You really have to be impressed by lack of ambition, ability and vision abundantly evident in Ireland’s economic decision-making. We are on Day 2 of a three-day bondholder-fest during which a total of €1.14bn is being paid by the people of this State to unguaranteed, unsecured bondholders at IBRC, the world’s most bust bank representing the legacy rubbish of Sean Fitzpatrick’s Anglo Irish Bank and Michael Fingleton’s Irish Nationwide Building Society.
And this afternoon, NAMA has confirmed that it is redeeming €2bn more of its bonds. These are the €32bn of IOUs which NAMA gave the banks when it acquired €74bn of loans. Including this afternoon’s announcement, NAMA has now paid €3.25bn of these bonds which must in any case be paid by 2020, that is 8.5 years hence.
”So what’s wrong with this” you might ask, after all NAMA is supposed to pay back all of these bonds by 2020, so what’s the problem with paying back €2bn today? The issue is that NAMA bonds are incredibly cheap, costing NAMA just 0.9% per annum – officially, NAMA pays the so-called 6-month Euribor rate which fluctuates from day to day, today it’s 0.93%. So what NAMA has done is take its cash and buy back this incredibly cheap source of funding. What else could NAMA have done with €2bn? According to the NAMA Act, it can do practically anything to address the serious financial crisis which the country has been facing since 2008 – in April this year, it lent €3.1bn to IBRC, remember? NAMA can use the money for all sorts of projects, and it isn’t confined to its developers’ projects either. Of course the State cannot add any more debt – an exception is made paying back bondholders in bust banks – but the State can certainly enter into arrangements where it rents assets from NAMA. And as long as NAMA gets its money back by 2020 when – dear God – this economy will have recovered, then everyone is happy. It’s about leveraging an Ireland in 2012 on its knees with an Ireland in the second half of this decade when we will recover. And all NAMA needed was to get a return on its projects of more than 0.9% per annum.
You can thank the genius at the Department of Finance for this overall state of affairs, and for what seems to have been a unilateral concession in the latest revision to the Memorandum of Understanding with the Troika, whereby NAMA must now repay €7.5bn of its bonds by the end of 2013. Minister Noonan agreed to this new term just two weeks ago and apparently received nothing in return.
NAMA is cock-a-hoop about its latest payment and points out that the Agency has not only paid down €3.25bn of senior debt but also repaid initial seed capital and loans from the Department of Finance totalling €299m. The view on here is not charitable, and if the best use of €2bn of NAMA’s cash was to pay down debt which just costs 0.9% per annum, then truly those holding the purse-strings have a poverty of ambition.
The NAMA chairman Frank Daly said in respect of this afternoon’s announcement that the Agency’s strong cash position meant that additional debt repayments were likely before the end of the year and that NAMA was well-placed to meet its target of €7.5bn of Senior Bonds by the end of 2013.