Banker Mathews at the Oireachtas again

As expected, not a lot of substance to emerge from today’s continuation of Peter Mathews’ presentation on the subject of “NAMA and the banking crisis” to the Oireachtas Joint Committee on Finance and the Public Service. There seems to be some intense antipathy between Peter Mathews and Deputy Frank Fahey with Frank seeming to make insinuations about Peter’s expertise and Peter (less subtly) questioning Frank’s expertise. When the transcript is eventually published, you will find a very high word count on the words “expert” and “expertise”.

Peter’s presentation today continues his theme of NAMA not being fit for purpose, not leading to an increase in bank lending and the wrong people being listened to. Frank’s position is that NAMA has the support of the IMF, OECD, ECB, EU and our own Central Bank governor and that banks should tend to exchange NAMA bonds for cash with the ECB (to whom they’ll pay 1.5%) and lend that money out at a profit.

There were a few snippets of interest from the presentation:

1. Peter Mathews believes that Anglo will eventually end up with losses in the region of €32bn – now we know that the NAMA-bound portfolio of €36bn will probably have a 55% haircut so there would be close to €20bn of losses there. The remaining non-NAMA loans also of €36bn have a provision already of €4bn so an extra €12bn of loss would bring the overall loss to 44%. How likely is that level of loss on the non-NAMA portfolio? Difficult to say but the €22bn would appear to be on the low side unless Anglo can offset losses with other assets or profits.

2. There was a Committee hearing on Anglo in June 2010 at which the Chairman-in-waiting, Alan Dukes, appeared and answered questions. Mr Dukes had not at that point taken up the post of Chairman. Peter Matthews believes that it was inappropriate not to have had Donal O’Connor, the Anglo chairman from Jan 2009 (and non-executive director from June 2008) until he retired in June 2010, to attend the discussion of Anglo’s business.

3. Peter Mathews says that NAMA financial institutions can only get loans of upto 80% of the face value of NAMA bonds at the ECB. The published haircut at the ECB is 1.5% so it is difficult to see where he sourced the “80%”. Michael Noonan asked whether there was a secondary market for NAMA bonds and Peter was unsure, though he seemed to agree with Michael Noonan’s view that there was generally a secondary market for all bonds.

4. Anglo has recently claimed a €1.8bn profit on redeeming bonds which had a book value of €2.4bn in return for a payment from Anglo of €0.6bn. Peter says that from the bondholders point of view this was regarded as a €0.6bn profit because they had written down the value of the bonds to zero. This was an interesting claim and could carry an implication that Anglo were keen to bolster short-term paper profit (they could only recognise the profit when the bondholders accepted the deal) at the expense of longer term profit (if the bonds were redeemed for zero then eventually Anglo would have booked the entire €2.4bn as a profit but they could only do that when there was certainty as to the value). Was there a digout of €0.6bn for Anglo bondholders to flatter Anglo’s profit at the expense of the taxpayers’ long-term interest?

5. In Peter’s view NAMA can be undone with the loans being given back to the banks and the 80-odd employees at NAMA being deployed to work in the banks and the expertise already gained (and paid for) in the process being of future benefit.

6. Whilst not examined in any real depth – apparently Peter has a paper on the subject and he is on record as saying that anyone from the public can ask him for the information – Peter thinks Anglo and INBS should be wound down over a 5 year period at a cost of €17bn.

It was a strange hearing in the sense that the theme of Peter’s presentation veered from what appeared to be a ballsy job application to a passionate expression of patriotism. One of the few constructive contributions came from Deputy Fahey at the end who asked the Chairman when the Committee would have the opportunity of questioning NAMA officials. The Chairman. Michael Ahern, said that there would be a hearing with NAMA officials when the Committee came back after the recess in September 2010 but that the Committee had a pressing workload. Deputy Fahey said he was particularly concerned at the apparent slow progress with NAMA transferring loans with Chairman Ahern assuring him that work was progressing to plan.