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SAMA

The WSJ reports that the new Spanish government may soon set up an asset management agency (SAMA?) to buy out the distressed property loans of its banking system.

Question for the readership: is this advisable?

24 replies on “SAMA”

They could learn a lot from the Irish experience. A lot of errors were made in the design of NAMA which have lead to serious problems down the line.

some problems

– NAMA is not capable of acting commercially. This is due to corporate structure, reporting obligations, Govt and Oireachtas interference and media glare. NAMA is afraid to enter into debt resolution for individual borrowers.

– NAMA is reluctant to book losses up front. NAMA likes to delay the dark day so they don’t have to report bad figures. This defeats the purpose of NAMA which was to purge the system. It is also having a devastating effect on businesses who deal with NAMA borrowers and who have provided value which NAMA is ultimately benefiting from but who cannot get paid out of income generated by such value. For example, if one previously supplied fit-out for apartments and all the rents from the fitted out apartments is going to NAMA, one might be a long time waiting to get paid for the fit-out.

– NAMA is having to appoint receivers in too many cases. There is a massive expense in this. If NAMA were able to come to resolutions with borrowers this expense could be avoided.

– NAMA has a civil service culture. People are more afraid of getting something wrong than of failing to achieve goals. The incentive structure is not appropriate for a debt resolution vehicle.

– NAMA may end up being a vehicle for serving the interests of a particular class of people. These are the former bankers now in NAMA, their buddies and the big professional services firms (who there is no risk in appointing because they do other public sector work and who are populated by similar corporate class types). This will skew many markets in professional services.

SAMA? God be with the days when the Saudi Arabian Monetary Agency was the biggest player in the eurobond market (but ‘eurobonds’ meant something different back then).

Even now they could make quite an impact on the Spanish property market. I’d love to see the reaction from Pamela Geller — the new caliphate!

– Another problem with NAMA was that the valuation of each loan including full legal due diligence was too cumbersome and burdensome for the banks, and was generally too costly. It also caused a delay which did not help matters.

– A consequent problem was that the banks could not cope with the burden of transferring the smaller loans. This meant NAMA only did a half job in the end and that many dire property loans are still in the banks.

Is this advisable?

NO.

Look at Ireland! Then look at Cyprus!

Simply tell Timmy (and his CDS buddies) to go home and talk to the ECB; the ECB are ultimately responsible for keeping an eye, or not, on dodgy capital flows.

The Mayor of Marbella has been in Saudi Arabia all week so he may be already be implementing Kevin’s suggestion.

But the OP raises the possibility that the PP is a deeply stupid party.

Blaming the Basques for 11-M in 2004, costing them 7 years out of power, and then importing NAMA in 2012 when they finally get back in. Heckuva job.

I know its tempting especially if ECB will advance you billions, piles of dough to give to all your financial/legal real estate crony friends to administer the thing for the next couple of decades; and hopefully hide all those losses from the public while screwing the ECB at the same time. You can even employ the developers who made the losses, give them new jobs and save them from jail.

But NO, it isn’t advisable!

No. If Spain has anything to learn from Ireland’s experience, it is that it should do everything it can to avoid formally guaranteeing the losses of insolvent banks. Any progress towards bringing transparency to the mess that is the Spanish banking system will result in the ECB and Troika blackmailing it into guaranteeing those losses, so it should be avoided at all costs.

Wasn’t the alternative to NAMA, to nationalise the banks at a very cheap stock price. The government then has the power to force a swift and fair writedown of bad assets. The government returns the bank to profitability and then sells at a profit?

@ Rory

Eh, think you have a few thigs mixed there, the bad assets are one part of the problem, the ‘good’ liabilities are another, and your fantasy “government power” is the large elephant in the room…quite simply, “no, they can’t do that”…

@all

A Minsky Moment from Bard College: Marshall Auerbach

Toward a Workable Solution for the Eurozone

Although it didn’t originate with an economist, the malaprop “It’s déjà vu all over again” is invariably what springs to mind in the aftermath of virtually any euro summit of the past few years, all of which seem to end with the requisite promise of a so-called “final solution” to the problems posed by the increasingly problematic currency union. But it’s hard to get excited about any of the “solutions” on offer, since they steadfastly refuse to acknowledge that the eurozone’s problem is fundamentally one of flawed financial architecture. Today’s crisis has arisen because the creation of the euro has robbed nations of their sovereign ability to engage in a fiscal counterresponse against sudden external demand shocks of the kind we experienced in 2008. And it is being exacerbated by the ongoing reluctance of the European Union, European Central Bank, and International Monetary Fund—the “troika”—to abandon fiscal austerity as a quid pro quo for backstopping these nations’ bonds.

http://www.levyinstitute.org/publications/?docid=1440

Reminds me of Derrindaf NS, Duagh. On good days there were sheets of newspaper available. On bad days you were lucky if the grass with which you wiped your ass was dry.

@Mickey Hickey

As they say on the telly ‘ That’s the point at which we’ll wrap up this discussion’

Enough said.

SAMA is wrong on almost every level as was NAMA – much easier to let the losses fall where they are entitled to fall and the consequences of that is that there will be winners and losers and property prices will find their natural pricing level significantly quicker i.e. let the market do its natural job.

@ Eoin

If the government completely owns the bank they can do whatever they want with it. That is their right as shareholders. Put in a new board of directors who will write down the losses properly.

Yes the government would initially make a loss repaying the liabilities. But it can make this back if it bought the bank at a very cheap price say 0.01c. In 10 years say it can refloat the bank in the market, for say 3 euro a share. It could make all the losses on the liabilities back by making a profit of €2.99 per share.

Only do this with BOI, AIB and PTSB. Let Anglo and Irish Nationwide go to the wall except to guarantee deposits up to a max of 100,000K.

I should add the when the government owns the banks, they can decide which liabilities are appropriate to pay off. Don’t guarantee everything like we did, and get nothing in return.

@PR Guy
They should bring back one sheet at a time hardened one ply in a box stuff we had when I went to primary school.

Isnt there a Zoro type charactor selling paper towels on TV with the caption “One sheet is all you need” I said sheet!

They should export that guy to Spanish kids TV.

@Yields or Bust

On SAMA – agree …

‘… let the market do its natural job.

Natural? I remain to be convinced that there is anything ‘natural’ intrinsic to ‘markets’. Powerful elites seem to ‘fix’ them to their own advantage – wonder what is the Spanish CDS exposure to Powers on Wall St.?

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