Author: Karl Whelan

Three Cheers for NAMA?

One interesting aspect of the government’s current approach to promoting its NAMA plan for dealing with the banking crisis is their tendency to interpret everything said by authority figures as being in full support of their chosen approach.

As an example of this, on RTE’s The Week in Politics, Minister Eamon Ryan said the following (about 15.40 in):

The difficult and unpopular decisions that were excoriated by the Labour Party endlessly—you’re bailing out the banks, you’re bailing out the banks—have been described by the International Monetary Fund as the right way forward; has been described by the ESRI as the first time the government is getting it right, as they see it; has been described by the Swedish finance minister who was over last week, who got them through a similar crisis, as exactly the right thing to do.

Continue reading “Three Cheers for NAMA?”

Tribune on Anglo Bonds

Following up on last week’s story about Anglo suspending interest payments on certain bonds, the Sunday Tribune had a nice article by Emmet Oliver that sheds some light on the issues surrounding this decision.  Also in the Tribune, my old friend Jon Ihle reported the feel-good news story of the week about a certain bond investor who’s going to lose out as a result of this decision.

Cowen Announces Job Subsidy Scheme

An Taoiseach appeared today before the biennial conference of the Irish Congress of Trade Unions (incidentally, the highlight of their last conference was Mr. Cowen’s predecessor wondering aloud why those who criticised his economic policies didn’t go off and commit suicide.)  The Taoiseach’s remarks suggest that, despite David Begg’s disavowal of it, the €250 million job subsidy proposal is going ahead:

Drawing on detailed discussions with Congress, we are introducing a new initiative to safeguard vulnerable jobs through a Temporary Employment Subsidy Scheme. This will provide a subsidy to support jobs in exporting companies in the manufacturing or internationally-traded services sector.

Perhaps these detailed discussions with ICTU have changed the proposed scheme from the one criticised by me, Sarah Carey, and of course, David Begg.  However, there is no information in the official announcement to suggest so as of yet.  Indeed, it directs us to the document containing the original announcement of the scheme for “more information.”

As an aside, I’d note that the name of the scheme is a bit confusing.  I thought when I read it first that it was a scheme to promote temporary employment via a subsidy.  However, it appears instead to be a scheme that temporarily promotes employment via a subsidy.

Anglo Stops Payments on Bonds, CDS Implications?

Thanks to Karl D. for the tip-off on this story.  Anglo Irish has announced that it will not be paying coupons on its Tier 1 subordinated bonds and that this decision was required by “The European Commission, as a condition of its approval of the Government’s capitalisation of the Bank of up to €4bn.”  In a related story, the International Swaps and Derivatives Association has decided that a similar non-payment by Bradford and Bingley represents a “credit event” which will trigger CDS insurance.  (Bloomberg story here, official announcement here.)

Presumably, Anglo’s actions will at some point trigger the same decision from the ISDA.  This will mean that those Anglo bondholders holding CDS insurance will receive full payment.  Anglo’s announcement also discusses its “liability management” exercise, in which it is planning to buy back outstanding debt at below par.  Presumably, however, those insured by CDS will no longer be interested in a deal of this sort.  It also makes it likely that much of the debt that Anglo is planning to buy back at a discount will be owned by CDS issuers.

Update: My presumablys were perhaps a bit presumptious.  Commenter Eoin notes below that this is not (yet) a credit event.  I have checked this elsewhere and am informed that the “reference” obligation that defines a credit event for Anglo is indeed a failure to meet Tier 2 obligations.

Lundgren in Dublin and A Proposal Relating to NAMA

I have written before about the incisive and articulate contributions of Bo Lundgren, the Swedish Finance Minister in charge during their banking crisis of the early 1990s.  Lundgren was in Dublin on Tuesday, giving a talk at the Institute of International and European Affairs and testifying before the Oireachtas Committee on Finance and the Public Service.  A productive guy, he also appeared on Morning Ireland.  Here’s a link to his interview on that show (scroll down to find it) which has lots of interesting material. I will post a link to the transcript of his Oireachtas appearance when it is put up.

I think there are statements in Lundgren’s Morning Ireland interview which could be probably be latched on to by all sides of the debate on banking being played out on this blog.  Rather than attempt to score points on this, I will only note that Lungren argues that a political consensus greatly helps when dealing with a banking crisis (about 7 minutes in).

In the Irish context, perhaps the key issue causing political controversy is the price that NAMA will pay for the assets.  In Sweden this was set by an independent Valuation Committee overseen by a cross-party board. The emerging details suggest that the price that NAMA pays will come from a complex valuation process recommended to the NAMA officials by HSBC (the IT today reported that 370 categories of information must be provided by banks on each developer on the loan books so that HSBC can use this information to develop a valuation mechanism.)

In relation to this, let me put forward a suggestion that could potentially lead to all-party support for the government’s approach, which Lundgren viewed as crucial: Appoint a cross-party board to approve NAMA’s pricing of assets being transferred. I think it might be hard for opposition politicians to turn down an offer like this and it could be a way to address well-founded opposition concerns about potential losses to the taxpayer as well as less well-founded concerns such as the idea that NAMA is a bailout for developers.

If the only solid support for NAMA’s pricing mechanism comes from representatives of an unpopular government, then it’s hard to see how this process will be successfully sold to a public that is already highly concerned (not to mention angry) about the potential costs to the taxpayer of solving the banking crisis.