How many times have we heard NAMA say that it was its target to pay down 25% of its debt by the end of 2013? And given that NAMA has issued €32bn of bonds in consideration for the €74bn of loans it acquired from the banks, that means that NAMA claims a target of paying down €8bn by the end of 2013. This target first appeared in the July 2010 NAMA business plan but the NAMA chairman, Frank Daly has gone further and claimed that the target is “copper-fastened” into the bailout agreement Ireland now has with the bailout troika of the IMF, EU and ECB. Frank told an Oireachtas committee in September 2011 “we have a clear target, which was originally NAMA’s but has now been copperfastened by the troika, of realising a sum of €7.5 billion by 2013”
Signally unhelpfully, NAMA has thus far declined to provide direction as to where that target appears in the bailout agreement, but yesterday Sinn Fein’s Gerry Adams asked Minister for Finance, Michael Noonan “if he will confirm if the National Assets Management Agency’s target of repaying 25% of its debts by the end of 2013 has become a term of the bailout agreement with the Troika” and the response from Minister Noonan was “the NAMA Board initially set itself the target of repaying €7.5bn of its debt by end 2013. By agreement, the May 2011 Memorandum of Understanding with the European Central Bank, European Commission and International Monetary Fund included a target for the disposal of assets equating to approximately €7.5bn in cash by end 2013. As a consequence this target is now a commitment under the agreement with the Troika. The Troika seek progress reports on the asset disposal target at the quarterly meetings with NAMA.”
Not for the first time yesterday, Minister Noonan is being extremely obtuse. If we examine the batch of documents released by the IMF in May “Ireland: First and Second Reviews Under the Extended Arrangement and Request for Rephasing of the Arrangement – Staff Report; Letter of Intent; Memorandum of Economic and Financial Policies; Technical Memorandum of Understanding; Letter of Intent and Memorandum of Understanding on Specific Economic Policy Conditionality (College of Commissioners); Staff Supplement; and Press Release on the Executive Board Discussion” there is indeed a reference to NAMA and its targets which says
“Strengthening NAMA. NAMA will be required to maintain the highest standards of governance with appropriate accountability and transparency arrangements. We will ensure that the costs of NAMA operations are reduced and that NAMA constructively contributes to the restoration of the Irish property market in the course of meeting the asset disposal targets established and monitored by the NAMA Board, including disposal of 25 percent of assets by end 2013.”
Now this appears on page 42 of the IMF report in May 2011 in a section titled “Attachment II. Ireland: Memorandum of Economic and Financial Policies” and in the earlier “Letter of Intent” in the document, Minister Noonan and central bank governor, Patrick Honohan say
“In the attached Memorandum of Economic and Financial Policies (MEFP), we set out our plans to further advance towards meeting the objectives laid out in our programme under the Extended Arrangement. Based on the strength of these policies, and in light of our performance under the programme and our continued commitment, we request moving the timing of the second review to May 15, 2011 and the completion of the combined first and second programme reviews under the Extended Arrangement.”
But hang on a second, a Letter of Intent is different to the bailout agreement signed by the Irish government in December 2010. And what the “Memorandum of Economic and Financial Policies” does is set out a series of intentions.
And the Memorandum does not state that NAMA will pay down 25% of its debt by 2013. It states that NAMA will dispose of 25% of its assets by then. The proceeds might be used for purposes other than paying down debt.
In fact Minister Noonan’s response is so obtuse that it verges on misleading. It is not a term of the bailout agreement that NAMA pay down 25% of its debt by 2013, and the NAMA bonds allow the debt to remain until 2020. Further, the Letter of Intent is different to the memorandum of understanding under which Ireland receives its bailout funding, so how can it be claimed that the NAMA target is “copper-fastened by the troika” Will Ireland be in default of the bailout agreement if the target set out in a Letter of Intent is not adhered to? That’s not my reading, but that’s not what Minister Noonan is saying “this target is now a commitment under the agreement with the Troika”
NAMA Wine Lake 
If the NAMA bonds are not calculated as part of the national debt,what practical purpose does it serve.
Does,NAMA not have the skill set or confidence to successfully deploy this cheap long term capital and make a return.Given the derisory returns “earned” by NTMA for the national pension fund over the last decade,perhaps it’s a cultural issue.
@NWL
This is a very important issue. It would appear from your post that the NAMA is being been forced into a backdoor deleveraging of 25% by 2013, something that was never in the original Troika agreement.
The result will be a copper fastening of NAMA’s Route 1 approach,
Sell, Sell at any cost. A forced firesale. Forced by the Troika through the backdoor and accepted by a supine government.
Ireland is on the floor. It is being mauled by the Europeans.
@ NWL (connoisseur of good written English)
“Signally unhelpfully, …”.
Ouch! I’ve just had a few glasses of wine (McWilliam’s Mount Pleasant Shiraz from Australia – terrific value in Tesco at the moment at €10. What’s wrong with the French that they can’t make drinkable wine at this price?) and my mind isn’t functioning very well, but there’s something grammatically awful about the start of this sentence and I can’t quite put my finger on it at the moment. I will have to wait until my head clears and I consult my grammar books tomorrow.
@NWL
“By agreement, the May 2011 Memorandum of Understanding …included a target for the disposal of assets equating to approximately €7.5bn in cash by end 2013. As a consequence this target is now a commitment under the agreement with the Troika. The Troika seek progress reports on the asset disposal target at the quarterly meetings with NAMA.”
Now much have property prices fallen in the past 12 months since this statement was made. Guess ~20%. 20% of 7.5 billion cash to be generated =1.5 billion.
In other words this forced deleveraging is set to cost Ireland €1.5billion in just one year due to the fall in prices.
Maybe we should the Troika a thank you note for forcing us to transfer assets at fire sale prices to the the private sector.
To paraphrase an Armenian poet:
‘When we find God in his paradise offering comfort,
Let us swear that we will refuse, saying no,
We choose Hell, You made us know it well,
Save your paradise for the Turks.
Or Troika or ECB particularly
“The proceeds might be used for purposes other than paying down debt.”
This has, taken together with the comments above me up to and including that of Joseph Ryan at 7.56 a.m today) to be one of the weirdest posts ever here.
Or else – always a possibility :-) ! – I am missing something BIG. Please tell me that it’s the latter. (I am, um, weird that way: I really would prefer it).
My issue: just what is NAMA supposed to do with €7.5 or €8 billion other than to pay down its debt ?
@Fergus, NAMA is required to repay its debt by 2020, nine years hence.
NAMA pays just over 1% interest on its debt.
Some people, seeming Joseph included, believe that NAMA could and should be using its cash mountain productively in investment in the State as long as the investment is repaid by 2020. Eg spend €1.5bn on developing assets into schools which could then be leased to Govt for seven years at market rates, and thereafter the State could buy the schools at a time when it is hoped the economy will have recovered. That way, the economy gets a boost now, partly developed properties become economically useful to the State and its citizens and NAMA makes a profit on its cash mountain above the 1% it pays on its bonds. Everyone’s a winner except the ECB which is providing cash at 1%. But then again the ECB is providing €1tn cash to banks throughout Europe at 1% so even it is not really losing.
NWL
You accuse the Minister of obtuseness !
NAMA, as you know better than most, has no power to do such a thing, and there has never been any chance of it being given such a power.
Moreover, if there were, the Troika would veto it.
@Fergus,
I disagree with what you say
NAMA has a remit to maximise income on its portfolio of loans and repay its debt by 2020. That’s what the NAMA Act says.
NAMA’s debt costs NAMA just over 1% per annum (2% according to the NAMA CEO yesterday)
If NAMA can deploy that money at more than 1% or 2% per annum, then NAMA will make a profit. And NAMA will not make that profit if it redeems its debt before it is due in 2020.
NAMA’s role involves assisting the development of property in its portfolio, and is allowed borrow up to €5bn for that purpose.
There is a societal need for schools and hospitals and other infrastructure. Government is providing capital funding.
What is suggested is NAMA deploy its cheap cash to such projects, get lease income from the Govt for a number of years and a capital sum before 2020 when NAMA needs redeem its bonds.
I regret if that is obtuse to you.
@NWL
NAMA has not been empowered to finance “a societal need for schools and hospitals and other infrastructure”.
If it had been, it would have been a huge “back-door” and would not have been able to obtain EU approval.
One reason, but only one, for denial of such approval would be the need for
“a capital sum before 2020 when NAMA needs redeem its bonds”. If NAMA invests in social projects, where is the source of that sum, and is it realistic to think that the Troika would simply ignore the question ?
One can argue about the merits of the policies behind the four sentences preceding this one, and I accept that you have been so arguing, but you know as well as I do (and, yes, I dislike it less than you do) that those arguments have long been settled as far as the Governments are concerned. Hence, it is *not* obtuse for the Minister to talk as if disposal proceeds are equivalent to reductions of NAMA debt, and it *is* obtuse for you to pretend that the argument has not been had and that your side lost it.
@Fergus, you are not correct.
NAMA can fund projects which have a societal benefit. A good example would be the advances it has made to Fingal council for the construction of a road.
https://namawinelake.wordpress.com/2011/09/13/nama-now-lending-money-to-councils-for-road-building/
However such spending must be in furtherance of NAMA’s objectives and primarily the objective to maximise returns on the portfolio.
So if, for the sake of argument, NAMA funds the completion of the Anglo HQ as a (childrens) hospital and leases that to the Department of Health for 8 years and then sells it to the Dept of Health, all at a profit over the 1-2% interest it pays each year then that meets NAMA’s objectives.
The source for such funding is NAMA’s cash mountain and continuing disposals/interest income.
@NWL
Nice try, but no cigar.
The Fingal thing was a commercial, not a social, decision.
@Fergus, I don’t think you’re getting this.
If NAMA has a cash mountain and is paying just 1-2% on its bonds then it can redeem its bonds and thereby save 1-2% or it can invest in projects which deliver a commercial return to NAMA in excess of 1-2% per annum. Now schools, hospitals, community and security buildings might have a societal value but if NAMA leases them to Govt at rates which give NAMA a better return than 1-2% per annum, then (1) NAMA meets its objectives of maximising income (2) The government can extend its budget by spreading capital spend over a number, probably up to 9, years. Everyone wins aside from the ECB that would like to see NAMA bonds redeemed as soon as possible but NAMA doesn’t have to redeem those bonds until 2020.
I hope that’s clearer to you.
@fergus O’Rourke.
You need to consider what is going on here.
A requirement to pay down 7.5 billion in loans has been impose on NAMA, whose only method of generating such a figure is to dump property onto a market that is dead and deflating.
Why not leave the orignial loans with the banks in the first place. At least they could apply for ELA. NAMA cannot. The only way is to dump assets.
Suppose that property prices fall by futher 50% from May 2011, the date that this new requirement was set. What then?
The net effect would be that NMA would have to dump more than 50% of its property to meet this new requirement.
The bottom line is that this is ECB pressure to delevererage by the back door after agreeing to the principle of NAMA/Distressed asset vehicles not only in Ireland but elsewhere, including in Germany.
Has a similar target been imposed on Distressed Asset Vehicles elsewhere.?
Is any allowance made for the state of the market in Ireland.
Who will the ultimate beneficiary of these fire-sales be?
@Joseph Ryan
1. The Troika arrangement is not a “back-door”.
2. The objection in the post is to the use of the funds generated by the asset disposals, not to the asset disposals themselves. I addressed the issue of the former, not the latter.
3. The disposals are not necessarily of Irish assets, are they ?
4. You’re a “kick the can down the road” man, then, are you ?
NAMA has also being engaging in what’s know as negative arbitrage,where the income generated by the asset is far in excess of the cost of funds.The vast majority of the assets it has selected to sell and sold were high quality income producing ones.
So instead of the cash mountain being out there earning say 5% via income producing property investment with a possible capital appreciation kicker,it’s stuffed under the mattress earning next to nothing.
One of the more interesting developments in the Tresuary soap opera,is that NAMA advanced 100,000,000 without enhancing its security.They also had loan creep at BPS from 250 to 324,000,000,which continues to grow daily.
Some,of the NAMA Developers are still building,projects in London are continuing and in Bratislava,one wonders where the funding is coming from ?
What metric or measurement does NAMA utilize to selectively fund and on what basis,do they factor in the effect gainfully employed construction workers have on local economies in Ireland ?