NAMA to Provide Finance

NAMA Chairman Frank Daly gave a speech this morning and the following excerpt is going to get a lot of attention.

NAMA is currently exploring ways in which it could further facilitate the provision of liquidity into the market by providing staple finance for commercial deals and also by exploring options on the residential front. Following the PCAR2 exercise we would, for example, be interested in talking with the two Pillar banks to see how we could work together to move things along in this area. At a time like this, it is imperative that NAMA is creative in terms of identifying solutions to get the market moving.

I’m obviously completely missing something here. Why does this need “exploration”? Why does it have to involve the Pillar banks which are supposed to be shrinking their property loan portfolios, not adding to them?

Here’s a two step guide to selling a NAMA property without needing banks to provide finance: 

1. Have a competitive auction.

2. The winner gets offered the option of either paying in full in cash or getting term finance from NAMA, i.e. they pay back the amount they bid (less cash put down) over time including interest.

What have I missed? And why didn’t NAMA operate like this from the start?

86 thoughts on “NAMA to Provide Finance”

  1. Agreed something along the lines you suggest should have been done at least 12 months ago – it looks like the new administraton have ‘encouraged’ Mr. daly and NAMA to think afresh………….

  2. @ Eureka

    “But if NAMA are going to start lending what do we need banks for?”

    Mortgages, small business loans, deposit-taking, financial intermediation, maturity transformation … they’re quite useful when they work.

  3. 1. would imply that there are bidders with money. The bogeyman of foreign interest is being raised both to support current valuations and to raise the spectre of japanification – furriners are going to own your Spar! It is being used as a justification for the banks getting money to lend to speculators, er, investors, er, entrepreneurs…
    2. would mean that NAMA becomes a bank. It would then be subject to a level of transparency, regulation and oversight that it would find unwelcome. It is much easier to hide at arms length.

    What I want to know is why the fools in the Irish banks are being considered? What about bunging a fund to some furrin bank which would match the funding? Oh, I already know the answer to that one… we don’t want to scare the dead horses that are our green-jerseyed pillars.

  4. @ Karl

    the pillar banks would i assume offer some type of servicing, eh, services to manage the NAMA ‘mortgages’. I assume that the pillar banks would, over time (ie a few years down the line) look to novate them over onto their books (NAMA cannot exist in the long long term offering this finance).

  5. @Karl Whelan
    WRT your response to Eureka, the passage you quote does say “and also by exploring options on the residential front.”

    Where will NAMA get the money? It will borrow it, so it is already effectively a deposit taker, even if at arms length. Presumably it will borrow short and lend long (it’s worked so well so far…) so it is already engaged in maturity transformation.

    Which leaves financial intermediation and small business loans… ho hum…

  6. @ Karl

    Btw, this was mentioned by Stephen Steelig (NAMA board, ex-IMF) last month in the Irish Times (5th March), so its not just a new-govt idea.

    “By SIMON CARSWELL

    THE NATIONAL Asset Management Agency (Nama) may have to consider
    lending to property buyers to kick-start the flagging market,
    according to Steven Seelig, one of its board members.

    Mr Seelig, a former senior official at the IMF, said Nama might have
    to offer loans to property buyers, including residential homes, to
    stimulate sales as the banks are not lending on property.

    “It will need to do it just to kick-start the market. It is from a
    public policy point of view. You want to get the market going again,”
    he said in his first interview with an Irish newspaper since joining
    the Nama board in May 2010.

    “Unless there is somebody else willing to do the financing, Nama will
    have to do some of it just to get some sales going in the market.

    “Once the market sort of stabilises, lenders and more buyers will come
    in. There is always this fear of buying too high and watching a market
    continue to fall.”

  7. @ hogan

    1. No — it doesn’t imply bidders with money. You buy the property for what you think it’s worth, i.e. that you figure it will

    2. No, NAMA wouldn’t be a bank — it would have no deposits or look anything like a bank. Term finance is offered by companies all around the world that are not banks.

    @ EB

    NAMA doesn’t need to exist long-term. Sell the lot off with five to ten year finance and that would see NAMA out of business on schedule.

    Arguing about NAMA, feels like old times guys, doesn’t it.

    😆

  8. Q: Mr. Daly – do you have a coherent plan for the future of NAMA?

    A: Short answer yes with an if, long answer no with a but…

  9. @ Karl

    well, would you take on a mortgage with only 5-10 years financing? Not sure if the consumer level buyer is ready for that yet.

  10. Might be better to post this here

    McKillen just won in the supreme court on the fair procedures point – lost on the constitutional challenge

    SC finds that NAMA interferes with his property rights because they take greater rights than a private purchaser of his loans would – therefore the act must be interpreted as providing for fair procedures – therefore entitled to make representations to NAMA before they take his loans into NAMA

    definition of eligible assets upheld as constitutional

  11. @Karl Whelan.

    If this idea were about shares, I think it would qualify as a share support scheme.

    Somebody needs to get real here.
    1. NAMA buys grossly overvalued property from the banks at a discount with money provided or underwritten by the taxpayer and the “property”
    2. The taxpayer empties his or her pockets to fill the hole in the bank balance sheets.
    3. NAMA then asks the banks to refinance the purchase of the still grossly overvalued property to a “shiny new” purchaser, thereby putting the property right smack back where it came from, in the banks.
    4. Except the taxpayer now owns the banks again. And any unrealised losses go back again to the taxpayer.
    5. An Irish banking system cannot afford to lend to productive industry, is to be asked to refinance an attempt to reflate a property market that has already sunk the country.

    Jesus wept!
    I think it really is time for Frank & Co to call it a day.

  12. @ Karl
    But it’s illogical. You take distressed assets away from the proper banks. Then you set up a quasi bank with the aim of linking it back in with the original banks. In essence you are reversing NAMA by setting up a mishmash state bank incorporating all the assets of the two original banks.
    It’s the long way around to nationalizing all the banks and in the meantime forced a crystallization of their losses.
    I’m not sure if Im making sense it just seems that the net result we have here is what would have been achieved if the banks had been nationalized in the first place (only with no loss crysalization)

  13. The question now is whether other people who had their loans transfered but never had the opportunity to make representations can challenge the transfer.

    I think the CJ implicitly rules it out on page two of his judgment. I haven’t seen the other judgements yet but I wouldn’t be that surprised to see further litigation

  14. The reason NAMA does not want to sell its holdings is that they are scared to death of what the market will pay.

  15. At what rate would NAMA be able to borrow money at. If for example it is 9-10%, how would an investor make money?

  16. @ Tull

    NAMA doesnt need to borrow any money. It already owns the properties, financed via the bonds issued to the banks, which are being repo-ed at the ECB. So it doesn’t actually require any additional liquidity, and it would actually give NAMA fresh liqudity with which to repay the bonds via the initial deposit provided by the homebuyer.

  17. @Karl Whelan
    1. I take your point, but then, that would be firesales, would it not?

    “2. No, NAMA wouldn’t be a bank — it would have no deposits or look anything like a bank. Term finance is offered by companies all around the world that are not banks.”
    Yes, but those companies are regulated by the FR as providers of consumer credit and the consumer credit act has some very explicit provisions in it. Can you see NAMA take on an army of credit analysts to check consumer ability to repay loans? It moves from being a quasi-bank as Eureka puts it, to being a financial services company. Presumably it would have to move off-shore to a tax haven…

    “Arguing about NAMA, feels like old times guys, doesn’t it.”
    Absolutely. And still the same objections to it… 😀 Not to blow my own trumpet, but from December 2008:
    http://www.thepropertypin.com/viewtopic.php?p=177289#p177289
    “These calls for a ‘bad’ bank beg the question – what’s going to fund it? They also seem to come from people who have the dimmest view on the price of Irish bank assets (i.e. they believe they are in a far worse state than even the most pessimistic estimate so far). So on the one hand you have people claiming that all the banks assets are toxic to the tune of high numbers of billion (which I happen to agree with) and then that the state should pay money to take over a bank to use as a wind-down vehicle for these assets. The likely results of this approach:
    – massive government borrowing over years to wind-down the debts/purchase the assets
    – the survivors becoming zombie banks beholden to the government
    or
    a massive transfer of wealth from the taxpayer to the survivor banks
    – still no credit in the system”

    It was reasonably clear to idiots that it wasn’t going to work and to some experts… what were the rest thinking of?

  18. I don’t see why NAMA needs to borrow more money.

    I think its just like Ford having too much stock, so offering loans to purchasers of cars. NAMA would exchange one asset (property) for another (the loan agreement).

    It seems a fairly logical proposal.

    But can NAMA guarantee the credit worthiness of the borrower, or will it recklessly lend? What percentage financing would it offer (I would hope less than what’s offered by the banks).

    Also NAMA has its own interests. Its good for the country to abolish upward only rent review, but NAMA is anti-abolitionist because its interested in the value of its assets, not the good of the country.

    But I think this is a decent way to get some cash-flow from NAMA.

  19. To try to avoid confusion, can I back up what Eoin is saying.

    There is absolutely no need for NAMA to borrow money to implement this scheme.

    They already own the properties. “Providing finance” just means allowing people to pay for the properties over time rather than all at once upfront.

    This does not require NAMA to “source finance” at high interest rates.

  20. @ Eoin

    “well, would you take on a mortgage with only 5-10 years financing?”

    The truth is there would be no need to artificially limit the length of the financing. If someone wants to wind NAMA up at some point, NAMA could then sell the loans.

  21. Maybe we could get nama to lend loads of money to like bankers and stuff and make a killing, and then turn it into a sovereign wealth fund.

    In fact we should just re brand NAMA as a sovereign wealth fund – tell people it’s like making loads of money so everything is like pretty much ok over here

  22. A number of times in the past I’ve asked the question who would finance the acquisition of assets from NAMA. It seems the answer is nobody. So NAMA is now (once again) the only show in town. To my initial questions:

    1. Is the ECB willing to offer cheap finance to new (Irish) borrowers for an extended period (via banks’ repo’d namabonds)?
    2. Does this remove NAMA’s risk or if it merely reduces it, by how much?

    The provision of credit should only be offered if there is a significant reduction of risk. This would mean that NAMA would only offer part finance and/or seek additional pledged collateral. Otherwise, Daly’s proposal doesn’t make sense. For example, would it make sense to offer 100% finance @5% on a commercial property yielding 9%? If this was the case, you’re offering the borrower a free option. You could make a similar case on development projects.

    I suppose I should write a paragraph on cronyism and transparency, bit I’m a little lazy today.

  23. If this were to happen, which properties would then be sold?

    My guess would be that the properties that already are generating cash would be the easiest to sell & price. NPV of the cashflows add some uncertainty premium & then the property would be priced. How would the properties that are not generating cash be priced?

    NAMA would only be interesting as a bank if the interest rate would be lower than the rate offered by commercial banks -> Commercial banks will suffer due to the entry into the market by a state sponsored entity. Who owns the biggest commercial lenders in Ireland?

  24. But this is not a proper financial transaction. The bank isn’t lending mortgages it is allowing people to buy it’s assets over extended terms at a particular interest rate. It is selling assets as opposed to providing mortgages.
    It is a con because NAMA can be said to have realized x amount for a property whereas in effect it is merely releasing that property as part of a hire-purchase agreent type thing. It acquires a claim to an asset it already owns.

  25. @Christy.

    Maybe we could get nama to lend loads of money to like bankers and stuff and make a killing, and then turn it into a sovereign wealth fund.

    Makes a three card trick look simple. Who do these people think they are trying to kid!!

    They have a ****lead of property that nobody wants or those that want it, want it for nothing. So like all desperate salesmen, they want to loan (sorry arrange) the finance for the would be buyer.

    They need to stop and to stop now. Stop. Stop.

  26. The drift is getting driftier.

    Once upon a time, we had a discussion about nationalisation versus setting up a bad bank. Then there was political pressure that the bad bank should be profitable. The banks turned bad and were nationalised. Now the supposedly bad bank is moving into good bank territory.

  27. Why provide liquidity?

    (1) Avoid fire sales
    (2) Jump-start the market
    (3) Get cash deposits from buyers without needing to spend cash
    (4) Encourage more property funds that aren’t vultures to consider Irish property

    Why team up with a bank to provide liquidity?

    (1) NAMA lifespan of 7-10 years – lifespan of loan might be greater
    (2) Banks should be better able to service loans, particularly lower value loans (eg single residences)

    In answer to Karl’s question, since no money is needed from banks for the loans, there is no impact on deleveraging eg NAMA sale price €45m, cash received €15m, loan from NAMA €30m. Banks don’t get involved in the financing at all, they simply provide loan management. Though hopefully after 2013 banks might be healthy enough to consider buying loans from NAMA.

    One big problem I see is distinguising between NAMA avoiding fire sales and NAMA artificially distorting the market by providing credit.

  28. All this makes me want to cry my NAMA tears again!!

    What am I missing here? I thought in an auction you were supposed to have finance in place before you bid!

    Karl, are you proposing every Tom, Dick and Harry can now go along to an auction, place the highest bid, then go to Nama as ‘anonymous noname’. “I WON”. Nama replies, “no, in fact you are bankrupt and neither we nor anyone else can lend to you”.

    Traditionally the bank manager was responsible for prudent lending, 2.5 times gross salary over 25 years. You went in, sat down and jointly assessed if you fell within the PRUDENT lending conditions, remember those days, Not bubble 8 times your gross over 40 years, 100% mortgages. OR is NAMA going to provide those traditional banking services as well?

    Actually, what might have worked, is create NAMA into a proper bank using the Bank of North Dakota as a model.

    Firesale the lot, at 1.5 times gross salary over 20 years Clearance Lending Certs for bidders, then have an auction, or something similar to this.

    But then this would skew and distort the mortgage lending market for the other banks and for Nama’s profit line.

    Seems NAMA is a big cuckoo in the banking nest, always was, and it will make a mess for a long time to come.

  29. If Nama gets into the auction of developer loans of crony €20 ml plus, or even less) to make a market when none exists…..this defeats the whole purpose of NAMA, which as I understood it, was to liquidate toxic loans, not to create a whole new batch of them out of taxpayers money providing the lending for same.

  30. @ Karl, Eoin et al

    The missing part in this is presumably without the staff to accurately carry out the necessary underwriting on the individuals looking to buy off NAMA it would seem that NAMA would have to ‘outsource’ this underwriting function back to those who claim to know this business and that would be, eh, the banks (allegedly).

    So on the day AIB announce 2,000 job losses is the same day that NAMA proposes to potentially redeploy many of them back in, eh, their old State jobs again by way of another State Agency contract role. What a laugh.

    I can only presume that the thought process here is that property consumers who wouldn’t necessarily buy off a developer or a receiver appointed by a bank but will now somehow feel the urge to buy directly off NAMA. Not so sure about this one especially when most of the residential properties available are more than likely to be in ghost estates where significant works are required to bring them up to a liveable standard.

    In addition I can only assume this works if:
    1. Residential prices are a lot lower than that previously offered by receivers, developers etc
    2. Mortgage finance and terms are more competitive than that currently offered by the banks.

    How exactly can the banks rebuild core Tier 1 capital if a State backed lender is likely to undercut them all as NAMA will have no capital requirement (I’d imagine).? Stress test part VI coming our way no doubt.

  31. @ Colm

    “Karl, are you proposing every Tom, Dick and Harry can now go along to an auction, place the highest bid, then go to Nama as ‘anonymous noname’. “I WON”. Nama replies, “no, in fact you are bankrupt and neither we nor anyone else can lend to you”.”

    Clearly, as with all types of credit provision, NAMA would need to run a credit check in relation to whether the person was likely to pay back. But these would presumably be collateralised loans, so if the person stopped paying back, NAMA could seize the property. Of course, one could just restrict yourself to cash buyers but then you’d almost certainly get a far lower price.

  32. The idea is such a good one that I could suggest several people to run it.
    Mostly ex Anglo worthies who would spot a good asset support scheme when they see it.

  33. @ Karl

    “The truth is there would be no need to artificially limit the length of the financing. If someone wants to wind NAMA up at some point, NAMA could then sell the loans.”

    Would this cause complications towards the end in that NAMA might be required to have core capital relative to its loans, as the banks do? And if it didn’t might there be a problem as NAMA would end up having only loans, which could go bad again, and no capital to absorb the bad ones.

    @ Joseph Ryan

    Any chance you could go through your useful sequence again from the property developers’ POV?

    I can start:

    (1) Borrows money from a bank to buy land to develop a block of flats.
    (2) Buys land.
    (3) Market crashes, can’t afford to pay back loan.

    What then?

  34. @ Those who are writing about fire-sales

    The academic literature tends to stress that low prices in fire sales are due to financial constraints on the part of potential buyers. NAMA offering term finance would fix this.

    See new paper by Andrei Shleifer and Robert Vishny.
    http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.1.29

    “Our model of fire sales yields a notion of liquidity as the difference between market price and value in best use. When market participants are financially unencumbered, liquidation brings prices close to value in best use, and markets are said to be liquid. When, in contrast, market participants—and in particular specialists in using or holding the asset—are financially encumbered, liquidation leads to sale of assets to outsiders at lower prices, and markets are said to be illiquid.”

  35. Ye’re obviously having fun. NAMA raises its ugly, hoary head momentarily and ye’re all at it hammer and tongs. Enjoy.

  36. @ Gavin/Joseph/Colm

    assuming NAMA was offering these assets on a 75-80% LTV, then at the very least we would be seeing private capital return to the market, which is the key issue required to get proper prices and market liquidity back up and running. Assuming the rest of the process is run correctly (ie rates, credit checks), then its seems like a sensible idea provided its only offers on a measured scale.

  37. While this does have an outward sniff of the potential for cronyism about it, as long as NAMA makes these vendor-financed loans at reasonable (i.e. non Tiger) loan-to-value rates of say 70-80% this shouldn’t be a problem. If it turns out the buyers can’t pay then it’s still a positive for the tax payer – we get: (i) 20-30% deposit up front; (ii) interest/principal on the loan up to default; and (iii) the property back at default. The alternative, not selling the property would just have resulted in rental payments to NAMA (if there were any).

  38. @ Karl:
    re “liquidation leads to sale of assets to outsiders at lower prices, and markets are said to be illiquid.”

    That sums up everything. The whole Nama thing is a ‘castle in the air’ effort to prevent loss of assets by the financial insider class in Ireland.

    But that ‘financial insider class’ is the big gorse fire on the mountain that needs to be burned. Because without burning them we have Nama holding to ransom the Irish economy and paying for the insiders wait or Long term Economic Value to recover, at everyone’s expense.

    The Nordic countries knew this in the 90’s. Get the stuff off the books, liquidate asap, in 3 years they had their whole bubble portfolio burned and liquidated. We’ve the NAMA dredger full of toxic mess ready to pour over everyone.

    A gorse fire doesn’t burn the seeds underneath. They grow in the spring giving new grass. Give the stuff to outsiders, the Chinese might buy some, or whoever, Ireland has undergone insider/outsider changes in the past, from the Normans down. Time we took everything out of the hands of the Nama messers:) All that Nama toxic stuff needs to be liquidated fast.

    Actually, we are at an advantage, because we now know the Nama project doesn’t work, we need to come up with something better, so good to see Nama I suppose attempting to recreate itself into a new and improved purpose.

    Best for all though if Nama gives the stuff back to the banks and let them get on with liquidating it. Might save a lot of those AIB jobs. Billions saved in fees to the army of professionals working for Nama:)

    Anyhow we will have firesales whether we choose to have them or not. Surprised the IMF are not insisting NAMA drop its loaded portfolio asap to fix our mortgage market which is broken.

  39. It would fit NAMA much better if it held onto assets and allowed downward rent reviews.
    The financial whizzkids in thus country never miss an opportunity to mess things up!!!

  40. @ Eureka

    what do you mean “into the real banks”? This proposal is only based around the fact that the banks are either unwilling or unable to lend at the moment. I don’t think NAMA is looking to empire-build or anything.

  41. The cash that might be used as downpayment is all of that expected to come from abroad or might this reduce the liquidity in Ireland? Or maybe it is better to see it as: if NAMA funds property then Irish banks have no choice but to fund business? 🙂

    What I guess will happen now is either this will be implemented asap or a firm denial that it will ever happen has to happen asap: Who’d borrow money from a commercial bank now when better rates/terms might be available soon from NAMA?

  42. How do NAMA know there is no market/demand if they haven’t tried to sell anything in an open auction yet?

    Or are they just assuming that the low private bids they are receiving are low because of the lack of credit rather than their own over valuation of the assets?

  43. @ Jesper

    the money paid to NAMA (the deposit) goes back into the banks via repayment of bonds, so should be liquidity-neutral, and helps to deleverage too.

  44. NAMA is a bailout fund for the Irish Property Owning classes. That is all.

    It now intends to play the most expensive three card trick in world history, transferring assets from the banks to itself, back to the banks, and ultimately back to developers, with the public exchequer footing the bill at every step.

    This will artificially drive up property prices and ultimately rents, not to mention the state debt. Everyone will suffer, except the developers, the bankers and the managers at NAMA paying themselves handsome bonuses on the back of this con job.

    It’s time for a general default. On everything. State, banks, NAMA. Everything. No-one should pay for anything while financial privateering like this is tolerated.

  45. @ ObsessiveMathsFreak

    +1 Agree with you there. This latest proposal is none other than a proposal to turn NAMA into what formerly was Anglo.

    The problem with this proposal including the Nama project including bailout is, the figures don’t stack up. There’s already a €1 bn shortfall between Gov budgetary proposals for next year and the shortfall due to lower growth projections.

    Markets know it. No wriggly room left for the financial worms in charge of the mess, to avoid default:) Strange the IMF are still backing the bailout though the figures don’t add up. Even a 1% reduction in bailout wouldn’t do much to stop default.

    What a stupid proposal this is from NAMA? They’ve lost the run of themselves.

    Any chance they could have an auction and sell the lot as a Collateralized Debt Obligation to the US or the Chinese who might sell the excess property as holiday home escapes?.

    That’s what Goldman did with the subprime loans it got burned with? Nama is now stuck in a similar position with deteriorating property that should have been sold two years ago, but doesn’t know what to do about it!

  46. @Bond,

    Re “the money paid to NAMA (the deposit) goes back into the banks via repayment of bonds, so should be liquidity-neutral, and helps to deleverage too.”

    Meanwhile 80% of the finance gets marked as a debt against the new NAMA Anglo bank, what you describe is only B&B money hiding more debt, and a method to launder previous debt while creating massive new debt.

    Of course way in the future the New NAMA Anglo Bank Mark11 would get wound down by taxpayers, use the same method to launder its portfolio, then fail again, so we create New NAMA Anglo Bank Mark111 to launder Mark11’s commercial and residential mess.

  47. @Eoin
    “the money paid to NAMA (the deposit) goes back into the banks via repayment of bonds, so should be liquidity-neutral, and helps to deleverage too.”
    Surely the deleveraging is referring to loans, not to cash assets? (Counting NAMA bonds as effectively cash).

    I reckon this will finish off the banks. They will no longer be banks as the only people who are creditworthy enough to borrow in the short term and those with cash for houses/commercial buildings (pensions). Bagehot points out that the solution to poor bank assets is to make new good loans. NAMA was supposed to aid this process by relieving the banks of their worst assets so they could trade the rest of the way out of difficulty. If they cannot trade, they will not get out of difficulty.

    Furthermore, if NAMA is the source of the properties as well as the finance, the existing loans on the bank balance sheets will not be recycled. The second-hand market will effectively halt.

  48. If NAMA offers to sell commercial property at x times rent ( i dont know the gearing on a commercial purchase), with average being established by a third party (not an estate agent) then the lemmings will be back off to defy gravity once more, the race will…but then that means selling to market value…so probably the best of an insoluble clot?

  49. CB: “Nama is now stuck in a similar position with deteriorating property that should have been sold two years ago, but doesn’t know what to do about it!”

    Exactly. They needed to start moving stuff quickly and at whatever price was available, take the loss and get it moving. You have to be able to take the loss, to stomach it.
    This latest scheme, like each before it (including NAMA itself) is *ultimately* based on the idea that a “bottom” is in or near. They were wrong two years ago and they’re likely to be wrong now. Generally burst bubbles exhibit a “dead cat bounce” prior to diving to their “bottom” – this scheme may, at best, fuel the required dead cat.

  50. @OMF

    No disagree with your assessment – understand what’s being proposed its effectively NAMA selling its own property assets and allowing repayment to a would be purchaser over 20 to 25 years. I believe the 10 year NAMA life is being binned if this proposal see the light of day.

    The developers who ended up with his/her property loans and related real assets in NAMA is no way any better off through this process. The properties are not insofar as I can see going to be transferred back to the banks – its seems to me its only the administration and underwriting duties which will be but the asset and collection of the original developer loan (less the sale/bid proceeds) remains in NAMA.

    This process will or should drive down prices to their long run rental yield as I and others have been advocating for the past 6 years – it may mean that true price discovery is about to happen (working on the assumption that NAMA sell at the bid).

    Although the discount NAMA negotiated with the banks (50% to 60% of written down loan values) may be the bid price which clears the property the actual sale in this process by NAMA may happen at say 70% to 80% discount but NAMA will probably still show a profit as the margin on any of its proposed loans should be modelled to cover the difference.

    The issue as I suggested above is that NAMA without a capital requirement can or should offer more competitive rates than equivalent banks but suffer an admin cost by the banks who will administer the loans in terms of statements, interest certs etc. Where this leaves the banks is anyones guess.

  51. The developers who ended up with his/her property loans and related real assets in NAMA is no way any better off through this process.

    No so. They ultimately get to keep their properties, and any assets they are generating, instead of losing them all in an orderly liquidation process. In some cases, they will actually be paid hard cash–by NAMA–from the sale of these properties.

    We shouldn’t put up with this any more. Just call in the loans, and if the developers can’t pay, force them into bankruptcy and sell the properties. Take the loss directly instead of the slow drawn out process of NAMA.

  52. So why or where from did this idea come. Allow me to suggest one possibility.

    Qui Bono?
    When NAMA was set up, it recruited a good number of well paid banking types (some ex Anglo, I believe).
    But now that NAMA no longer has a role for banking types and is now a property management company,what does a banking specialist do!!
    Well paid banking jobs don’t grow on trees. So a bureaucracy must do what all bureaucracies do. Create work to survive.

    So with up to 2000 banking staff to be made redundant from two pillar banks, lo and behold, a proposal comes that will in effect create a long term specialist banking unit within NAMA.

    All dressed up as liquidity support and with a ready made caste of cheerleaders!
    Is there no getting off the property merry go round?

  53. Nama need to one thing only.

    Start selling partly finished properties for nothing. For nothing.
    On one condition.
    Finish the property within two years and deposit the agreed amount of cash to finish out the property, to be drawn down during completion.

    My apologies for all the posts re this particular issue but I really feel as if
    some people are simply making donkeys out of ordinary Irish people to enrich themselves. The tragedy is that they are succeeding.

  54. If the property/loan is not generating cash then it seems like it could be a good idea to sell as the buyer then need to find some one willing to pay for its use. If the loan is performing then it might be more complicated to say if it is a good idea or not.

    Any transaction under this plan requires transparency. Borrow at 2-4% (or?) to get a property yielding 8%? I know there is a risk that the yield could fall but still….

  55. An observation and a question:

    Even the IMF are suspicious of NAMA, and put Ireland in the company of some unsavoury characters with this (from the latest Fiscal Monitor)

    Fiscal transparency seems to be increasingly at risk in some countries. With fiscal results facing heightened scrutiny, there is a growing tendency for governments to enter into transactions that sacrifice fiscal transparency (and, in some cases, long-term fiscal health) to make shortrun budget outturns appear more positive. Moves by Argentina and Hungary to renationalize previously privatized second-pillar pension schemes are one example of this phenomenon. Likewise, Ireland’s bank crisis resolution entity has been designated as a private sector organization, even though nearly all of its expenses will be financed with government-guaranteed debt.

    While I understand that NAMA bonds pay a relatively low interest rate (based on ECB rate), what’s the deal with principal repayment? If all the NAMA staff sat around and played solitaire all day, would it matter? More specifically who would pay and when if the NAMA recovery exercise produces less than expected? Are the banks assuming some repayment schedule that if not met would need to be filled by more tax-payer funded recap costs, or is it the ECB that would get upset in some manner when they see their collateral becoming even junkier? I’d like to understand better how any losses (or indeed better than expected recovery revenue) bubble through the system and become “real” losses (or gains).

  56. @Bryan G

    The IMF is not the first organisation to challenge the jiggery pokery of NAMA’s bonds being kept off the national debt. Ratings agencies made it clear last year that they regarded State-guaranteed NAMA bonds as part of the national debt. And given we own 92.8% of AIB and will shortly own ILP, arguably the State now owns NAMA anyway. But for all of that, NAMA’s €31bn of bonds are backed by assets which are probably worth €25bn at present (NAMA paid a Long Term Economic Value and Ireland’s property market has declined partly offset by the 5% NAMA subordindated bond payments which won’t be honoured if NAMA makes a loss).

    NAMA is temporarily sitting on a cash mountain through selling some “low-hanging fruit” but by 2020 the €31bn of bonds need be paid back by NAMA. So NAMA can’t afford to sit around playing PartyPoker all day. It needs to generate €31bn in cash in the next 10 years (and also enough to cover its interest payments and operating expenses).

    What happens if NAMA isn’t capable of redeeming the bonds? Then the State must buy them back and at that point officially our national debt would increase by €31bn.

  57. @Jagdip Singh

    Thanks for that – Is there a requirement that approx €3bn be paid off every year or can/will repayment of principal be back-end loaded? I’m wondering when any further losses would be crystallized – i.e. only at the end in 2020 to make up any shortfall, or at intermediate points along the way also.

  58. I’m not an economist or an academic but what struck me most about Mr. Daly’s speech was the lack of specifics in favour of phrases like “over the next year or two”, the use of “would” rather than “will”, the use of “should” rather than “must”. I work in the I.T. sector and regularly have to put together recommendations and proposals for review at board level. Peer-reviews of any such documents quickly weed out the would, could, might, hope verbiage in favour of a concrete commitment, something which is sadly lacking in this speech. It almost reads like a brainstorming session on how NAMA might operate if – at some point in the distant, distant future – it actually came into being.

  59. @ Eoin
    thanks for the reply. Your answer to Jesper covered my query.
    There are indeed some merits to the proposal. Though you would have to wonder about the legalities.
    NAMA would be a bank operating outside all the normal rules of banking. It would also be 100% state subsidisedas a bank and might have a competitive advantage.
    Still full marks to all for ingenuity.
    What properties can it actually sell?
    What price will it get?
    How will it deal with default since it owns the property anyway?
    Isn’t there a risk that the developers who once owned the property can now buy it back at discount?

  60. @Bryan G, no there is no *requirement* for NAMA to redeem bonds between now and 2020. It may do so and its business plan indicated it would. Completely separate to NAMA bonds there was a recent €3bn funding by the govt of the €31bn of promissory notes in Anglo/INBS – is that where you got €3bn from?

    NAMA should crystallise losses when it disposes of assets (loans or foreclosed assets). We are presently waiting for the Q4,2010 accounts which were delivered to Minister Noonan more than 2 weeks ago. Those accounts should show some profits from selling some of the “low-hanging fruit”

  61. My suspicions on NAMA are here: http://www.thepropertypin.com/viewtopic.php?f=50&t=27290

    Basically that it is designed to bail out most of the small-medium borrowers – the backbone of political gladhanding. Initially, I supposed that the banks would provide the financing for those borrowers to buy back their own loans at a discount. Given that the banks are even more wretched than was supposed, it now appears that NAMA will provide borrowers with credit to buy back their own discounted loans. Cui bono? Not the taxpayer anyway…

  62. What do you do if you’re the market maker and need to “pump-and-dump” on the cheap?

    Head fake the market about being on both sides of the deal, stand back and enjoy the show.

    No harm doing it on the day when one of the two pillocks of the banking system announces €10Bn in losses either.

  63. @Jagdip Singh,

    Yes I was wondering if the NAMA bonds would be treated in the same way as the promissory notes with an annual repayment of 10% of the principal, however it seems not. It is a coincidence that the NAMA and promissory note totals are both about €31bn.

    I guess we’ll have to wait and see when redemptions are made and whether there are any haircuts applied due to declines in property values since the valuation date. However with “vendor-supplied financing” as now proposed, the potential for balance sheet manipulation seems significant. I am reminded of the 2001 telecom equipment vendor bust where all the vendors looked really great right up till the point that they didn’t, since most of their ‘sales’ were to highly leveraged telecom providers that didn’t have any real money or any chance of making real money.

  64. We know from an article written by journalist Neil Callanan published in the Irish Times on Saturday 26th March 2011 that Nama lobbied the govenment not to ban the notorious upward only rent reviews (UORRs)commercial lease clause in legacy leases.

    Mr Daly was today addresssing the Society of Chartered Surveyors (SCS)in Ireland. The surveyors also lobbied the government not to ban UORRs.

    Reckless Irish banks lent billions against the surveyors valuations ,the greatest work of fiction in world property history which ultimately lead to the greatest bank crash in the history of mankind. Toxic Irish lease law i.e. upward only rent reviews tied to long leases was the rocket fuel for the valuation model which created the monster commercial property bubble. No third world country and certainly no other eurozone country tolerate these toxic leases. Along with the reckless banks, the surveyors played a central role in the destruction of the Irish economy.

    Many of these same surveyors are now working for Nama. I sincerely pray Mr Daly is not listening the these people and their pseudo academics othewise Nama is a turkey and the whole exercise is yet another disaster.

  65. @ John Corcoran
    But we know NAMA is a turkey. Now we’re just waiting to see if it can do something intelligent!

  66. How do we stop this nonsense?

    Here is the bones of an idea: To borrow a phrase used recently in the march in Omagh ….”Not in my Name”. If every Irish person at home and abroad were to email every TD in Dail Eireann not just today but every day with an email containing just the subject heading e.g. Bank bailout – Nama – Developer Bailout – NOT IN MY NAME……

    Does anybody think that as the numbers grow (if people pass on the idea to their own contacts etc much like a chain email) the TD’s might listen.

    Nest question – Does anyone know where to get an up to date listing of TD’s emails……..
    http://www.oireachtas.ie/viewdoc.asp?DocID=12684&&CatID=138

    The above link if it works gives the 30th Dail members emails – has not yet been update to the 31st

    Any ideas to improve…..

  67. Have to agree with Joseph Ryan on this one.
    This is a bad idea in a desperate effort to to prevent the market finding a floor. One does exist it is just a lot lower than Nama paid for the property.
    I know that the losses will have to be covered by tax payers but this is still preferable than dragging out this sorry mess longer and longer while paying lots of professionals (bankers, lawyers, auditors etc.) in the meantime. Besides at this stage I am coming to the opinion that being honest about the size of the losses will hasten default which would allow us to start again and avoid continually paying these professionals at ridiculous rates.

    Is it a coincidence that this proposal is gaining traction days before we have a large auction that will show the actual value of property in this country quite clearly.
    Nama need people to pay more for these properties than those auctions will show as the market price.
    They are suggesting that if they offer finance then people will be willing to do this. Yes but what type of people? I would suggest only people who very little to loose. High risk people. Low risk people will pay market price at auction because they will either have the money or will be able to get financing themselves.
    The current residential market freeze is not due to a lack of credit it is due to peoples expectations that prices will fall further.
    Nama’s efforts to stop this are counter productive.

  68. The ordinary taxpayer is hoarding cash.

    The government is broke.

    Is this an attempt to keep the wheels greased for the higher echeleons by tempting the serfs to release some of their hard earned back to the government?

  69. Some great discussion in this thread – very interesting.

    This seems like an idea worth exploring. I had reservations about Nama’s lifespan etc but they have been somewhat alleviated reading this thread.

    The only problem I can see with my limited foresight is that the scheme would only apply to Nama properties and therefore the rest of the property market would arguably get worse as people who were going to buy non-Nama house X but couldn’t get finance decide to buy Nama house Y where finance is available.

    Over ten years? We end up “disposing” of the propertires and hopefully helping to make back the 30bn odd but the money would simply be transferred from developers oweing Nama to banks oweing Nama. Maybe this (depending on scale) would be contrary to the deleveraging plans.

  70. Perhaps it would be useful to have a discussion on the contribution of rising house prices to Irish inflation over the last ten years; not just because house prices are included in the “basket”, but because of the knock-on effect on wage demands.

    It is possible that, in this sense, the property bubble helped to make Ireland uncompetitive in international terms. Similarly, falling house prices could help to restore competitiveness (by making a fall in wages more acceptable to those who still earn any).

    This NAMA proposal looks like an attempt to stop the fall in house prices at an arbitrary point, “to get the market moving”.

  71. @OMF

    No – not correct the original NAMA process takes the loans and the assets from the developers your point above suggests that this proposal changes that fact in some manner. From my reading it doesn’t.

    The liquidation process your are describing is exactly what Frank Daly is proposing but the house or property would be paid for by way of a finance arrangement with NAMA not with the banks.

    ‘Just call in the loans and sell the properties and force the developers into bankruptcy’ – I’m all for it but sadly with no buyers and more importantly no banks to finance would be buyers the market becomes stuck just as it is today so selling properties in fine in theory but not so easy in practice even at 80% discount to original asking prices.

  72. @NL
    House prices are not included in the basket, the cost of mortgages is.

    However, rising house prices were brought to the table in the social partnership talks with the result at times that the subsidy to debtors by the state was increased (mortgage interest tax breaks for PPRs, investor tax breaks), taxes in general were decreased and wage rates inflated, so I think you are correct in your contention that rising house prices contributed to uncompetitiveness.

    I fail to understand how falling prices and rents, the basic shelter cost of all individuals and families, are universally greeted as bad, barring by a bunch of ne’er-do-wells.

  73. @all

    Not sure how – but if we get a handle on ‘deficit’ – then NAMA may provide a ‘tactical trigger’ with which to ‘manufacture’ the ‘restructuring/vichy_bank-sovereign default’ that is required, following Minsky’s (b) for insolvent entities, to ensure a reasonable possibility of economic recovery.

    Have some ideas, but prob best to keep mum – Hello Michael! Hello Frank! A little conference call (Enda, get back onside *&%^() – five yards out …. but this time, keep the ball, and drop_kick johnnie and his ilk! End game: and we still have the ball.

  74. @Hogan

    No not bad at all, it would be bad if there was someone out there with reasonable means looking for a reasonable mortgage and our banks could not facilitate.

  75. point 1
    As a builder/ engineer I spend a lot of time watching NAMA sites , For the most part if the are not invested in the will cost us in the long term to clean up these brownfeild sites or the country will look like Moldova with collapsing concrete buildings in every small town. I know a lot of people who are stripping the buildings already of the copper and lead, a building is dead when this happens and the only thing recoverable is the concrete shell.
    I know of several sites where simple things like sewage pump stations have not been maintained due to no spend backing up and destroying the assets (do you now how much it costs to disinfect a house ?)
    point 2
    Anecdotal evidence is there is still a demand for housing ownership and the lack of credit in the market is thwarting it.
    point 3
    the fact we have thousands of acres of soon to be worthless unfarmable land and people looking for houses and a state agency looking for any return on these decaying assets , we should not be dismissing any way to liquidate these (a rent to buy scheme does not need a bankers input rather a collection agency some very strict terms on nonpayment of rent ie loss of built up equity if defaulted on etc thus reducing namas risk and enabling those limited credit to enter market.). Otherwise we will see all that wasted investment be diminished into a bit of cash for a lad in a van at Galway metal.

  76. Jagdip Singh says,

    Why provide liquidity?

    (1) Avoid fire sales
    (2) Jump-start the market
    (3) Get cash deposits from buyers without needing to spend cash
    (4) Encourage more property funds that aren’t vultures to consider Irish property

    [break]

    One big problem I see is distinguising between NAMA avoiding fire sales and NAMA artificially distorting the market by providing credit.

    What is a distorted property market? The only definition of a distorted property market, I am comfortable with, is a property market that causes too much problems in other more important markets, such as those for labour and productivity. Our property market in Ireland has done enough damage in those markets already. Irish journalists never talk about firesales of human capital. But if a house is burning, it instantly gets miles of paragraphs. The defintion of a property market we have been using in Ireland was invented by journalists to sell newsprint. Fire Sale is a journalistic word all, like burning the bond holders. It is about sales of opinions and column inches, and human interest side bars. Those terms have nothing to do with the operation or functionality of markets, of any shade or colour. Imagine a component of an automobile engine for a second. Say it is a piston, a crankshaft, a flywheel or a belt. I don’t know. We could never talk about that component in isolation. The debate about Irish property markets should not be about Joe Soap’s emotios as he sits in slippers reading Sunday newsprint. It should not be about whether property markets start, stop, or go up in flames. The coverage should be about if the rest of the Irish economic engine can run at all, without an isolated part of the mechanism causing a lot more trouble than it is worth. In Ireland, we cannot integrate components such as property market(s) into the greater whole. That is the sad truth of the matter. Fears of distortion of property market(s) are misplaced. The debate should be about property markets distorting everything else. BOH.

  77. As long as NAMA relentlessly pursues its debtors for the money they still owe on the original loans, and all its sales processes are public and above board then it’s hard to see why NAMA shouldn’t sell any land it has ended up seizing.

    But, how it accounts for sales on credit will be critical in the whole thing. If the NAMA sales are at high prices and on soft terms then we could end up having NAMA re-seize land in a decade without ever having actually been paid. In the meantime this could have given the appearance in 2011 of “restarting the market” and even having NAMA declare a profit in the interim….but all on a foundation of more foam.

    Can NAMA declare profit without ever having been actually paid for these lands? I could offer to buy half of Sandyford at NAMA’s book value for the land as long as NAMA doesn’t expect me to pay for a long time. By the time I default on the deal NAMA could have done all sorts of accounting tricks.

  78. Reason to create NAMA according to Brian Lenihan….was to prevent banks being nationalised and to “get the banks lending again”. That plan really banjaksed the banks who, in any event, thought they could let someone else bear the pain for their stupid mistakes while they remained private. This logic, to the point where they did not even lift a pen to try and sort out toxic loans even allowing interest to be rolled up over a two year period. Now, NAMA morphs and decides it will have to get involved on both sides of transactions. You see, it has all that cash hanging about and must do something with it other than paying down its own gigantic tracker mortgage of 34bn. Nice to see NAMA adopting the same policies of the looney developers who’s assets it has acquired. NAMA decides to sell and use the money that comes in to invest in property! You could not make this up and presumably as NAMA is to only last for 10 years the loans will be of short duration or of course they always have the option of selling them back to the “pillar banks” at some stage in the future. In short, It is a Ponzi scheme!

    NAMA will also supply the money to developers to finish apartments etc so it can offer them for sale to purchasers whom it will extend credit. NAMA borrows money at 1.25% and rising and competes against private sellers who’s potential purchasers must borrow at 4 or 4.5% I guess these sellers will have to wait for NAMA to “sell” its book first, so you might as well stop servicing your loan now if you are involved in commercial property.

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