With poor old Professor (and senator) John Crown in the wars over his joke about the waiting list for abortions in Ireland being 10 months, we might do with the distraction of an economic joke. To appreciate this joke, you need to be aware of the following
(1) IBRC says that it will have wound down its loan book by 2020.
(2) IBRC is no longer a bank, doesn’t have branches, doesn’t take deposits and doesn’t advance new loans, it exists to wind down its loan book
(3) NAMA has paid the banks a total of €5.6bn of state aid, NAMA lost €1.2bn in 2010 and in 2011 made a €12m profit before deciding to claim a €235m tax credit. So to date, NAMA is sitting on a €1bn cumulative loss but the state aid paid, indicates it would have a much bigger loss if wound up today.
(4) Since November 2009 by reference to which NAMA valued the loans it acquired, property in Ireland has declined 24-31%. Ireland comprises two thirds of NAMA’s loans. The UK including Northern Ireland where NAMA has most of the other one third of loans has seen 2-8% average increases since 2009.
(5) NAMA says that it expects to break even by 2020 but – Heaven forfend! – if NAMA makes a loss by 2020, the NAMA Act says that it can claw back the loss from the banks in the proportions in which it acquired the loans. NAMA acquired €44bn of its €74bn of loans from INBS and Anglo, now merged into IBRC.
Right, got all that? So here’s the joke.
Minister Noonan says* that if NAMA has made a loss by 2020 then it can still recoup more than half that loss from IBRC, a bank that will have its loan book wound down by 2020 and which has no other assets or business.
I hope you get this joke because if – again Heaven forfend – NAMA does make a loss in 2020, then there is not a chance in Hell of the loss being clawed back from IBRC which means that you and I will be paying for it. And as things stand in 2012, you would certainly not be confident that NAMA can break-even. Remember the value of property underpinning its loans has generally declined, NAMA has only 17% performing loans, and NAMA is running up annual costs of €200m, needs pay interest on its bonds and has already sold much of its “low-lying fruit”.
Maybe Professor Crown’s joke is funnier.
*Earlier this week the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan how any ultimate loss would be recouped from IBRC. The full exchange is here.
Deputy Pearse Doherty: To ask the Minister for Finance in view of the recently published report and accounts for the Irish Bank Resolution Corporation for the six months ending June 2012, which state that IBRC will be wound down by 2020, the way the claw back of any ultimate losses at the National Asset Management Agency pursuant to section 225 of the NAMA Act will be affected by this; and specifically the way NAMA will clawback any losses from IBRC in view of the fact that IBRC accounts for €44billion of the €74billion of loans acquired by NAMA, when section 225 of the NAMA Act provides for losses to be clawed back from participating institutions proportional to the value of loans originally acquired..
Minister for Finance, Michael Noonan: I am advised by NAMA that, earlier this year, its Board completed a review of its strategy and re-affirmed its expectation that NAMA remains on course to recoup for the taxpayer, at a minimum, the Senior Bonds issued as consideration for acquired loans, in addition to recovery of its carrying costs and the working and development capital expenditure it has advanced to debtors. Based on the Agency’s record to date, I have no reason to doubt that the Agency will achieve its targets over its lifetime.
In relation to Section 225 of the National Asset Management Agency Act 2009, the Deputy will be aware that a surcharge may be applied to the participating institutions only in the event of underlying losses being incurred by NAMA over its lifetime. The provision does not operate until the conclusion of NAMA’s operations and the overall position of the taxpayer will be taken into account when considering the application of any surcharge.
As indicated in the answer to PQ 38494/12 the 2020 date referred to the winding up of the loan book not the winding up of the bank. At this stage, I would regard it as premature to speculate as to the respective dates on which NAMA and IBRC may be dissolved and on the mechanism by which a surcharge would be applied if IBRC were to be dissolved first. This is particularly the case given, as I have indicated above, that there is no reason to expect that it will be necessary to invoke Section 225 of the Act.