this and they will have pay me the true value as measure over a period of years. How will they refloat it with that contingent liability hanging out there? Well the State will just have to indemnify the new owners and pay me for my losses.
But the Govt insists that the bank must be brought back to a position of being able to lend for the real economy to function. That’s the State’s problem.
They say the banks caused the problem. I tell them that I’ve paid for that; I lost 90% of my investment. I don’t owe anyone anything.
They say we the shareholders failed to exercise oversight. I say my only duty as a shareholder is to myself and if the Govt wanted banks to function more prudently they should have regulated properly.
The Govt say the only reason the shares are worth anything is because of the guarantee and NAMA. I tell them the bank is paying for the guarantee and its books show it is solvent.
They say nobody trusts the books and the fact of the matter is that (a) the bank may be bust in which case my shares will be wiped out down the line and (b) if the bank isn’t bust it will experience funding difficulties because nobody else trusts its balance sheet. I say the bank has done stress tests and so forth. I also say that the Govt could have injected ordinary equity before but didn’t.
The Govt sticks to its guns and says it will have orderly wind-up legislation in place soon and any institution that is not playing ball with the Govt will become a pariah bank. I eventually say that I don’t believe the bank is bust but I am willing to sign up to a process to find out sooner rather than later. I say that I will agree to this provided I and the bank are not forced to accept fire sale prices but instead should get the real value of the loans as if the bank held on to them itself. Isn’t that fair?
2. Senior Debt
We are supporting senior debt for the purpose of supporting our banking system and international integration. The last great crash eventually brought us to WWII. Are we now going to turn turk on foreign depositors (or equivalent) and insurance and pension companies who bought senior debt? What happens if everybody starts defaulting? What are the international political ramifications likely to be?
But then again, can we afford not to do default on these guys? We are being more than fair to these guys. They put their money with heavily exposed institutions and it was up to them to spread and mitigate their risk. The Irish taxpayer is now guaranteeing their money with our own money to ensure that they keep lending to and depositing with our institutions. Is that a fair trade?
The poor subsidise the wealthy to ensure the wealthy can fund other wealthy people to employ the poor. Shouldn’t the tax-payer be getting a bigger cut from any company funded by this guaranteed money? If that sounds too socialist then why don’t we let the lot of them drown in their own debt?
Congrats to anyone who got to the end of this!
“the State’s right to seize my assets at market value without my consent is limited.”
And who here is suggesting that? I, not so hypothetically, have shares in Anglo. They are now worth zero. The state should pay me that – zero – but probably wont and will overpay whenever the assessor gets around to it. Share prices are a reflection of the markets expectations of discounted future value of the corporate earnings. If they are zero then the share prices should be zero. You are putting up a legalistic straw man here.
“I say my only duty as a shareholder is to myself” Indeed. And did you ever go to an AGM and protest that the policies being pursued were against that self interest? . I didn’t.
As a shareholder, you also have responsabilities. Will you take your board to task for being hopelessly over exposed to property speculation? Or like most shareholders, blindly trust that the Captain that steered the boat onto the rocks in the first place is the best man to get you back off.
the central flaw in your argument-“I have invested in a company that is currently able to access funding and to meet its debts as they fall due”.
Not without a State Guarantee. Also the little matter of 3.5billion each belonging to taxpayers. Let them access capital on the international markets and forget NAMA.
Zhou, you are absolutely right about the shareholder rights. But did you as a bank shareholder do any due diligence? Did you ask the bank management what they were doing investing your money in property bubbles, giving half a billion each to a bunch of their cronies, massive bonuses to executives and engaging in all sorts of accounting fraud and tax evasion.
The fact is that corporate governance in Ireland is more or less non-exitent and anyone buying shares in banks should know that banks engage in wholesale lying and deceit. If you insist on your rights as a shareholder, the taxpayer i.e., me, who is funding your largesse should insist on proper accounting by international standards and not the handwavy crony capitalist rubbish that goes on in Irish banks.
If you assert your right as a bank shareholder to not give away your precious stake in the bank, I assert my right as a taxpayer to not recapitalize your bank and let it sink. Before the government put any of my money in your bank and promised to do more through NAMA your shares were worth a dozen pennies each and still going down. And according to Minister Lenihan this meant that the banks were close to insolvency.
Regarding senior debt, it is not I the taxpayer who is going to “turn turk” but your bank. And I want you and your bank to stew in your own juices. Why should I the taxpayer bail you out?
PS: Firesale prices is rubbish. According to your own minister’s adviser, Dr. Ahearne, the average house price in Ireland will be 42k in 2022. Rejoice!
here’s the part i don’t get: how are the non-senior debtholders supposed to actually take a ‘hit’, other than via either a debt-for-equity swap (which would be categorised as a default under the govt g’tee) or via a liquidation process which would require the actual winding up and closing down of a particular bank? What is the actual viable (if the above is not in my view) tool or process to make these bondholders take a hit, other than via the tender-buy-backs that we have seen and that have been much critcised by the anti-NAMA side of the debate?
September 7th, 2009 at 10:45 am
I read it from start to finish.
No I need to go for a lie down.
I did not mean to be legalistic. I was trying to highlight the issues of fairness. I mentioned the State’s rights because they are supposed to be limited by fairness and the citzen’s freedom.
I note what you say about share values. I don’t know how it impacts on what I was saying when talking about a putative shareholder in what he onsiders to be a solvent bank who wants to hold on to his shares.
I am not a shareholder. Shareholders failed in their duty to themselves to a degree aided by a coterie of financial advisers who did not know enough about finance. That was a regulatory problem to a degree. I think it would be good if pension advisers and other financial advisers had to charge a fee and were not paid by pension companies. This is being introduced in the UK. In any event, shareholders have paid a large price for their failure through the deterioration of share-values.
The Greens seem to be focussed on finding a way to remain in power. Minister Lenihans draft legislation presumably had cabinet approval. In which case Green Minister’s approved of LTEV, post-due dilgence valuation adjustments and silence on any risk sharing element. And they did so without it seems any consideration to the future marketplace impact of NAMA’s influence. Still demi-converts are better than none.
Ryan’s implicit defence of Government policy accepts that overpayment will occur – the pay now recover later “levy” strategy to limit LTEV risks and believes the “rents” from loans will pay the interest cost of carrying bad loans (interesting use of the word “rents”). This assumption is deeply flawed based on the nonsense of 75% peak LTV finance and good loan contribution without any apparent consideration of future loss experience or good book duratiion.
The maximum point of debt leverage occurred in 2007 where most “equity” was leveraged off net equity in ever rising property values and mezzanine finance.
LTEV remains perverse as it creates a system of forebearance through which those who agreed to fall first – private equity participants in property deals – will buy time to recover their losses. Minister Ryan doesn’t seem to realise that legal ownership of most underlying property will not vest in NAMA but remain with borrowers who can hope to forestall legal recovery and in part recover losses and in some cases profit in the future. Private equity and leveraged equity losses that should be crystalised today will be buried within NAMA’s forebearance LTEV model.
He should consider the Bloxham report and its justification of low haircut and preservation of privatised banking. It’s report uses both the Mulcahy doctrine (88% bounce after seven years) and Finnish experience to argue for its position whilst stating its assessment of loan write off’s and thus likely haircut is based on bankers declared write offs and current guidance. (bloxhams have no access to the banks loan books).
He should also consider Bloxham’s attempt to sythesise a nama’ed banking system and consequential requirement for banks to improve margins – increase price for credit and services and the credit starvation consequence of shrinking balance sheets. Bloxham are quite clear, banks wil have to improve margins if they are to attract pricate investment. They also write of foreign bank cryonic suspension/withdrawal(accbank) arguin for a “third force”. Great on paper but an implausible proposition that proposes combining three or four turkeys to creates a banking swan. None of which have any great competence in providing working capital or long term finance to the sme or mid-sized business sectors.
How would a debt-to-equity swap organised between the banks and the bondholders be a default?
If it is flagged that the guarantee is not going to be extended, then the value of the bonds is going to once again fall to distressed levels. As such, there will be a calculation to make on the bondholder’s part whether it is more advantageous to them to swap or partially swap for equity or hold out for a liquidation settlement.
The question then becomes what are bondholders likely to do? And given this choice does it reflect badly on the state that it is no longer propping up the banks?
Most of the captains are gone. The policy failures seem to have flowed down from the top. In any event, I think that banks are likely to over-price rather than under-price risk in the future. I may not trust them all but I may not blame them all either. I have too little faith in human omniscience to hold them all responsible. I may still think the bank with its full set of employees and systems represents a good investment.
Why is a d-for-e swap a default?
Its not what the shareholder thinks – its what the market thinks. I may think that my house is worth 500k; its one of three that are to be CPO’d, and similar houses sell for 200k. I cant expect to go wailing that IMHO im down 300k.
Look, if you want to bail me out a la BA, fine. Thats a private arrangement. This plan however forces you to do so.
I adressed that. The bank is paying for the guarantee. The Govt say they got a good deal and shareholders are not getting dividends. However, it is not necessarily a fully convincing rebuttal of your point.
The guarantee and the extra shares have been paid for by the banks. They were not given for free and are not supposed to be a subsidy.
The german pensioners will not distinguish between the banks, the bank shareholders and ireland if we default on senior debt. IF you are happy to go without their money in the irish economy then go ahead and default. However, what happens internationally if everybody starts doing this? Will it lead to geo-political instability?
I’m getting confused. What do you see as the relevance of the share price?
Also, what is a la BA? NAMA is voluntary afaik.
The fairest (but still imperfect) test of the value of bank shares is the market – unfettered with either promises of NAMA under/overpayment and government guarantees.
Try this for a thought experiment: remove the guarantee. Promise NAMA, but with full and fair (to all) risk sharing. Tell me why bank share prices would not immediately fall to zero?
Default – However, what happens internationally if everybody starts doing this? Will it lead to geo-political instability?
You could equally ask the same question about what is already happening globaly….Massive taxpayer bailouts of corrupt and failed Capitalism.
Instability? The Capitalists have no Capital.
Both barrels, well done.
On the subject of LTV..
In his infamous Newsnight interview, Brian Lenihan said that Ireland was not, unlike Iceland, “a glorified hedge fund”. A key index describing hedge fund riskiness is leverage. Leverage and LTV are related by
Leverage = LTV/(1-LTV)
AA’s claim that LTV = 25% corresponds to leverage = 3. That would be low even for a very conservative hedge fund. Aggressive hedge funds leverage 50 or more.
3 or 50?
I agree the guarantee has been paid for but so were the CDS’s written by Joe Cassano.
The extra shares have been paid for by the bank? I spluttered out my coffee when I heard that. Do you have even the foggiest how shares are supposed to work? The banks paid nada for any recap. Zero, zip, zilch. Dead parrot!
With tongue firmly in cheek – I was thinking of BL’s new insolvency test =share price.
Let the shareholder hold his shares. de facto nationalisation will dilute him to oblivion
The guarantee does not provide profit to banks or shareholders. It is a credit insurance mechanism to provide liquidity which Irish banks are paying the Irish taxpayer for. We can go around in circles until we are blue in the face. I have said to podubhlain that I am not happy with the legalistic rebuttal of his point.
“Try this for a thought experiment: remove the guarantee. Promise NAMA, but with full and fair (to all) risk sharing. Tell me why bank share prices would not immediately fall to zero?”
How can we try that experiment? How can we know for certain what results it would yield? How do you prove it one way or the other?
Also, why is the State taking measures to stabilise an the national economy a gift to banks? Are bank share prices of western banks not also reflective of the fact that wealthy western democracies can be relied upon to take pragmatic steps to protect their economies.
be careful with reading too much into the market price of Irish bank shares. remember, with the short selling ban they are anything but a free and fair market. you can only take a one way bet on them which arguably is one of the reasons they are artificially high (in my opinion).
Afaik the warrants are yielding a guaranteed coupon. Ordinary equity will give equity.
I think this is what they are planning. The markets are pricing in some dilution but possibly not enough. The Minister has said his announcements on 16 Sept may have an effect on the share prices of certain institutions and if so, so be it. It could well be that share prices will plummet because of what the Minister announces or because of what NAMA reveals. If so, we may get more bang for our buck, i.e., more dilution.
very good point.
can I short them in the bookies?
Sure, the guarantee provides no direct profit. But if the guarantee had not been put in place there would be no banks. The focus on direct profit benefits is mis-placed. The guarantee is an existential benefit
Let them imagine their recapitalisations then… 🙂
no you can’t short them in the bookies either
Once again many thanks for expressing the amorality of all this so clearly.
Perhaps the number-crunching will have to wait until the Minister reveals his hand. Even then I expect we will be left with a bucket load of uncertainties, implausable assumptions, acts of faith, patriotic exhortations, subtle xenophobia and ideology masquerading as “common sense”.
This is the utlimate “pig in a poke”. All the presure should be on forcing full public discloure in broad aggregates of the key features of these loans and the collateral behind them that are wide enough to meet legitimate confidentiality concerns yet granular enough to reveal important categories and variants. Damn it all, we are buying this bucket of sludge, so we should be entitled to have some idea what’s in it.
The other issue which confuses me is the absolute dread of bank bond default. I find it hard to believe that many of the original bondholder are still in the game. Those who invested on a low risk basis presumably have cashed in their hands long ago. Those who remain have an appetite for risk- and if they haven’t they shouldn’t be there. Why is there this naive belief that, if some bondholders get burned, they will all retire hurt and swear to never touch an Irish bond of any class ever again? This eems to be what’s motivating the interventions by Garret FitzGerald and Alan Dukes.
This is a genuinely competitive market and one player’s loss always opens up an opportunity for another player to gain. My guess is that international investors, insofar as Ireland appears on their radar, would be much happier if this mess were cleaned up quickly – even if it meant that some existing investors took a bath.
NAMA will simply maintain – and possibly incease – credit spreads as the NTMA is forced to enter the market to shore up the fiscal deficit and will generate significant roll-over penalties.
just looked at AIB ADRs us6.95 I suppose one could short them in Ny
I think the yanks have allowed a normal market to resume
nope, ADRs are officially covered under the short selling ban too although i have heard anectodal evidence it has taken place
looks like they have the markets firmly rigged. upwards only. better get off this issue or KW and BL might get fierce.
a new prince has the more difficult task in ruling, since he must first stabilize his new-found power in order to build an enduring political structure. That requires the prince being a public figure above reproach, whilst privately acting amorally to achieve State goals.
any compulsorary d-for-e swap would constitute a default, as would a d-for-e swap that was later deemed by the courts to be excessively coersive. As such, any swap would have to be agreed to volunatarily by the bond holders. The problem is that there is very little private owned subordinated debt still held in the Irish banks, given the recent tenders and the fact that most of it is taken up by government owned preference shares.
Therefore you’d have to attack the senior bondholders to get any real ‘hits’ taken before the taxpayer, and most people agree that this would be a fairly dangerous precedent to go down in light of the likely funding needs of the country in the coming years. There’s also a danger that some interbank lending facilities could have covenants that would trigger in the event of any debt being swapped into equity. Also note that much of the Irish senior debt is held as collateral by the ECB, so they probably wouldn’t be happy with this arrangement either.
Why not continue with the buyback tenders that have been completed recently, and now start to focus on some of the senior debt where long-dated issues are trading well below par as it is? I’ve never quite understood why capital-generating and market-friendly operations like this have come in for so much criticism on this blog.
The way it would work is this :
hi mr subbie, this is the minister
listen, would youlike to swap those bonds for shares?
Ok, well, lets pick this up again october 1 2010
oh, didnt I mention, we arent renewing the guarantee on subbies…..talk later
compulsion or enforced market reality?
if this doesn’t work what are you suggesting, that we just renounce the subordinated debt obligations of the banks? Why do this, and both set a precedent as well as a long and expensive court case lasting the next 5 years, when we could just buy back all of the sub debt of the two major banks for probably 2.5 bio in total (excluding the govt prefs). How much do you reckon it’d cost to grant them a significant equity slice vs our warrants? The sub debt isn’t significant enough to solve the problem, and there are already market options there to deal with it as is. It’s a side show detracting from the real problems.
No. We wait till they trade at thruppence post guarantee removal and buy em back then for fippence. Slight cost but not as much as 2.5b. And I think theres about 10b of it out there. Not insignificant
@Brian, zhou, podubhlain,
Derek Brawn has posted under another thread to the effect that the bonds will be issued on short (e.g. 6-month) maturities, rather than the 10ish years assumed here, and that a 1.5% coupon would fit with selling them at par. There would be a need to roll them over, and the coupon required to unload them at par would be likely to rise. He mentions 3.5% by 2012.
@zhou, might I suggest that you look at NAMA numbers under a range of different assumptions about NAMA’s cost of capital over the next ten years or more? On the basis that the market price may contain useful information, I’d go at least as high as the current yield on Irish 10-year bonds.
Yes. A red queens race with added bonds if we fund short to buy long. Now remind me why that is a good idea?
Breaking down some of what you’re saying into a series of core propositions – you ask a question:
1. [I, as a purely hypothetical shareholder, may have bought and held on to shares in an Irish bank …because I believe that it will come good….
2. ..Furthermore, the bank has no right to sell its assets in a way that does not maximise their value..
3. …Who is to tell me that the state has a right to force me or to force the Bank to hand over assets at current market value in order to get the real economy going?]
Answer: If the banks are insolvent then a receivership process / winding down process of some sort is required. That your bank shares are worth anything at all is entirely due to the prospect of the very state intervention you say is a violation of your rights.
Now I hope you don’t think that this is impolite but it has occurred to me that you are really a computer programme devised as an AI experiment designed to fool the other bloggers here. Afterall there’s that simple tautologous logic again. It’s a bit like the time Side-Show Bob got elected Mayor of Springfield on a campaign against Mayor Quimby the central plank of which was that he erred on the side of leniency in releasing Side-Show Bob from prison.
3. [“Prove to me that the assets the bank has will not keep it afloat.”]
…So you’re saying that NAMA is unnecessary, right?!!!!!! It’s like a drowning man who instead of shouting “I’m drowning – help’ shouts ‘I’m drowning – No Wait I don’t want to be rescued by YOU – OK I will allow myself to be rescued by you but first you have to prove that I’m drowning’.]
4. [ It is my view, as a hypothetical shareholder, that if the State nationalises the bank and then values the bank assets they’ll surely tell lies about the long term value (i.e. the value that I as a shareholder have invested in).]
LTV is a pipe dream – a concept with no serious economic meaning.
5. [The only proof will be how surviving loans actually perform over the coming years. I will keep an eye on this and they will have pay me the true value as measure over a period of years. How will they re-float it with that contingent liability hanging out there? Well the State will just have to indemnify the new owners and pay me for my losses.]
…they won’t have to pay you a ‘true value’. True value is an expectation based on discounted value of expected future earnings.
6. […They say the banks caused the problem. I tell them that I’ve paid for that; I lost 90% of my investment. I don’t owe anyone anything.]
You haven’t paid for it. You should lose 100%.
7 [The Govt say the only reason the shares are worth anything is because of the guarantee and NAMA. I tell them the bank is paying for the guarantee and its books show it is solvent.]
The Govt isn’t saying that – even though it’s true. It’s saying that their value is based on a ‘market’ view.
9 .[They say nobody trusts the books and the fact of the matter is that (a) the bank may be bust in which case my shares will be wiped out down the line and (b) if the bank isn’t bust it will experience funding difficulties because nobody else trusts its balance sheet. I say the bank has done stress tests and so forth.]
You’ve really got to distinguish between claims made by self-interested parties and real evidence that can be used in an argument. A man who declares he is innocent of a crime once is no more likely to be innocent or guilty than a man who declares his innocence 1,000 times. You should learn about the problems of induction. Dodgy inductive reasoning is all over your posts on this subject.
[…..I eventually say that I don’t believe the bank is bust but I am willing to sign up to a process to find out sooner rather than later. I say that I will agree to this provided I and the bank are not forced to accept fire sale prices but instead should get the real value of the loans as if the bank held on to them itself. Isn’t that fair?]
To which the Irish Taxpayer replies: ‘Why on earth would I want to go along with that?’
As I see it there are two fundamental problems.
1. The issue of overpayment and this has been extensively examined here.
2. The funding of NAMA.
If we are going to fund short (6months) to effectively lend long (7 – 10 years) then we are walking into the trap that got the banks into the mire in the first place. It is a potential time bomb. Every six months we are at the mercy of the bond markets on a rollover.
If the Germans are correct in expecting a further credit crunch then we could see a failed rollover resulting in sovereign default. Remember that the IMF (i think) have flagged the fact that European Banks have only written down 25% of their problem loans.
If, as AA has stated, NAMA will be self funding, what happens when the rollover gets to 3.5%. AA glibly says the loans will pay more. But has he factored in the likely increasing defaults on the “good” loans with rising vacancies (Office 21%) and declining rents.
The bond markets may be stable at the moment but this method of funding is fraught with avoidable danger.
first off i completely and 100% agree with dropping the g’tee on sub debt. However, i think most bondholders expect this to happen, so i don’t see massive price movements on the back of such an announcement.
Secondly, how much sub debt is there out there, and how much can we really save via this route? They never make it that easy for you to find, but this is what i can see (and please correct me if im wrong):
BoI, post the 3bio it retired via its tendering earlier this year, has just under 4bio in subordinated liabilities (im not sure how much of this is LT2, but at least some of it is, and there’s at least one 450mio issue outstanding at the moment).
AIB, post its T1 –> LT2 exchange, has virtually no T1 or UT2 capital left. It has about 3.9bn in LT2.
The LT2 reference is important, as the govt prefs rank below LT2, so for the purposes of this ‘risk hit’ evaluation, we cant include LT2 unless we want to first wipe out the govt prefs, which i assume we don’t.
So AIB and BOI have a good bit less than 4 bio (assuming the BoI LT2) in true ‘risk’ capital that can be hit without hitting the government preferences. If you got rid of the government g’tee post-2010 on sub debt (which i expect to happen), you could buy this back for probably 40-50 cents, so around 1.5-1.8bio or so.
Given that there’s always going to be a ‘cost’ to any d-for-e swap, we don’t even ‘save’ this much, so lets say that we hard ball them down to 20-25 cents equivalent, as i don’t see any reason or situation where they’d accept any less than this except under catastrophic liquidation, which would cost the economy billions in lost growth anyway. So a real hit or saving of c. 1bio or so.
The only way to make the other subordinated holders take a hit, which would still only amount to another couple of billion worked off similar maths on the AIB LT2, would require us to wipe out our own 7bio capital interests in the banks first! Talk about cutting your nose off to spite your face!
As such, although a significant amount of money, in an alleged 20bio+ hole we’re only skimming the surface in terms of solving the problem.
Hello. I’m just a regular member of the public. I’d like to ask all the experts on here, what do you think of Fine Gaels proposal?
Bout what I thought of it in May
I do find your comment impolite.
Your whole post assumes the banks are insolvent. You are not alone in your assumption. I am not comfortable with that assumption myself.
The point is valid. Why fund short when we can fund long? I think the only justification is that most commercial loans are probably variable and so the performing loans already provide a degree of hedging that makes variable more sensible.
Im not sure tho that duration of hte loans is the determining feature of funding short to gain variable rates. To me its to set a headline rate thats as low as possible to make it seem that NAMA is washing its face…
I don’t know if anyone else noticed while reading Brian’s piece on the IT website, at the top of the page were four google ads.
One read “Is Bank of Ireland a good buy?” and the other read “Government debt help (how to wipe out 60% of your debt)”.
You couldn’t make it up.
I should add that of the other two, one was for work abroad and the other (I’m quoting selectively) said: “However low they go, save even more”.
However low who go I wonder?
I’m sure you saw my comment on your piece on the website Brian.
So out of curiousity do the vast Majority of Economists / Experts on here support broadly any of the main party proposals? If not, are you at all confidant that that the debate going on here and elsewhere will have any effect on any of their proposals?
Zhou, many thanks for the response. Actually, while funding short, rather than long, concerns me, I can conceive of reasons why it may make sense. What concerns me more is that funding short may mislead us as to the cost of capital we should apply. When I do ballpark calculations as to the impact of a 5% cost of capital on NAMA’s numbers, and throw in a notional 0.5% per annum in management costs and performance incentives, I dislike the answers I get.
It struck me that this could be an angle you might want to examine.
Zhou, weather or not you believe that the banks are insolvent is not relevant. The market has already decided that they are and as aresult shareholders lose 100%, there is nothing unfair about this. If the banks were not insolvent why have the govt gaurantee and NAMA at all? I dont meen to be rude but you dont seem to have grasp of basic market fundamentals.
I am not expert in that kind of thing. An estimate of running costs on top of interest repayments would be interesting but I cannot imagine it would be 0.5% of the loans. That would be €300mn per annum.
The reason to have NAMA is not because the banks are insolvent but to force the banks to take pain now so that they will be able to access more capital and to lend more in order to facilitate the recovery of the real economy. If the banks are solvent they could possibly survive as zombies.
The reason for the Guarantee was because of out of control systemic risk which has been exposed as a plague on all our houses. It was not because the banks are insolvent but because no bank can survive a run on the bank.
In my book if your assets are worth less than your liabilities you are technically insolvent and the banks appear to be in this position. This is more than just a liquidity problem Zhou as you seem to be implying
This is a first-rate article very well argued. I am taken aback by your point that during the time period when young working couples were getting 110% mortgages we are to accept without proof that developers were using 75% borrowing 25% cash-backed equity. Perhaps we will get some more solid information on this over the course of September (ever the optimist).
See this from Mises.org…
So another question? Are any of you economists intending to run for Election? I’d vote for Karl Whelan and Colm McCarthy at least. Prob Brain Lucey too. And I know he’s not an economist. But I’d love to see Vincent Browne in Government! And not just because he’s from Limerick
“It was not because the banks are insolvent but because no bank can survive a run on the bank.”
If you cannot pay your depositors/lenders as they fall due then you are insolvent. This is the folly of borrowing short and lending long. The run,as I understand it, was on the interbank market where lenders would not roll loans. Now we are about to do the same, this time it is the State repeating the mistakes of the banks.
I believe that the ethical/moral argument against NAMA has been won.
To me NAMA is consolidation of losses and then spreading them over a longer period of time. I find it similar to the plan of those who consolidated overdrafts and credit card debts into longer but more manageable payment plans. Reduce the size of the average payment but increase the number of payments. Those who signed up for that kind of plan also signed up for a higher total cost.
A skilled investor who signed up for such a plan could of course beat the system and make a profit by using the improved cashflow but skilled and prudent investors usually doesn’t end up in situations where such plans are needed.
The big difference between NAMA and the above payment plan is also that the one signing the plan would also pay for the plan and also possibly benefit from the plan. With NAMA there are those who sign up, there are those who pay and there are those who benefit.
With NAMA it would be:
Losses are not to be recognised and paid for now but spread over time (longer payment plan), (what is the current timeframe for NAMA 10-15+ years?)
The government sign up.
The Irish taxpayer pays.
The banks benefit by not having to deal with their full losses.
Someone mentioned “smoke & mirrors”, I believe the discussion about details is the smoke screen. The losses will not disappear no matter the amount of smoke, the various risk-sharing schemes are the mirrors making it difficult to see where the losses will end up.
Ireland can deal with it like Japan with its lost decade (NAMA in its present form is expected to last longer than that though) or it can try the Swedish model and have the losses recognised now.
Nationalise/Recognise losses (doesn’t matter which comes first), then introduce NAMA. Resell the now profitable banks. Deal with the loans (btw, not impressed with how Anglo is dealing with them so far, maybe they’ll do better later).
I also wrote about the FG plan in May. I was sympathetic to what they were trying to achieve but sceptical about how they would get us through the period between introduction and September 2010.
I would like to say, however, that I have been impressed by the willingness, since they released this plan, of Fine Gael’s economics adviser Andrew McDowell and Richard Bruton to seek opinions on all side on the merits of the various options. It provides quite a contrast to the government’s bunker mentality.
Brilliant article Brian, great to see someone address the “immoral hazard” that is NAMA.
From Karl Marx, Das kapital in 1867
“owners of capital will stimulate working class to buy more and more expensive goods, houses and technology, pushing them to take more and more expensive credit, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the state will have to take the road which will eventuallly lead to communism.’
Obviously Marx’s thinking was fundamentally flawed as he never reckoned on the Fianna Fail school of economics!!
@ Dave Fitz
ah, the old Karl Marx quote gets wheeled out yet again. Shame he didn’t actually say it and its a total hoax. What ‘technology’ do you think he was referring to, steam-powered ipods?
“Tut-Tut” Eoin! Criticising Karl (Marx not Whelan) based on the content of what poor ol’ Karl did ‘not’ say – where is the logic here?
Karl has earned his place in the history of economics [have you read his chapter on Ireland, the acre, and the cash value of a pig? note that 150 yrs later the Irish citizen has no pig – ergo no cash – only dodgy inedible and uncashable bonds in Naa-Maa] notwithstanding the mess that many of his followers have make of his efforts and the fact that strucural determinism is, thankfully, no longer in vogue – plus the fact that this ‘hoax’ is a clever piece of ideology-peddling containing just sufficent of what Karl did write/mean of his time yet linking “nationalization” (from the US right I presume) in the public mind with COMMUNISM …….. and the US Democratic party …… you might also try Heidegger on Technology
….. as for Dave Fitz on the FF School of Economics – I’m speechless.
All others – keep up the work – stoke the debate ………….. wake up the public sphere …………
so the Right creates the Marx hoax….
….in order to create a popular ode on the Left that financial markets and capitalism inevitably cannibalise themselves to the point of requiring Nationalisation….
….which in reality is a subliminal message that Nationalisation = Communism = the Democratic Party?
Are you sure some Anarcho-Libertarians aren’t just having a laugh at all our expenses with this one?
I wonder if Marx were alive today whether he would advocate -> nationalise the assets behind these loans (with no payment to the developers) that are supposed to be worth 50-60 billion, ruin the developers then sell off the property and land, maybe finding some social use for some of it to reduce housing wait times, etc. – using the proceeds to recapitalise a couple of the banks/change their management (let the others go) and plug the shortfall in the tax take and take away the overhang from the property market allowing it to properly find a floor. Probably not. It would only keep the voters happy and we can’t be doing with all that.
I stand over my reading/interpretation of this hoax. That said, we all need a bit of a laugh amidst all this wailing and gnashing of empty teeth. Give me Marx’s pig any day over a cupla dodgy Naa-Maa bonds – at least I can eat him (not her) or cash him and if I had an acre I could grow cabbage and spuds. be interesting to track down the origin of that hoax though – but other things to do at the mo – got to catch that bank manager in a good mood or are pigs really flying these days (-; Enjoy and lets get back to basics. D.
@ David O Donnell
the real irony here is that we’re not even using irish pigs in our best restaurants these days, as apparently Irish pork is sub-standard compared to the foreign stuff. Before Brian and Karl accuse me of going way off topic, I wonder if this isn’t somehow related to so many of our farming fraternity selling off their farms to benefit from the property bubble?
To truly bring this delicously ironic tale round to a conclusion, isn’t it interesting that Rabobank’s (‘the farmers bank’) brief forray into this country via ACC has probably helped more farmers exit the business than anyone else.
As an external observor I guess my view (sorry about this) is that the Irish are screwed. In order to raise any amount of money outside the government, you need senior debtholders in the banks to take a hit. But the debt has been pledged as collat to the ECB. And this, presumably, has been done only with the government giving a promise to the ECB, and to other EU governments, that *it will not let the banks default* on this debt. The decision has already been taken; the government *has* to foist the losses onto the Irish people, because it has no alternative. Now maybe some heroic resistance by the Irish people may cause the government to renege on its promises, but the blowback will be severe, and almost certainly worse than the extra taxes now in the cards. Not to say that the futile, heroic resistance won’t happen; just that, even if it does, the Irish (as I’ve said) will be screwed. I hope I am wrong, but that’s how it looks to me.
Just out from Fitch. As i said, most people aren’t expecting the government g’tee to be extended out across the board, it’ll be a lot more nuanced and specific.
Also, and i keep forgetting this, the govt g’tee doesn’t cover, and never did, T1 and UT2 sub debt. It only covers LT2 and Senior bonds, which both rank higher than our govt prefs. As such, we would always have to eradicate the govt prefs before we could go near the LT2 sub debt, g’tee or no g’tee. As such, we don’t really have much to threaten the sub debt holders with, do we?
FITCH PLACES 4 IRISH BANKS’ SHORT-TERM IDRS ON WATCH NEGATIVE
Fitch Ratings-London-08 September 2009: Fitch Ratings has today
placed the Short-term Issuer Default ratings (IDRs) of Allied
Irish Banks, Bank of Ireland, EBS Building Society and Irish
Nationwide Building Society on Rating Watch Negative (RWN). All
four banks have a Short-term IDR of ‘F1+’. Fitch has
simultaneously affirmed Anglo Irish Bank Corporation’s
Short-term IDR at ‘F1+’. The five institutions’ guaranteed
securities’ Short-term ratings have been affirmed at ‘F1+’
The rating action is in anticipation of changes Fitch expects
to occur to the guarantee provided by the Republic of Ireland
(‘AA+’/’F1+’/Negative Outlook) in respect of the senior and
dated subordinated liabilities of the five above-mentioned
Irish credit institutions.
“Irish banks continue to need guaranteed funding. Fitch expects
Ireland to amend its guarantee scheme so that it conforms more
closely with those in other European Union countries, which
means it is likely to be less all-embracing,” said Matthew
Taylor, a Senior Director in Fitch’s Financial Institutions’
team. “However, an amended scheme does not imply weaker state
support for affected credit institutions.”
Fitch expects a new state guarantee scheme to be introduced
from 29 September 2010, but the agency also anticipates it will
be less comprehensive than the existing scheme. Fitch will
continue to apply Ireland’s sovereign ratings to the banks’
guaranteed securities but, at end-September 2009, or when more
detailed information is available, the agency expects to review
and most probably downgrade the Short-term IDRs of the four
institutions referenced above which have been placed on RWN.
The Irish government’s 100% ownership of Anglo Irish Bank
Corporation leads Fitch to believe that in the short-term it
should continue to benefit from the strongest capacity to repay
financial commitments, which is why the agency affirmed the
bank’s Short-term IDR.
In September 2008, Ireland guaranteed until 29 September 2010
all deposits, covered bonds, senior debt and dated subordinated
debt (lower Tier II) at financial institutions adhering to the
Credit Institutions (Financial Support) Scheme.
HeeHee! A charter for land developers! Who needs examinership when they have NaMa on their side! NaMa is responsible to the minister who issues directives, and who is going to be mighty popular in golden circles. Brown paper bags anyone?
So the nationalized bank has no problem borrowing, but the “solvent” privately owned bastions of capitalism are on their last legs? Was that what Brian Lenihan said would be the case?
You may be wrong. The government is weak and stupid. They may be capable of doing the wrong thing, all on their own! After all look at their fiscal policy since 1999. In any case, Lisbon looks like a dead duck! You are just hammering another nail!
I still believe that we have some capital left and that the idea that foreign capital will be cheaper and available is untested. We are in the worst financial depression, ever. World wide. What a waste! Yes I agree that things are grim and worse the PTB are too stupid to realize it.
The idea is spot on!
The banks can take care of themselves. This is a time of national emergency. Wait till the strikes start!
Well they’re hardly on their last legs Pat: F1+ is actually the highest rating available (the F stands for Fitch!) on the short term IDR.
On a related note, Bk of Ireland just announced a new 5yr covered bond issue this morning for between €1.5-2.0bn. Its important in that its the first Irish bank covered bond issue in a long time (over a year i think). The pricing isn’t particularly nice (swaps +200bps) but the fact that the market has now reopened and is willing to buy Irish mortgage bonds again is an important development.
Oh B#$%$$#%^&$%64! Thanks for the correction! Sorry but F is usally bad news!
A very good analysis but why would the government do this? It hints at a gross rot. Rothschild have now been openly acknowledged as an advisor. Often an advisor is chosen after the advisee knows their advice.
don’t worry, im sure a lot of people assume the same! Fitch should really think of changing it to something that sounds either better or at least neutral! Moodys use the letter P for some reason!
I hope and think that you are enjoying this but you still get my thanks!
Arguments that the ECB deem to be asinine get dumped as they show up those who try to make out that they are factual. Some good will come of this as the incompetence angle is the ultimate refuge. Lack of accountability is so annoying.
Have fujn and right is on your side. Minimal points and repetition makes it clear to listeners.
Good point! Given the profitability of the larger shorter term lending to developers in a rising market, it is most likely that banks threw all internal guidelines to the wind. The Regulator? It will have come as a surprize to him, despite his staff and the CB knowing about it! Government in name only.
Yes and if it is as egregious as this is, I hope even the SC will strike down the NaMa Bill when it is referred by the President. But will she?
The economists call this analysis agency theory? Others call it OPM, other peoples money, and others say corporations with limited liability are now bigger than many nation states. The NWO is to cut the corporations down to size …. the PTB may be deeply divided on this issue. They make most of their money from them! But they are now withdrawing, ironically, into cheap land so don’t expect them to be bailing out any developers!
That leaves the pension funds to pile into what will be overpriced stock in a few years! All in the game. Not a funny game, but freedom is earned and those who would enslave you lie to you!
“……but the fact that the market has now reopened and is willing to buy Irish mortgage bonds again is an important development.”
Why do we need NAMA if the banks can sell off their mortgage books.
well the problem was never with the retail mortgages. I’m simply pointing out that at least one portion of the market has reopened for the banks to access (mortgage bonds from all countries were being shunned, not just Ireland). Unfortunately there isn’t much demand for commercial mortgage backed bonds right now…