At the end of September 2010, there was a significant change to NAMA’s operation when our Minister for Finance, Brian Lenihan, decided to (a) accelerate the transfer of the remaining tranches to NAMA at the short term expense of not undertaking due diligence and granular valuation and (b) in respect of Allied Irish Banks and Bank of Ireland only, to increase the threshold of NAMA loan eligibility from €5m to €20m (bizarrely Anglo which was the priority was to remain at €5m and INBS and EBS were to remain without any minimum threshold).
The announcements didn’t make much sense because even with an accelerated transfer, there would not have been certainty or finality because the EU had to approve the valuations and also NAMA intended carrying out post-acquisition valuations which would see a reckoning with any under/over payment. Anglo by the way was to have completed its transfers by 31st October, 2010. Although NAMA has not made any public statement on the transfers my information is that most of Anglo’s loans have been acquired though there remains outstanding the post-acquisition valuation.
With respect to the increase in the thresholds for AIB and BoI, this didn’t make any sense either. The priority was to give certainty to Anglo’s finances yet Anglo’s threshold remained at €5m. The Minister justified the decision by claiming that the personnel in AIB and BoI were better able to manage these €5-20m exposures than NAMA – “this change will ensure that NAMA can operate to the highest level of efficiency and effectiveness in the management of its loan portfolio and allow for the completion of all NAMA transfers by end-year.” Again that didn’t make much sense because NAMA was supposed to have had the necessary expertise and impartiality to maximise the value of the loans.
But 60 days later, there is a volteface as it has been decided that NAMA should not only absorb AIB and BoI’s €5-20m exposures but should absorb the €0-5m exposures as well! The Minister didn’t make the announcement yesterday, the Financial Regulator did, though no justification is offered. I would guess that the IMF saw that the only reason for making the decision on 30th September 2010 was to avoid BoI and AIB crystallising major losses on these €5-20m NAMA loans which might trigger a need for further capital and in all likelihood push both AIB and BoI into State ownership. Capita, the controversial outsourcing company that is NAMA’s “master loan service provider” saw its workload (payload) drop from 1,400 borrowers to 700 borrowers in one fell swoop on 30th September – yesterday’s announcement restores its workload and presumably adds to it with the sub-€5m exposures at AIB/BoI. NAMA on the other hand will have an extra 650 business plans to review and manage for the €5-20m exposures and God knows how many for the sub-€5m exposures. Laura Noonan at the Independent claims that NAMA will now be absorbing an additional €17bn of loans at par value (that is €91bn instead of €74bn – €6.6bn of €5-20m exposures and €10bn of sub-€5m exposures, no mention is made of the quantum of sub-€5m borrowers). And will these new loans mean that NAMA misses its February 2011 deadline for all transfers. And of course NAMA will need an extra estimated €7-9bn to acquire those €16.6bn of AIB/BoI €0-20m exposures. At least that shouldn’t be a problem because the EU has signed off on the NAMA project needing upto €54bn to acquire these loans and even with these extra loans NAMA is likely to spend less than €40bn.
However NAMA’s challenge with securing the €5bn of development funding sanctioned by the NAMA Act remains. There was no announcement yesterday as to how this might be funded. Emmet Oliver penned a piece for the Independent last week which left it unclear if NAMA had successfully tapped the market for €2.5bn of short term funding but confirmed that NAMA at the very least faced a challenge in securing the additional €2.5bn of longer term funding. As I understand it, although NAMA designed the architecture for a short term commercial paper programme at the start of September, NAMA did not in fact see it funded. And as I understand it NAMA is still in a pickle as how to fund major projects eg Treasury’s Battersea Power Station project, Liam Carroll’s unfinished Anglo HQ, the DDDA’s development of the Glass Bottle site. Was this issue addressed in the undisclosed agreement with the ECB yesterday?
Also left hanging yesterday was what will happen with Anglo’s sub-€5m land and development exposures. Why does it make sense to transfer AIB and BoI’s €0-5m exposures but leave Anglo’s? There is some reference in the Ministerial announcement yesterday to yet another restructuring plan for Anglo and INBS “the restructuring of Anglo Irish Bank and Irish Nationwide Building Society will be swiftly completed and submitted for EU State aid approval”.
The IMF are known to have been keen for NAMA to start disposals sooner rather than later and with €10bn of €0-5m loans being acquired, it is hard to see how there will not be a glut of property on offer in 2011.
My view is that the changes above were rushed and not considered which doesn’t augur well for NAMA. What major change will be imposed on the organization next week? How will NAMA manage with a vastly increased (and varied) portfolio? Will NAMA secure development funding which is key to its raison d’etre? It seems that for the time being NAMA is a sideshow.
UPDATE: 2nd December, 2010.Following the publication of the Memorandum of Understanding and associated documents by the Department of Finance, we can now see the formal framework for the expansion of NAMA’s scope as reported last weekend. Although there is some ambiguity, it appears that the expansion in scope only relates to Allied Irish Banks (AIB) and Bank of Ireland (BoI) loans. In the original scope of NAMA, all land and development loans at EBS and Irish Nationwide Building Society (INBS) were to be absorbed regardless of value. The original scope however had a minimum threshold of €5m for AIB, Anglo and BoI. On 30th September, 2010, the Minister for Finance bizarrely altered the scope by increasing the threshold for AIB and BoI only from €5m to €20m. And now the scope has been altered again so that all land and development loans at AIB and BoI are to be transferred to NAMA, and that includes the €0-5m exposures that weren’t even in the scope a year ago when NAMA was conceived. Although article 10 of the Memorandum of Understanding says all land and development loans are to be transferred it seems that elsewhere in the agreement, this is clarified to mean AIB and BoI loans only. Bizarrely it seems Anglo is to keep its €0-5m land and development loans. Go figure!
Here are the relevant extracts from the documents:
It seems that NAMA’s scope will therefore expand to include some €90bn of land and development and associated lending at par value for which it will pay some €35-40bn (my estimates). The number of loans will increase from 11,000 from 1,500 borrowers to 21,000 from an unknown number of borrowers. NAMA has 100-odd employees though NAMA will receive some support from the banks and from its Master Loan Service Provider, Capita. Concerns have been raised in many quarters that NAMA is underresourced to deal with the loans it is acquiring.
NAMA Wine Lake 
Anglo & INBS seem to be out of the picture (already nationalized?).
AIB, BoI, & EBS are naturally in the mix as ‘active’ participating institutions. As 5.265, 2.199, & .438B ‘extra’ (in addition to what was previously lashed in) respectively are required in new capital is it now safe to say that the “Glorious Citizen” (mugs) own 100% of 5 banks. You have to wonder why their share price hasn’t dived to 2 or 3 cents.
What about PTSB/IL&P? they require 98m extra or 243m in total in order to achieve this latest amended level of capital (good old fashioned millions, god be with the days).
Will the thurd force be the only force? Or the fourth when counting johnny foreigner; NIB, ACC, & Ulster (theres a once in a century opportunity for 2 of these in Ireland).
I’m intrigued at what the sub-5M total will be, 25B seems to be in the frame from the press releases, Denis oB in an article yesterday indicated 50B.
What odds a run on one of the PIs before xmas?
Haven’t seen the Denis O’Brien article from yesterday, is there any link? According to Laura Noonan (seemingly citing “sources”) at the Independent the sub-€5m totals €10bn at par value – http://www.independent.ie/national-news/euro35bn-set-aside-to-pump-into-stricken-banks-2440114.html
Regarding a bank run, I think that is most peoples’ nightmare and there is a lot of worry generally in society about the safety of savings in bank. Here is the position on the guarantee for savings.
http://www.itsyourmoney.ie/index.jsp?p=125&n=757&a=1144
its a brian carey article in the irish sunday times, never looked online and they are charging for that privilege now, can scan (tomorrow) – what address is good.
Can’t spot the 10B reference in LNs article, theres a 16.6B mentioned for >20m loans – eyes going funny.
‘New legislation so that these can be transferred in blocks & analysed as a group’, ??
If BoI can raise the cash then a share price above cents makes sense, AIB can’t raise cash. Who would give BoI cash now, it would be good if they could raise cash but I can’t see it happening – another dilute won’t work.
The herd ‘Unfaltering Tribal Native’ had been charging headlong for approx 15 years, about 2.5 years ago it slowed to a canter, then a fast walk, and a slow walk for the last few months. I get the feeling that the herd has stopped and is spooked – what direction it charges in is anyones guess. Friends, family, pub conversations over the last few months have not been ‘is AIB/BoI safe’ but ‘where is safe?’ My 7 year old nephew emptied his bank a/c last week, there was €230 in it, I asked him why yesterday, “it’s safer under my pillow” was the response.
You’re right that the €10bn for €0-5m AIB/BoI exposures is not explicitly stated in the article – it is my calculation based on what is in the article, specifically “Nama is also taking on €16.6bn of development loans worth less than €20m from AIB and BoI. ” The press releases at the end of September 2010 (link below) state that the €5-20m exposures amounted to €6.6bn at AIB/BoI (€4.5bn and €2.1bn respectively from memory) – “I have been advised by NAMA that there are 650 debtors with property-related debts of between €5m and €20m in these two banks. They account for just €6.6bn of the aggregate €80bn volume of NAMA eligible loans.”
http://www.finance.gov.ie/viewdoc.asp?DocID=6515&CatID=1&StartDate=1+January+2010&m=n
PS – Just spotted Maeve Dineen’s piece in the Independent where she explicitly states the €0-5m exposures are likely to total €10bn.
http://www.independent.ie/business/irish/nama-to-take-on-extra-euro7bn-in-vulnerable-development-loans-2440115.html
Denis O’Brien: We can get out
of this — here’s how I’d do it
I am positive about Ireland and I beat the drum internationally at every opportunity — not for nationalistic reasons, but because I believe in it
The Sunday Times
Published: 28 November 2010
The question now facing Ireland is: can we fund the level of indebtedness that is needed? Is it sustainable?
It is abundantly clear that €80 billion to €90 billion is not enough to solve our short to medium-term problems. The markets have already sent out that signal. The real number is somewhere between €150 billion and €200 billion. Messrs Brian Lenihan, Patrick Honohan, John Corrigan and Kevin Cardiff know this. It is now time for us to be honest with ourselves and with the International Monetary Fund and European central bank.
We cannot go back to the well for more funding next June and then default. The well may be dry by then with Portugal and Spain emptying it. We should carve out a bigger number for the line of credit available to us.
The market hates to get news of fiscal policy being made on the hoof, flip-flopping and too many messages. At the moment, we are guilty of all three. Our message has been confused, incoherent and hopelessly inconsistent.
We have only one opportunity in the next two to three weeks to get this right. It is now incumbent on Fianna Fail, Fine Gael, Labour and the Greens to display strong and convincing leadership and statesmanship in this hour of great need.
Arguing whether the fiscal adjustment is €4 billion or €6 billion is nuts. We should try to get €8 billion to give us a cushion. We need to take our medicine as, ultimately, it will be to everyone’s benefit.
We should have a “bring-and-buy sale” for the semi-state assets that are no longer suited to state ownership. The Dublin Airport Authority, Bord Gais, ESB, Coillte and the ports all need to be sold out of state ownership.
In order to sustain borrowing of about €200 billion, we must reduce the cost of running the country to €30 billion — down from €45.2 billion last year.
This country managed with €32 billion of expenditure in 2004 and we need to get back to that cost level. Only then would we stand a chance.
The balance sheet of Ireland can be rebuilt and supported through the cultivation of foreign direct investment but also through a real emphasis on small and medium-sized companies in Ireland growing to become international companies.
Cutting the budgets of Enterprise Ireland and IDA Ireland is a folly. We need to get more customer-facing people working for Enterprise Ireland in every market in the world, particularly in Africa, South America and Asia.
The Department of Foreign Affairs has already refocused on getting business for Ireland. We need to open a further 15 to 20 “lite” embassies with a staff of two or three commercially trained individuals in emerging markets around the world.
In parallel, we need to streamline the decision-making processes for Enterprise Ireland and IDA Ireland.
The driver of growth in the economy is going to be this mittelstand of Irish companies. There are about 500 really great Irish companies doing exciting things that will increase employment.
These Irish companies have unlimited potential and they are the forgotten workhorses of this economy. Let us not forget that Mincon, a Shannon-based company, supplied the drill mechanism that helped rescue the Chilean miners in the good news story of the year.
The most effective carrier of Irish influence across the world is the arts and we should be funding Irish talent — artists and performers of all kinds. Even in these times, we should be funding the visual and cultural arts. Bono and U2 are Ireland’s best foreign direct investment sales team. They helped to bring Google, Facebook and many other companies to Ireland. We would never have got them without their commitment and the closing skills of IDA Ireland.
Let’s start cheering instead of knocking. Right now, U2 are in New Zealand and Australia entertaining and promoting Ireland. At least we can beat the Kiwis at something . . .
People have made terrible mistakes in business and there is a blame culture everywhere. Many have lost their homes, livelihood and position in society. We should be forgiving. Yes, we need accountability but not vengeance followed by bankruptcy.
Some people are suffering enough without having more heaped on them by others. We should move away from criticism and badmouthing but, sadly, it’s a fault in our make-up. Let’s see what contribution each of us can make in our own way.
The business community here has been marginalised and taken for granted, but it is the backbone of the Irish economy. Business people should be asked to take on different tasks — to help in the restructuring of government departments, achieving higher levels of efficiencies in public services.
There is an enormous talent pool out there in the private sector just waiting to raise the Tricolour.
Irish men and women, wherever they live, can help Ireland now and we need to use everybody’s abilities at this critical time.
Personally, I am positive about Ireland and I beat the drum internationally at every opportunity — not for nationalistic reasons, but because I believe in it.
It is all to play for.
Hi WSTT, many thanks for that! And he is right – the real number is over €200bn unless the ECB has offered to continue its emergency liquidity assistance (worth a reported €90-100bn at 29th Oct 2010 for the six State-guaranteed banks) AND to buy our debt that falls due for redemption (~€12bn next year and ~€38bn in the years 2011-2014 inclusive).
The point about it being a game of chess is that in chess you can see all the pieces and their positions (sadly not the plans and motives of the players of course). If we saw what every instinct is telling us is the true position of the losses in the banks then not even our opponents (or partners in the IMF and EU) would have demanded we repay debt holders.
I can’t find JR’s reference is in the Denis O’Brien article above.
That was DoB article on Pg 7, this is Brian Careys on Pg 3.
Denis O’Brien, the telecoms billionaire, believes Ireland needs a bailout of up to €200B to deal with its banking and fiscal problems. O’Brien says it is crucial that Ireland comprehensively restructures its debt to avoid turning to the authorities and the market for a second restructuring. He says Irish banks need to be capitalised beyond the 12% tier one capital ratio widely speculated upon in the media.
O’Brien, a former deputy governor of the Bank of Ireland, says there is a €50B ‘black hole’ of bad loans that do not qualify for the NAMA, and need to be restructured over a 20-year period. A further €50B is needed for an ongoing recapitalisation of the banks, together with credit lines of €50B to cover the run-down of the banks’ balance sheets.
Writing is this section, O’Brien says that Ireland has ‘one opportunity to get this right in the next two weeks’. He adds that the government should seek to reduce the cost of running the state to €30B. The businessman points out that public expenditure stood at €32B in 2004 and says that the country should seek to return to this level as quickly as possible.
He strongly backs the sale of the EBS to the Cardinal Capital consortium headed by Wilbur Ross, the US investor. IL&P, the financial services provider, is also bidding for the society.
“this could be the game changer that would see leading international banks buying into Irish financial institutions,” said ‘Brien. “it would send a message of confidence in Ireland and free up credit to be made available to the cash-starved business in the private sector.”
I guess theres ‘bad’ eligible and ‘bad’ non eligible NAMA loans regardless of value, non-eligible – anything thats not specifically Land & Development. Being non-NAMA doesn’t automatically make them non-Bad.
Indeed and that is the great outstanding concern – that the non-NAMA loans at the NAMA banks (commercial property not absorbed by NAMA – €70bn, commercial lending – €71bn mortgages – €105bn, credit cards & personal loans – €12bn and of course associated derivatives) will be a black hole. I see Peter Mathews is now estimating residential mortgage losses at €25bn.
http://bankermathews.com/