NAMA Tranche 2 Transferred

Details here. Mysteriously, there are no Anglo loans being transferred yet in this tranche. We’re told “Loans will be acquired from the remaining institution – Anglo Irish Bank – over the coming weeks after all necessary due diligence material has been received and evaluated.” It does seem deeply odd that the bank that NAMA is supposedly having the greatest difficulty processing information from is one that is fully owned by the state. An alternative intepretation offered by Jagdip is that the delay relates to EU State Aid nexus.

The discounts on these loans are higher than the first tranche. I don’t think, however, that I can agree with Brian Woods II that this raises the potential profit for NAMA. The new tranche reflects new information on valuations not available when the business plan was put together, though unlike the first tranche, no valuation estimates have been provided. So, in this case, the lower prices paid likely also reflect a lower long-term economic value. It would, of course. be nice to see NAMA re-issue the business plan after each tranche but it ain’t gonna happen.

90 thoughts on “NAMA Tranche 2 Transferred”

  1. @Karl,

    Thanks for the tip though the link which examines possible EU approval for t2 for Anglo should be at

    http://namawinelake.wordpress.com/2010/07/19/has-the-eu-a-hand-in-anglo%e2%80%99s-second-tranche-transfer-to-nama/

    If anyone has the chance to put the question to the DoF, could they ask if the DoF is *right now* seeking EU approval for a further injection into Anglo – after all the last EU approval of €10.44bn has been drawn down to the tune of €10.3bn.

  2. @Karl

    I was being sardonic – never a wise move! I will take your word for it that I misunderstand your earlier point but I still think Mr Kerrigan is misreading your spreadsheet.

  3. @ BW2

    I know you were pulling my leg but, at the same, there was a serious point there: Do these figures change the estimates of potential profit because they show lower purchase prices? I think the answer is no but we’re pretty bereft of useful information.

  4. @Karl & Jagdip
    I think Jagdip is entirely correct in his appraisal. We already know that the Anglo board has an unreasonably low estimate for the haircut for tranche 2 – even without a change in the level of haircut. As the haircut for all the other banks has increased, with INBS increasing by 14 percentage points, does anyone seriously expect that Anglo will buck the trend?

    Back your horses – I’m for a double figure increase in the Anglo haircut…

    It has to be said, though, that there is no necessity to do anything with future funding for Anglo immediately. Anglo only needs to be solvent at the end of the year…

  5. Does the dramatic increase in haircut suggest that the loans are significantly worse or that NAMA are quietly ignoring the cutoff dates for LTEV values?

  6. @hoganmayhew

    I think NAMA and indeed the banks transferring the loans are bound by the date stated in the LEV Regulation, ie analyses produced upto 10/1/10 and a review range of 1985 – 2005.

    http://www.nama.ie/Publications/2010/NAMALongTermEconomicValueRegulation.pdf

    As we know NAMA have selected 30th Nov as the Valuation Date and MfF says we must go back to the EU if we want to change that. But given Irish residential is off by 8%+ as is Irish commercial and Savills say that development land is *now* up to 90% off peak value, shouldn’t NAMA be respecting its own main objective – to protect the interests of the taxpayer – by seeking a change in the Valuation Date to a more current date?

    We all knew LEV was State-aid, even the EU who modified the calculation of what was to be paid to the banks in the Feb 10 Decision. However, given the change in property values since the NAMA Valuation Date, banks are getting far more State-aid than was envisaged. At what point does the EU intervene and say we’re paying too much for these loans?

  7. Interesting that Anglo loans are not included in this transfer.

    I have raised this several times before, but the asset quality of Anglo’s loanbook must be very seriously impaired. Which brings me back to my old bugbear, the Masterloan Repurchase Agreement that Anglo have with the central bank.

    The last time we got a report on its size was from the Dec Anglo books – when it was an €11.5bn collateralised by €12.49bn worth of assets – a writedown of only 8%. They are also accounted for in the CB annual report as ‘other assets’ with this explanation: “Other assets expanded by €12.0 billion, primarily reflecting the provision of special liquidity facilities advanced outside of the Eurosystem’s monetary policy operations.”

    (see page 59 and page 83 of http://www.centralbank.ie/data/AnnRepFiles/FINAL%20ANNUAL%20REPORT.pdf )

    So, it seems to me that an asset writedown in Anglo would serve to show how bad the assets the CB are holding against this loan to Anglo, leading to a large loss for the CB, or a large loss for Anglo. The longer this sort of bad news can be delayed, the better..

  8. @Jagdip,

    “At what point does the EU intervene and say we’re paying too much for these loans?”

    I suspect officials at DG COMP who are reviewing the revised Anglo restructuring plan and monitoring these transfers are considering this question. But my understanding is that they can rule only in the context of the competition impact. This is really a fiscal trade-off issue and probably one for DG ECFIN. The less paid for these loans the more recap is required – and vice versa. Just focusing on AIB and BoI, it means more (or less) NAMA bonds and less (or more) “real money” – more drawdown from the NPRF, dividends forgone, direct Exchequer investment, etc. So the Commission (as a whole) may be compelled to be ‘relaxed’ about any NAMA overpayment as the aim is to kick it into the long grass.

    Am I missing something?

  9. @Paul Hunt

    I’d agree that Anglo, INBS and EBS are special (basket) cases and if NAMA reduce their valuations then these three financial institutions may simply need a greater bail-out from the State. But even the EU must be getting unprecedentedly uncomfortable with the sums surrounding Anglo and INBS.

    With respect to AIB and BoI, two institutions which the MfF said wouldn’t cost us a penny last Friday, why should these two commercial organisations get *additional* State-aid via inflated property valuations?

  10. @Karl

    “Do these figures change the estimates of potential profit because they show lower purchase prices? I think the answer is no but we’re pretty bereft of useful information.”
    That is my argument – the answer is “no”, maybe there is something different about the earlier situation but let’s bury that dead horse now.

    These are fairly worrying deteriorations. My understanding is that this is due to the second tranche being inferior rather than a more pessimistic economic projection on behalf of NAMA. BoI shareholders who recently put in a few billion into the company bought a bit of a pig in a poke. At least when we AIB shareholders get asked we should have a clearer idea of what we are subscribing for.

  11. @Frank, thanks, I hadn’t seen that.

    Does lead to other questions though..

    If the director of Anglo knows where the writedowns are going to be, why does NAMA not know? (as appears to be the case today)

    Also, if the writedowns are known, why do the Master Loan Repurchase Agreements still exist?

  12. So. 50% of anglo 36=18b plus 4b to get 22. Now, I’m abroad but what pct if the remaining loan book is 4b?

  13. @ KW

    care to change you view that the prices paid in subsequent tranches will be set so as to avoid full nationalisation of AIB.

    It does look like there is some evidence of prudence on the part of NAMA. The body is arguably dropping its bid to reflect the underlying value of the collatoral. In so doing, they are even undermining the value of the NPRF investment in BOI. Full nationalisation of AIB looks more and more likely.

    Increasingly, the focus is going to be on NAMA strategy to manage the situation. Will it sit on assets, develop them or sell in the near term?

  14. @BL that would be a writedown of 11.25%

    (assuming the €35.6bn of assets remaining after NAMA as reported on Dec 31st 2009 is still broadly correct)

  15. @ tull

    “care to change you view that the prices paid in subsequent tranches will be set so as to avoid full nationalisation of AIB.”

    Good question. I’m sticking with my viewpoint on this but that’s not to say we haven’t reached squeaky bum time in Ballsbridge!

  16. @ Frank and Lorcan

    Alan Dukes’s letter doesn’t explain it very well but he’s right — the €33 billion figure involved a double counting. €22 billion is supposed to be the figure that makes Anglo solvent and that includes it being able to pay back the CB. You can’t count the €22 billion and add in the €11 billion on top of it.

  17. @Brian Lucey,

    buonasera to you! The 2009 Anglo accounts put the total loan book at €72.1bn with just under €36bn earmarked for NAMA. The non-NAMA €36bn had a provision of €4.9bn so an extra €4bn would bring the provision upto €8.9bn or 24%.

    http://www.angloirishbank.com/About-Us/Reports/Annual_Report_Accounts_2009/Annual_Report_Accounts_PDF.pdf (page 10 PDF)

    The EU recently described Anglo as a “monoline” company involved in one sector only. Anglo has taken quite a few receivership cases this year in its own name for investment property (office blocks, hotels, shopping centres) and it is hard to imagine the losses on these loans will be much different to the NAMA stuff.

  18. All this suggests to
    Me as jagdip notes: more
    Money needed for Anglo, the Baal of modern ireland.

  19. Anglo, the Baal of modern ireland

    Anglo is the symptom; Allied is the disease. AIB delenda est.

  20. @Karl Whelan,

    Yes, but doesn’t that argument rely on the assumption that the Anglo writedown of €22bn is the correct figure?

    If you start with that assumption, then Alan Dukes’ arguments are correct. If however (as I think myself and Brian are doing) you start to question that assumption then the double counting argument loses its foundation.

  21. @ Lorcan

    I think you are right. The Anglo losses are a function of the amount being tranferred & the haircut. As the latter gets bigger, Anglo’s losses begin to exceed 22billion. So the state pours money into the hole (topkill?) or it negotiates with the bondholders. Since there are senior bondholders left other than those issued under the guarantee that yields nothing.

    I expect to wake up one day to find that the CB has agreed to take a haircut on in Master Loan Agreement thus avoiding the need for further state support. I bet you this is spun as bond holders agreeing to take a haircut.

  22. @LorcanRK

    In any case, aren’t the assets and liabilities of all the Eurosystem’s constituent CBs effectively pooled together to a large extent?

  23. @anonym.

    Usually that is true. But in the case of the Master Loan Repurchase Agreements, they are a solo run by our Central Bank. Or as the cb puts it, they are a: “provision of special liquidity facilities advanced outside of the Eurosystem’s monetary policy operations.”

    So as a solo run, any losses will appear on the cb’s P&L account.

  24. 22b as a lower bound I feel now. Then were into uncharted territory. Whatever about a srs for commercial banks do we need one for central banks? What does a central bankruptcy look like?

  25. Jagdip says: As we know NAMA have selected 30th Nov as the Valuation Date and MfF says we must go back to the EU if we want to change that. But given Irish residential is off by 8%+ as is Irish commercial and Savills say that development land is *now* up to 90% off peak value, shouldn’t NAMA be respecting its own main objective – to protect the interests of the taxpayer – by seeking a change in the Valuation Date to a more current date?

    What we have in Ireland is super volatility. In the price of fossil fuels, compounded with the price of land volatility. It makes economic planning, seem like a bad joke. The trouble is not the fact that development land is 90% off its peak value. The trouble is the fact, that land values change up or down at such an alarming rate in Ireland, and we have no policy through which to introduce a degree of stability. If future governments in Ireland succeed in kick starting another bubble type of economy, that development land value is going to radically alter yet again. If will have the undesireable effect of making many business plans redundant. Only the poor sods down at NAMA (and the poor sods here at IE blog) would even bother to try to plan. Developers today are so litargic about investing any creativity or effort in coming up with a plan. Because they are aware of how fast the development land value can change in Ireland. For instance, take the example of mortgage arrears assistance programmes. If we attempt any solutions today, to try and assist people in negative equity – what may now appear as a display of mercy for people in difficulty, could very quickly turn into the opposite, an unfair subsidy to a certain sector of society who own property. What do you then? Squash the mortgage arrears assistance program, or let it run? The same people today, who go on RTE PrimeTime programs and are so good at playing the victims, were the ‘smug’ people about three years ago. They looked down their noses at anyone who didn’t own property. Which is specific to Ireland, because elsewhere in Europe, property ownership levels are much lower. BOH.

  26. I said above: we have no policy through which to introduce a degree of stability.

    Take as an example, a modest home put on the market for rent in 2010. One of the key things to include in an advertisement is a bus route. This home is convenient to buses no’s, X, Y & Z. But who pays for the buses? Society pays. But the person renting the home gains the benefit. What we need to do is to tax that gain, which certain property owners accrue through the rental value of the property. And re-distribute the proceeds from the said tax, into imrprovements and extensions of the same public services, to areas which need better services. By such a taxation mechanism, the value of other properties can be enhanced, and it will make the problem of depressed values a lot easier to tackle, easier to plan around. The trouble is, we have too many homes in Ireland which are not convenient to bus routes, or train routes and never will be. I hope it is becoming apparent at this stage, to everyone who reads the Irish Economy blog, that very little of the ‘value’ of a ‘property’ is actually accounted for by construction costs during a period of economic prosperity, or otherwise. BOH.

  27. @Brian Lucey
    “22b as a lower bound I feel now. Then were into uncharted territory. Whatever about a srs for commercial banks do we need one for central banks? What does a central bankruptcy look like?”
    That would be the state…

  28. sorry meant to say: the state is responsible for any shortfall in the Central Bank’s accounts, just as it receives any profit from the Central Bank’s operations – 988 mn this year (including a share of the ECB’s profit or loss).

    See the excellent Willem Buiter for example:
    http://blogs.ft.com/maverecon/2009/02/yes-we-can-have-a-global-depression-if-we-really-contintue-to-work-at-it/
    “For losses incurred in the normal market operations used for monetary and liquidity management by the Eurosystem (which are implemented in a decentralised manner by the national central banks (NCBs) of the Eurozone), there is the rule that such losses are shared by all the NCB’s in the Eurosystem in proportion to their relative shares in the capital of the ECB.

    For losses incurred because of an NCB acting as lender of last resort towards one or more specific banks in its jurisdiction/country, the national Treasury of that country would have to indemnify the NCB in question. Indeed the NCB would only act as lender of last resort to assist specific institutions as an agent of the national Treasury, and not in its capacity as a member of the Eurosystem. A prior commitment by the national Treasury to indemnify the NCB for any losses incurred during a lender-of-last-resort-operation would be required before the NCB could engage in such an action.”

  29. Looks like loan transfers from Anglo are set to become a real ding-dong according to the Irish Times this morning. Anglo is state owned and NAMA also? Increasingly it seems that the whole bank ‘rescue’ will result in tears for the taxpayer for a very long and expensive time.

  30. I expect to wake up one day to find that the CB has agreed to take a haircut on in Master Loan Agreement thus avoiding the need for further state support. I bet you this is spun as bond holders agreeing to take a haircut.

    Or, in an observationally-equivalent outcome, they take so long on getting the special resolution regime passed that the only one left to burden-share with is the Central Bank.

  31. Does anyone have a view as to why heavily insolvent Anglo would apparently object to transferring Paddy McKillen’s loans and getting nice fresh ECB-redeemable bonds in return?

    According to Paddy his loans are good which would presumably mean Anglo got paid close to their nominal value? When you’re insolvent to the tune of billions as Anglo was(/is?), wouldn’t you be trying anything to raise cash?

    Simon Carswell seems to be the only journalist to have the story in some detail.

    http://www.irishtimes.com/newspaper/breaking/2010/0720/breaking1.html

  32. @ Jagdip

    same reason NAMA wants them – to provide positive cashflow against the bad loans, so that the operational cashflow aspect (as opposed to the core solvency/capital aspect) is better than it otherwise would be. Remember, Anglo is still looking for a reason to have a Good Bank element in future instead of a wind down of the entire entity. For every good loan it loses, the relative size of poor, bad, or less-than-perfect etc loans will increase, and so the case for Good Bank will be less.

    Anglo is, in theory, doing what its supposed to be doing – looking after itself to the fullest extent possible as a legal corporate entity, for the benefit of its shareholders. But it seems bizarre that someone in the DoF/Taoiseach’s office is not making some phone calls to Aynesley & Co and telling them to back the funk off on this.

  33. @ eoin,

    Could it also mean that NAMA is actually paying less than the LTEV of the loans and Anglo is being “disadvantaged”. This is a classic inter agency spat between two quangos.

    @ Frank Galton
    The good ship “Burden Sharing” has sailed. The only meaningful quantum of real seniors in Anglo were issued under the guarantee.

  34. So, instead of resolving the bad debt, we know have four different branches of the Irish state – NAMA, Anglo, DoF and the Courts, arguing to decide what to do with the good loans!

    You couldn’t make this stuff up….

  35. @ Tull

    well given that the LTEV cannot be more than the actual nominal on the loan (right?), a fully performing, non-provisioned loan might be transferring at original book value to NAMA. As such, there’s no ‘advantage’ to Anglo to transfer it (except for liqudity i suppose). And given that its struggling to keep itself in existence, its needs some scale and decent customers to keep going as a Good Bank. As you said, classic quango sword fight, but NAMA is supposed to be the clear systematically essential quango, and Anglo the one we still have question marks over, so this shouldnt even be an argument.

  36. Eoin said, As you said, classic quango sword fight, but NAMA is supposed to be the clear systematically essential quango, and Anglo the one we still have question marks over, so this shouldnt even be an argument.

    Lets be very clear about this, the basic question from the point of view of the Irish Economy blog, is the one asked by professor Brian Lucey (among others), so often. That is, why aren’t more economics professionals involved directly in the affairs of permanent government? There is an answer to this question, which I would like to pose if I may. I mentioned price volatility above. I have been thinking about it, and the super-volatility, that Ireland experiences is derived from several areas. Above I mentioned fossil fuel dependency and land value volatility. But we could also include the pro-cyclical economic policies of our elected governments. We could also include the narrow-ness and un-sustainability of our taxation base. But many peoples’ favourite root cause for volatility in Ireland, is the pro-German monetary policies of the European region. Compounded by all of that, are issues at the verges, such as Ireland’s dependence on foreign direct investment. Which comes and goes as quickly as the grey skies over the western coast. The thing I am most clear about myself, the reason we NAMA, is because we need an ajency in Ireland of some kind that can work despite of the many sources of price volatility at work in our economy. NAMA is able to operate according to a business plan which no other kind of organisation could. In Ireland, we need an ajency that can go about its business, and advance forward, based on the knowledge (inscribed into its own business plan), that it may make a horrendous loss, or may make a small profit. In the real world, companies have to seek out shareholder capital, which is free to move, if it feels the business plan is too ridiculous. You could not sell the NAMA business plan to any shareholders, except the ones that are captive, like the electorate of this little island. The point to bear in mind, is not that the business plan of NAMA predicts enormous volatility of outcomes. But where does the said volatility derive from? The reason why economists are not included in permanent government in Ireland, is because the said volatility exists, and it makes a complete joke of the concept of economic planning. NAMA as an agency, is one organised around these key assumptions. BOH.

  37. @ BOH Are you for or agin’ NAMA, don’t be volatile!

    I read your argument as a sort of “chaos theory” which argues that the future is simply not capable of any sort of approximate guesstimate ergo no place for the experts.

  38. It is not clear that there is wrangling between Anglo and NAMA. However, it does show up some of the problms that could have arisen if all the banks were nationalised.

    @Jagdip

    “As we know NAMA have selected 30th Nov as the Valuation Date and MfF says we must go back to the EU if we want to change that.”

    Presumably changing the date to a later date would be a formality?

    @Eoin

    “well given that the LTEV cannot be more than the actual nominal on the loan (right?), a fully performing, non-provisioned loan might be transferring at original book value to NAMA. As such, there’s no ‘advantage’ to Anglo to transfer it (except for liqudity i suppose).”

    I think the key is the application of the standard discount rate to LTEV where there is no cashflow, e.g. if Anglo lends €5m secured on land with LTEV of €100m but generating no cashflow then the €5m LTEV is still discounted to account for cost of funds and enforcement. If Anglo keeps the loan it expects to get all its money back plus all additional interest. However, if it goes to NAMA it takes a hit.

  39. @ BW II,

    Not a bit of it. I think that we can accomodate the experts more into the system here in Ireland, as long as we learn and make concerted policy efforts to deal with the volatility. If you look a lot at issues such as carbon taxation and Co2 emission calculation – you very quickly realise, that even the best economic plans come unstuck very quickly – because the pressure for carbon taxation increases with increased price of oil. When the price of oil cools down again, the experts are always left there with their economic plans, and they become like yesterdays newspaper – undervalued. Many great experts had a brief spell of fame during the oil crisis of the 1970s, and since then have drifted in the wilderness. Remember, it was Richard Nixon who passed many of the first environmental protection legislation in the US. It was Jimmy Carter who installed solar panels on the roof of the white house, and it was Regan who had them removed. Just because we have a brief spell of forward thinking, economic and sustainable planning, doesn’t mean it will last very long. Especially where the price of oil or development land is concerned. BOH.

  40. @zhou_enlai

    Here’s what the MfF said three weeks ago in the Oireachtas – full link with context below the extract:

    “The valuation date was set in advance of the voluntary application by the banks to be designated as participating institutions. Any change made now to the initial valuation date would create inconsistency between the valuation placed on assets already transferred as part of the first tranche and those transferred in subsequent tranches. It must be remembered that the European Commission on 26 February 2010 approved the approach taken in establishing NAMA and the valuation methodology adopted.A change to the valuation methodology would necessitate a new notification to the Commission, and a new decision by the Commission on whether or not to approve it. This would cause unnecessary and undesirable delay, and result in little or no gain. What is most important now is that NAMA completes the transfer of the eligible bank assets and meets the demanding deadlines it has been set.”

    http://debates.oireachtas.ie/DDebate.aspx?F=DAL20100629.XML&Dail=30&Ex=All&Page=1

  41. Zhou!!!
    “However, it does show up some of the problms that could have arisen if all the banks were nationalised”

    Lame. Very lame.

  42. I have a question about the NAMA bonds. Mr. Fahy is on the radio again telling us that the ECB will fund NAMA. Aside from the non-sequitur that it is liquidity support, are we sure that NAMA bonds will be considered sovereign bonds?

    weathervane on the ‘pin raised the question a good while back:
    http://www.thepropertypin.com/viewtopic.php?f=50&t=24226&start=0
    as to what sort of collateral the NAMA bonds would be. This was before NAMA was set up as a private company, so it was assumed they would be sovereign.

    With the setup of the SIV, 51% privately owned, the NAMA bonds are no longer issued by the state. They are issued by a private company with a state guarantee.

    Does this not make them simple corporate bonds with insurance? As such, would they attract a higher haircut than the equivalent sovereign bonds?

  43. @ Hogan

    there’s been tons of quasi soveriegn issuance across Europe which is not explicitly soveriegn, and which is readily accepted by the ECB. The ECB will not change their guidelines if there’s a risk that its gonna create a brand new fresh liquidity crisis. NAMA bonds still have a government pari-passu guarantee backing them up anyway, regardless of the structure of NAMA SIV itself.

  44. @Jagdip

    That is interesting stuff. A change to the valuation date is not necessarily a change to the methodology. It is not clear the EU would have to approve it.

    Any suggestion that the banks relied on a representation that the valuation date would be 30 November 2009 is more serious. It is unacceptable that the public of the State should be told that a statutory scheme designed and ratified by the legislature is actually subject to representations and provisos not specified in the legislation. Wereas the valuation date was specified int he regulations, the banks shareholders had approved the scheme prior to that date.

    @Brian Lucey

    It only shows up some of the problems. Nationalistion was supposed to cure the “lemon” problem. However, we see that even nationalised institutions are reluctant to accept lemon rices for good assets. We also see that nationalised institutions are inclined to fight for their own survival (although it is noted that the DoF also thinks Anglo’s survival for a period is in the State’s interest).

  45. @Eoin
    Yeah, but what haircut does it attract? I’ve been working on the assumption that NAMA bonds would be treated as sovereigns, so have a smaller haircut than, say, guaranteed bank bonds.

    The ECB collateral documents are unclear on this. NAMA bonds are not listed on the ECB site as eligible marketable assets. Does this mean they are non-marketable, or that they can only be used in MLRAs at the Irish NCB? (i.e. that the Irish state is providing the liquidity, not the ECB).

  46. @Hog

    Needing a bit of educationj here – why does the haircut matter? Does it affect the repo rate? Okay, a haircut of say 10% means they are only 90% good for liquidity purposes but would that be a serious weakness?

  47. NAMA bonds will be accepted by the ECB and will atttract the same haircut as Irish Government Debt. The Guarantee provided by the Government is irrevocable. They are held in registered global form and so are eligible for collateral in ECB operations.

  48. @zhou_enlai,

    I’ve gone back and forth in my mind on the Valuation Date being part of the methodology. If there was a proposal to change it from 30th Nov 2009 to say a date in 2006, then I think that would be a sufficiently significant change to warrant EU approval. But changing the date from 30th Nov to 30th June for the remaining €60bn of loans (if it does require EU approval ) should not be a major exercise.

    I’m sure the priority at the DoF is to get the loans transferred, but if a new Valuation Date causes a 1-month delay to the NAMA project for the sake of a €1-2bn saving to the taxpayer, my opinion is that NAMA should do it. I’d hate to think someone’s political ego would take priority over the interest of the tax payer just because they said Anglo’s recap would be an “upper limit” of €22bn and a change to the Valuation Date could lift that by a billion or two.

    On the other hand, at some point the EU is going to figure that Nov 30th was so far from the Bottom that they may intervene to force NAMA to change the Valuation Date because the State-aid element in LEV grows too big. Maybe when the Q2 Permanent TSB HPI is published in the next 10 days? And to add balance, the UK where 20-33% of NAMA assets are located has improved since last Nov but those improvements are negated by the performance in NAMA’s primary market.

  49. @Jagdip

    It is interesting that the haircuts for T1 were more severe than anticipated despite the UK market doing ok.

    I expect the DoF do not want to reduce the NAMA valuations any further, particularly having regard to the Anglo situation. I have some sympathy for them in that regard.

  50. @ Hogan

    just checked with the ECB database and its there! 1.5% haircut. Behold the wonders of the intraweb and bloomberg…

    ISIN Code . . . . . .: XS0506171650
    Other Registration No:
    Liquidity Class . . .: L1C
    Asset Type . . . . . : AT02
    Reference Market . . : RMIE01
    Price Specification. : PSIE03
    Denomination . . . . : EUR
    Issuance Date. . . . : 29/03/2010
    Maturity Date. . . . : 01/03/2011
    Country of Location. : CLBL
    Coupon Rate (%). . . : .959
    Issuer Name. . . . . : National Asset Management Ltd.
    Issuer Other Name. . :
    Issuer Residence . . : IRIE
    Issuer Group. . . . .: IG3
    Guarantor Name. . . .: Central government: Republic of Ireland
    Guarantor Other Name.:
    Guarantor Residence .: GRIE
    Guarantor Group. . . : GG2
    Coupon Definition . .: CD2
    Valuation Haircut. . : 1.5
    Ucits Compliant. . . : N

  51. BW II says: Needing a bit of educationj here – why does the haircut matter? Does it affect the repo rate? Okay, a haircut of say 10% means they are only 90% good for liquidity purposes but would that be a serious weakness?

    Second that. BOH.

  52. Jagdip says: I’ve gone back and forth in my mind on the Valuation Date being part of the methodology. If there was a proposal to change it from 30th Nov 2009 to say a date in 2006, then I think that would be a sufficiently significant change to warrant EU approval. But changing the date from 30th Nov to 30th June for the remaining €60bn of loans (if it does require EU approval ) should not be a major exercise.

    But by that rule, does it also imply that as values change to a more favourable amount, from the bank’s perspective, does that mean that NAMA has to pay a ‘levy’ back to the bank? I think we assume too much here, in that development land values are going to keep diving down and down for ever. The 30th November 2009 date, seems to me to be a reasonable agreement between NAMA and the banks, that no matter what happens (up or down) beyond that point, the plan will not change. Anything else, who lead to undue administration overheads, increased exposure to litigation for the agency and excuse for more delays all round. We are not only fighting against monetary factors here, we are also fighting against time and complexity barriers, which may prove to be a lot more expensive – if we don’t get on with this. At a certain point, trying to argue for lower development land valulations from the NAMA point of view, has a huge penalty in terms of increased delays. We all know very well, that time was never going to be a friend of the NAMA type of strategy. BOH.

  53. @Eoin
    Thanks. Don’t have Bloomberg – they’re not listed on the ECB site that’s “updated daily” 🙄 😆

    Well, that looks like no problem, then. The valuation haircut is only 1.5%

  54. @BWII & BOH
    “Needing a bit of educationj here – why does the haircut matter? Does it affect the repo rate? Okay, a haircut of say 10% means they are only 90% good for liquidity purposes but would that be a serious weakness?”

    The haircut matters because you get back less cash from repo (you are effectively paying a higher interest rate). If there had been a problem with the repo status of the NAMA bonds, it would have made them less useful to the banks.

  55. @Eoin
    Apologies, they are in the full ECB database, but not the Ireland NCB specific one. 😳

    Interesting to see that, for example, EBS bonds XS0506123255, also guaranteed by the Irish state attract a haircut of 11.5%…

  56. @ hogan

    re that EBS one seems to be some sort of structured “puttable” note. Probably little too funky for the ECB to be happy as designating as “govt” in terms of liquidity, tiny issue size of 5mm as well might have impacted on it.

  57. @ Hog

    Still don’t fully understand. Is the repo interest calculated by reference to the amount borrowed or by reference to the amount of collateral posted? If the latter then clearly the haircut matters a lot but if the former it doesn’t seem very important.

  58. @Brian Woods

    The repo rate has nothing to do with the haircut. The haircut is simply a way to impose a margin on the collateral seller. A larger haircut simply means you get less cash for the bonds.

  59. Should also say that interest on a repo is calulated on the Nominal Amount less the haircut so if I sell a €10m bond on repo with a 2% haircut, I pay interest on €9.8m

  60. I asked Eamon Ryan on TV3 show last night
    1. Why no Anglo loans transferred (ans: I don’t know)
    2. Shouldn’t the November date be updated (ans: No, sure you have to pick a date)

  61. @Sarah Carey

    Indeed you do have to pick a date by reference to which you value. NAMA picked 30th November 2009, which given the first tranche was originally to have been transferred by Christmas was perfectly reasonable.

    Since then NAMA has decided to have 15 tranches and there have been delays (EU, banks’ paperwork, life) and as we speak €60bn of NAMA’s loans are still with the banks. The Bottom last year has become Bottomier and our commercial capital values are off 8% from last Nov to end June (JLL) and our residential is off 8% to end March (PTSB) and would be expected to be off by more than that once Q2 is published. As to the future, who knows but I know not of a single economist, ratings agency, financial institution that is forecasting anything but further drops in residential for the next 6-42 months and the latest JLL commercial index indicates the fall in capital values is picking up pace (4.7% in Q2 vs 2% in Q1).

    So as we speak valuing that €60bn of outstanding NAMA-bound loans at 30th November, 2009 rates (and even factoring in the LEV jiggery pokery) means NAMA will overpay for these loans by €1-2bn. NAMA has an obligation to protect the taxpayer (even if that is politically inconvenient) so NAMA should change the Valuation Date for the remaining €60bn of loans.

    Again for balance the UK has fared better than NAMA’s primary market since last November but even there the decision by Zurich to write down its commercial development loans by 10% in Q2 is worrying and of course the UK only accounts for 20-33% of NAMA loans.

    Yes a saving of €1-2bn on the NAMA swings might be offset by futher recap needs on the Anglo/INBS/EBS roundabout but a) we should be clear about State-aid and b) BoI and AIB are supposedly hale and hearty so why are we giving them more State-aid via inflated valuations?

  62. @Sarah Carey

    Be grateful if you are talking to the government if you could ask if they are now as we speak seeking approval for an imminent (ie within the next 4 weeks) injection of a further €xbn into Anglo.

    Remember the only approval they have from the March 2010 EU Decision is for €10.44bn to be injected and they have runs that down by €10.3bn so far and both the t2 Anglo NAMA of €8bn gross plus reviews of the non-NAMA Anglo portfolio are likely to necessitate immediate injections.

    I ask because there seems to be a lot of debate about Anglo’s bailout but pretty soon that debate will be an academic examination of history because it will have already happened.

  63. @Gavin

    “Should also say that interest on a repo is calulated on the Nominal Amount less the haircut so if I sell a €10m bond on repo with a 2% haircut, I pay interest on €9.8m”

    I think I get it now. The haircut doesn’t really matter. I might get a car loan for 20k offering my house worth 500k as collateral security, but I only pay interest on the car loan.

  64. @ BW2

    well it doesn’t matter massively, so long as its not truly big in size. ie if the haircut was 25%, then obviously you wouldn’t be getting nearly as much liquidity as you had previously hoped – NAMA’s 40bn in bond issuance would only be providing 30bn in liquidity for Irish banks.

    On private repo markets, Greek government debt was/is (difficult to really know anymore, very few accepting it) taking a 30-40% haircut.

  65. @ Jagdip Singh,

    This speaking about the bottom, and bottom-ier, strikes me as a bit suspicious. In general the comments here might appear to be a big one sided. Especially from a group of academic observers, who aught to be better able to understand reflexive behaviours in markets. To what extent do we know, the behaviour of market prices would not be boom-ie, or boom-ier, if NAMA had not struck an agreement with the lending institutions to set valuations at Nov 2009? I mean, the market since Nov 2009 in Ireland, has well registered the fact that NAMA is making progress, and that wheels have been set into motion. The knowledge held by the Irish property market today, that NAMA has managed to work its way through two tranches of the loans, may account for the slippage in property valuations we have witnessed since Nov 2009. I mean, as academic observers of the process, we should be able to understand basic concepts such as marketplace reflexivity, shouldn’t we? BOH.

  66. The haircut does matter as it affects the banks ability to fund itself. If a bank has assets of 10 mn that it repos, if the haircut is 10%, the bank can only raise cash on 9 mn. The bank then has to look to more expensive sources to fill the funding gap. A high haircut therefore increases the cost of funding to the bank and consequently its customers.

  67. @Eoin
    “On private repo markets, Greek government debt was/is (difficult to really know anymore, very few accepting it) taking a 30-40% haircut.”
    Exactly – Greek debt is now 100% haircut! How do you fund a bank if you can’t get cash? The Peter-Paul principle breaks down if you can’t get enough from Peter.

  68. @ Jagdip Singh,

    Even the build-er(s) themselves, who are bound for NAMA, feel passionately enough about the fact that NAMA is affecting marketplace perceptions, that they are willing to challenge the same through the courts. Mary Carolan wrote in the IT, The proposed transfer breaches their property rights under the Constitution and European Convention on Human Rights, it is claimed.

    http://www.irishtimes.com/newspaper/breaking/2010/0714/breaking56.html

  69. Information asymmetries and surprises are seen as factors in contagion.

    On that basis, does NAMA giving less information in relation to T2 increase the risk of investors losing confidence in Ireland?

  70. Zhou says: On that basis, does NAMA giving less information in relation to T2 increase the risk of investors losing confidence in Ireland?

    It depends on what other things investors connect NAMA to in their minds. If investors perceive NAMA to be interferring too much on the critical path(s) of other elements in the blueprint for Irish economic recovery, then NAMA could result in lost confidence. The obvious linkage being, requirements for re-capitalisation posted as sovereign debt, which results from too agressive a haircut on loans transferred to NAMA. That is a very precarious line to walk. But also, other odd kinds of connections can be made. For instance, David McWilliams made a very interesting point about the loss of 900 jobs in Quinn insurance business in the border counties. McWilliams noted how much of the problem stems from the fact, we wish to keep Anglo Irish bank open for business. Think about those three connections: Quinn insurance, Anglo Irish bank and NAMA. If those kinds of connections get too strong in the minds of investors, we are in a real spot of bother. BOH.

  71. @Brian O’Hanlon,

    If NAMA never saw the light of day, would property prices be more or less than they are today?

    I would have said prices would be lower without NAMA. Developers were led to believe that NAMA would hold their assets until the present madness of the crash in prices had been passed over and the LEV could be realised – this has meant that developers have avoided putting property on the market in a serious way. Developers know there is extra money available from NAMA (the €5bn pot) on easy terms to finish out projects.
    NAMA has indicated that it may demolish which would tend to place a floor under values by removing supply.
    All the optics surrounding NAMA have suggested it would stabilise property prices.

    So I would have said the “reflexive behaviour” of the property market, as a result of NAMA, has been to maintain prices at artificially high prices. The reason that prices have continued to fall however – lack of credit, higher interest rates, lower wages, unemployment, higher taxes, emigration, overhang of supply, the ending of property mania – have nothing to do with NAMA.

    So if NAMA wants to change the Valuation Date from 30th November, 2009 to 30th June, 2010 then banks can’t (in my opinion) say that is unfair because NAMA has depressed prices.

  72. The FT had a recent editorial on NAMA saying it was good for investors but probably as much as the State could afford and it included a bit of a moan that it wasn’t a perfect hedge of the risk. As long as tapayers absorb the losses there’ll be investors buying, especially if the markets have priced in generous margins over German bonds. If investors lose confidence in Ireland it’ll probably be in the context of a much wider collapse also involving Portugal and Spain, if not others, in which case there will be widespread carnage everywhere.

    I would be concerned about the extent to which the government continues to put the interests of investors over those of taxpayers. There has to be a point at where the government would stop pumping money into Anglo if things keep deteriorating, for example. I don’t see many links being made as yet between the total bailout costs and how they will define aspects of life in Ireland for the next 15-20 years. The original decisions in Sept 08 were made on the assumption that things would be grand by now and they aren’t.

  73. @ Jagdip,

    Good reply, thanks for that. You ask: If NAMA never saw the light of day, would property prices be more or less than they are today?

    What we do know is that Franco-German driven monetary policy (coupled with poor fiscal supervision from the EC), did lead to a period of unrealistic demand for property in the Irish market. We were told that influxes of new arrivals into Ireland, would put so much pressure upon our residential and commercial stock, that we needed to ramp up production of both to meet with demand. Failure to meet demand, would have resulted in worse inflation that we already had. We also know, that without EU intervention today into our banking policy, we would never have such a thing as NAMA (or NAMA bonds). By this logic of mine, both NAMA and the Irish property bubble were in large measure to do with Ireland’s membership of a wider European economy. We the Irish voted in favour of that, and perhaps we made a mistake. We should not try to represent NAMA as a purely Irish solution to an Irish problem. NAMA is symptomatic of a wider struggle by a small peripheral state in Europe to integrate itself into a larger political, social and economic framework – or to use the common phrase, we are trying to become ‘Europeans’. I am sure you will agree, the social progress made by this small state has been very impressive over the past decade. Ireland has become a destination on the map. Something it never was. I will not argue with you though, if your assertion is, economic planning in relation to Ireland, is still quite atrocious. BOH.

  74. @zhou
    “does NAMA giving less information in relation to T2 increase the risk of investors losing confidence in Ireland?”
    I suspect that NAMA are waiting for the Anglo situation to be resolved so they can provide a full document rather than a series of half measures. The T2 release strikes me as a “this is how far we’ve gotten, you wouldn’t believe the messing from Anglo”.

  75. @ hog,

    The T2 release strikes me as a “this is how far we’ve gotten, you wouldn’t believe the messing from Anglo”.

    There is an important academic paper which deserves to be written on this subject in years to come. Difficulties experienced with nationalised banking institutions. Hopefully such a paper, if completed at some future time will shed important light on the subject, for all of our benefit. What was revealed last week, was how far advanced plans to nationalise INBS were, by late 2008. Long before the issue was on the radar of many economists here at this blog. Is this the area, in which Ireland needs more transparency in the future? Or does the scare the horses argument still hold any water? BOH.

  76. @ BL,

    We know two things now that we didn’t understand before it Ireland. Nationalisation does not guarantee absolute and full cooperation by a banking institution. Also, that plans for nationalisation were being drafted and debate in the permanent government, long prior to Sept ’08. The opportunity is now there, and will become even more feasible, for some economist to put some flesh on the bones on my two statements hence. BOH.

  77. @hoganmahew

    I expect you are right. What is with the change to “hoganmahew” by the way?

  78. @ Brian Lucey,

    Thanks for the link to your upcoming Cantillon conference btw, a really interesting line up of discussions and speakers. I’ll be busy at other stuff in September, but best of luck with it. An interesting couple of video presentations you might like to digest in the meantime, is about energy saving performance contracts, which they currently are employing in the United States. The video tutorials hit upon a number of different issues, all of which arise in debate and conversation about Ireland’s future, how Ireland can economise and become more efficient with its resources etc. Something Karl Whelan said lately on another thread, about NAMA: Its ability or lack thereof to generate returns on assets, above the liabilities which the state is exposed to. I was reminded about that in the video presentation about energy saving performance contracts. One of the key things underlying this new method of procurement, seems to be the need to support research and development facilities with reliable and economical energy provisions, over a long period of time. BOH.

    http://www1.eere.energy.gov/femp/financing/superespcs_fda.html

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