There can be no denying that the government wants to put a line under the final cost of rescuing our banking system, though there are naturally enough disagreements about the methods proposed. Since the announcement last week of the wind down of Anglo following the rejection by the EU of the second restructuring plan, commentators are questioning why we need another asset management company in addition to NAMA.
In yesterday’s Sunday Business Post, Senator Dan Boyle of the junior coalition partner Green Party is reported to be against the position apparently advocated by former head of the National Treasury Management Agency, Dr Michael Somers, at the Fine Gael think-in last week in Waterford. Dr Somers apparently criticised the duplication of costs and function of NAMA and the new Asset Recovery Bank (ARB) proposed as being one leg of the new Anglo split – Dr Somers apparently feels that one asset management recovery agency is enough. Senator Boyle, the chairman and finance spokesman of the Greens is reported as rejecting the criticism and his main arguments seem to centre on NAMA’s present scope. It is asserted that NAMA is only dealing with land and development loans worth more than €5m.
It seems to be accepted by Senator Boyle that this is not in fact the case as NAMA is dealing with sub-€5m loans from INBS and EBS and the record of NAMA’s breakdown of the loans in tranches 1 and 2 show that NAMA is taking over a large volume (more than €15bn-plus in tranches 1 and 2) of non-land and development loans under the “associated” loans heading.
Instead it would seem that absorbing Anglo’s ARB is seen at this stage as an unnecessary complication as the government makes its dash to give certainty to the cost of the financial crisis. Of course absorbing the ARB into NAMA may impede NAMA’s focus in acquiring its schedule of loans. However remembering that one of NAMA’s main aims was to cleanse the banks of loans with doubtful value so that the banks could access funding from sources that might otherwise be concerned with the true value of the banks, won’t an ARB with €38bn of loans with true values seemingly accepted by Alan Dukes to be worth 50% of that level simply continue the uncertainty in the banking sector generally, and impede a return to normal lending.
Shouldn’t the cost of an “unnecessary complication” be set against the prize of getting a credible cost of the financial crisis whilst at the same time avoiding an obvious duplication?
NAMA Wine Lake 
I am in the process of witing to the European Commission to complain about aspects of Nama’s extablishment and operation. One of the pints I make is:
the Minister for Finance is proposing to split Anglo Irish Bank into a funding bank and an asset recovery bank which will take over about €38 billion of loans, mainly under €5 million, that are not being transferred to Nama. According to a Government statement, the latter’s “dedicated focus will be on the work-out over a period of time of the assets not being transferred to Nama in a manner that maximises the return to the taxpayer”. This objective is very similar to that for Nama but contains no indication that upfront write downs will take place as in the case of Nama. So, we have a situation where about €36 billion of Anglo’s loans (above €5 million) are going into Nama at a discount of about 60% while €38 billion of smaller loans will move to the proposed asset recovery bank at no discount. These divergent approaches being adapted by two very similar bodies make no sense and point to discriminatory practices by the State with larger borrowers effectively getting up-front bale-outs which would not be available to smaller borrowers.
I should learn to spell:
I am in the process of wRiting to the European Commission to complain about aspects of Nama’s eStablishment and operation. One of the pOints I make is:
Hi Brian,
You wrote:
“These divergent approaches being adapted by two very similar bodies make no sense and point to discriminatory practices by the State with larger borrowers effectively getting up-front bale-outs which would not be available to smaller borrowers.”
I completely agree that the splitting of the loans between two collection agencies is nonsensical. All it does is duplicate costs.
I don’t believe that the second point necessarily follows. To the best of my knowledge there have been no “up-front bale-outs” of any borrower whatsoever, large or not.
All that has happened so far is that Nama has purchased loans at a discount to their face value. I have not heard whether AARB, will write down the loans when the investigation into the Anglo books is complete – I would have assumed that it would, on the basis of “what’s sauce for the goose…”
IMHO, the main problem for Nama in accepting the “run-off” of these loans would be a logistic one. Their staff are really struggling to cope with what they have – and it’s nothing to what they will have shortly.
“I don’t believe that the second point necessarily follows. To the best of my knowledge there have been no “up-front bale-outs” of any borrower whatsoever, large or not. ”
I used the term “effectively” but maybe should have said “up-front write down” as per maiden accounts for Nama’s SPV. In the circumstances surrounding Nama (tough borrowers and weak lender), a write down is the first step IMHO to a bale out.
To explain further. The Chairman of Nama, when speaking at the CPA’s Annual Conference on 4th June 2010, sought to clarify Nama’s core objectives in the following terms:
“NAMA’s core commercial objective will be to recover for the taxpayer whatever it has paid for the loans in addition to whatever it has invested to enhance property assets underlying those loans. This objective has not been determined by NAMA; it has, in fact, been set for us by the legislature under Section 10 of the NAMA Act. There has been some comment that the consequence of this objective is that NAMA, having recovered its outlay, will then absolve borrowers of their further obligations. This is absolutely not the case. Borrowers, as both I and NAMA’s CEO Brendan McDonagh have already said on a number of occasions, will continue to be liable for the debts that they have incurred.”
I don’t doubt Frank’s or Brendan’s good intentions in any way but these are not supported by Nama’s legislation. It would be interesting to know whether the business plans being prepared by borrowers are intended to explain how all borrowings are going to be repaid or merely enough to enable Nama recover its costs. If the latter, then it is clear that Nama expects to write off huge debts (€40 billion or more) at the expense of the taxpayer and this would constitues a massive bale out.
P.S. I did notice that this work overload doesn’t stop them taking a civil servants, nay even a teacher’s view of days off!
They are two different questions.
There is little point in anyone preparing business plans that are not realistic. That means that they will reflect today’s market – not one that existed in 2006. Indeed, if such plans were produced they would be rejected by Nama as being the product of someone who was delusional.
Whether or not any the plans will be capable of clearing the original loan will depend on a lot of individual circumstances, viz, loan level, current market value, current cost levels, profit levels etc.
The developers’ personal guarantees are a different matter entirely. They are by their very nature limited – by the value of the personal assets of each guarantor. The Nama Business Plan states six times that they will be pursued “to the greatest extent feasible”. They are the end game. And at present, Nama is making it very clear to the developers that they are not being written off.