It seems like an eternity ago when Luca Ascoli at Eurostat wrote to our very own Bill Keating at the CSO to provide the “preliminary” view of the treatment of NAMA bonds in relation to our national debt. And of course the decision was that NAMA bonds would not be added to government debt. It was only October 2009 when Eurostat wrote their letter but it might be worth revisiting the basis on which the judgement was made, and to examine what changes have taken place to Eurostat’s assumptions. In overall terms Eurostat saw the potential for losses at NAMA as low and gave the following in support of its conclusion:
1. “The presence of market investors is reassuring (those providing 51% of the equity of the SPV)” To what extent can the SPV investors be classed as “market investors”. Remember that all we know is that each of the following three groups has invested €17m into the NAMA SPV – an overall total of €51m which gives them 51% of the NAMA SPV equity. However we do not know what the anti-money laundering folk would call the “Ultimate Beneficial Owners” of the investments. Also although the final terms of the investment have not been published, they were previously reported have offered poor returns with risk.
(a) Irish Life Investment Managers “the asset management arm of Irish Life & Permanent plc. ILIM manages money on behalf of a wide range of clients from large multinational corporations, charities and domestic companies. Currently managing assets of in excess of €30bn”
(b) New Ireland Assurance “As part of the Bank of Ireland Group, New Ireland is backed by the Group’s resources and expertise. New Ireland is one of the leading life assurance companies in Ireland, providing for the future of hundreds of thousands of customers with easy to understand life assurance, pension, savings and investment products.”
(c) “group of clients” of Allied Irish Banks Investment Managers “is an autonomous, independently managed investment manager. We specialise in the provision of discretionary investment management on behalf of a diverse client base. AIBIM has been managing investment portfolios in Ireland, the U.S., Europe and Asia since 1966.”
2. “The price paid for the loans of banks are calculated from the value of assets already written down by the banks and then a 30% haircut is then applied on these book values. This so-called “LTEV – long term economic value”is paid for the assets which is assessed individually by the experts. The current market value is 15% lower than the LTEV but Irish authorities believe that under the current conditions the market values for properties are artificially low”. I wonder if this is an echo of the record-yield-levels-indicating-the-market-has-bottomed-out nonsense that Brian Lenihan was ill-advisedly spewing out last September 2009. Both commercial and residential prices have continued to tank in the State and even though there has been a modest recovery in the UK where supposedly one third of NAMA assets are located, it in no way offsets the disaster-zone that is Irish residential and commercial property today. Indeed the EU’s own benchmark (ie central or base) scenario used in its recent stress test of the banks was that there would be a decline in 2010 of 14% and 13% respectively in commercial and residential in the State and further declines in 2011. Eurostat must now know that NAMA has chosen a Valuation Date of 30th November, 2009 by reference to which NAMA is valuing assets. Eurostat must also be aware of the recent NAMA Business Plan and the fact that the plan is now to make a €1bn NPV profit, compared with €4.8bn last October 2009 when the letter was written.
3. “An important additional element – which Eurostat understands will shortly be introduced into the legislation – is a levy to be imposed on participating banks if the SPV were to have losses at the end of the operating period. The Irish authorities confirmed that under the new proposal, the participating banks have to pay a tax surcharge on their operating profits until the loss on the SPV is recouped.” This important new element was given effect in the NAMA Act under section 225. However in practice given that Anglo, INBS and EBS make up the majority of the loans being transferred to NAMA and any SPV loss will be applied proportionately to the banks and given that Anglo, INBS and EBS will only survive with State-aid then in practical terms any loss the SPV makes will not be recoverable. So what do Eurostat make of this “important additional element” now?
It may be academic of course given our coaches and four drive through our budget deficit to GDP and debt to GDP requirements under the Stability and Growth Pact but in the interests of transparency should Eurostat not revisit its decision?
