Collapse in confidence in NAMA’s ability to restore lending conditions – Deloitte survey

It seems that there has been a lot of negativity about NAMA around these here parts recently – is NAMA facing a cash-flow crisis, the abandoning of Tranche 3, lack of transparency in the disposal of assets (and the apparent absence of any code of practice for the disposal of property by proxy), general delays and under-resourcing. However it should be pointed out that this blog is neutral on NAMA and has drawn attention to apparent successes such as its first apparent disposal in the UK. And three months ago, we reported on the thumbs-up that NAMA was receiving from senior finance professionals in the State, when the last quarterly Deloitte survey was published. The Deloitte survey for this quarter published yesterday paints an entirely different picture.

A balance of just 3% of chief financial officers (CFOs) in the State think that NAMA will restore lending, down from a balance of nearly 60% three months ago. Now this still means that more CFOs think NAMA will restore lending than not but the collapse in confidence is striking. Deloitte implicitly attribute it to bigger than expected haircuts and Paddy McKillen’s legal challenge (and remember to be on tenterhooks next Monday 1^st November at 10am when the judgement is scheduled to be handed down, though don’t be surprised if there is an appeal lodged before 11am). I think the results shown by Deloitte are a fair reflection of the growing awareness that four of the five banks are so undercapitalised now that they are incapable of significant lending and as evidenced by the 5.75%+ rates that Bank of Ireland had to pay last week in its debt placing which incidentally was State-guaranteed, banks are not able to use the certainty of NAMA bonds to attract additional funding at economic rates. What NAMA is doing, and doing pretty well by most accounts, is placing true values on some loans. That should have some value but in the context of the big picture and what NAMA was set up to do, it might be time for a review of the project.

Elsewhere in the Deloitte report, there is evidence of a slight improvement in sentiment towards NAMA restoring credibility in the banking sector which may puzzle some in light of the previous paragraph. However, I believe this merely reflects the fact that NAMA is putting credible values on a large proportion of banks’ lending. Cemeteries are full of graves with credible people, and banks may well end up with broadly believable balance sheets (non-NAMA and sub-threshold NAMA loans apart) but that doesn’t mean they won’t effectively be dead. This part of the survey is also significant as it shows those CFOs previously on the fence and undecided about the issue now tending to be negative.

The reports deals with far more than NAMA of course and makes for interesting reading. One final NAMA-related item is sentiment towards commercial property valuations. Whilst the previous quarter indicated CFOs were concluding that commercial property was beginning to reach its true value, this quarter indicates that CFOs are again of the view that commercial property prices are distinctly overvalued. Not a good omen for those who wish to see commercial property prices stabilise or increase – CFOs will after all be at the heart of any major decision affecting their company’s property strategy.