Today’s Sunday Times carries an important story from Sarah McInerney and Stephen O’Brien. Many people had been thinking that the market valuations applied to loans being transferred to NAMA would be less than had been assumed a few months ago because property prices are still falling.
However, it turns out that this isn’t necessarily the case. In an answer to a Dail question from Fine Gael TD Deirdre Clune on March 10, Minister Lenihan said the following:
Section 73 of the NAMA Act sets out that NAMA may set a date by reference to which the market value of a bank asset or property is to be determined. NAMA have set this date as 30 November 2009. It follows that any property decreases or increases after 30 November 2009 will not be reflected in the NAMA market valuations.
So, NAMA no longer cares about the current value of the assets it is acquiring. Even though no assets have yet being transferred and the transfers will take place in a drip-drip fashion over the next year or so, NAMA will not bother calculating the actual market valuations for these assets. Instead, NAMA is adopting a Marty McFly approach to asset pricing: Let’s just go back to November 2009, when things weren’t quite as bad as they are now.
This decision raises a number of questions:
Who made this decision? The Sunday Times indicates that Minister Lenihan has made this decision. The Minister’s Dail answer suggests that “NAMA have set this date.” So was this a political decision or one made by a NAMA official? Since the figures for asset transfers are so huge, even relatively modest changes in property prices since November 2009 would result in a reduction of billions in the amount of taxpayer money being used to acquire these loans. When a decision of this magnitude is made, the public deserves to know who made it and to have the rationale explained.
When was this decision made and why was it announced in such a low-key fashion that it wasn’t reported in the national media until eleven days later? NAMA’s webpage contains plenty of material. Why wasn’t this decision explained?
As regular readers will know, I have always been sceptical of the NAMA pricing process. We have known from the start of this process that transfer prices close to what these assets are really worth will result in the banks being insolvent and probably being nationalised, an outcome that the government has consistently stated that it does not want. So, even before the details of the bill was released, there were clear signals that the process was unlikely to ever really be about finding the true value of these assets and more likely to be about paying a high enough price to prevent insolvency.
However, the strictures of the European Commission have required a formal approach based on paying market value plus a potential LTEV adjustment. And falling market prices have had the potential to drive the banks into insolvency, even under LTEV pricing.
This appears to be where the November 2009 decision comes in. At one stroke, falling prices in the current market don’t matter. With one leap into the silver DeLorean (an Irish car!) we no longer need to worry about trivialities like what the assets we’re acquiring are actually worth. And sure nobody will notice if we barely tell them.
Finally, I note from the Sunday Independent that part of the reason for the delay in the transfer of assets is that “At least two institutions are said to be digging in their heels on the valuations.”
So here we are, an asset sale with only one buyer, acquiring assets from sellers who are insolvent if the assets are sold for their market value. However, the buyer has committed to paying the sellers more than market value. And rather than being grateful, the sellers are “digging in their heels” on valuations. You couldn’t make it up.