In his pre-Christmas NAMA update, the agency’s chairman Frank Daly informed us that NAMA had acquired €71.2bn of loans for a consideration of €30.2bn . And on Wednesday this week (some 50 days after the update in December, 2010) those numbers hadn’t changed as NAMA spoke to the press in the aftermath of Alan Dukes’ bombshell on the outstanding funding requirements of Irish banks – the agency stated that it had absorbed €71.2bn of loans for a consideration of €30.2bn. So NAMA has not acquired any new loans since before Christmas. NAMA hasn’t issued a detailed update on tranche transfers since last August. And in passing let’s not forget that NAMA’s report and accounts for the quarter ending 30th September, 2010 which were delivered to the Department of Finance on 31st December, 2010 still haven’t been published. But the main point is that NAMA has stopped acquiring loans, for the time being at least. And yet we know that there is some €12bn of sub-€20m loans to be acquired from AIB and Bank of Ireland. What is stopping the NAMA acquisitions?
(1) The NAMA (Amendment) Bill hasn’t yet been passed into law. In the dying days of the current administration, the Bill was published but will not be debated until the formation of a new administration in March 2011. There seems to be some confusion about the purpose of the Amendment. Those who claim the Amendment is necessary to give legal effect to the transfer of sub-€20m loans at AIB and BoI are wrong – the NAMA Act allows NAMA to absorb loans of any value, it was only a NAMA internal operational decision that led to the agency originally excluding sub-€5m exposures at AIB and BoI, and it was only an operational decision in September 2010 to increase those thresholds to €20m and following the IMF intervention in November 2010 to reduce those thresholds to €nil. The purpose of this Amendment was to accelerate loan transfers through applying standardised discounts. So this Amendment is not necessary to NAMA completing the acquisitions.
(2) It’s too bureaucratic to undertake individual valuations and due diligence on sub-€20m exposures. That may be the case but remember that from day 1 NAMA was taking over all land and development exposures at EBS and INBS, and in respect of Anglo the threshold has always been €5m. So if it is now too bureaucratic to absorb €0-5m and €5-20m exposures at AIB and BoI then why did NAMA take over €0-5m exposures at EBS and INBS and €5-20m exposures at Anglo? So on the face of it bureaucratic burden is not the reason.
(3) NAMA is too busy with the next phase of its operation, in particular the management of loans and disposals. This may well be the case but you might have thought that if NAMA is to acquire these loans, then it would be inefficient to break the acquisition momentum which had seen €71.2bn of loans at par value transferred to the end of December 2010.
(4) Political uncertainty with respect to the future of NAMA. It is certainly the case that both Labour and FG would put a stop to the lower value loan transfers. And I note these political positions are in conflict with the agreement reached with the IMF/EU. But the election was only called on 1st February, 2011 and yet no new transfers have occurred since before Christmas. However there is another form of political uncertainty and it seems obvious that the Department of Finance has been unsure about NAMA’s role since the middle of last year (higher NAMA haircuts were probably the catalyst for the change in sentiment but the shifts in attitude towards NAMA since last September 2010 have been remarkable). The latest shift is the succumbing to the lobbying from AIB to exclude valuable associated loans from the sub-€20m transfers. And I would have said that it is this fourth option that is stopping NAMA’s acquisitions and that is worrying because we are in breach of the IMF/EU Memorandum of Understanding, we will miss the EU end-February-2011 deadline imposed with the approval of the NAMA scheme and yet again we appear, both domestically and internationally, to not know what we are doing.
NAMA Wine Lake 
In answer to your question NWL is closest to (4). The AG’s office have been at meetings with the IMF last week. The discussions have centred on a “structured default” (a rose…. etc.) programmed to take place after the election.
Hence no urgency to recapitalise the banks.
“The AG’s office”, WSTT? Is there a lack of clarity in international law as to what happens when a country defaults? I would have said that detaching sovereign debt from bank debt might be new-ish territory. But if we are about to default/restructure/burden-share/sing the Barney-the-Dinosaur song to our creditors in lieu of settlement, it will make the next couple of weeks riveting as presumably the Opp parties need be brought up to speed and this may become a very open election issue. And just when the campaigns were beginning to drag…
I think that the penny has finally dropped with the mandarins in the DoF.
They have realised that we can never repay these debts and that the smooth talk and financial jargon of our German and French “partners” is in their own self interest.
The IMF comes out of the USA with a different culture. Expect to see NAMA get “Americanised” with a new mandate to “sell” after the election.
P.S. The AG’s Office? I suppose it’s like consulting your lawyer before you declare bankruptcy or make an arrangement with your creditors. The fact that the IMF are in the middle of it intrigues me. No EU/ECB?
Hi WSTT, I suppose it is known that the IMF has a softer stance on *bank* default/restructure/burden sharing than our partners in the EU/ECB. That seems to be clear from Minister Lenihan’s assessments on the negotiations. On the other hand it is the ECB (€126bn) and EFSF (€6bn) that are now most exposed. I suppose the key to any default in our case will be the detachment of bank debt (taken on as sovereign by the September 2008 guarantee) from sovereign debt and that probably makes Ireland unique and creating a legal precedent (“we’ll pay our core sovereign debt but we’ll renege on the bank debt which we legislatively tied to sovereign debt in a moment of madness”). So I suppose I can see why the lawyers’ first port of call might be Washington but unless they include Brussels and Frankfurt on the itinerary, the default may become very messy.
Moring NWL
(“we’ll pay our core sovereign debt but we’ll renege on the bank debt which we legislatively tied to sovereign debt in a moment of madness”)
Wasn’t this the obvious approach that should have been applies once the projected losses hit €10 bn or so? Surely, at that stage massive alarm bells should have started ringing throughout the “establsihment”.
I wonder what is the value of the bank bonds (arguably needlessly) repaid since then?
Hi Brian, I had a piece on the amount repaid here (https://namawinelake.wordpress.com/2010/11/26/26-months-later-and-the-bondholders-are-finally-facing-burden-sharing-but-how-much-of-our-national-wealth-have-we-squandered-along-the-way/) – it’s BIIIIIG!
A default at this stage will beg the obvious questions as to why we couldn’t do it earlier but that question isn’t new. We weren’t going to nationalise the banks and yet BoI aside (for now) we mostly have. The discounts paid on subordinated debt now <30% compares with 50% during 2009. Yes you're absolutely right that there should have been some monitoring and limit to losses even in the context of a guarantee – dreadful now in hindsight.
Thanks.
Just one other question (to show my ignorance).
Take a typical senior bank bond issued pre-Sept 2008 to the value of €xxx million and with a coupon of X%. What value is this bond trading at now and what is it current yield? What has been the total value of transactions on this bond since its issue and what is the likelihood that any of the original bondholder are still holders?
Actually several questions!
Pray that it’s the IMF and not the EU/ECB. The primary agenda of the EU/ECB is to prevent a run on European banks. They’ve put Ireland to the sword to further that agenda. God only knows what Cowen/DoF’s agenda was.
The IMF have probably seen through the “cute whore ” mentality that set up NAMA. As McWilliams said, NAMA was supposed to retain the bank’s in private ownership.
How is that plan working out ?
Things seem to be heating up in the heart of the EC. And, the German banks may end up making Anglo look like a good deal.
http://www.spiegel.de/international/europe/0,1518,745383,00.html
http://www.reuters.com/article/2011/02/14/westlb-idUSBAT00599320110214
Looks like Ireland and the IMF are going to be life long friends.
Thanks Jake, given Germany’s relatively giant GDP of USD $3,300bn compared with our own USD $200m, if the cost of bailing out our banks was 1/15th of their’s then their USD $70bn for Hypo (probably the equivalent of our Anglo) would indicate a relative bailout of Anglo of 1/15th of USD$70bn or <€4bn. Imagine if our bailout of Anglo was only €4bn compared to the €29-34bn actual projections? And I think you could argue GNP comparisons are more suitable for Ireland which would make the relative proportions even more stark.