Tag: NAMA

NAMA Levy versus NAMA 2.0

Thanks to pro-NAMA commenter AL for a useful contribution in a comment thread below. I think we probably need some more pro-NAMA commenters here, at least to give Zhou some company! But seriously, AL raises some useful issues. One in particular is the question of whether we should be worried about the pricing. AL states:

If we get the pricing wrong on the way in – there is the understanding that a levy will be imposed on the banking system (affecting equityholders in the future) to recoup any shortfall on the wind up of NAMA.

I think this is worth discussing more.  My worries here are (a) It’s an “understanding” rather than anything that will appear in legislation, so I have no faith that it will ever appear or, that if it does, it will be based on anything like the actual combined cost of NAMA to the taxpayer. (b) If it really becomes apparent that a levy will apply and then NAMA is running losses, this will cast a shadow over our banks for years, so that NAMA will have failed in its goal to draw a line under the problem.

Here’s a question I’d be interested in getting more discussion on. Why not have risk-sharing as suggested by Patrick Honohan’s NAMA 2.0 (pay a low price for the assets today—Patrick phrases it as “what we can confidently expected to obtain”) and then compensate shareholders (not the banks) with a share in NAMA’s potential profits, should they ever appear? This protects the taxpayer, achieves risk-sharing, and gives us cleaned up banks with no “legacy” problems.

NAMA explained to NYT/IHT readers

Margaret Doyle provides an analysis of NAMA for NYT/IHT readers: you can read it here.

Lenihan Not Anticipating Further Nationalisations

Minister Lenihan has returned from his holidays to talk about NAMA on RTE’s This Week. I’m not sure much new was revealed from this interview. On the key question of what will happen with the major banks, the Minister argues that only “some allowance” will be incorporated for long-term economic value while at the same time he says “we don’t anticipate nationalising any other institutions in their entirety”.

To see what this means in practice, consider AIB. This bank has property-related loans of €48 billion, half of this being development loans. It is widely reported that €30 billion of these loans will be transferred to NAMA. The bank has private core tier 1 capital of about €8 billion. So the minister is saying that he is not anticipating a discount for AIB as high as 27 percent (because 27 percent of €30 billion is €8 billion.) 

Given what we know about the current financial situation of Irish property developers, the haircuts envisaged by the Minister appear to rely on a very substantial recovery in property values. And yet the Minister also rules out purchasing assets at multiples of their current market value, so I don’t see how the various comments here hang together.

It would be interesting to know on what basis the Minister’s anticipations about NAMA transfer values have been formulated. And since the people doing the mysterious long-term economic value calculations all work for the Minister, it is reasonable to ask how likely it is that these people can back out the right answer as to what the average haircut needs to be to fit with the Minister’s anticipated outcome.

Of course, this could all be a bait and switch, and the main banks could end up being nationalised. However, the spin suggests otherwise. The Minister’s latest comments contained a series of misleading remarks about nationalisation.

For instance, Minister Lenihan blames the cost to the taxpayer of re-capitalising Anglo on the fact that the bank was nationalised, rather than on his decision to guarantee almost all of Anglo’s liabilities last September. In relation to AIB or BOI, the implication is that the cost of sorting them out would be higher if we don’t overpay for the assets to keep them in private ownership. There are arguments worth airing against nationalisation but this just isn’t one of them. As long as the guarantee is kept in place, these banks need to be recapitalised, most likely by the state. Doing so by overpaying for assets rather than by getting an equity share really doesn’t save money.

An unnamed foreign country that nationalised its banks, leading to disaster, was mentioned by the Minister. I’m guessing the country the Minister has in mind is Iceland. Minister Lenihan may think a decision to nationalise the banks was the cause of Iceland’s problems. I’d wonder though.

Government Banking Policy Based on Best International Advice?

The Taoiseach has emerged to defend the government’s banking proposals. He has been reported as saying:

The proposal we have brought forward is on the basis of the best international advice, including the European Commission and the International Monetary Fund, and we are doing this in consultation with the European Central Bank.

Invoking international support for their approach has been a key element in the government’s PR strategy in recent months. However, these comments seem to me to confuse the actual roles being played by the various international organisations referred to.

Continue reading “Government Banking Policy Based on Best International Advice?”

Enda Kenny on Bank Restructuring

His speech to the Humbert Summer School is available here.