Can you arrange for me to make a guest appearance? My theme would be “NAMA is wonderful, clever and sexy”?

Mind you, an SLS using NAMA bonds and charging the banks for its use would have been cost beneficial for the state and allowed the zombie banks to unzombie themselves over time. Probably maybe.

You mean “why can’t we edit”!

Dunno — just the way the cheapo (free) software works.

I can edit.

The world is unfair.

Are you sure you’re not just saying that the ECB Is Wonderful?

” …. to help out the liquidity position of the Irish banks.”

A bit late on this thread to be asking questions and stirring things up again. Still, here goes.

NAMA supporters these days tend to admit that it’s not getting credit flowing and they prefer to bang on and on about liquidity.

However, do you think the Irish banks would have a “liquidity problem” had they been properly recapitalised by now? Those who opposed the govenment’s way of implementing NAMA tended to favour a quick and substantial recapitalisation program.

Of course, I meant NAMA subbies, did you think I was having a BL moment?

If NAMA was run on strictly commercial lines it would have cost us coupons which in NPV terms would be 7bn more onerous than the magic that we have been allowed.

Think of the alchemy - a bond which is 6 months duration to the banks but perpetual to the taxpayer, a bond which costs at least 300bp less than market rates to the taxpayer, a bond which would have a market value 7bn less than what the analysts/accountants/regulators deem it to be worth in the banks’ balance sheets, a bond which the taxpayer can simply print without all the pallaver of market auctions and wondering will they won’t they?

I say it again and with things pretty straight that Nama is Wonderful.

i think what BWII is saying is that NAMA, from the State’s point of view, is an incredibly cheap and innovative way to issue a massive amount of debt (notwithstanding question marks over the assets which is a seperate debate). Further, via interaction with the ECB, NAMA also allows for huge amounts of liquidity to be injected into the Irish banks should they need it (notwithstanding that this won’t necessarily get ‘credit flowing’ again by itself, but it at least solves one problem for the banks if they wanted to), even though you refer to the NAMA bonds as “dud assets”. I’m not going to start the whole “ECB is funding NAMA” debate again, but if the NAMA bonds are intrinscicly worth less than the liquidity being granted against them (ie 97 cents for a bond worth 84), than clearly its the ECB that is taking the hit in terms of the credit quality it has in terms of collateral.

Regardless of whether you think the entire concept of NAMA is a good idea, or whether you have question marks over NAMA’s pricing of assets etc, i think unquestionably the structure and set up of NAMA is incredibly innovative and sharp, and designed incredibly smartly, with acquiescence from the ECB/EU, to help out the liquidity position of the Irish banks.

Given that a part-purpose of NAMA is to get capital flowing again, giving the banks dud assets is a poor idea (and the reason that Mr. Bacon wanted market interest rates to be payable on the instruments).

The subbies are on the other side of the bank balance sheet (liabilities of the banks), unless you are talking about NAMA subordinate bonds? Which also can be carried at par by the banks if NAMA looks like breaking even and which anyway attract a coupon.

You really should get some of these things straight before you claim that NAMA is great…

Thanks for defending my honour. Yep I thought it was ECB+50bp, I suppose with ECB potentially so out of kilter with Euribor a switch was made to the latter.

I’ll buy your 85%. Is Gene Kerrigan watching? So these 40bn bonds are really worth 6bn less. And what about the subbies? What would they trade at? 50%? Another 1bn saved, that’s 7bn less than their face value, easily making up for that 15% LTEV/MV mark up.

I say it again NAMA is Wonderful!

re BW 50bps risk premium - i think that was the original belief/rumour on the pricing of these (way back), but which has subsequently been changed to just euribor flat.

@BW
“This is one of the wonders of NAMA bonds as is the fact that they only carry a risk permium of 50bp.”

Where are you getting the 50bps risk premium from?

a 10yr FRN and a 10yr fixed rate bond should both have similar spread levels, the FRN doesn’t trade at the same level as a 3mth or 6mth t-bill. The fact is that the NAMA bonds are considered to be at a minimum 5yr in duration, and potentially much longer, yet they only pay a coupon of Euribor flat, where as to be trading at par they should probably trade more like +370bps (6mth euribor = 1.137%, 6yr Irish bond = 4.83%). At the moment, based purely on a technical maturity of 1/3/10, they should be worth 98.87 cents, but based on a maturity of 1/9/16, paying 6mth euribor flat, i reckon they’d be worth around 84 cents or so **(not 100% on this, but the 2016’s trade at 98.8 cents right now, and if you make the spread on them zero relative to 6mth semi annual swap, it gives you an imputed price of 114.7, ie 16.1% difference?).**

Eoin and Hog have given my answer on the effective duration of these NAMA bonds. It would be totally unworkable if every six months NAMA had to go to market to refinance 40Bn of loans. This is one of the wonders of NAMA bonds as is the fact that they only carry a risk permium of 50bp. I have said it on many occasions NAMA is an absolutely wonderful facility allowed to us in our hour of peril by our European masters.

I do agree with you that Anglo’s NAMA bonds could be transferred at face value to another bank as the accountants and regulators seem to have no problem with recognising them at face value.

The shareholders of the receiving banks would be none to pleased as they are receiving paper only worth 70% of its face value but these days the banks are so in the thrall of the State that they would have no choice.

If traded on the market they would definitely be trading below par but not nearly the extent indicated by Brian Woods II.

the maturity of the NAMA bonds is highly debateable. Technically they are actually closer to 1yr in duration (maturity per Bloomberg on them is 01/03/11, with 6mth coupon resets), but in reality we know they they will not be redeemed at this point and will simply be rolled over for another 6mth/12mth period. Implicitly they have a maturity profile over 5yrs+. It would be interesting to see how they show up in cashflow analysis of the Irish bank balance sheets.

I still think the funding for NAMA comes from Europe. The paper that NAMA/the Irish State issues to the banks for their development loans is used by them (the banks) to access funds from Europe. Of course, the funds are not free. NAMA/the Irish State will ultimately have to repay the funds provided by Europe. The happens when the loans bought by NAMA are redeemed.

Using NAMA bonds to transfer the deposits to another bank is an interesting idea. Assuming no legal impediments it might prevent part of the deposits from crystallizing. But if BWII is right the value of the NAMA bonds will be about 11 billion (45% of 36 bn multiply by 70%). So 11 billion of NAMA bonds will only enable a transfer of 11 billion in customer deposits to another bank. What about the other liabilities? As you know at 31/12/09 the liabilities of Anglo were:

Customer accounts 27.2bn
Deposits from banks 33.0bn
Bonds 15.1 bn
Subs 2.4bn
Others 3.3bn

Total 81.0

@BW
The NAMA bonds have a 6 month term so the 3.5% isn’t the correct spread to use.
Plus they are linked to euribor not the ECB rate

Took a while to see what you had corrected. You have replaced ECB with European Commission. Has our dispute all along then revolved around our interpreation of the authority of the ECB. When I use ECB in this context I meant our European masters be that the Commission or Angela Merkel or whoever. My main point is that this NAMA trick is not freely available to our government to solve all our financial ills.

@DE & KW

Ever tried to put a market value on NAMA bonds? We know 10 year irish paper command a risk premium of c. 3.5% p.a. NAMA bonds are in effect loans of a similar duration with a 0.5% risk premium. That suggests a market vaue of about 70%, not great for private repo.

In the same way, Anglo and other bank bailouts are an obligation on the government within the S&P timeframe for the quality of government debt (5 years). As NAMA does not intend to dispose of assets in the short-term, the bond markets naturally enough consider mainly the debt and not the assets.

So the government does not have a free hand in issuing NAMA bonds in the same way it doesn’t have a free hand in issuing sovereign debt.

* by ‘nobody’ I of course mean excluding the usual suspects…

Arrggh. Just read what I wrote and it wasn’t at all what I meant!

I meant to write

1. NAMA is state aid to the banks. The amount of NAMA bonds issued is not simply at the govenment’s discretion. It is being closely monitored by the European Commission.

Are we in agreement at least on your point (1)?

I was really addressing DE who doesn’t seem to think ECB has any discretion over our issue of NAMA bonds.

“The losses are only limited to 24.5bn if you think we are at the bottom of the market”

I guess what *we* all think don’t amount to a hill full of beans but the EU’s recent base scenario for Ireland in 2010 in its banks’ stress tests was Commercial -14% Residential - 13%. Its adverse scenario was worse.

To the end of June 2010, we were actually off Commercial - 7% Residential -6%.

And in support of the EU’s projection that we continue to fall is every commentator and economist besides Frank Fahey and the DoF (though that doesn’t necessarily mean they’re wrong) on residential and a few of the property companies with vested interests on commercial.

Further I really don’t think Anglo’s non-NAMA loans are adequately provisioned even with current falls.

But the inference was it was based on falls to date, and further falls would result in greater losses. The losses are only limited to 24.5bn if you think we are at the bottom of the market

I think this argument is missing the point. The EU has already agreed to accept the bonds for repo. All this transaction does is move the bonds from one participating organization to another.

“Why not simply issue 1.5% NAMA bonds to AIB/BoI in return for a credit to the Government’s current accounts with these institutions.

The fact is that the magic of NAMA bonds is absolutely at the discretion of the ECB and they will control exactly how much and for what purpose we are allowed this very cosy facility.”

1. NAMA is state aid to the banks. The amount of NAMA bonds issued is not simply at the govenment’s discretion. It is being closely monitored by the ECB.

2. The ECB play no role in determining how much will be issued by way of NAMA bonds.