Anglo Irish Bank chairman, Alan Dukes certainly upset a lot of people yesterday. His bank announced record 12-month Irish corporate losses of €17.6bn, which upset the entire nation. He gave a presentation at University College Cork to the Association of Compliance Officers in Ireland and the Financial Services Innovation Centre where he claimed that Irish banks need another €50bn of state injections on top of the €46bn already shoveled into the banks (to be clear that extra €50bn includes the €35bn of the IMF/EU bailout earmarked for the banks). That claim upset the Department of Finance and is at odds with the governor of the Central Bank of Ireland who claims that an extra €10bn for the banks should be sufficient. Alan Dukes also said that NAMA would need €75bn of funding, considerably more than previously understood. NAMA is reported to have responded with a statement (though alas it is not available from the NAMA website yet) to the effect that Dukes’ claims were rubbish and that the agency would only need €37bn to acquire its intended portfolio of loans. The agency has already acquired €71bn of loans at par or nominal value (which was also the position before Christmas). It seems that there is another €5bn of €20m+ exposures to be transferred (which will presumably include Paddy McKillen’s €2.1bn) and that there is some €12bn of sub-€20m exposures at AIB and BoI. This €12bn sub-€20m total at AIB and BoI seems to reflect the success of the lobbying by AIB to exclude associated lending from the sub-€20m transfers, because the previous estimate of these smaller loans was €16.6bn. For interest, NAMA told the Supreme Court today that it has had discussions with the European Commission and seem to have approval to a slippage to the end-of-February-2011 deadline to absorb all loans.
So just to remind ourselves, here is the history of NAMA’s estimates of its ultimate loan portfolio, both the nominal value and how much NAMA would pay for the loans.
| Date | Loans (Nominal) | Loans (NAMA) | Haircut |
| Oct 2009 (1) | €77bn | €54bn | 30% |
| Feb 2010 (2) | €83bn | €54bn | 35% |
| June 2010 (3) | €81bn | €41bn | 50% |
| Sept 2010 (4) | €73bn | €30bn | 56% |
| Nov 2010 (5) | €90bn | €38bn | 58% |
| 9th Feb 2011 | €88bn | €37bn | 58% |
(1) The NAMA draft Business Plan
(2) The EU Decision approving the NAMA scheme
(3) The NAMA Business Plan
(4) Minister for Finance, Brian Lenihan announcement on 30th Sept, 2010 which said that sub-€20m exposures at AIB and Bank of Ireland were not to be transferred to NAMA. Previously the threshold for these two banks was €5m.
(5) IMF/EU bailout and the decision to include all land and development exposures at AIB and BoI, that is the €20m threshold was removed. An estimated €16.6bn of sub-€20m loans at AIB/BoI were to be absorbed.
I must say that “haircut” is a nice friendly expression and fair dues to the marketing person that created the term. It would be harmless enough except that it amounts to about €51 billion, about €25k for every member of the Irish labour force. What we really mean is that €51 billion is the value of initial writedown, bailout of borrowers and losses to taxpayers.
And some people still say that Nama will make a “profit”. Any fool could make a “profit” when they can ignore the impact of “haircuts”.
[ This dig is not aimed at NWL or even Nama's management who are just using the expression as a handly handle but it is aimed squarely at those who created and legislated Nama in the first instance without having properly researched its basis, or thought through its implications, or persist in digging a bigger black hole. ]
Hi Brian, “haircut” has been around for many years in the context of distressed assets and NAMA merely adopted the word. Personally I think the alternative, “discount” is even more misleading because as you rightly say the higher the discount (usually a good thing for purchasers) the bigger the capital hole left in the banks. As many have pointed out NAMA is a zero sum transaction because we own NAMA and now we own the banks but the hope was that the NAMA process would bring certainty to a large asset class in banks’ balance sheets (which I think it has largely achieved on the larger-scale transfers). The problem with NAMA is that it would only work and mainly solve the problem when you were left with manageable capital holes behind in the banks – the reality is the holes left behind are so big that the whole purpose of NAMA is being questioned.
Yea, I know a haircut usually refers to a “trim” but in our case it relates to a “scalping”.
[...] [...]
No offense, but at 8 o’clock in the morning in Shanghai there are more people waiting on a bus than the entire population of Ireland, which is dropping by the minute. Having said that, I think Ireland deserves the highest congratulations for its no small feat, along with Greece, in what looks like a real good shot at bringing down the Germans without firing a gun.
You may wish to look up the German translation for haircut.