At the end of March 2012 many observers might claim that NAMA crossed the Rubicon when it agreed to provide the Government with a temporary €3.1bn dig-out to pay the Anglo promissory note that was falling due. “Not so” says the Government, the Direction that was given to NAMA makes clear that NAMA is required under the NAMA Act to “address the serious threat to the economy” (section 2) and that NAMA is allowed “provide equity capital and credit” (section 14). And so NAMA tamely handed over €3.1bn of its €4.6bn cash mountain to Anglo for a period of up to 90 days and it is hoped that Bank of Ireland will reimburse NAMA in a month or two when its shareholders have had a change to vote on the transaction at an extraordinary general meeting.
And what will NAMA do with all this cash when Bank of Ireland does reimburse it? According to an interview with Bloomberg’s Neil Callanan this week, NAMA “will repay more than 3 billion euros of bonds this year”. What bonds are these? These are the pieces of paper that NAMA gave to the banks in 2010 and 2011 in return for the €74bn of loans it was acquiring. The bonds amount to €32bn in total, of which €1.25bn exactly have been repaid to date. NAMA must pay the bondholders – the banks from whom it acquired the loans a rate of interest equal to the 6-month Euribor rate, currently about 1.25% per annum. NAMA is required to redeem the bonds by latest 2020. To do so earlier is a matter of discretion for NAMA.
Yesterday in the Dail, the following parliamentary question was posed by Sinn Fein’s finance spokesperson Pearse Doherty and answered by Minister for Finance Michael Noonan
Pearse Doherty:
To ask the Minister for Finance if he will confirm that the National Asset Management Agency is not required to redeem its senior debt until 2020 and that NAMA is paying a rate of interest on its senior debt equal to the six month Euroibor rate; and if NAMA is entitled to invest its cash reserves in projects which support the Irish economy pursuant to sections 2 and 12 of the NAMA Act..
Michael Noonan:
The ECB did not provide loans to NAMA to acquire assets from the participating institutions. NAMA issued Senior Notes to the Participating Institutions which can be extended annually subject to the agreement of the note holders. NAMA has already redeemed €1.25bn of these Notes. I am advised that the objective of the NAMA Board is to redeem all Senior Notes on a phased basis by the end of 2020.
NAMA also advises me that it pays interest on its senior debt at the same rate as the six-month Euribor rate, which is reset in March and September.
Under the NAMA Act 2009, NAMA may invest funds to protect or enhance the value of the collateral securing its loans. Where it considers that it makes commercial sense to do so, NAMA may advance funds to projects, including projects located in Ireland, under the control of its debtors or receivers.
Now the Minister didn’t really answer the question asked of him, which is surprising really, given how expert he was in the workings of NAMA just a month ago when he danced his jig to repay the Anglo promissory note. Irelandis undoubtedly coming under pressure from the ECB to redeem the NAMA bonds which involves NAMA redeeming the bonds with the banks and the banks redeeming the bonds with the ECB which is presently lending funds to the banks secured on the NAMA bonds as collateral. But as our Finnish friend might say “pacta sunt servanda” and the “pacta” that underpin the NAMA bonds say that the bonds don’t need be repaid until 2020 and that they cost NAMA a measly 1.25% at present. And according to the “pacta” that underpin the operation of NAMA, NAMA can use its cash not just to “advance funds to projects, including projects located in Ireland, under the control of its debtors or receivers” as Minister Noonan coyly says above but in accordance with section 2 and 14 of the NAMA Act, can use its funds to support the economy.
And how exactly might NAMA support the economy with its mountain of cash? Step forward the NationalChildrensHospital. Indeed NAMA has submitted plans for a hospital at the site of one of its debtors atElmPark in Ballsbridge, so this project could be funded by NAMA without even overstepping Minister Noonan’s suddenly narrow interpretation of the NAMA Act. But the NAMA cash can be used for far more, it can extend schools, convert pre-fabs to permanent structures, build nursing homes or retirement villages, it could even build a proper prison. As long as NAMA gets paid back by 2020 and, in the interests of maintaining NAMA’s commercial remit, as long as NAMA generates over 1.25% per annum on the use of its funds.
In a country in a double-dip recession, with a 14.5% unemployment rate, with GNP contracting, with its highly educated young emigrating in search of work and with a vista of austerity in prospect for the next three years at least, you would really have to question why NAMA is allowed choose this time to hand over its cash mountain for bonds which are practically free. And why it doesn’t lend this cash into an economy on its knees but which is likely to have recovered by 2020 when the NAMA bonds contractually fall due for redemption.
NAMA Wine Lake 
“NationalChildrensHospital …………..could be funded by NAMA”.
Bang on target. Instead, what we are doing is selling the National Lottery licence to a business (probably owned outside the State) which will provide a unfront payment towards the cost of the NCH but will secure a whopping ROI over the life of the licence thanks to higher fees and reduced funds for “good” causes. This is robbing Peter to pay Paul.
NWL, you should know by now that joined up thinking is away beyond the capabilities of our Government/Administration/Establishment (except when it comes to their own interests).
Brian
Nothing can change ’till everything is changed
While this ready availability of cheap cash is news to me, I assume Michael Noonan & Co. are well aware of it.
Why then is ‘money for investment in jobs’ being used as the carrot for selling the State’s silver?
Excellent article, excellent title. There is a complete lack of social accountability in the organisation. NAMA allocates €3m to 29 ghost estates identified in its ownership. Compare with the spend it pays to ‘developers’, and finishing out ‘developments’ such as the Grange in Stillorgan.
NWL,
Are you happy that NAMA has a cashpile of €4.6bn? (and not some odd calculated cash amount; actual cash).
I’m just too lazy to do some rough sums, but €4.6bn + €1.25bn =€5.85bn is the excess amount for: “cash received from asset sales” + “cash interest received” – “interest payments on bonds” – “operating costs”.
IIRC you posted that actual cash received for asset sales (as at last september?) was small compared to reported sales and actual interest received was less than the amount booked. It’s possible NAMA does have the cash, but when I consider the IBRC footnote (reimbursements from NAMA; as well as some to other lenders) I’m not so sure.
@Ahura, NAMA had cash (real euros deposits) of €4.6bn in March 2012 before it handed over €3.1bn to Anglo under Direction from the Government. It is set to get this €3.1bn back with interest when Bank of Ireland shareholders vote on what their Board agreed in March. So NAMA should have €4.6bn fully restored by June/July plus whatever cash it is currently generating.
So yes, the €5bn is real cash, not some convoluted accounting creation.
“So yes, the €5bn is real cash, not some convoluted accounting creation.”
‘Profit is an illusion, cashflow is fact’. (Source unknown)
More quotations about cash at http://www.planware.org/quotes.htm#7
I had a look at the Q3 accounts and there was 1.9bn cash, so ramping up completed sales could see the 4.6bn.
Off topic. The footnote on the 133m profit on disposal of loans says “The profit relates to the excess proceeds received over the carrying value of the loans at the date of sale.” My understanding is that the carrying value is not the same as acquisition value. In many cases the carrying value will be reduced by impairment charges. (which creates an odd scenario where they can always claim a ‘profit’ by ensuring adequate provisions have been made prior to disposal). I guess knowing the disposal price versus acquisition is too much to hope for. Any idea if the carrying value equals the EIS value or how they relate to each other?
@NWL
A recent speech by Herr Asmussen (ECB Board) contained the following:
“Third, the ECB has played its part by preventing a funding crisis in the banking sector. The two 3-year LTROs launched in December and February have eased bank funding pressures and stopped further deleveraging.”
http://www.ecb.int/press/key/date/2012/html/sp120420_2.en.html
So is it official ECB policy to continue deleveraging in Ireland while stopping deleveraging in Europe?
NAMA should do its job and complete all half finished properties. Further the State should insist that all half finished properties be finished within two years or forfeit to NAMA.
There are ~45000 jobs annually over three years in finishing all but the worst located uncompleted projects in Ireland.
The standard answer is ‘but who will buy them’. The answer to that is do not sell them. Rent them. If rental prices fall all the better. That would be Its good for the economy.
@NWL
Who provides Pierce Doherty with his questions?
Also while we’re dreaming I’d love to see Dart Underground get resurrected, didn’t the European Investment bank say they’d give us some cash towards it?
(Groan)
[…] balance sheets at a steep but probably insufficient discount to face value. It gives the banks an Irish government-backed bond in return. The banks can take these bonds to the ECB for refinancing if they want. End of […]