NAMA Not Borrowing from ECB

Writing in today’s Irish Times, property consultant Bill Nowlan writes:

Nama’s prime job is to get back the €54bn given to the banks to enable it to repay the ECB.

I don’t want to pick on Bill Nowlan because this kind of comment appears regularly in all our media outlets from commentators who are attempting to explain NAMA to the public. However, I do think it is worth pointing out that NAMA is not borrowing money from the ECB.

What I find odd about this is that a plan that really isn’t very complicated—the Irish government issues bonds to the banks in return for property-backed loans—has been described so often by government sources as a complicated operation involving the ECB that pretty much everyone now believes that this is the case. But really, it’s not.

I’m really not sure what I can say about this other than it’s pretty sad that a program involving spending €54 billion of public money is so poorly understood.

74 replies on “NAMA Not Borrowing from ECB”

“…by repaying their long term mortgage in accordance with its terms…”

Surely most of the problem loans are development loans.

They are not mortgages. They are bullet loans, most with interest rolled-up.

“Those investors/developers that understand the score and work with Nama to help it achieve its primary objective of repaying the ECB are likely to be supported.”

The primary objective of NAMA as continually stated by the Government is to “get credit flowing” to SMEs. Not a chance of that happening, but that’s the primary objective.

“If ….. or need additional capital to complete a project, then you had better come up with a credible business plan….”

Isn’t that what the €5bn to €10bn “finishing out” funding is for?

“The fact that Nama will be borrowing funds at 1.5 per cent will give it some patience in working with viable projects.”

This is just nonsense. NAMA bonds will be rolled over every six months at prevailing market rates plus risk premium.

“I cannot see Nama being unreasonable but don’t expect them to believe fairy tales about future market scenarios.”

OK. Then why am I expected to believe fairy tales from Brian Lenihan.

“Nama will have the best brains vetting each business plan.”

Let’s hope so. We’re paying enough.

Would they be the same brains that vetted the original business plans.

I thought the primary aim of Nama was to prevent the whole banking system collapsing. Advancing credit to enterprise was the next desideratum.

Re misunderstanding of ECB lending to Govt.: I remember Paddy Lynch trying to explain how he had circumvented the prohibition on the Central Bank lending to Government by involving the commercial banks as intermediaries. He got very upset with me when I said I didn’t see the difference. Plus ça change.


You might find this comment of mine a little bit daft, but I will leave this with you for your consideration in due course. It is my own reading of the Bill Nowlan article in today’s Irish Times. I don’t know if Bill himself has twig-ed this, so my comment might be of interest to some parties. Here is a quick story.

I remember when I was a kid in school, I knew a brother of a famous footballer from county Kerry. Being the brother of a famous footballer, he was used to social-ise a lot with the county Kerry team at events etc. He built up a kind of admiration for some of the men on the Kerry team and they had a few laughs when they met up. Okay, here is the crunch point. This brother of the famous footballer wasn’t good enough to play a county level himself, but he played club level football. He found himself marking one of the county players one day in a North Kerry club match. The two men knew one another and before the game started they were chatting and kidding around. Then the match started and the football came down the field in the direction of the two players. Suddenly, the famous Kerry county player stood on the other mans toe and pushed him over. He won the ball and kicked the first score of the game. After, the famous Kerry player came over to his old friend and said, ‘Ah, I got you there Donal’. After that, there wasn’t much polite chit-chat between the two for the duration of the football game. No quarter was given.

What is the point of this un-related anecdote? Well basically, when I was reading Bill Nowlan’s article in today’s Irish Times I had to smiled to myself and I remember that story I had heard 20 years ago. A very strange thing happened within the property development business in 2009. A lot of young promising players in the industry found themselves sitting on their back sides and watching as the older, wiser players ran away with the football. Up until that point it has been all nice and pleasant one could say.

What is the signifigance of that? Well basically, it is one thing. I don’t believe that NAMA will have an opportunity to interface with the youngest, fittest and brightest of talent out there amongst the construction world. Instead, what NAMA will face into is a wall of the cutest ‘old guys’ in the business, who have used short sighted tactics to put themselves into a position. That position having been made for them in the first place, on the backs of a lot of younger men and women would promptly received the shot gun not too long ago.

My own prediction as far as NAMA is concerned, is we will have to get through some kind of ritual dance with these old guys who still believe they have what it takes to put the ball in the net or over the cross bar. It will fail, and fail miserably at that. Business plans will all have to be started from scratch in roughly 3-4 years I predict and then we can really get down to business. It is unfortunate it has worked out this way. The best talent in the property industry didn’t get a gersey to wear on the field even, because of the ego’s of a few has been’s. But such is human nature and real life.

All the best. B.

@ Pól Ó Duibhir

“I thought the primary aim of Nama was to prevent the whole banking system collapsing.”

I don’t think so Pól. That was the purpose of the €450bn guarantee.

@ Karl Whelan & Greg

The comments from the property consultant repeat a frequent error which effectively conflates all debt with large property development debt, giving rise to the idea that, well, aren’t we all a bit responsible for the blow-out and all need to share the pain.

Leaving aside non-home owners (no blame for the property bubble) and developers and their banks (no pain from its bursting), it is not the true that all propery owners are equally responsible and share the pain.

BoI’s interim results show a charge of 0.47% against bad loans to residential mortgage holders, compared to a charge of 6.40% against property development loans. And the sums are also vastly different, €142mn versus €1.135bn (interim results p.4).

Maybe the confusion arises because government ministers and others have so frequently tried to complicate matters. To say, ‘we’re borrowing €54bn on your account and we’re handing to over to banks with only the hope we might get some or all of it back’, would be a vast over-simplification.


I would go further.

There is definitely a sense of “deal fatigue” surrounding NAMA now as far as journalists and the public are concerned.

People have been so worn down by the arguments of principle and the uncertainty that surrounded the bonds, the balance sheets and the business plans that they have lost the will to scrutinise this plan any further.

The impression that it has the imprimateur of the EU (by slavishly following the Commission guidelines to the exclusion of other imprimateurs such as Prof. Honohan’s) and that it will be subject to EU approval is enough for most. Generally people have other fish to fry these days and the Ministers are all fully occupied with their own departments.

In the meantime, as happens with deal fatigue, fundamental changes to NAMA have emerged which would have caused outcry a number of months ago but now only elicit comments form the hard-core NAMA nerds:

– The state is ceding control of the Master SPV to private interests;
– Transparency and accountability has therefore been greatly reduced;
– The risk sharing bonds have turned out to be a profit sharing device with banks paid premium rates so they will have a book value;
– The risk sharing component has been reduced to 5% in the legislation to prevent any discretionary adjustment,
– The bonds will be ordinary Treasury Bills and the Banks will seemingly have control of them (and therefore huge leverage over the whole State);
– The fantastic NAMA bonds/repo deal has evaporated;
– The legal certainty of NAMA has been reduced by introducing a privately owned company and a Shareholders’ Agreement;
– There is no clarity as to how the banks/private shareholders will be paid dividends/fees over the course of the lifetime of NAMA to achieve an accounting trick;
– The banks have not been incentivised properly to work out loans;
– The prevention of a duopoly has been paid lip service only;
– No credible calculation or methodology has been produced to show how estimated LTEV has been calculated from the estimated MV of underlying properties.

Time has moved on a lot since NAMA was announced and since the draft legilation was published. We have missed the window for attracting private capital back into the banks.

The scheme has gradually ceded strategic control and corporate and political accountability. The banks may be even more powerful after the deal if they are indeed solvent.

I have not had time to read the 400 odd pages of transcripts of the last committee stage debate. Who has?

However, the Minister’s explanation of how he had set his face against socialised profits which he saw in Honohan’s NAMA 2.0 followed by his explanation of why there had to be a high coupon on NAMA “subordinated” bonds has left me with a very jaundiced view of the whole affair.

I previously said that I thought it was wrong not to take the Minister at his word on the valuations. At this stage, I am wondering if actions speak louder than words. If we cannot have 5% genuine risk sharing within the generous LTEV then how can we have confidence in the valuations??

I forgot to mention that NAMA will now be buying loan assets off banks not accounted for in the €77bn estimated book value. Another minor issue…

@ Mark

“.. it is not the true that all propery owners are equally responsible and share the pain.”

I don’t disagree.

“BoI’s interim results show a charge of 0.47% against bad loans to residential mortgage holders, compared to a charge of 6.40% against property development loans.”

Mark, I’m not sure if you mean that this means that there isn’t a residential mortgage problem. There is. The banks (and building societies) are understating residential mortgage losses by vast amounts. That would be billions. Or as some politicians say when they are taking the vernacular “billons”.

The recent generous “offer” by the banks (and building societies) to suggest forbearance of six months (rolling) to residential mortgagors is not because they have found some sense of “social justice”. It is because they don’t want to recognise the losses of their residential mortgage books. It’s called extend and pretend.

“Maybe the confusion arises because government ministers and others have so frequently tried to complicate matters.”

I think they have successfully complicated matters. It was their purpose.

“To say, ‘we’re borrowing €54bn on your account and we’re handing to over to banks with only the hope we might get some or all of it back’, would be a vast over-simplification.”

Why is that a “vast over-simplification”? It is precisely what’s happening. There is only the slimmest of chances that the €54bn + €12bn (interest) + €2.5bn (costs) will be recovered.

The underlying security is not worth the €47bn touted by Brian Lenihan. It is probably closer to €35bn (if that).

NAMA is a Hail Mary pass to the future of Ireland and the current government don’t give a ….

They’ll all be retired by 60 enjoying full pensions.

“NAMA is a Hail Mary pass to the future of Ireland and the current government don’t give a …”

For those of you out there insufficiently familiar with American Football to understand Greg’s excellent analogy, a Hail Mary pass is a long, desperate and imprecise throw made, usually on a fourth (final) down (play attempt) at the very end of a game the team is about to lose. The idea is that, since the game is lost anyway, one might as well go for broke and hope for a miracle, whatever the consequences. Also, it is a means of getting rid of the ball in the short term, to avoid the quarterback (person who directs the offensive game by throwing or passing the ball) to avoid being ‘sacked’ (tackled by very big opponents while holding the ball).

I’m sure this is exactly the thinking in some government quarters. Unfortunately, the analogy is inappropriate in one important respect: Unlike a game of American football, victory/defeat is not binary for the Irish economy, rather the score matters . Perhaps not to the current government, but certainly to the taxpayers and their children.

@ Greg

I agree with every word, apologies for the confusion. I was trying (but failing) to be ironic .

I would be grateful for some clarifciation here from those who clearly know much more than I do, as I am becoming even more confused. My initial understanding was that the banks were prepared to take a haircut on the transfer of these dodgy loans to NAMA in exchange for bonds that could be held and rolled over or encashed via ECB repo (or via the market with a more severe haircut) to allow the purchase of higher yielding assets (e.g. longer dated government bonds).

Since the banks need both cash and high margin-generating assets to re-build their capital base I can’t see how this will be achieved without serious risk to the State’s credit-worthiness if NAMA issues 6-month T-bills. (In passing I’m also confused about the views expressed that the ECB repo option is no longer relevant, although some comment confirms it will still be there, but the window will close ere long and what’s out will have to be repaid.)

If the banks hold these T-bills and accept continuing roll-over they will yield less than the return on the dodgy portfolio that NAMA has taken over (as per the famous Business Plan), so what’s the advantage to the banks? If the banks cash these T-bills on the market I can’t see why the new holders would be prepared to roll them over and not demand cash on maturity – and this would be on top of the current fiscal deficit.

I’m afraid all I can see are “smoke and daggers” to keep the Government going for, at least, another 2 years – and then all hell will break loose.

Help, please.

Paul – I was about to draft a comment/query almost word for word on exactly the same issue and you raise even more valid issues/concerns.

Karl how about you explain NAMA in layman’s terms?

If my understanding is correct the government is issuing bonds (Ie. IOUs) to NAMA which the ECB will then exchange for cash, right?

@ Paul Hunt

1. ECB repo option still open, but with the ability to access the discount window likely to be reduced by the ECB next year (at least somewhat), it won’t be as easy or as lucrative to use the repo. But it’ll still be there and still be used by the Irish banks, and the ECB won’t be turning off the tap in full for quite a while yet.

2. im still not 100% on whether they’ll be ordinary t-bills or just short dated NAMA bonds, though there shouldnt really be any difference here right? People have been suggesting it’d be short dated debt rollovers for a good while now (Brian Lucey said it a good while back). Also, they could still repo the T-bills and use that cash to buy higher yielding assets like long dated bonds (liquidity might be an issue though). However the sort of ‘higher yielding assets’ the government really wants them to invest in is obviously fresh lending to business and homeowners.

3. im assuming there’s a gentlemans agreement to not sell the t-bills or NAMA bonds on the open market, at least for the first few years of the process.

4. the real benefit to the banks from NAMA is (a) that it takes the dodgy assets off them, and (b) it allows them to access liquidity via repo-ing the t-bills/NAMA bond, which they couldnt use the dodgy assets for.

@ Greg

And I can’t seem to do moral outage and irony at the same time. I think I’ll stick to the moral outrage.

@ zhou

Nice summary. I suspect “deal fatigue” was built in to the PR plan from the beginning. After all the government are being advised by masters of the black art.

Re the Shareholders’ Agreement, I hope some journalist who has not fallen asleep begins a campaign to have this put in the public domain. In and of itself there can be no “commercial sensitivity” and there is an exceptional public interest. If one takes the Minister at his word the Master SPV is merely a ruse to keep the NAMA debt off the Sovereign balance sheet. Though how this can happen if T Bills are issued defeats me.

“The fact that Nama will be borrowing funds at 1.5 per cent will give it some patience in working with viable projects.”

I find this strange as I calculate that the interest rate being paid on debt is 2.4% for 2010 based on the projected interest outflow and opening/closing debt balances as per the cashflow projections (table 5) in the “daft” business plan. To see the spreadsheet calculations, look at the entry for “Nama – The Real Default Rate” in my blog.

Using the same approach, I have also estimated that about €10.8 billion of interest could be rolled up over the 10 years. To account for it, either the “real” default rate on loans o/s could be either 34% or 4% or this interest is written off at some point.


Many thanks for the rapid and comprehensive response. It’s your point 3. that worries me. I think our good friend, the Chinese shade, Zhou, described this in an earlier thread as “the mother of all guns to the Government’s head”. Quite apart from the convenient political timing issue (the NAMA portfolio not generating sufficient cash – as per the Business Plan – only from 2013 on) this places the NTMA – the only state agency which has emerged relatively unscathed from this fiasco and whose international credibility is even more important now – subject to the whim of the domestic banks. This is extremely dangerous.

It also suggests that the scope for “fresh lending to businesses and homeowners” will be extremely limited in the short to medium term – which, of course, undermines a key objective of the exercise.

“Is there any way out of here? said the Joker to the Thief”

@ Paul Hunt

I am also confused about this T-bill business as per my previous comment.

However, given that there is so much confusion on the funding of NAMA (or is it the SPV?) I’m beginning to think that they have worked out the assets side (the loans that will be acquired) but are not at all sure on the funding mechanism.

If they knew exactly how they were going to do it I think they would let it be known. “We’ve got the funding…the naysayers are just a bunch of whingers…etc etc…”

Could be wrong but I don’t think NAMA bonds or T-bills can be held on (the banks) balance sheets. I think they must be converted to cash to satisfy short term funding liabilities. If I’m right and if the ECB repo window narrows or becomes more expensive Ireland could have a big funding problem 36 months from now. Fitch seem to get it.

@ zhou

“- The prevention of a duopoly has been paid lip service only;”

I think an oligopoly is part of the medium term plan. It will allow the cartel members to increase margins by stealth. Lip service to competition will be paid by highlighting this or that product or quoting this or that statistic but in the background margins will increase dramatically both on business and the consumer.

Karl is right. Nobody in government bar a chosen few actually understand NAMA, they are not supposed to. Their job is to believe what they are told.

Anybody with half a brain knows that the banks should have been left to deal with these loans themselves and after negotiating with their bondholders should have been recapitalised.

The problem is that their bondholders are the big european banks and their investors and shareholders are the big players in the irish economy. All of whom fianna fail are beholden to in one way,shape or form.

NAMA was never meant to insure lending could return to small business. What bank in their right mind would lend to small business in the current market.

NAMA will work for those it was meant to save and the Irish tax payer will be left to foot the bill. Que sera.

@ Greg

government bonds are considered to be a ‘cash equivalent’ as they are immediately liquifiable at fair value (yes, certain assumptions being made there, but thats how it is!).

@ Paul

point 3 is a potential issue for sure, but i suppose the banks have to buy into this whole process of Ireland recovering or they’re toast anyway. I dont consider it as much a gun to their head, its more like the banks and the state being passengers in the same dangerous vehicle.

@ All

just to clarify the “immediately liquifiable” comment, cos its somewhat technical.

If a bank conducts a repo operation whereby the give cash to a counterparty in return for government bonds, there is considered to be no affect on their liquidity position and no actual cash ‘outflow’, as they can turn the government bonds into cash immediately if they needed to.

Likewise, a bank can buy government bonds and consider them to be a ‘cash equivalent’ on their balance sheet.

Moments of hilarity in that puff piece from Bill Nowlan.

The easy course for Nama will be to get the loan repaid by the borrower over time

Yeah, Bill. thats working out real easy for the banks right now…

Nama will have the best brains vetting each business plan.

🙂 I presume Bill has read the business plan these ‘brains’ have came up with for NAMA.

I cannot see Nama being unreasonable but don’t expect them to believe fairy tales about future market scenarios.

apart from the official fairy tale which underpins NAMA.

If your plan is not credible Nama has the option of taking over the asset and benefiting from any increase in property values and excluding the original borrower from those gains.

ohhh scary…. Play ball or well take that piece of s**** you bought for 4 times what its worth off you, and we wont give you some of the profits (minus the green windfall tax) when we flog it for 5 times what its worth

actually, its a “cash equivalent” if its short dated, its just “readily liquifiable” if its a government bond. Either way, it would satisfy liquidity requirements.

@ Eoin,

There’s a problem Eoin. The banks need cash not bonds. They must convert the t-bills / NAMA bonds into cash to pay down short term funding. No?

IF “the government” issues short term debt to finance NAMA then at each maturity the holder of the T-bills / NAMA bonds can ask for cash from the government / NAMA.

If peak financing is (say) €60bn, the rollover of that in a different environment (36 months from now?) could become very problematic.

If, as the ECB have indicated, the window narrows the cost of funding NAMA will spike and contaminate the market for “ordinary” Irish Sovereign debt.

Is that a reasonable analysis?

While the efforts of the experts to intoroduce NAMA and restore the banking and SME sectors with funding are honourable and necessary, how many of us think that we will see any available finance in 2010?

@ Greg

i’d say its a reasonable analysis, though its still probably an unlikely outcome.

The Euro-area sovereign debt market is worth, lets say, a couple of trillion euros, and only a small fraction of this ends up in the ECB repo. There are other uses for government debt on a banks balance sheet. Some of it is just used as a liquid asset, some of it is used in private repo ops, and some of it is just held on an investment basis. The banks can find other ways to generate cash other than via repo or by not rolling them over. They are already starting to issue outside of the guarantee, and i’d imagine they’ll continue to deleverage in some market segments and devest from some business activities. And, as i said above, the banks simply have to buy into this process or they’re going to be toast anyway.

Apologies for not detailing experts. I would suspect that the likes of Brian Lenihan supported by Peter Bacon, Alan Ahearne etc and the other representatives of the NAMA debate would believe that SME funding would become available after the first 20billion euro of impaired loans are brought within the umbrella of NAMA. is this ot the case?

Well NAMA is supposed to get money flowing to SMEs etc. Both AIB and BOI are sitting on a wad of cash (€200m) that is ear marked for SMEs and only about 7% so far has been allocated. Where’s the rest in a high interest Halifax account.

Also, what good is Anglo Irish Bank to the Irish economy. About 100 banks in the US were let go to the wall, Anglo should have been let go as well. Less money would have then been required to be pumped into a useless TOXIC bank.

What was the point in giving BOI billions when they lost €1bn since April.

No bonuses for Bankers until this mess is sorted out and it might be better if a global decision was reached regarding the non payment of bonuses worldwide for the Banking industry so that the greed factor can be removed and this won’t happen again.

You do your f***ing job and you get paid, if you f*** up to get fired, no bonus etc.

I know of a guy who got the boot from AIB for fraud and now works for one of the large Stock Broking firms … great reference checking.

The whole financial industry needs to be tightened up. Too many Government cronies around to ensure that it doesn’t.

@ tommy c

Again Tommy, Karl is right. I am a small business owner and I am just about managing my current debt.

No matter how much money you throw at the Banks it will not feed down to any business with debt accrued in a boom.

The market situation is such that businesses will just not meet the new lending criteria the Banks will enforce. Believe me, I would not lend to me right now.

But as I said before NAMA was never intended to free up credit its intention is to protect bondholders and investors.

I hope I am one of those journalists who has not “fallen asleep”! Nama is a staggering deception of the taxpayer.

I agree that Nama shareholders’ agreement should be in public domain. Have just put it put on Twitter – referencing this site – and contacted Joan Burton and Ciaran Cuffe (who are also on twitter) and mentioned it to some newspaper contacts. Keep up the good discussion here please!


@Brian O’Hanlon.

Ireland has once again become a capitalist-gerontocracy – no surprise as it is virtually in our societal DNA. The type of thing you are saying is happening in all sectors – young people are simply being chucked overboard.

Not directly relevant to the thread, but just thought I’d throw it in anyway, as I know how anxious posters on this site are to hear good news.

According to a report in the Daily Telegraph today, commercial propery rents in the UK have started to rise. In addition, because the amount of new office space scheduled to come on stream in the next 18 months is the lowest for many decades, the report predicts that commercial property rents in the UK will rise by 15 per cent in 2010. The words ‘famine’ and ‘feast’ spring to mind.

I can’t really see any downside to this for Ireland.

When commercial property rents rise in Ireland, its a 2-edge sword. It helps the property debt problem but worsens competitiveness. But, when commercial property rents rise in the UK, it helps the property debt problem in Ireland (as 25% of NAMA loans are in the UK) AND improves Ireland’s competitiveness. A case of heads we win, tails we win.

Tommy C, Karl
At a debate in Athlone Donal O’Mahoney, Davys , said we would see credit flowing within three months of NAMA passing. So, early March then….

@Margaret E. Ward

When you are next in contact with Joan Burton, would you be kind enough to ask her if she is still sticking to her forecast that the population of Ireland will fall by 500,000 in the next year? She made this forecast to the Sunday Independent back in July. I challenged her here on her prediction at the time, but she didn’t respond. I wouldn’t normally trouble someone in this way. But, as you say you are a journalist, I’m sure that you are as curious as I am to know. Some may say that this is not relevant to NAMA and is a distraction from the main thrust of the thread, but I’d say its very relevant to NAMA.

@ Brian Lucey

It’s possible that credit will flow to Lawyers, Chartered Surveyors, Estate Agents, Accountants and the restaurants they eat in as they’re in for quite a bonanza in the coming years.

@ JohnTheOptimist

It is good news for NAMA that UK property is in demand as loans backed by UK property account for 20.7% of the €77bn book. Let’s hope that the NAMA loans are backed by “quality”. Has something to do with the fall in Sterling over the last year I suspect. The demand seems to be from abroad.

If this is a temporary bubble due to a lack of quality elsewhere let’s hope NAMA moves faster than our health service or they might miss the boat.

Northern Ireland accounts for 6.2% of the proposed NAMA book. Any news from our Northern brethren on the matter?

Sen. Dan Boyle has apparently been tweeting on the subject of NAMA in the last day or so as the bill passed its final stages :

a recent NAMA tweet reply states : “We borrow at over 5%. ECB is making NAMA bonds available at 1.5%”


Yep, that just about sums it up. Even the fellas who think they’re the smart guys have no clue.

There’s an interesting counter intuitive thing happening here. Often with economics, there is some complex thing going on and politicians misinterpret things by simplifying them. In this case, however, what’s really going on with the plan is quite simple and could be understood by anyone but pretty much everyone has been convinced that something else, something more complicated, is going on.

And, of course, this can only happen if there’s a concerted campaign to mislead people.

@ Karl

way back when i said that 95% of the Dail didn’t have a clue what was going with the structure of NAMA, and you all scoffed at me…. 😀

54 billion up in smoke. just like that. My guess is property has fallen 50% and is still falling. Total fall in prices about 70% by end of cycle. Loan book value approx 28 billion

Even if I am wrong why would you buy property loans before market has reached bottom?

@John the Optimist
I would put Joan Burton’s prediction in the same category as Brian Lenihan’s that if house prices fell a further 50% “we” would be ruined.
Simply nonsense. Houses are things to live in. The economy in the long-term will depend on exports. We can’t export houses.
Joan Burton seems to be embarassed by her foolish claim.
If Brian Lenihan blushed as brightly every time he made a mendacious claim as he should do we could stick him to one of the Ringsend towers and use him to warn low-flying aircraft.

@Margaret E Ward
Ask Brian Lenihan who are the fourty academic economists he claims told him they back NAMA but won’t go public? Tell us if you believe his answer.

@Karl Whelan
The pro-NAMA campaign involved more deception than the invasion of Iraq. On Iraq Bush and Blair genuinely believed there were WMDs.
Lenihan and his backers know that NAMA will lose €13.5 Bn to €29 Bn.
They just want to shove the problem on to future taxpayers.

Unless of course there is massive Lenimandering/Greenmandering of the property market…
Would even that be enough?

@ A.B,

thanks for the feedback. I wasn’t too sure about other sectors of employment. I had a feeling, what I referred to might only be specific to the building game.

On a positive side, I suppose in politics we do have a couple of younger elected Dail members. Maybe that is something positive. I had to laugh at the story in the papers recently, about Sean Dunne’s wife offering the youngest Dail member, a job stacking shelves at D4 supermarket.

It is symbolic really, of a kind of anti-youth culture in the property industry in Ireland.

I reckon that there are a few young politiicians who are not influenced by their older adversaries. There is a new bread of politicians like Michael McGrath from Cork and Dara Calleary from Mayo who seem to have a good grasp on the realities of politics and just happen to understand how things work in the business world??

For those of you interested, I did have a slight development to make on my previous post. All the best, B.

The best combination of all, is that of youth and age working together. The thing with property, is that in general terms, the older guys come up with the ‘bigger picture’ and then farm out the work to young people who have the energy to do the stuff. This is all backways in my opinion as far as urban development is concerned.

What I find is that the experienced people in property development are afraid to chance something in their mature years, which is different for them. They prefer to stick to what they know. This disables the process to begin with. A lot of developments are built which do not address the needs of today’s society and economy, never mind those of the next generation or the generation after that.

Nick Tyler came over to a conference at Trinity college last year and gave an absolutely awesome lecture about the difficulties in designing transportation systems for the future. Because the needs of society change so much through the years, in terms of how cities are used and function.

If I was given any control whatsoever of project vision scoping in property in Ireland, I would put the younger brains at the front end of the process and allow them do what they do best. Then we get to the backend of the process, the execution of the plan. This is an area in my opinion where young engineers and designers are let loose. That is a grave error on the part of the property development industry. Because the young people are simply too naive about how to go about construction.

That is where the experience comes in useful. That is the time in the development process when you need people in charge, who will not depart radically from what is known and proven. Before the angry young men or women rant off and tell me they know how to build – you don’t. I am talking about sequence, I am talking about organisation of the program and health and safety of workers. The younger designer or engineering simply has not had the time, opportunities or responsibility to learn that stuff. The older guys have that under their belt and it should be used.

But the big problem in the property development industry, is that the logical way to proceed has been turned backways. Society suffers, building quality suffers. But most of all the transfer of knowledge and understanding that should occur from age to youth, and from youth to age, simply doesn’t happen. I specifically blame all of the prominent architects, engineers and builders in this country for creating that awful mess.

Brian O’ Hanlon

Could it be that the ECB is no longer interested in accepting NAMA bonds as collateral?
Maybe the Germans got a little worried when they discovered that almost 40% of all NAMA funds were earmarked for Anglo, practically as much as AIB and BOI combined. It’s one thing to be play-acting around the Dail where you have a majority and compliant government partners; it’s another thing altogether when you go out into the real world and try to float that rubbish in front of seasoned financiers
When the SPV was first announced a few weeks ago, I heard some AIB executives made a trip to Abu Dhabi.
I wonder would it have been to try and interest a sovereign wealth fund in the SPV. From what I hear, NO TAKERS.
An SPV is usually the forerunner to a CDO (collateralisation debt obligation), has nobody told these guys that mortgage securitisation is soooooo yesterday.

The NAMA project appears to be deep in the ‘red zone’ and as far as the country is concerned it’s all for the best. If you have a problem which arose as a result of excessive credit growth and excessive debt levels you cannot solve the problem by piling up even more debts, which is what was going to happen with the NAMA bonds..
The day is finally approaching when these toxic debts will have to written down and in many cases written off, something which should have happened a year ago.
If the government invested the €7 billion which has already been wasted on the main banks, on a new debt free bank we would be in much better shape right now. The problem with Irish banks is not one of liquidity, but insolvency and the sooner the government recognises this, the better for all of us.
Drastically reducing the face value of residential mortgage debt is where the focus should be and not on dead parrots like Anglo (and maybe AIB). Professor Joe Stiglitz hit the nail on the head when he said “the government has mistaken bailing out the banks with bailing out the bankers.”
After the Wall Street Crash the US created the Home Owners Loan Corporation that reduced the face value of residential mortgage debt and refinanced home owners into longer term fixed rate mortgages that they could afford.
If we don’t do something similar, consumption is going to keep on falling, the recession is going to become ever more severe and foreclosures will keep on mounting. The commercial retail sector will begin to implode after the Christmas period and the government has painted itself into a corner by swallowing the bankers line that ‘there is no option to NAMA,’ of course there are options to NAMA. Dermot Desmond put forward one, Richard Bruton put forward another and good old Michael O’Leary of Ryanair told the government exactly how to handle the bankers.

A few weeks back I bumped into a very well know big-deal builder in a hotel in Kinsale and after the usual “are all you guys really broke” I asked him where did he see things going and he replied “this crowd (the government) don’t have the balls to do what needs to be done and the IMF will be here in the New Year to do their dirty work for them.”
It’s certainly starting to look very much like that now.

A very quick note I would like to add also. This may be familiar to some of you but it worth stating here in any case. The Japanese system of manufacture was something I always had in the back of my mind as I worked in the Irish construction industry.

It is worth bearing in mind the following. A worker on a Japanese production line may stumble across a defect in a product. That worker immediately stops working and a team is assembled to look at the problem and to find a solution. The interesting thing in the Japanese approach, is that the worker who finds the defect gets to lead the investigation. It is never the case, the supervisor takes over in charge.

The idea being in that philosophy, the supervisor’s job is to develop people. People will get the work out, not the management. The job of management is to open people to their creative potential.

What I have observed in the Irish construction industry is the opposite unfortunately. The youngest and brightest are thrown out. The management takes over the investigation process.

The workforce is supposed to keep their mouths shut and not be seen to speak negatively of management in any way. The whole process is basically driven by some system of obedience and imposed fear. Presumably these brilliant managers are going to solve everything and we should all be glad to go back working for them, some day, if we are lucky and say enough prayers at night.

Reference on the above is,

Managerial Engineering: Techniques for Improving Quality and Productivity in the Workplace

Ryuji Fukuda (Author)

Fukuda was chief executive of the Japanese equivalent of General Electric.

The literal position is that NAMA is borrowing from the banks to buy their loans. Now if that were all there was to it, it would be clear nonsense. Sure the banks may as well give me a loan of €54bn to buy the the loans. But what use would a BWII-Bond be as an asset? Would the ECB accept it for repo?

It is absolutely clear that the ECB is totally key to this whole arrangement. Why to Namaphobes continually argue that we are entirely within our rights to have these bonds accepted by the ECB for repo?

If substantial amounts of NAMA bonds are indeed repo-ed by the ECB, then the ECB is only doing this because of the NAMA guarantee. NAMA is in substance borrowing from the ECB using the banks as an intermediary. I can excuse Bill for not going into detail in his piece but the substance of what he says is correct.


“Why do Namaphobes continually argue that we are entirely within our rights to have these bonds accepted by the ECB for repo?”

Because we are (if by we you mean the banks.) Government-backed bonds are eligible collateral for ECB repo operations. Really, it’s true. It’s not even an “argument”, it’s a fact.

What’s the NAMA guarantee?

@ Cearbhall O Dalaigh,

Just say your comment appear there a second ago. I must have missed it between refreshing the browser or something. There is something I would like to ask Cearbhall, or people in general in fact.

To be honest, listening to much discussion at the Irish economy or elsewhere, I wonder what kind of involvement system we need to work on, going forward in Ireland. Norman Bodek makes the point that a Japanese company gets on average 20 no. implemented ideas per worker per year. In the United States, the average is around 1 no. implemented idea per worker every 7 no. years. Albeit, in the Japanese company the ideas are many small, simple and easy ideas. In terms of NAMA or anything else for that matter in Ireland, I do wonder what kind of involvement system we will hope to achieve.

@ Karl

Getting ready for much more important things like will we be going to SA?

But I just can’t believe that NAMA could have been pushed through without the acquiescence of the ECB, but we will just have to differ on that one.

Getting back to the topic, Bill is right in substance, NAMA is borrowing from the ECB to get the cash to buy their dodgy loans.

NAMA is borrowing €54bn from somebody. It is not the private sector. Formally it is the banks, but it’s a nonsense to suggest that bankrupt banks can lend money to save them from bankruptcy!!

Ultimately the reality is that NAMA is borrowing cash from the ECB which is channeled back to the banks in return for their toxics.

If anyone is interested in an example of a new hybrid and radical concept, which is unlikely to be executed by the exiting management of property companies in Ireland – but is an idea with reasonable potential, all the same – you can read up a description of the idea at this thread:

It underlines what I referred to above, that it is about building solutions for the future. The challenge facing us, because those solutions may not be anything like what we were familiar with in the past. I propose a ‘hybrid’ concept, somewhere between a hotel and an office building.

Karl, you say “Government-backed bonds are eligible collateral for ECB repo operations. Really, it’s true. It’s not even an “argument”, it’s a fact.”
Why then do you think this SPV (special purpose vehicle) was born?

Originally I heard the Finance Minister say that the SPV was formed to keep the NAMA borrowings off-balance-sheet and thereby protect our credit rating and keep down our borrowing rates. But I watched that idea bomb spectacularly as within days of the SPV announcement the ratings agency Fitch cut Ireland’s credit rating by two notches, reducing our sovereign rating to AA-, from AA+, skipping the AA rating.

Next the Finance Minister gave the following explanation for setting up the SPV; — private investors will own 51 per cent of the SPV in return for a €51 million investment. NAMA will own the remaining 49 per cent in return for investing €49 million, giving the SPV €100 million in capital. The mechanism will allow the Government to exclude NAMA’s €50 billion-plus liability from the national debt, and avoid a serious breach of the EU’s stability and growth pact, which limits the amounts that euro-zone states can borrow relative to the size of their economies –.
That’s total nonsense. How can an entity with finance of €100 million take on €50 billion of debt?
SPV’s are normally formed to ‘package’ income producing assets and shares in this ‘package’ are then sold to investors for a specified yield calculated on the cash-flow.
This is sometimes called securitisation and the name originated in America where shares are called securities. This is at the root cause of the current international financial crisis.

Bankers sold mortgages to people who had no hope of repaying them, on properties which were grossly overvalued (sub-prime mortgages), they then dropped these toxic loans into an SPV. But in order to get people to buy the shares they needed to have a good credit rating attached. Next the banks got AIG to ‘insure’ the debt by what became known as a Credit Default Swap (CDS). Once the CDS was in place the ratings agencies were able to give them a AAA rating. The investors then bought the shares based on the AAA rating.
But the whole house of cards came tumbling down when it was discovered that AIG had no money to pay-out on the ‘insurance’ policies when the debts defaulted and they should never have been allowed to insure this toxic waste in the first place.
The biggest problem with securitisation is no one has a vested interest in performing due diligence on the borrowers. This was the main cause of the current crisis in the banking system.

But that’s not the only problem our bankers created. In addition to the problems with securitisation the banks also have another major problem: paying off billions of debt coming due. At issue are so-called ‘floating-rate notes’ – these are securities used heavily by banks to borrow money. A large amount of those notes, which typically mature in two years, will come due over the next year or so, at a time when the banks are struggling to raise fresh funds. That is going to force the banks to issue expensive new debt.
The debts of the builders and property speculators are only a portion of the problem.

The whole thing is a total and unmitigated disaster.
I’m not seeking to promote my book here, but if you want to see astronomical debt figures which attached to Anglo Irish bank AFTER the government takeover, it’s all in there (I’m talking billions).

I don’t have any time for these people in the public sector who are now going to begin going out on strike, but it’s very easy to see why they feel aggrieved at having to pay for this incredible mess and nobody is being held accountable.

@ Cearbhall

I think the comparison beween the NAMA SPV and a typical sub-prime securitisation is a bit stretched.

The return on 95% of the bonds in the SPV will be quite independent of the performance of its assets. 5Only 5% of the bonds will be similar to toxic bonds in a normal securitisation.

When it comes to the equityholders, the majority 51% seem to have got an awful deal. Topside they will earn government bond yields plus a 10% bonus, depending on the performance of the SPV’s assets.

The 49% equityholders have a fantastic deal qua shareholders. For a mere €49M they will get all the residual profit of the SPV, conservatively estimated at over €4Bn according to the SPV’s business plans.

Of course this fantastic deal is to compensate them for guaranteeing the bonds, but even so if they lose out of this whole NAMA experience they can go after the bondholders’ profits in all future years.

Clever stuff, Mr. Lenehan.

Brian Woods II. –
Do you by any chance work in the government , NAMA or a bank Brian?
The only reason I ask is that you are the first person I have come into ccontact with who knows the value and quality of the bonds going into the SPV.
Even Brian Lenihan doesn’t seem to know that, or if he is he’s keeping it very much to himself.


I don’t understand your point.

For what it’s worth, I’m the retired actuary of a bank life assurance company. I’m not a banker nor do I have any conflicts of interest. I was just saying that, despite the name, NAMA SPV is light years distant from a typical securitisation SPV.

I agree with you that sub pime SPVs got us into this mess and that gives them a bit of a bad name. I think if NAMA employed PR agents they might have come up with something with less of a bad reputation, but let’s be thankful that they avoided that waste of money.

Sub-prime SPVs? Isn’t that what the Master SPV is? It is taking assets, only 40% of which are generating cash (note – not performing any more, just generating cash) at a discount to book, but above market. It has juicy headline interest rate spreads, its success is posited on capital appreciation, and the borrowers are, for the most part, deadbeats. That says sub-prime to me…

What you say supports the thesis that Merrill Lynch created NAMA as a giant piece of financial engineering to achieve Bacon’s objectives.
This is going to be terrible but transfixing to watch.

NAMA in simple terms;
The bankers created a catastrophic mess and the solution being presented is a massive releveraging of the public sector which is going to be unsustainable and will only lead to another crisis.

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