New DKM Report on Irish Economy

This report includes an article on NAMA by Brendan Dowling.

26 replies on “New DKM Report on Irish Economy”

Well… Brendan D aint hanging back on NAMA. Flying form
“The more enthusiastic supporters of NAMA have begun
to sound like stockbrokers promoting an IPO”

“The requirement that NAMA responds
to social and political demands highlights all too clearly
the dangers of creating a state-owned virtual monopoly
presence in development land and property. The
Government has rightly warned of the dangers – mainly
in terms of price discovery – of a wholly nationalized
banking sector. It does not appear to have the same
concerns about a similar nationalization of property

“it now
appears that NAMA will not be paying the long run
economic value for loans acquired from the banks.
Following a suggestion from the prospective Governor
of the Central Bank, Dr. Patrick Honohan, it appears that
NAMA will purchase the loans for “market value” plus a
participation in any upside on this valuation achieved by
NAMA. The most recent suggestion is that the banks will
receive part of the consideration in the form of a bond
whose value will depend on the recovery rate of NAMA.
This risk sharing sounds attractive but it begs the
question as to how the bonds will be accounted for on
the banks’ balance sheets.”

“The official response to the criticisms of the original
NAMA proposals has been ad hoc, indicating that policy
is being made on the hoof”

“the Government is proposing to
borrow massive amounts – which could be more than all
the existing government debt outstanding – in order to
become the virtual monopoly developer of land and
property in the State for the next decade. It is as if public policy is being determined by the mad offspring of Hugo
Chavez and Margaret Thatcher.
There is little wonder that public support for NAMA is so
low when the reality of the 2009 tax increases and the
prospect of more pain in 2010 hits so hard. Enduring
economic hardship now so that the State can become
the sole lender to the property sector is a difficult sell. It
is not made easier by the day by day modifications of
how NAMA will acquire the assets, what it will pay for
them and what it will do with them.”

“NAMA was born out of a report by Dr.
Peter Bacon, an economist turned property developer”

“it will do so by massively expanding Irish
Government debt outstanding at a time when citizens
are being asked to pay higher taxes and accept lower
public spending in order to curb public borrowing.”

“The value of land with planning
permission for apartments will never be realised (even at
a large discount to 2007 values) if there is no funding for
the construction of apartments. One of the original
justifications for an asset management approach was
that NAMA would be able to help develop out the
properties by providing additional funding, bringing in
partners etc. This is not the role of NAMA as currently
described by its proponents. If indeed this is the role
intended, then the initial funding for NAMA will only be
the beginning and further borrowing by the State will be
required to achieve the values underpinning the first
level of borrowing.
At that point NAMA will, as predicted by a leading
Irish property expert, be “the only game in town”. We
can only hope that it is not comparable to the one run
by Nathan Detroit and frequented by Sky Masterson
and Harry the Horse.”

“The concept of NAMA was born out of a report by Dr.
Peter Bacon, an economist turned property developer.”

I didn’t know he was a property developer. That isn’t a conflict of interest?

Blending the Carroll case and NAMA’s dual banker & property value management mandate-

For simplicity. One 100% development loan of 100m and two bankers at the top of the boom. The loan has a priority agreement in place. Bank N (Nama client) has a total of €75m Bank X(Non-Nama client) is out for €25m. Bank N says that at peak prices its LTV was 75%. But is it? Let’s have a look: The priority agreement is

Bank N 1st for €50m 50% of collateral value
Bank X 2nd for €25m 25% of collateral value
Bank N 3rd for €25m 25% of collateral value

Strip out Bank X claim to 25% and Bank N has 100% exposure at the time of loan issuance – the LTV is 100%. Suppose Bank X is a NAMA client it will say its LTV is 25% but in fact it’s 100% – another example of informational assymetry risk for the Minister’s 75% LTV assumption

What price does NAMA buy Bank N at when one has more current and long term “value” than the other? What happens when Bank X wants its money back? What happens if Bank X wants to cut a deal to finish out the development? What happens if NAMA wants to cut a deal to finish out the development….

@ Brian. I don’t really know what to say. I’m reasonably young so don’t really know what things were like under Fine Gael ect. But if anyone remebers, are they all pretty much as bad as each other?

Great piece by BD.

Margret Thatcher and Hugo Chavez (Shudder)!

Very dense piece but lots of good points. His alternative approach seems like a no brainer. Whats the consensus…?

First piece I’ve read that illuminated the NAMA question so well.

On the Irish economic forecasts graphs, why is there such a disparity between OECD/EU figures on the one side and Irish Banks on the other? Is it a confidence trick…sorry, measure?

@Paul Middleton

..policy is being determined by the mad offspring of Hugo
Chavez and Margaret Thatcher

I think he is just being PC

Closer to the truth may have been……….

Policy continues to be dictated by the arrogant offspring of failed generations of political dynasties.

Hi Michael – we meet again! The belief that NAMA will be ‘succesful’ (whatever that means!) is predicated upon some pretty dodgey assumptions – well it does depend on one’s vision I suppose!! I hold the opinion that we (the taxpayers) are being shafted – big time! The whole scheme is being clothed in a toxic fog of truths, half-truths, and damned lies. But which is which? The fundamentals of the economy are firmly negative and even halting the decline will be a Herculean task. Then you have to climb back out of the excavation!

I can empathize with those who ‘wish’ for better times – but when you observe the unbelievable behaviour of market participants who shout ‘green shoots’ when the rate of un-enemployment slows! – not stops falling, merely slows down (ie. its still INCREASING!!!) you know that there is a realy serious disconnect from reality somewhere. But sure they have to earn their paycheck!

Brian P

Question. How much debt is outstanding on each unsold residental development property. Both properties completed and under development.

Average new home sales are currently estimated to be selling at ~€250k.
Who much have Irish developers borrowed for each unit?

Are our developer friends in the red or black? How much can they give towards NAMA before going into the red?

““it now
appears that NAMA will not be paying the long run
economic value for loans acquired from the banks.
Following a suggestion from the prospective Governor
of the Central Bank, Dr. Patrick Honohan, it appears that
NAMA will purchase the loans for “market value” plus a
participation in any upside on this valuation achieved by

Is it the case that this article was written before recent developments? I am perplexed by this assertion. The markets has clearly indicated the LTEV will be used. Davys has today increased the haircut by about 5% to reflect the so called risk sharing. All the reports indicated that only a small proportion of the loans will be affected by the proposal for subordinated bonds.

Having said that- is the alternative worthy of consideration-
“But having determined the economic value of the loans
is there any need for the State to acquire these assets?
If the Government has confidence in the NAMA valuation
(or at least as much confidence as is required to issue
billions of debt in exchange for the assets) why does it
not simply provide a guarantee to the banks up to a
maximum of the longer term economic value? The
banks would have to pay a substantial price for this
guarantee but it would underpin their balance sheets…”

This appears to be a sensible solution.


There is no trick. It is because the EU and OECD ones are older. They were published many months ago. EU and OECD forecasts are not published as frequently as those emanating from within Ireland. Forecasts for the fall in GDP have been gradually revised down in the past couple of months. The most optimistic ones are from BOI and NIB, which both predict a fall in GDP of 7.0 per cent. Both those were published in the past few weeks. Those published earlier in the year were mostly predicting a fall in GDP of 9.0 to 9.5 per cent. I confidently predict that this trend will continue.

The more I think about it. The more I think it’s nieve to think democracy can work independantly. I’ve a few friends I’ve known for years. If I was in government, and they were bankers or developers(or anything else). And they came to me looking to do a project or to back something. I’d obviously be compelled to support them. Even if there was a slightly better value option.


The old “I’m not honest therefore no-one else could possibly be honest” argument. Very convincing.


In the beginning of a change, the patriot is a scarce man, and brave, and hated and scorned.

When his cause succeeds, the timid join him, for then it costs nothing to be a patriot.

Mark Twain, notebook 1904

@B.Lucey…Im sure you must be tired answering questions on this NAMA ,but if you could indulge Me for this one ,I would be gratefull. Given that these Banks loaned out to properties in the UK in particular,some 20+ billions,where are we with these given the pounds devaluation of 20/30 %.Is it fair to say that prices in UK will need to rise by this amount 20/30 % just to get us back to where we started in currency terms alone.If so then when you add this to what property fell by in the UK,we will need to see a huge recovery in the UK to wipe our faces with this stuff.P.S. Am I right to assume (dangerous word in these times) that the Banks have some hedging in place which NAMA would aquire with regard to currency fluctuations i.e. Euro versus Sterling.All sounds a bit iffy when its typed out as above.???

@ Proposition Joe – So you believe the majority of tds in Government are honest and have nvr been infuenced by people with vested interests over their time in power?

@ Michael Harvey – Who is the patriot? Peter Bacon? Fine Gael? fianna fail? Sorry if this is clear to everyone else.

@ All

It might be time we all put on a psychologist’s hat here, rather than a political observer’s hat, or an economist’s hat. What I mean, is the following. I want to address this notion, there is no difference between Fine Gael and Fianna Fail. While that may be very true in ordinary times. We are not in ordinary times.

To fill in briefly the broad strokes about politics in Ireland, I am going to make the following very ‘broad’ and over-simplified generalisation. Traditionally in Ireland, the Fine Gael political party representatives have come from the wealthier establishment. One would imagine, that this would ensure, Fine Gael would be the party with all of the skeletons in it’s closet. From a need to hold or protect what they have etc.

The irony about this is, Fianna Fail have a much larger collection of skeletons and bodies buried all around the place. Nobody will disagree there. They have whole cemetries full of it. Fianna Fail representatives tend to come from a more working class stratum of Irish society. That notion, you had to do things a bit ‘dodgy’ in order to get ahead. Wink, nod etc.

It has been suggested to me, by long time observers of the scene in Ireland, that Fianna Fail were perhaps used to not having much property. It was what they craved in order to prove some point, they were no longer as downtrodden or something. Fine Gael on the other hand, had business, land, property and what have you. They are more comfortable with the fact.

My honest opinion is that Fianna Fail, even if they had the best economics brains in the country, they are the last people who should be allowed to stay in government at this time. No matter what Fianna Fail do, they always have it in the back of their minds, that they are responsible for the entire mess. Whether it be true or otherwise, that is their hard working honesty coming through. Brian Cowen indeed, personifies that.

(I am aware I have contradicted myself above – Fianna Fail, being both honest and dodgy at the same time, which they definitely are)

At this very unique moment in time, Fianna Fail are not unlike the property developers who cannot sleep at night. The scale of their losses is large and unexpected. Fianna Fail cannot disconnect themselves from a sense of panic that has gripped them since late 2008. Indeed, the broadsweep banking guarantte should have been a very early signal they are not comfortable playing this new role.

Fianna Fail put most alot of trust in that which they coveted so much, property and it blew up in their face.

Fianna Fail are still operating in panic mode, and seem unable to snap out of it. This state of constant panic they are in, is causing them to over-react, to over-correct. We need someone in government who doesn’t suffer this impediment.

This is why I believe Fine Gael coming into office now, would be the medicine for this country. That is not because I am a Fine Gael supporter. Politically speaking, I am partial to what many of the different parties have to say. But what we don’t need at the moment is a party who feel ashamed of themselves deep down inside.

This problem of dealing with wealth, property and working that out, comes a lot more natural to Fine Gael who aren’t constantly walking around with a huge chip on their shoulder. Fianna Fail do, because they have this working class heritage, of having to fight for what they have got. By dogged determination etc. Fianna Fail still carry around that working class ‘baggage’ with them, even today.
It is not useful given our current circumstances.

I picked this quote from today’s Irish independent newspaper, which is an article that is critical of the Fine Gael ‘good bank’ recovery plan.

“The net effect? A €40bn credit line may seem like a boon in these recessionary times. But it’s a small drop in the ocean in an economy where there is over €530bn of lending outstanding.”

It is typical of the panic, that over-correction that I talked about. Ireland apparently needs mega-bucks in order to survive from doom. What the comment in today’s Irish Independent ignores, is a small amount of pure, injected capital into the bloodstream of the Irish economy is going to invigorate the economy more than multiplies of watered down rubbish.

The Irish economy in it’s new invigorated state (sustainable or otherwise) is going to work like a tide moving with us, rather than against us. It will eliminate a very nasty resistant to the work-out process. Using the NAMA approach, the credit it only going to drip, drip, drip into the system I predict. It will not be enough to alter the direction of the tide.

Certainly, reading Constantin Gurdgiev’s comments in his blog entry, you get the same impression. That the NAMA solution will not deliver the required payload.

I tidied up my thoughts about how to go about a stimulus for the Irish economy at a recent blog entry.

An excellent report.

Sad reading but very readable.

The Irish media are all compromised as they depend upon a consumer economy.
Sir Anthony Heinz O’Reilly has a fight on his hands from a person who owns part of his newspaper and when fighting for one’s life certain principles are less important. I haven’t researched teh coverage in D’Examiner, but was it more positive to say, the 46?

All these pro-NaaMaa’s will be sorry soon but it will be too late then.

Some hope: the judgements of Frank Clarke and St. Peter Kelly. They make it clear that the courts do not favour the short term viability of the developer clique. Or should that be claque? If the SC gets their tender claws onto the NAMA Bill, I expect it will be thrown out!

The devaluation effects of overseas non-euro properties havent been well worked out, its true. The banks should have swaps etc in place to deal with this but…..


I just read an old article I still had on the desktop about theNorthern Rock collapse.

One thing that jumped out at me on this re-read, was that they had a subsidiary, but legally seperate branch operating in Jersey. Apparently profitable and with 60b sterling in assets, the U.K. government cant touch it.

I have not thought about it before, so does anyone know what the situation is with BOI and AIB? Do they have assets stashed offshore?

Further to Michael Harvey’s “does anyone know what the situation is with BOI and AIB? Do they have assets stashed offshore?”.

….. and has there been a steady stream of asset transfers to them over the past few months?

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