The Night Before

Since the Morgan Kelly thread is spiralling towards a Night Before the Big Event discussion, I thought I’d give our readers a dedicated pre-NAMA thread to hang out in.

Brian Lucey has posted his prediction:

My prediction for tomorrow:  55b regular (blue) NAMA bonds, max 5b subordinated (purple) NAMA-bonds to purchase low 80s of book value; we may get to know the bond issue more clearly – expect to hear that the bonds are being issued on 12-18m rollover basis, and that subbies are very longdated.

I’m not sure I can disagree too much with that but I do hope it’s wrong both on total payment (too high) and the amount of sub bonds issued (too low). Part of the point of the lobbying effort that I and others have put in has been to get the government to avoid such an outcome, so I’d be disappointed if that came to pass.

A couple of other bits of pre-match punditry:

1. Don’t focus on the average haircut. That will include the haircut on Anglo loans which is one hand of government paying another, so it has no implications for the taxpayer. Focus instead on the haircuts for BOI and (in particular) AIB.

2. Let’s hope we can get some proper evidence on the original value of the collateral put up for the loans being acquired—the commonly-cited though theoretical €120 billion figure for the original collateral value underlying the equally theoretical €90 billion in loans. Without convincing evidence for this figure, claims that we should add 25 percent to get at the discount being applied to original value of the collateral should be interpreted with a huge dollop of salt. Ideally, I would also like to see evidence provided on the amount of rolled-up interest in the loans being purchased as well as any reduction in net equity due to cross-collaterisation. Claims that this information is “commercially sensitive” should be countered by proposals that detailed, convincing, information could be provided to the main opposition spokesmen.

3. Full detailed information about both types of bonds should be revealed including the exact circumstances under which the NAMA subordinated debt will not pay off and the maturity and coupon formula for the regular bonds.

4.  Look for full details of planned recapitalisations to be announced. We should know by tomorrow what rates of regulatory capital the government intends for the banks after the NAMA transfer.

Anything else?

50 thoughts on “The Night Before”

  1. The Biblical Times – Report from our ‘man on the spot’

    War Report: The battle of Na-Ma may be a close encounter and of biblical proportions, writes Joseph Morgan

    AND lo! There was a sight to behold-eth as the giant Len-i-Han strode forth in the land of Na-Ma to fight King Cowen’s fights for him.

    As the sun rose across the dark valley of the Dail Eireann and splintered every shadow, making no place to hide-eth, two armies squared-eth up to each other across the banks of the river Enda.

    “Bring-eth it on,” bellowed Len-i-Han, as the land trembled beneath his mighty stepfall and credit crunched beneath his feet. “For on this day of Wendes-day, the 16th day of Septemberus there shall be one mother of a battle at the altar of long-term economic value…… and a fair bit of smiting too-eth.”

    “Bring-eth it on yourself and be prepared to share-eth the risk,” cryed Prince Eamon of the tribe of La-Bour as he sent forth his champion, the mighty she warrior, Bru-Ton. “She who smite-eth last, smite-eth longest,” she sang from the hymn of nationalisation.

    Alongside Bru-Ton, there drew-eth up a chariot of burning fire. It was the spirit of Bur-Ton, her male form. “We are going to give-eth you shower a haircut that will make Sampson look like an ancient hippy,” rang out his battle cry as he unveiled the millions of taxpayers behind him. “You may be winning-eth the war but you are losing the intellectual argument,” raged Bru-Ton.

    All looked lost before it even kicked-eth off in the camp of King Cowen but then a flurry of PR smoke and mirrors appeared alongside Len-i-Han. It was the princes of darkness, Alanus Ahearne and Green Gormley, backed up by their banks of sixty billion Eurofighters.

    “Fear-eth not,” rallied Bur-Ton. “The writing is truly carved-eth on the wall for that lot and we have the brave and loyal troop of the 46 economists beside us, led by Osama bin Wheel-an and Lucky Lucey.”

    The 46 fired the opening salvo as a volley of calculators and subordinated debt arched through the air. Len-i-han replied with a wave of boiling financial forecasts and deficits that swept across the land. Screams filled-eth the air and there was much renting of garments, wailing of wails and gnashing of teeth.

    The mystical prophet Constantin Gurdgiev, fighting with the 46, took out Tina with a sweep of his rezoning wand and all hell broke-eth loose as he pulled a debt-for-equity swap the like of which had never been seen-eth before.

    “All is lost,” roared King Cowen. “Not yet-eth matey, for I have a moral hazard to unleash on the enemy that will burn their fair and right socks off,” spake Len-i-Han, writhing beneath the onslaught of public opinion as he valiantly tried to recapitalise and stem the losses as the levy was breached.

    The battle of Na-Ma had well and truly kicked-eth off.

    For latest live scores, body count and betting-of-the-spreads please go to Papyrus 6.

  2. I have been thinking about this for a while. Minister Lenihan was castigated “certain commentators” for coming up with haircut values without having the full facts in front of them. Is this haircut that is going to be announced by him tomorrow based on scrutinizing each loan the bank has made? If not, what exactly is this haircut based on? An aggregate analysis by Jones, Lang LaSalle and by PWC? Do we really trust that lot after their spectacular bill of clean health for Anglo last fall? On what basis is the minister going to announce this haircut?

  3. €57bn blue bonds and €8bn purple bonds on €82bn of loans.

    The purple bonds will have very favorable terms to the banks.
    Long dated with a generous coupon
    The capital repayment will be paid if NAMA makes a gross profit. i.e. before funding costs and expenses.

    The reaction of the bank share prices will be interesting, I expect a rally.

  4. @Joseph
    Of course, in the end the giant loses….
    Bags me being Gideon, with the VI’s as assorted midianites….

  5. It’s not a major point, but out of curiosoty, why are regular Nama bonds referred to as blue? And following on from that, why are subordinated Nama-bonds referred to as purple?

    More importantly, could somebody give me a refresher on what is meant by a subordinated Nama-bond?

    Thanks, Joe

  6. @Karl
    “We should know by tomorrow what rates of regulatory capital the government intends for the banks after the NAMA transfer”.

    Will they tell us this. My bet is BL will still be operating the mushroom theory.

  7. On the anniversary of the collapse of Lehman Bros we observe normality being returned to many asset markets. The LIBOR/OIS spread, a key measure of interbank/money market risk, fell back to the average level that obtained in the 5 years prior to lehman. Corporate credit markets improved to similar levels – companies are issuing – successfully – record amounts of debt (who needs banks?). Equities rose again around the world. The US government began openly speculating about selling its large stake in Citigroup – for a huge profit.
    And here we are, a damp little country on the North West tip of Europe, still wondering what our government will do in response to the crisis that our leaders persistently say was caused by the collapse of lehman (Cowen on the late late, for example). If it was down to lehman, one might be tempted to ask ‘why are we bothering? the rest of the world is acting as if the crisis is passed’
    We couldn’t run a bath. Our infrastructure, such as it is, was built by the British and modernised by Brussels. An economy once built on agriculture, subequently on FDI, is wrecked, on average, once per generation. The current and next generations are told that the economy now depends on a massive transfer of wealth from taxpayer to bank shareholder. Told by the same people who asked those who warned about all of this to commit suicide.
    Ultimate irony: NAMA will be a non-event, at least for the next few years (but wait til the final accounting of the costs, if yopu live that long). What happens on Thursday when the banks don’t start lending? What happens on Friday when the Irish Times property supplement bemoans a lack of surging property prices? What happens when it becomes evident that we are, once again, a low-growth, middle income country with lousy weather?

  8. Since the whole thing is turning into a bit of another Eircom floatation.

    Did anyone read Patrick Cunneen’s article in the Sunday Tribune?

    http://www.tribune.ie/article/2009/sep/13/why-not-give-taxpayers-a-stake-in-the-future-of-ba/?q=cunneen

    Or course, Vincent Browne’s SBP article also feeds into this point.

    http://www.sbpost.ie/commentandanalysis/the-money-is-there–its-just-not-being-shared-44282.html

    There is money available out there. Money in the system, versus ‘money out there’ are two very different things. Why not create an incentive through NAMA to get more money back into the system. I.e. Taking the argument that NAMA itself will cost billions and not make a damn bit of difference.

  9. “Without trust, words become the hollow sound of a wooden gong.”

    The government has lost the trust of the majority of the people . I expect Brian Lenihan’s reasssurances tomorrow on protecting the taxpayer/citizens of Ireland from daylight robbery will ring very hollow indeed.

  10. Lenihan will NOT reveal the valuation formula.
    It will be set by ministerial regulation after the legislation is passed.
    I expect lenihan will find some excuse not to tell us tomorrow.

    Quite how he defends this will be interesting as he presumably will have to decide in advance of tomorrow the valuation formula in order to be able to tell us the estimated level of NAMA bonds and the subordinated bonds.

    But then Lucky Lenny is very good on circular logic.

    In relation to the NAMA subordinated bonds, how will the banks value them on their balance sheets?

    I think the goverment should set up a NAMA Oversight Commission with either Judge Frank Clarke (Hons. Maths degree) and/or Judge Peter Kelly of the Commercial Court in charge.
    But they wont.

  11. So the vibe I get from most people is that they feel the government will intentionally pay alot more than what the loans are worth, and it will cost the public a large amount of money in time.

    Can I just ask for opinions as to why they are going to do this?

    Is it because they have friends in the banks that they don’t want to see lose money, friends that are developers? Have shares in the banks themselves? Are just completely incompetent and are doing what the banks want? Some other reasons?

  12. The big trouble as I see it. Say, you take on board what the Greens say about ‘green-ing up NAMA’. Say, we try and go for a more sustainable planning approach for the future. Say the horse hasn’t bolted and we are just in time to close the stable doors. Say, we are in an ideal situation right now, and the year is 2002. (It is not so long ago remember)

    Lets look at one important interface – that between the minister of Finance and the minister of the Environment – whoever they may be. Obviously, the could be two FG ministers, a Labour and FG ministers, or a FF and Green minister. There is really no probably with communication at that level between the elected representatives. You have to drill deeper to find the real issues. Heads of departments of Finance and the Environment. How do they interface? If at all.

    You see? I know from pretty good authority on the subject – take for instance, 2 no. Green ministers, Gormley and Ryan, who want to work together. No problem. But what about the separate government departments of Environment and Energy. How about interfacing those two? Very difficult, because they tend to use separate advisors, have their own unique way of going about things. How do with solve that problem?

    Because, drawing up some great plan now to ‘green up’ NAMA is fine. But the real s*** will hit the fan, when you have to make Environment and Finance senior civil servants speak the same language. Gormley knows this too, which makes tomorrows charade, even more of a charade for the benefit of us un-informed viewers. All we are doing is nickle-plating at the end of the day.

  13. I finished reading the Morgan Kelly 2008 IT article on Anglo Irish, that Michael Hennigan linked in the MK blog entry.

    http://www.irishtimes.com/newspaper/opinion/2008/1223/1229728473144.html

    What is the current thinking on Anglo Irish? I know some say, it has some departments which are competent enough. What is the thinking about Anglo nearly 12 months on? How much of Morgan’s predictions about the Anglo Irish bail out have proven correct? Has it been worth it? All I hear from minister Lenehan, is how expensive it has been. Minister Lenehan appears to find Anglo useful for one thing – to prop up his arguments against nationalisation of AIB bank.

  14. A lady asked Dr. Franklin

    “Well Doctor what have we got a republic or a monarchy”

    “A republic,” replied the Doctor, “if you can keep it.”

    Anonymous, from Farrand’s Records of the Federal Convention of 1787

  15. I won’t be posting a prediction. Like Socrates I am contented that to be aware of how little I know is my greatest asset in clear thinking 😉

    I think we know that we will get no detial on LTV other than perhaps an indication of what the typical LTV for an institution is based on the PWC report. The Minister has already told us that this is 75% according to the PWC report which relied on details supplied by the banks. I don’t expect huge variation between BoI and AIB and I take it these were the institutions which disclosed 75%. In any event, the Minister has said that NAMA is the institution to test these figures. Personally, I expect the banks’ figures to be borne out on the big loans and they might even be better than expected. I think that the big LTV danger may be on the “smaller” loans (say €2m to €10m – it sickens me to refer to them as small).

    I don’t expect full details of the types of bonds to be created given (i) that the legislation permitting new bonds has only just been drafted, abd (ii) Brian Lenihan indicated only last week that the system wasn’t definite and (iii) that Brioan Lenihan will surely want to consult extensively with the new Governor of the Central Bak before finalising the position.

    As to recapitalisation, the minister said the markets would be able to deduce what is going on by how many bonds are to be issued. I expect that the estimated value of the aggregate of NAMA bonds of all shades should be announced and I expect that this will be divided between BoI and AIB to reveal the estimated haircuts. I stress estimated because the Minister is at this stage going on the figures in the PWC report together with figures provided by the banks.

    All in all I expect it to be something of a damp squib unless the DpF pull out a few stoips to try to comply with Joan Burton’s request for more detailed institution specific information. I suspect that won’t happen as the Dept is surely working to an horrendous deadline as is. Nevertheless, we can hope.

    What I am really looking forward to is the regulations which deal with valuations. I have already said that I fear the legislation might incorrectly factor in LTEV twice when once should be enough, even though I agree it needs to be checked twice. My paranoia says that if the banks are going to do us in it will be through their lobbying on the valuation methodology. I am hoping that discussion in this blog will illuminate the mothodology in the draft regulations and any potential problems which they may give rise to.

  16. Securum haircut 25% on SEK67bn price SEK 50bn.

    Financed by Nordbanken loan of SEK27bn and state equity SEK24bn.

    Result for Swedish tax payer of Securum’s mandate – SEK 10bn loss or 14.9% of Norbanken book value of assets purchased.

    If NAMA achieves similar performance on a 25% haircut it will “only” lose €13.5bn on bank book value €90bn

  17. @Zhou

    “as the Dept is surely working to an horrendous deadline as is.”

    366 days since Lehman’s went down, 11.5 months after the guarantee and the Dept has a “horrendous deadline”. If I recall the UK Treasury had a horrendous deadline one Friday and that was 7am the following Monday.

    The UK has managed to merge banks, sell them off, recapitalise them, change their managements, insure c. half a trillion pounds of assets, ensure targets for new lending in the UK are set and adhered to etc. This was all done by January. The US did an even bigger job but I am not as au fait with the individual details there. Yet our DoF has a “horrendous deadline”. No Brucie bonus for guessing what Zhou’s profession is!

    On the predictions of Dreaded Estate, BL and KW there is a probably general consensus over what Lenny will announce. My question is, therefore, based on the info we have, what SHOULD he announce? At what level would the posters on here say he hasn’t overpaid?

    The flawed logic I see with even paying that amount (35-40 billion?) is that the value can and probably will continue to fall so even fair value now is a State gamble. Although that is an argument too far given that the Government will not even countenance market value as a concept.

    @BL (on the Morgan thread)

    Why would the Blue Bonds not be long term, callable, floaters rather than short term in duration?

  18. My concern is that the government and NAMA, having committed themselves to this “long-term value” idea, will have a vested interest in the future in re-inflating the bubble in order to prove themselves correct (and to cover NAMA’s expected losses).

    Although perhaps, mercifully, they’ll be gone soon and we’ll have the next pack of bubble-blowers to deal with.

  19. “My concern is that the government and NAMA, having committed themselves to this “long-term value” idea, will have a vested interest in the future in re-inflating the bubble in order to prove themselves correct (and to cover NAMA’s expected losses).”

    Which will have the added effect of crushing any sustainable rebound due to increased competitiveness at birth.

  20. Regarding the purple bonds, has there been any statement on whether or not these will be structured in such a way as to make the eligible for ECB repo?

    @ Pa Bandit

    LT callable floaters would require a greater coupon payment and would only be called in the event of NAMA succeeding regardless of the interest rate environment similar to rolling short term notes.

  21. I still remain cynical about the whole process. The Government already know the answer they want, and they have worked back from there…..Reverse engineering.

    I would disagree with Brian, but would not go 100% with Karl.

    I think, as a cynic, that they will try to show an in depth analysis of the toxic assets. Even although I think the man in charge of valuation is an UBER opimist, no nice rounded numbers like most posters here are using.

    I have crunched the figures to the best of my ability, as a cynic, and here is what I get:

    52.6billion regular.
    Max of 7.4 subies….

  22. On a general point concerning commercial sensitivity:

    Barman: “You have to buy a pint.”

    Punter: “But I’m not thirsty”

    Barman: “Doesn’t matter. If you don’t buy a pint, my pub will close and ruin the country. You have to buy a pint.”

    Punter: “Umm…allright. Well, how much for a pint then?”

    Barman: “I can’t tell you that. It’s commercially sensitive. But you have to sign this contract to say you will buy. But trust me, it will be a good deal for you.”

  23. Bank of Scotland and KBC coming under Nama as well ….. or so says Vincenzo Brown in today’s article in the Irish Times

  24. Using Grahams drink analogy, I think NAMA is an exercise in ‘hair of the dog that bit you’ economics. Awaking with a
    monstrous hangover, we are told that the solution is more drink
    aka re-inflation of the property bubble 🙂

  25. What NAMA should pay for the 90 billion of toxic loans?

    (Well, in an ideal world obviously nothing since the spin doctors of NAMA keep telling us there is no market at present, so the 90 billion of toxic loans are in fact worthless.)

    If we use the present market value of a 50% drop in residential properties we get the following:-

    1) 30 billion property now worth 15 billion

    2) 30 billion land banks (90% drop in land values) now worth 3 billion

    3) 30 billion unfinished property now worth 5 billion ( 15 -10 billion)
    since the NAMA is going to spend 10 billion finishing these properties.

    So a rough estimate is 15+ 3+ 5 = 23 billion
    However the government is going to pay up to 60 billion which is well over double the market value.

    NAMA = BAIL OUT OF THE BANKS with taxpayers money

    Watch the bank’s share prices rise………………………

  26. @Brian O’Hanlon

    Thanks for link to the Morgan Kelly article pre-Xmas 2008.
    1.5 billion has now become 4 billion and counting.

    He correctly anticipated that directors and senior managers would turn out to be players in the game – a classic sign (Seanie Fitz and his 80+ million in concealed loans).

    He correctly anticipated that loan guarantees would turn out to be worthless (all the money lent to the Cairde Anglo Irish bank) to buy part of Sean Quinn’s holding.

    Some of the apologists for this government whisper soothingly that in reality Anglo is being slowly wound up. It should never have been fully taken into public ownership – just broken up like Bradford & Bingley in the UK using similar special resolution regime type legislation.

    @Zhou
    “horrendous deadline” – the only thing horrendous is that the government has been able to move with minimal opposition from conceiving NAMA last winter, to the delivery ward today in the Dail.
    We could have copied UK legislation and saved the taxpayers a fortune by copying UK legislation.

    But no, we create NAMA with 300 pieces of information on every loan.
    A very expensive FAS course for real estate valuers who are probably at a little bit of a loose end.
    And being a FAS course, they will look for international best practice to follow.
    With all our rocket scientists, they networked with NASA to develop the Irish missile program.
    So where better to send our auctioneers than to one of the biggest property bubbles in the world. Florida. At least the FAS guys will know where the golf courses are.
    😉

  27. Just a thought.

    If the original developer/property bubble was a misallocation of capital at a national scale.

    If 50% of NAMA funds are required to fill the coming funding gap or deleverage the banks’ balance sheets.

    If reflating the property bubble requires 30% of NAMA funds.

    What capital is available for allocation to the “real” economy over the next five to ten years?

    Europe/FDI?

  28. Given that the Govt had a 6-month deadline to today; it owns the builders’ bank Anglo and paid €15 million for advice on “stabilising” the banking system, including €2.95 million for last autumn’s PwC report, there should be no excuse in future about surprises on LTV or security on most of the loans by value.

    By now, the full facts should be available.

  29. @MOL

    “Lenihan will NOT reveal the valuation formula.
    It will be set by ministerial regulation after the legislation is passed.”

    The Minister has promised that the draft regulations will be published when the Bill is introduced to the Dail.

  30. Dermot Desmond’s article in today’s Irish Times , “Financial institutions should be left to manage their own delinquent assets” , is a very well argued case to completely drop the NAMA option. I agree with much of his analysis and much of what he proposes.

    His starting point is what needs to be put in place to help restore Ireland’s prosperity. As you would expect from Dermot Desmond he makes a business case to drop NAMA in the interest of Ireland Inc. Even though I have strong reservations on the way people like Dermot Desmond do business in Ireland, his proposals are likely to be more transparent and fairer than the NAMA scam.

    Some quotes:
    “Asking the taxpayer to accept blind valuations of property or other loans is not a solution.”
    “Does anyone really believe, no matter how well meaning the designers of Nama, that the most efficient way to manage an existing portfolio of property loans – bad or otherwise – is to transfer them into a new quango?”
    “Does anyone believe that a nationalised group of banks, effectively controlled by the politicians/Civil Service, will provide a competitive banking landscape?”
    “Legislation will be proposed to stop political interference but ultimately this becomes window-dressing as otherwise the institutions are not accountable to anyone.”
    “Each bank should set up its own delinquent asset management subsidiary (MgmtCo) which would hold all of the assets which would otherwise be transferred into Nama. This gives each existing bank two businesses which would be consolidated – the good bank and the bad. This is purely a book-keeping exercise and could be done overnight.
    The Government should guarantee the funds to be raised by the banks to fund their delinquent asset management subsidiaries for, say, 10 years to match the property loan maturities and generate the necessary liquidity to meet their repayment obligations and to fund new lending. The Government should be paid a proper fee for providing this guarantee.”

    It is not too late to dump NAMA. It is not fair to the citizens of Ireland and is unlikely to restore Ireland’s prosperity. And there are better alternatives.

  31. Michael Hennigan –

    They say they know the typical LTV but that they have not examined every loan indivdually – NAMA itself will do that. The fact of the matter that whatever LTV they say investigations have revealed; people simply won’t believe the figure based on anecdotal evidence. The core problem is that the public have no trust in the banks and will not accept any estimates derived from information provided by the banks. That is why we need a NAMA process. If we nationalised we would need a NAMA equivalent process.

    As for deadlines, I was thinking of what has changed since the legislation was published and the work to be done on the valuation formulae. There is a time for being tentative and a time for haste. In my view the time for tentativeness was with us and has now passed; the time for haste is now upon us, as dictated by the changing international scene. Whether the solution is NAMA or Nationalisation +NAMA equivalent we must get it started quickly.

  32. Sorry, I dont buy for one minute the “sure lads we’re working fierce hard” aka deadline issue. FFS hello? A year on?

  33. Im sad to say Dermot may have come in too late on this one, too long off shore this summer, must have missed what’s going on till late??? but his proposal is the most practical and to my mind most sensible I have seen since the start of this debate. Its been said a few times on this website on various issues, but the horse may have bolted yet again!!!!

  34. @Tadgh, if we are going for outsiders, what about John Gormley standing up in the Dail today and saying “Our party will be unable to support this legislation.”

    But pipe dreams aside, I’ll pump for 55-8. On €85bn worth of loans.

  35. Dermot Desmond comments should be read in the context of the latest IMF report. Ciaran O’Hagan does a good summary in his comment on the thread started in that regard. There is also an IMF summary linked to by Philip Lane for those of us who do not have time to read the whole report immediately.

  36. @Zhou
    Why? Can they not work according to the dictates of Mr Mark Twain “Do the right thing. It will gratify some people and astonish the rest.”

  37. @BL

    We should indeed do the right thing an I believe that is what the Government is trying to do. However, we best not astonish anyone. Mark Twain is not going to lend us €20bn next year.

    Also, if we are going to do the capitalist version of doing the right thing then shouldn’t we let depositors and senior bondholders suffer losses? Why are you so reticent about socking it to those guys and leaving me to subsidise their bad decisions in giving money to institutions involved in stupid lending? Do real world circumstances and your concern for the health of the real economy prevent you from taking a pure Twainist approach??

  38. Re Dermot Desmond’s plan

    the plan has merits, but it also has flaws. At no point is the required recapitalisation of the banks dealt with. Dermot’s point is essentially that “its all about the liquidity”. Its not.

    If the loans stay on the books then the banks balance sheets will remain bloated and full of distressed property assets. Equally so their capital levels will remain low and insufficient. Who exactly is going to invest in such an entity? Regardless of the new liquidity, there will be little new lending until the loans are taken off the banks balance sheets and the banks are not worried about expanding further those already huge balance sheets and potentially eroding the little capital they have left.

    Whether selling the loans to distressed property specialists or to NAMA, the key to getting the banks lending again is to cleanse and re-capitalise. This should be done, given the economic outlook, first via the government, and later via the private sector when the economy has been stabilised.

    Still, at least this is a genuine proposal with a well laid out sequence of events and realistic suggestions. As such, it is superior to many of the anti-NAMA non-proposals that have been suggested.

  39. Morgan (I told you so, we’re all doomed) Kelly takes no chances with his proposed colour scheme. But IMHO he has made a big mistake on the term of the NAMA bonds which will quickly be exposed. I have already predicted and Lenehan confirmed on radio last night that these bonds will be very much longer dated than 18 months.

    An 18 months rollover of 55-60Bn would be no solution at all. I hope MK has the integrity to comment favourable on this aspect when he finds himself wrong. But the problem with the NAMAphobes is that they are simply incapable of seeing anything good in the proposal. To secure 1.5% variable funding over a medium term was a serious coup, MK et al can’t even begrudgingly concede that.

  40. @Zhou
    “We should indeed do the right thing an I believe that is what the Government is trying to do. However, we best not astonish anyone. Mark Twain is not going to lend us €20bn next year”

    If they are trying to do the right thing why the carry on with spin. They sent Deputy Fleming out last night to suggest BL remove himself from valuations and this morning the Independent reports he is going to announce the High Court will be the final arbiter on valuations. In the course of the spin exercise Deputy Fleming informs us that Nama will not cost the taxpayer anything and we are getting (free) cheap money from the ECB.
    Then we have DD questioning Nama. He is reported as having made vast sums speculating on the banks. What is the angle? Concern for the taxpayer.
    Brian Cowen told us yesterday that he will ensure the assets will be worth more and it is only a matter of a few IOUs being given to those silly bankers.
    All of which demonstrates an effort to mislead, not, unfortunately, an effort to do the right thing.

  41. @Michael
    When and where did Lenihan say that the bonds would be longterm? And if they are, then will they be swapped at face or market at the ecb discount window?

  42. @ BL

    Answering for Michael. Lenny said to Eamon Keane on Newstalk that they will be dated much longer than 18 months. I can’t do links here, but you will find a link on AskAboutMoney.com in their NAMA debate.

    I am not sure about discount windows but clearly the really important thing here is that they are valued at par in the balance sheet and I believe that will be the case irrespective of their market value.

  43. @ Brian Woods

    i completely agree, and this hold-to-maturity at 100 on balance sheet, repo to ECB at 100 minus standard haircut format, has been repeatedly suggested by both yourself, myself, and a few others on the site. It’s the only process which seems to make sense, and would appear to have certain precedents in terms of banking sector accounting and ECB operations.

  44. @ Brian L

    i think it’ll be floating rate at L+50/75. Well below equivalent Irish govt bonds, but it’ll be close enough for the ECB to accept at 100 provided the banks don’t try and flog them on the markets in the first few years. Essentially it’ll allow the Irish govt to borrow far cheaper and in greater volume than in the real market. Hence QE.

  45. @BL

    70% if the 1.5% was fixed, but it is variable. I don’t know what current 10 year swap rates are but I guess about 3.5% so that these bonds maybe represent a 1% saving in default spreads (Ireland having to pay about 1% over swap). I would say they would trade at about 90.

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