Powerpoint and Analysis

This blog has periodically featured posts on the role of visual devices to improve analytical understanding  –  this NYT article reports on how the US military has become a slave to Powerpoint (and features an interesting slide).

Death of Angus Maddison

Economic history has lost two giants in the past month: first François Crouzet, and now Angus Maddison. Maddison was a larger than life character and a committed Hibernophile who will be impossible to replace. Both men will be greatly missed.

20 million euro for NEW energy research centre

The government will establish the European Energy Research Centre at the Tyndall National Institute, and provide initial support of 20 million euro. See here.

Tyndall has no prior experience with energy research, and I must admit that I was unaware of its existence until the 20 million euro rumour emerged a few months ago. Wikipedia has an interesting entry. Then again, sometimes it is good to start with a clean slate.

Bank of Ireland Capital Raising Plans

The Irish Times reports about Bank of Ireland’s capital raising plans here and provides links to all the relevant documentation so I don’t have to.

It is, of course, good news that there’s some sign that private investors are willing to invest in one of the Irish banks. Still (warning — malcontent comment alert) it’s perhaps best to put this in context. These private investors are now willing to do this because the Irish government is buying a portfolio of €12.2 billion in property and development loans from the bank, only €5.4 billion of which are performing, for €7.9 billion (assuming the initial 35% discount is applied to the whole book.)

The idea that private capital sources would renew their interest in investing in the Irish banks after loans had been transferred to an asset mangement agency was also an opinion offered last year by advocates of temporary nationalisation. Whether the route we’ve travelled to get to this juncture has been the right one is still an open question.

It is perhaps because there are still so many questions hanging over his approach to the banking crisis that Brian Lenihan persists with a rhetorical strategy in relation to the banks that largely depends on overstatements, half-truths and falsehoods such as his comments on Morning Ireland today about people who wanted to “nationalise the whole system”, about how temporary nationalisation would have lead to other banks becoming “just like Anglo” and how the bank guarantee scheme has been cost free, indeed how we’ve made a tidy profit out of it.

Are One Third of NAMA’s Loans Producing Cash?

I received an email recently from someone who objected to my characterisation of NAMA’s goal of being cashflow positive as something of a loaves and fishes act.

The argument put to me was that while Brendan McDonagh says that only one third of NAMA’s loans are income producing and NAMA is projecting to pay a discount of 47% for these loans, the fact that the interest rate on NAMA’s income generating loans are higher than on its bonds means that it will still generate positive cash flow.

Specifically, NAMA’s bonds will pay six-month Euribor while, we are told, that its assets are generally Euribor plus two percent. In this case, NAMA would be cash flow positive as long as 0.33(i+2) is greater than 0.53 i. This requires i < 3.3. In other words, as long as six month Euribor is less than 3.3% (it’s currently about one percent) then NAMA would be cash flow positive.

I don’t disagree with the algebra of the above paragraph. But I do disagree with some of its underlying assumptions. I’m going to write a couple of posts on the various aspects of NAMA’s cash flows.

Here, I want to discuss the extent to which NAMA’s loan portfolio is generating cash.