Is NAMA the solution to opening up the credit market?

The systemic problem we are told with Irish banking is that banks are undercapitalised and are desperately trying to re-build their balance sheets and what that means for consumers and businesses is that they can’t access credit. If consumers and businesses can’t access credit then the economy grinds to a halt. NAMA will take toxic assets from the banks substituting them with nice clean cash equivalent which should enable banks to build back up their lending business and help the economy to grow.

This author has a basic problem with this alleged situation. We hear so much that the euro is a millstone around our necks in these straitened times preventing us from raising interest rates, increasing the money supply and consequently affecting our exchange rates – remember on the last point that the UK is still our biggest trading partner and our currency is worth 40% more than 2-3 years ago. All of these things are true and this has led some, like economist David McWilliams, to argue in favour of a short withdrawal from the euro and the establishment of the Punt 2.0 to help us through these difficult times. It is accepted that such a withdrawal would affect our reputation but needs must.

So yes, the euro is a millstone but it has one redeeming feature – it is the world’s blue-chipped currency (more so than the yen, sterling or lately the dollar). European interest rates are at record lows – currently the ECB rate is 0.5%. Loan rates in the State vary but the standard variable mortgage rate is now 3.69% for many of the major lenders.

Where are the cash rich countries and banks? Why are there not queues of Indian, Chinese and Russian banks clamouring to enter the Irish market where, as a result of the dire condition of their competitors, they have a licence to print money by lending at record lows and lending at healthy margins to consumers and businesses being denied credit. Is NAMA the solution to opening up the credit market or is it just protecting the egos and wealth of existing operators?

Read Full Post »

Valuation, it’s an art, not a science – mind you, it’s not astrology either

A problem facing auditors at one one of the State’s biggest housebuilders during the boom goes to illustrate the problems that NAMA must confront in valuing toxic loans. In the annual accounts for Shannon Homes for 2009, the auditors state in relation to a €72m land bank valuation “Although, the directors have valued the land bank and work in progress to the best of their ability, there is no active market from which we could make an assessment of the net realisable value or value in use.”

“No active market” – could the same be said of the housing market where over 300,000 homes lie vacant and where there is evidence of banks and developers hoarding homes. Sadly in the state, statistics on property transactions are masked in various levels of secrecy and we will not know until after April 2010 (thanks to the CSO) how our population has changed in the past year and in particular if spiralling emigration has led to a reduced population.

Separately, Carluccio’s, that purveyor of delicious Med-themed food, is to re-open following the reversal of the decision of its landlord to reduce rent. Carluccio’s announced earlier in the week that it was closing due to its landlord charging €680,000 per annum in rent for its Dawson Street premises, a rent that was uneconomic to operate its restaurant business which serves 5,000 people every week. The property was bought by the current landlord for €20m in 2006 and the previous annual rent represented a return of only 3.4% and that is presumably going to fall and indeed it looks as if capital values will shows some reduction this year even if on a lesser level than previous years.

Read Full Post »