Technicalities

The domestic response to yesterday’s Eurostat announcement has been fairly predictable. Opposition politicians are treating it as a substantively bad development that makes our fiscal problems worse. The government are calling it a mere technicality that is nothing to worry about.

I’ve generally been critical of those who seek to ease our fiscal problems via accounting gimmicks. So, on this point, I’m more inclined to agree with the government than the opposition. There may be some particularly uninformed bond traders out there for whom it was news that the government’s €4 billion recapitalisation of Anglo last year wasn’t actually an investment but I wouldn’t imagine there’s too many. Irish government bond yields may have risen a bit yesterday but this may be more related to increased jitteriness about the Greek situation and its potential spillovers than the fact that our headline deficit figure has been changed.

Of course, one problem that the government has in making its “just a technicality” argument is that this same government practically bent over backwards to create the strange beast that is the NAMA SPV and then emphasised how important this accounting gimmick was. For instance, we were told that Brian Lenihan “heartily welcomed” Eurostat’s decision to keep the NAMA debt off balance sheet and that he said the SPV “is an essential device for ensuring that our national debt is off balance sheet in Eurostat terms”. So I think there’s an element of live by the sword, die by the sword about this situation.

NAMA SPV Opportunity for Private Investors: Form an Orderly Queue

Via RTE, we find out about the dividends to be paid to the NAMA Master SPV’s private investors

The private investors, along with NAMA, will receive an annual dividend linked to the performance of the Master SPV. According to a briefing note issued to TDs today, this will be capped at the 10-year Irish Government bond yield at the time the dividend is declared.

When the SPV is wound up, the investors will be re-paid their capital only if the Master SPV has the resources. They will receive a further bonus of 10% if the Master SPV makes a profit.

So, if NAMA loses money, the private investors will lose all of their €51 million, while if NAMA makes money, they will receive a maximum of Irish government bond yields plus 10% over ten years.

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NAMA SPV Plan Versus NAMA Draft Business Plan?

Last week NAMA published a draft business plan. It contained a detailed description of how NAMA was supposed to operate. It told us, for instance, that the loans of the largest 100 to 150 borrowers “will be managed directly by NAMA.” (page 28) and explained a timeline for how NAMA intended to recover funds from the loans it was acquiring.

NAMA’s draft business plan did not mention a Special Purpose Vehicle.

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