This is a guest contribution from John McCartney (former Head of Research at Lisney): you can read it here.
Category: Banking Crisis
Here‘s an article I wrote for the Irish Times on what we have learned from the Carroll case.
Commenters on another thread have been discussing this story from the Irish Times concerning comments from Frank O’Dwyer of the Irish Association of Investment Managers. Mr O’Dwyer’s comments are reported as follows:
“I strongly believe that the Department of Finance and agency understand that while they have to be fair to the taxpayer, the key audience is international financial markets,” said Frank O’Dwyer, who heads the Irish Association of Investment Managers in Dublin.
“An excessive haircut, with any taint of political motivation, any sense of ‘let’s stick it to these guys,’ would erode confidence.”
Interestingly, while the “key audience” is international financial markets, Mr. O’Dwyer also says:
“The only certain game in town in relation to capital is the State,”
I also liked this comment
The agency’s task is to find a “zone of rightness” for the discount
I can see the zone of rightness catching on as a phrase. It’s kind of like “truthiness“.
I’m not a legal expert so I’ve no great insights into what happens next. More generally, it’s hard at this stage to know what impact this decision will have on the market for Irish development properties or on the prices that NAMA are likely to pay. But the Carroll judgment is an interesting document in its own right for the insights it gives into the types of businesses whose loans NAMA is going to acquire.
There’s quite a lot of confusion out there relating to the role a bank levy will play in the Nama process.
Some people have been surprised that the legislation made no reference to a levy. However, it has been public knowledge at least since the appearance in May of Interim NAMA CEO Brendan McDonagh at the Public Finances Committee that a levy would not be in the legislation. He told the committee:
If there was a clawback within the NAMA legislation affecting the balance sheets of the banks, they would not be able to reduce the assets transferred to NAMA because effectively there would be an unpriced option in terms of what the clawback would be in the future. One cannot do this because it would not be possible to take risk weighted assets off the balance sheets of the banks if the levy was imposed in the NAMA legislation.
To translate this into English, let’s give an example. Suppose a bank has a loan with a book value of €100 million. Now NAMA buys it for €60 million. Suppose it turns out to be worth €40 million and the government decides to levy the €20 million loss on the bank that sold it. In this case, the bank may as well have held onto the loan—and the accountants will have to reflect this in the bank’s balance sheet. But the point of the exercise, at least in theory, is to get the loans off the banks, re-capitalise and then draw a line under the whole episode.