Archive for July 11th, 2010

The Sunday Independent today reports the results of a poll in which it asked the public about the apparently inaccurate information provided by the banks last year which meant that NAMA planned a 40% “performing” loan rate in its draft Business Plan in October 2009. The public it seems were given two options – either the banks lied or they were incompetent and 62% said they lied while the remainder, 38% said they were incompetent. The significance of the “performing” loan rate is that the Independent is claiming this is why NAMA have been forced to revise downward the plan NPV from €4.8bn to €1bn in the new Business Plan (I think the Independent might be reading a bit too much into the “performing” rate – what is the present loan default rate, which NAMA set at 20% last October and which many said at the time was totally unrealistic?).

Two things will strike you about this poll. Firstly those who had opinions add up to 100% – no undecideds or don’t knows. Secondly this poll is based on a “tea or coffee”-type question – a technique often employed by salespeople wanting to close a sale – will you pay by cash or credit card? (“but hang on a second I haven’t said I’ll buy the yoke yet!”). Shouldn’t the poll have offered other options on a less primed question eg who do you blame for the inaccuracy of the information apparently used by NAMA in the draft Business Plan? And as for the options for responses, how about

(a) the banks

(b) Pricewaterhouse Coopers, whose stress-testing of the banks’ loans was apparently relied on by NAMA

(c) NAMA and its €500k+ per annum CEO

(d) None of the above

What is deeply concerning is that both NAMA and the Department of Finance have laid the blame squarely with the bankers. The Minister for Finance has even threatened to prosecute bankers – rich Minister, coming in a week when DoF officials have been leaking the NAMA plan to the media before publication and in a week when the EU published its response to the first Anglo Business Plan which concluded that Mr Lenihan, in writing to Anglo on 22nd December 2009 giving undertakings as to that bank’s capital, had broken State-aid rules (or broken the law in very basic phraseology). Here’s what the decision says in paragraph 96 “The Commission therefore comes to the conclusion that the measure constitutes State aid within the meaning of Article 107(1) TFEU. The Commission furthermore observes that the aid was effectively granted on 22 December 2009, on the basis of the letter of the Minister for Finance to the Chairman of the Bank confirming its commitment to ensure that the Bank has sufficient capital to continue to meet its regulatory capital requirements. According to the Irish authorities, this letter will allow the accountants of the Bank to back-date the recapitalisation to the date of the letter and therefore to close the 2009 accounts with enough capital. The Commission concludes that the aid has been implemented in breach of Article 108(3) TFEU”

What is particularly concerning is that NAMA seem not to be taking any responsibility for checking the data provided by the banks in 2009  eg by sampling the loans and testing the banks’ data. For a €50bn new venture that is very odd indeed.

Of course what has happened is past history, what about current decisions and controllable events? Two things,

(a) who is responsible for the present Business Plan?  Where does the buck stop? The NAMA CEO would be the logical answer but he does not put his name to the new Business Plan. What is gob-smacking is the apparent dependence of NAMA on the results of the first Tranche, there has been no apparent testing of the remaining 1400-odd borrowers to see if their loans have different profiles.

(b) the banks are required to transfer all eligible assets to NAMA. There is a deep concern, which has been expressed on here a number of times eg here and here, that the banks have been selling loans at below their value before transferring them to NAMA. NAMA have said that they will audit the banks later this year to check that they transferred ALL eligible assets, but it is unclear what sanction can be applied to banks that have sold their loans to third parties, and NAMA might want to clarify this matter sooner rather than later. As NAMA have said they will take over good and bad loans – it would be infuriating if banks were selling good loans to third parties.

Pretty soon, according to another report in the Independent today, tranches 2 and 3 will be transferred at which point more than half of the NAMA loans will have been transferred – indeed the Independent is saying all of the loans may be transferred by September 2010. Once that has happened, much debate about NAMA will become academic as the purchases will have been made. Now is the time to be demanding answers.


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