The Haircut, sir? Will that be a 30, 40 or 50?

Yes many years ago when I was a child and was dragged into “Bruiser” Smith barbers, you would choose the severity of haircut. These days the “haircut” has entered the Irish economics lexicon as the discount to be applied to bank loans (including rolled up interest)  and the result is the consideration to be paid to the banks for their loan – to illustrate by reference to the overall figures last September 2009.

Original Asset Values underpinning loans   €88bn

Original loans advanced (at 77% LTV)          €68bn

Rolled up interest on the €68bn loans           €9bn

Loans plus rolled up interest                             €77bn

Haircut at 30%                                                         €23bn

Consideration being paid by NAMA              €54bn

(Comprising current asset values                  €47bn plus

Long term economic value)                            €7bn

Last night in London, Enda Kenny TD and leader FG and many say Taoiseach-in-waiting said that anything short of a 40% haircut would be “outright theft”. So with a 40% discount, NAMA would be paying €46bn and if you were to take away 15% for “long term economic value” then the asset values would be €39bn.

On the other hand we learned in the media yesterday (where else, the Opposition don’t have the information) that a discount of 50% may be applied to Anglo loans which if repllicated across the other banks would mean NAMA paid out €39bn and the asset values were €33bn.

Indeed Senator Regan has called for deadbank and performing loans to be excluded which would reduce the original €54bn to €25bn.

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The Point of No Return – Update

Last night at at the BT Centre, St Pauls, London at the inaugural London Irish Business Society presentation which dealt with NAMA, Enda Kenny gave a 45-minute speech on NAMA and said that the first loans would be transferred “in the next couple of months”. Today the Irish Times said the EU were expected to give approval “within weeks”. All that lies between approval and rejection it would appear is Sr Eugene Regan’s submissions. Also of interest last night are FG’s five proposals surrounding NAMA.

1. Hold a full Inquiry into the collapse of Irish banks.

2. Never allow this crisi to re-occur

3. Play hardball with the banks – no more investment (recapitalisation) until bondholders accept losses.

4. Minimise tax-payer exposure to NAMA – quote ” any discount of less than 40% will be outright theft”

5. Create a National Recovery Bank (cf France) to support lending conditions in the State.

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