• Home
  • NAMA property for sale
  • About
  • The Developers
  • The Tranches

NAMA Wine Lake

Click the green link above for latest news and over 2,600 related articles. NAMA – National Asset Management Agency – part of Ireland's response to its banking crisis and property bubble

Feeds:
Posts
Comments
« List of public sector salaries shows the extent of Enda Kenny’s challenge to impose wage ceilings
New Pillar of Irish banking reports €12.1bn annual losses in advance of €13.3bn State bailout. And this is not an Irish joke. »

Is NAMA operating ultra vires by investing in Irish government bonds?

April 10, 2011 by namawinelake

NAMA is awash with cash at present. Having overseen the disposal of a reported €2.7bn of loans last year – the loans were either disposed of by the banks themselves under NAMA’s auspices or redeemed by developers; and some of the proceeds went to non-NAMA banks – the agency is reportedly sitting on a cash mountain of €1bn. But the NAMA staff are not frolicking in baths filled with €500 notes (I hope) – the cash is presumably in some bank. If NAMA is still regarded as a private sector company then its €1bn of cash will captured in the Central Bank of Ireland’s reporting of private sector deposits in Irish banks. At the end of February, 2011 there were €165bn of private sector deposits in all Irish banks (including those in the IFSC that don’t service the domestic economy); there were €154bn in domestic Irish banks (including foreign banks that service the Irish economy) and there were €109bn in the six State-guaranteed banks. That’s some prospect to consider : NAMA might comprise 1% of all private sector deposits in State-guaranteed banks.

Of course we don’t know at present which bank has been selected by NAMA to receive its deposits or if it uses the treasury management services of the NTMA which would spread its deposits amongst various risk-assessed banks. It may even be the case that NAMA doesn’t use Irish banks at all for its deposits. And since NAMA needs only pay just over 1% interest on the NAMA bonds it gave the banks in return for the loans, there is presumably no point in using the cash to redeem its bonds at this point in time when it might be able to get 3%+ from depositing the cash in retail euro accounts.

But according to a report by Simon Carswell in yesterday’s Irish Times, NAMA “has invested about €50 million in short-term Irish Government bonds”. It is not clear what is meant by “short-term” debt, but the Irish Times does provide some details for debt ranging from six months to 10 years. The Irish Times does however use the term “invested” and given the elevated interest rates and likelihood of default, these instruments must indeed be considered “investments”.

So where was it suggested in the conception of NAMA that the agency would invest in risky debt instruments? I thought the agency was there to acquire land and development (and associated) loans from the five financial institutions, manage these loans, foreclose in some cases, invest in finishing out projects and deliver a profit. Where is it written that NAMA will invest in high-risk debt securities? Aah you might say, why are Irish bonds “high-risk”? To which the response might be that it is not for nothing that these bonds are trading at a substantial premium to German bonds and there is a risk of sovereign default assumed by the market which tends to be fairly sharp in these matters.

Of course there is something novel about NAMA, which is effectively a branch of government, despite righteous protestations to the contrary, buying government debt at the same time as the ECB must advance cash on NAMA bonds which lie unredeemed and which pay just over 1% interest. I don’t think the European Commission had contemplated this situation when approving the NAMA scheme.

The sums involved are relatively small. €50m is only 5% of NAMA’s cash balance. But it is the principle that is troubling. Irish government bond investments today, oil futures tomorrow and a dot com venture selling skinless balloons on Tuesday – where might it end?  “Ultra vires” is a legal concept, meaning “greater than the powers”. You will sometimes see it when limited companies engage in activities not provided for in their memorandum and articles of association and when a company deals in a way not allowed for, in its constitution, then that company can lose its limited liability. More importantly though, is NAMA now operating in a way not contemplated by its masters in government?

Advertisement

Share this:

  • Twitter
  • Facebook
  • Reddit

Like this:

Like Loading...

Related

Posted in Banks, NAMA, Politics | 1 Comment

One Response

  1. on April 10, 2011 at 3:52 pm ObsessiveMathsFreak

    This brings to mind the Minister for Finances recent comments about Irish Deposit rates increasing? Could it all be down to NAMA putting their money into Irish Banks.

    I don’t know who could possibly think that NAMA is in any way a private entity. It seems to me that one would need a special kind of doubethink to reach that conclusion. As a public body, of course NAMA is going to put its money where it is of best use to the government, despite what its officially supposed to be doing.

    If the national pension reserve was good enough to be shovelled into the banks, then I don’t see why NAMA’s cash reserves should be exempt.



Comments are closed.

  • Recent Posts

    • Test – 12 November 2018
    • Farewell from NWL
    • Happy 70th Birthday, Michael
    • Of the Week…
    • Noonan denies IBRC legal fees loan approval to Paddy McKillen was in breach of European Commission commitments
    • Gayle Killilea Dunne asks to be added as notice party in Sean Dunne’s bankruptcy
    • NAMA sues Maria Byrne and Graham Byrne in Dublin’s High Court
    • Johnny Ronan finally wins a court case
  • Recent Comments

    Wisemama on Eddie Hobbs’s US “partner” fir…
    Dorothy Jones on Of the Week…
    Sean Bean on Eddie Hobbs’s US “partner” fir…
    John Foody on Of the Week…
    Wisemama on Eddie Hobbs’s US “partner” fir…
    otto on Of the Week…
    Frank Street on Of the Week…
    Wisemama on Eddie Hobbs’s US “partner” fir…
    John Gallaher on Of the Week…
    John Gallaher on Of the Week…
    who_shot_the_tiger on Eddie Hobbs’s US “partner” fir…
    Sean Bean on Eddie Hobbs’s US “partner” fir…
    otto on Of the Week…
    Brian Flanagan on Of the Week…
    Robert Browne on Gayle Killilea Dunne asks to b…
  • Twitter Updates

    • Funniest case in Irish legal history? 1. ex-Cllr Fred Forsey convicted of RECEIVING a corrupt payment 2. developer… twitter.com/i/web/status/1… 4 years ago
    • Really looking forward to this at 9pm tonight, esp the first Garda on the scene. Well worth reading this background… twitter.com/i/web/status/1… 4 years ago
    • Tea time on the day the president of the ECB tells us we [in Ireland] are paying more interest on our loans than th… twitter.com/i/web/status/1… 4 years ago
    • “I am grateful for you to refer to Mr Sugarman...on the specific question of Unicredit, responsibility at ECB lies… twitter.com/i/web/status/1… 4 years ago
    • @JMcGuinnessTD now confronts ECB about "the honest whistleblower" @WhistleIRL and his disclosures of liquidity issu… twitter.com/i/web/status/1… 4 years ago
    • Details, including court documents of class action in New York against Ryanair and CEO Michael O'Leary.… twitter.com/i/web/status/1… 4 years ago
    • Draghi tells @paulmurphy_TD the ECB doesn't remove govts, the people do, that's democracy. Bet the people will be m… twitter.com/i/web/status/1… 4 years ago
    • Wow! Draghi says there is no net interest cost for the Anglo bonds whilst they're held by the Irish central bank. T… twitter.com/i/web/status/1… 4 years ago
    Follow @namawinelake
  • Click on date for that day’s posts

    April 2011
    M T W T F S S
     123
    45678910
    11121314151617
    18192021222324
    252627282930  
    « Mar   May »
  • Blog Stats

    • 5,113,732 hits

Blog at WordPress.com.

WPThemes.


Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy
  • Follow Following
    • NAMA Wine Lake
    • Join 1,326 other followers
    • Already have a WordPress.com account? Log in now.
    • NAMA Wine Lake
    • Customize
    • Follow Following
    • Sign up
    • Log in
    • Copy shortlink
    • Report this content
    • View post in Reader
    • Manage subscriptions
    • Collapse this bar
%d bloggers like this: