You really have to be impressed by lack of ambition, ability and vision abundantly evident in Ireland’s economic decision-making. We are on Day 2 of a three-day bondholder-fest during which a total of €1.14bn is being paid by the people of this State to unguaranteed, unsecured bondholders at IBRC, the world’s most bust bank representing the legacy rubbish of Sean Fitzpatrick’s Anglo Irish Bank and Michael Fingleton’s Irish Nationwide Building Society.
And this afternoon, NAMA has confirmed that it is redeeming €2bn more of its bonds. These are the €32bn of IOUs which NAMA gave the banks when it acquired €74bn of loans. Including this afternoon’s announcement, NAMA has now paid €3.25bn of these bonds which must in any case be paid by 2020, that is 8.5 years hence.
”So what’s wrong with this” you might ask, after all NAMA is supposed to pay back all of these bonds by 2020, so what’s the problem with paying back €2bn today? The issue is that NAMA bonds are incredibly cheap, costing NAMA just 0.9% per annum – officially, NAMA pays the so-called 6-month Euribor rate which fluctuates from day to day, today it’s 0.93%. So what NAMA has done is take its cash and buy back this incredibly cheap source of funding. What else could NAMA have done with €2bn? According to the NAMA Act, it can do practically anything to address the serious financial crisis which the country has been facing since 2008 – in April this year, it lent €3.1bn to IBRC, remember? NAMA can use the money for all sorts of projects, and it isn’t confined to its developers’ projects either. Of course the State cannot add any more debt – an exception is made paying back bondholders in bust banks – but the State can certainly enter into arrangements where it rents assets from NAMA. And as long as NAMA gets its money back by 2020 when – dear God – this economy will have recovered, then everyone is happy. It’s about leveraging an Ireland in 2012 on its knees with an Ireland in the second half of this decade when we will recover. And all NAMA needed was to get a return on its projects of more than 0.9% per annum.
You can thank the genius at the Department of Finance for this overall state of affairs, and for what seems to have been a unilateral concession in the latest revision to the Memorandum of Understanding with the Troika, whereby NAMA must now repay €7.5bn of its bonds by the end of 2013. Minister Noonan agreed to this new term just two weeks ago and apparently received nothing in return.
NAMA is cock-a-hoop about its latest payment and points out that the Agency has not only paid down €3.25bn of senior debt but also repaid initial seed capital and loans from the Department of Finance totalling €299m. The view on here is not charitable, and if the best use of €2bn of NAMA’s cash was to pay down debt which just costs 0.9% per annum, then truly those holding the purse-strings have a poverty of ambition.
The NAMA chairman Frank Daly said in respect of this afternoon’s announcement that the Agency’s strong cash position meant that additional debt repayments were likely before the end of the year and that NAMA was well-placed to meet its target of €7.5bn of Senior Bonds by the end of 2013.
NAMA Wine Lake 
It is by any standards one of the most irresponsible acts of government or government agency that we have seen since the bank guarantee.
Irish 10 year govt bonds are paying over 8%. Yet a state agency with surplus funds thinks it better to pay down loans costing 1%.
If there is a written obligation to pay these bonds, let us see it. If not this is insanity.
When this action is taken in conjunction with the introduction of a wrecking ball to demolish houses in Longford then it seems all reason has been lost both in NAMA and government.
It is cause for sheer despair to see this happen.
It is the military equivalent of a retreating army selling the last of its fuel to the pursuing enemy.
I feel a little like Hamlet’s ghost watching this betrayal. What crime have we done to deserve such people in charge of the country:
“I am thy father’s spirit
Doomed for a certain term to walk the night
And for the day confined to fast in fires
Till the foul crimes done in my days of nature
Are burnt and purged away.”
8% isn’t the current rate. Upto 2015, it is sub 6%, then all maturities out to 2025 trade sub 7% (except for the Oct-19’s which is 7.05% – All mid prices, this AM.
Refer to my other post for details of why I think your analysis is wrong
These things will happen when someone/something tries to exist in a vacuum (even legislates to keep that vacuum intact).
Outside world… what outside world?
Joseph Ryan says it eloquently above but Noonan was once again the fool in the equation. just as he signed a document that said any country that did not ratify the Fiscal Compact Treaty should not be able to draw down any funds from it before he knew an election would be required and before he knew the outcome of any election. Again,he put pen to paper when there was no tangible benefit for the country other that putting his “X” where he was told and being a good boy. This is just squander mania paying down this money.
To be fair to NAMA, we don’t know the reason that it chose to pay off it’s obligations instead of utilising it’s cash mountain to generate more income instead.
I’m guessing here – and perhaps I’m being naive – but I assume that there is enough expertise at NAMA who recognise that it could use that cash pile in a more beneficial way? Therefore it is reasonable to presume that NAMA was perhaps ordered to redeem those bonds instead?
(Devils Advocate role)
NAMA is not business,it’s civil servants.
Tragic,actually no reduction in sovereign debt,but I’m a cowboy,assume for the best.
Some people,given 1% debt costs could easily double it,never mind multiplying it by say 8 times .Preff. returns are closer 10% stateside wow 1% funding,eh let’s pay it back!!!
Correct me if I am wrong but they are returning cash to the banks (which these bonds were issued to buy the toxic loans).
Therefore, they are returning the cash to the banks.
Obviously the banks had repo’d these notes to the ECB, but they wouldn’t have got full face value for them. So your cost is not comparable.
But more importantly, it is better for the overall system for cash to be returned to the entity whose job is lending i.e. the banks.
Open to correction though
@jj,
I would take issue with you.
The haircut applied to NAMA bonds at the ECB was 1.5% last time I looked. So the banks holding €100 of NAMA bonds get €98.50 in cash and pay 1% for that cash. So the banks have cash to lend without NAMA redeeming its bonds.
What yesterday’s €2bn transaction did was to take €2bn of cash OUT OF IRELAND and return it to the banks who return it to the ECB.
I didn’t “take issue with you”
but
The banks have a facility with no defined maturity.
But lets look at this from ECB point of view. They allowed the repo of the Nama bonds, to facilitate the purchase of toxic loans. Now that some of these have recovered, we want to go and create new investments with that money. The ECB has a simple solution to that – stop accepting Nama issued bonds.
Also, the rates people refer to are for long term borrowing rates (although I am not sure the state could issue at these rates), the 1% rate you refer to has no defined maturity.
Money out of Ireland? take it back a step further – Nama sold an asset (liekly a foreign asset), received cash in for it, with this cash is now repaying the bond. So net net, it is only cash leaving Ireland if the asset is an Irish asset in the first place.
This is a discussion though, and open to correct, but I take offense to your first line, and secondly to be shouted at.
@jj,
Taking issue with positions or comments generates debate, hopefully more light than heat! No offense intended.
There’s no shouting, the capitalised “OUT OF IRELAND” was to emphasise the point, again no offense intended.
Adopting the “pacta sunt servanda” approach adopted by our Finnish friend at the European Commission, NAMA was set up to remedy a serious crisis in the Irish economy. The NAMA scheme as set out under the NAMA Act was approved by the Europeamn Commission in February 2010. The NAMA Act allows for NAMA to do all sorts of things with its cash to “remedy the serious crisis”. That included lending €3bn to IBRC earlier this year. NAMA issued bonds which are redeemable in 2020 under the NAMA scheme. The location of the assets which NAMA has sold – 80% outside the Republic of Ireland – is irrelevant to NAMA’s position yesterday morning, I would suggest.
NAMA has €2bn of cash sitting in the Central Bank. That cash has gone to the Irish banks from whom NAMA acquired loans, and presumably the Irish banks have now or will shortly pay that cash back to the ECB from whom loans had been advanced. So €2bn has been taken out of our system, €2bn that was cheap as chips and which could have been deployed within the economy in accordance with the NAMA Act.
JJ
I will take your word for it that Irish bonds are are now less than 8%. I do not have screens available to me.
On the other issues.
“But lets look at this from ECB point of view”.
No personal offence but if the ECB burnt down in the morning, literally or metaphorically, I would be delighted.
They have acted as a creditors collection agency for unguaranteed bondholders and in the process have down ranked both sovereign bondholders and depositors throughout Europe.
Under no circumstances should Ireland yield one cent to the ECB or anybody else unless it is 100% legally constrained to do so in writing for debts freely and legitimately entered into.
JOseph Ryan,
The ECB has actually acted in the interest of depositors and sovereigns in continuing to lend money to potentially bankrupt and definitely insolvent entities. In the case of the Irish system, the assets are not there to generate the cash for the deposit holders, the access fromt he ECB has enabled that.
Burn down the ECB – cut your nose off too might be a good idea.
@ NWL,
I think it’s a bit too ambitious that the ECB would ok the Irish gov to invest NAMA cash in projects. I think they might have turned a blind eye to NAMA buying Ir gov bonds of suitable maturities to reduce the debt burden.
I think Noonan’s promissory note antics put an end to that.