see the post by Ciaran Cuffe: you can read it here.
A Green View of NAMA
- Post author By Philip Lane
- Post date April 24, 2009
- Categories In Banking Crisis
- Tags NAMA
- 3 Comments on A Green View of NAMA
Tag: NAMA
There may not be any legislation yet but NAMA has a website. It provides an example of how NAMA will buy loans from the banks using a “purely illustrative” example of a 25% discount. It has been widely reported that AIB would be selling €30 billion in loans to NAMA. A writedown of €7.5 billion would wipe out essentially all core Tier 1 (shareholder) capital, so this is an interesting illustrative example.
Update: Patrick correctly points out that the illustration is of a €25 million writedown of a €65 million loan for a property originally worth €100 million. So indeed it’s a 38.5% discount. I know it’s just an example but it’s interesting all the same.
The Irish Times lead story cites the IMF’s Global Financial Stability report as having the following sentence: “The United States, United Kingdom and Ireland face some of the largest potential costs of financial stabilisation (12 to 13 per cent of GDP) given the scale of mortgage defaults.” It turns out, however, that the IT was a little behind on a (fairly silly) controversy about this sentence.
It turns out that the IMF’s cost estimates are not new at all but actually first appeared on page 17 of this report released on March 6, which was written as a companion to this report on the outlook for public finances around the world. The March 6 paper reports a cost figure of 13.9 percent of Irish GDP, which amounts to €24 billion. Table 4 also reports the cost for the UK at 9.1 percent of GDP.
For this reason, there was a bit of a flap over this when the BBC reported the 12-13 percent figure, with the UK Treasury pointing out correctly that the sentence and its accompanying table were wrong. The version of the report on the website no long contains the parenthetical “(12 to 13 per cent of GDP)” that the Irish Times had quoted and the table has been altered—I think Ireland may have been listed in the original Table 1.8 but we are not now. In any case, you can find the original source of the calculations from the above link.
So, not the IMF’s finest hour. However, beyond the silliness, it is clear that the IMF’s assessment of the likely costs of financial sector support measures to the Irish taxpayer does not fit well with the government’s current stance that “under extreme stress scenarios” BOI only need €3.5 billion in additional capital, while AIB only need €5 billion.
So where does the substance of the AIB announcement leave us? As has often been the case with the government’s approach to the banking crisis, this pushes us one step closer to some kind of resolution, while still maintaining lots of uncertainty as to what that resolution will look like.
John Murray Brown reviews both sides of the debate, with some interesting scenarios for the scale of re-capitalisation that may be required: you can read it here.