You couldn’t fail but be impressed by the delicate choreography to ensure NAMA’s bonds (which it trades for land and development and associated loans at the five Participating Institutions) stayed off the official national debt figures. That of course was back in 2009 when there was some dim hope that we might have contained our official debt:GDP at 60% (the official limit imposed on us when we joined the Euro and took on the terms of the Growth and Stability Pact – GSP). I blame Olli Rehn for us mostly forgetting the 60% limit because he seems to be talking exclusively about the other pillar of the GSP – the 3% deficit:GDP limit. The cynic in me thinks Olli is being selective because if he were to insist on the 60% debt:GDP limit, that would mean a partial default on debts owed to other European banks.
And the choreography to keep NAMA’s debt off the nation’s balance sheet was rewarded in October 2009 when Eurostat issued a preliminary view on the treatment of NAMA debt and declared that because NAMA was an independent entity, Ireland didn’t need regard NAMA’s debt as sovereign debt.
Eurostat reached its view after considering NAMA’s profitability and ownership. NAMA’s profitability has always been contentious – in particular it seems farcical now that NAMA can recoup any losses from a levy on the banks. But as regards ownership Eurostat was assured that the State would own 49% of NAMA and the remainder would be independently owned. The difficulty was that no-one outside of Ireland wanted to invest in NAMA and even in Ireland, the State could only drum up interest from three State-guaranteed banks, Bank of Ireland, AIB and Irish Life who each bought 17% of NAMA. Somehow Eurostat accepted this and felt that the State’s ownership at less than 50% was good enough to mean that NAMA debt wasn’t State debt (never mind about the fact that the State could veto all of NAMA’s decisions).
But later today the State is set to increase its ownership of AIB from 18.6% to 90%+ (possibly 100%). And when it does it will control the 17% investment by AIB in NAMA’s SPV which means that the State controls 66% of NAMA. What on earth will Eurostat say?
Of course no-one in the real world has regarded NAMA as anything other than a State-controlled agency from the start. The ratings agencies have all regarded NAMA debt as sovereign debt despite the whining of John Corrigan and others. The effect of owning NAMA would mean that some €30-40bn (€30.4bn has so far been issued by NAMA but there is some €19bn of loans at par value remaining to be absorbed by the agency) goes onto the State’s books which will increase debt:GDP by 18.75-25% (based on GDP being €160bn). Wow!
NAMA Wine Lake 
A very good point NWL. Although nobody in the civilised financial world believed anything other than this was part of Irish Sovereign Debt. To be fair I believe the conceit may have been orchestrated in Brussels rather than Merrion Street but that is by the by.
I truly believe that the management and disposal of NAMA assets (and therefore repayment of NAMA debt) must have been covered by the IMF/EU side-letter and I fully expect disposals to gather pace in 2011.
Thanks to Simon Kelly for confirming what myself, WSTT and others have long suggested on here that NAMA is really NALA (L for liquidation). Much to our ire, NAMA’s only objective is the recovery of what it paid for the loans and that is the most they can hope for given their lack of resources in terms of staffing and capital.
An interesting side note that I observed this morning reading back over articles during the year. S&P caused much controversy in August when they suggested that NAMA would only recover €16bn from the loans that it purchases. This was clarified by David T Beers in a letter to the FT on 27 August. “S&P would not expect recoveries on NAMA assets to amount to much more than €16bn over the next five years…..we expect such recoveries would be used to pay down the public debt”.
NAMA expects to recover 40% of its debt by 2015 according to it’s own business plan or €12.08bn (40% of the €30.2bn paid to banks as confirmed by Frank Daly this week) so S&P actually have a more positive outlook than NAMA on recovery over the same period. Yet I remember uproar from the NTMA at the suggestion. 2011 looks to be a very interesting year, especially for the followers of this blog.
“Much to our ire, NAMA’s only objective is the recovery of what it paid for the loans and that is the most they can hope for given their lack of resources in terms of staffing and capital.”
Agree absolutely. Nama should get rid of the dross assets and hold the better properties for maybe a decade to see through the downturn and return of demand. Any other approach is criminal and treacherous. If liquidations make this task any easier then so be it. Tough for the borrowers but no one forced them to seek/accept crazy loans.
Again (and again), I say that Nama should be judged on the percentage of the par value of loans that it recovers rather than the “profit” on the prices paid for loans. This requires a completely different strategy. Hopefully, the next Government will be more enlightened and less behoven to borrowers.
Hi Brian,
I think that the reference to “liquidations” was more in the general sense of “selling” the assets rather than liquidating companies – which is expensive. Hence the use of Statutory Receivers that only deal with the asset, leaving the promotors to deal with the decaying rump of the company.
You will however get your wish. But as the old saw goes, you need to be careful what you wish for. In Sweden 70% of the developers and their companies were bankrupted/liquidated. There is no reason why it should be any different here and all the signals from the developers’ initial discussions with NAMA suggest that the result will be similar.
This actually is not good for NAMA, because the consequence of burning off the developers in Sweden resulted in a loss to Securum of 55% on the written down purchase price of their asset portfolio.
No buyers (except vultures) = no profit for NAMA
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Jagdip,
i mentioned it over in our usual hangout, but in case you missed it – AIB Inv Mgr (AIBIM) are the beneficial owners of the NAMA SPV stake i think? As such, the beneficial owners of AIB IM, and so the SPV stake, are the individual private investors whose funds are managed by AIBIM, correct? AIB BANK does not own the stake, so the state does not own or control the stake, legally speaking.
Btw, i resent BaNAMA Republic using that name above – its the name of my fantasy football team!!
Thanks Eoin and don’t worry about mentioning irisheconomy.ie – it’s held in the highest regard here and is frequently cited. I understand what you mean and agree that AIBIM (or whatever vehicle AIB is using to hold the investment…) hold the investment on behalf of others. But normally it will be the controlling entity that stock exchanges look at, for example when considering rules for forcing bids for 100% once a controlling threshold is reached. The point is probably moot as the levy for losses once NAMA is wound up, NAMA’s profitability and a few other criteria used by Eurostat now look deeply suspect.
Where does it make any difference, given that the markets assume NAMA debt = sovereign debt anyway? The IMF Staff Report last week excluded NAMA debt altogether. If NAMA debt = 25% GDP then in the IMF’s worst case our debt:GDP goes to 183%. Would that have affected the IMF’s decision? Probably not. It might have relevance to the history books/ Guiness Book of Records but for the real world I think we all recognise NAMA debt = sovereign debt.
[…] # State set to control 66% of NAMA SPV. How much longer can we keep NAMA bonds off the national debt? … […]
Don’t most of the rating agencies already include the NAMA debt in their analysis of Ireland
Yes, all of them do, so officially adding NAMA debt to national debt will have few practical effects besides making us more prominent in history books/Guinness Book of Records. We would go up to a 183% debt:GDP ratio % in the IMF’s worst case scenario (assuming NAMA finally pays €40bn for the loans).
We seem to have completely skipped the issue of our commitment to the Stability and Growth Pact debt:GDP of 60%. The only practical way we could achieve this was through default and I believe that Olli Rehn, like tjhe good folks from the IMF, bowed to pressure from other European interests to selectively forget about that pillar of the SGP. He was pretty clear on the other pillar of the Pact though, the 3% deficit:GDP ratio %.