“After-sight is 20:20 vision” goes the saying, and if we had a time machine and could travel back to September 2008 when we gave the bank guarantee, to January 2009 when we nationalized Anglo or to November 2009 when we passed the NAMA Act which led to the formation of NAMA a month later, if we could go back to March 2010 when we started issuing €31bn of promissory notes, or to November 2010 on the eve of the IMF and others’ bailout, we would probably have done things differently.
But we can’t turn back time, we can’t undo the NAMA scheme approved by the EU which detailed what NAMA would pay for the loans it was acquiring from five Irish financial institutions – AIB, Anglo, Bank of Ireland, EBS and Irish Nationwide. And remember that scheme forced NAMA to pay state aid to the banks, mostly in the form of a long term economic value premium. Or to illustrate, if NAMA was acquiring a loan which might only fetch €10m in the open market, NAMA was to gift the banks a premium for the hope that the loan would be worth more in the future, mostly as a result of property prices increasing. And NAMA paid an average of 9% for this premium, so it would have paid €10.9m on average for a loan that was only worth €10m.
In the case of AIB, EBS – which we 99.8% own – and Anglo, INBS – which we 100% own, this state aid didn’t really matter because one arm of the state, NAMA, was paying the premium to another arm of the state, the banks. But in the case of Bank of Ireland, it does matter because we now own just 15% of that bank. And the latest from NAMA is that we have paid €995m to Bank of Ireland in state aid, or we have purchased loans worth €4,438m in the open market from Bank of Ireland but have paid €5,433m for them.
And how are we doing on long term economic value? At the top of this page, we track the movement in four of NAMA’s key markets, Irish commercial and residential and UK commercial and residential, and on average prices are down 22% since November 2009, the NAMA valuation date, and we need a 28% rebound for NAMA to break even. So, “not good” is the answer.
Meanwhile, Wilbur Ross has been holding forth on his great investment in Bank of Ireland last Friday in Palm Beach, Florida at a meeting of the Ireland US Council. With Bank of Ireland shares trading at 13.5c compared to the 10c which Wilbur and two other North American concerns bought 35% of Bank of Ireland for, no wonder he’s a happy man. I hope he appreciates the state aid from us all, most of which was provided after his investment in Summer 2011.
The state aid in Bank of Ireland was the subject of a parliamentary question a fortnight ago, when the Sinn Fein finance spokesperson Pearse Doherty questioned the Minister for Finance, Michael Noonan on the subject. This is the full exchange. The extract from the Comptroller and Auditor General Report is shown at the bottom of this blogpost. The reference to PQ 272 is a reference to the fact that NAMA’s tranches 3-5 have still not been approved by the European Commission.
Deputy Pearse Doherty: To ask the Minister for Finance the amount of State aid paid by the National Asset Management Agency in its acquisition of €10bn par value loans at Bank of Ireland for €6.1bn..
Minister for Finance, Michael Noonan: I would like to draw the Deputy’s attention to Table 3 on page 33 of the 2011 Annual Report; this table details NAMAs loan acquisitions by institution. It shows that NAMA paid a consideration of €5.6 billion for loan balances of €9.9 billion in the case of BOI.
I am advised that, when it granted its approval to the NAMA scheme in February 2010, the European Commission stated that the difference between the long-term economic value of bank assets and their current market value was the State aid element of the scheme.
The Comptroller and Auditor General Special Report No: 79 NAMA Management of Loans published in February 2012 gives a detailed breakdown of the State Aid for each of the banks.
However, I would refer the Deputy to PQ No 272 answered on the 29th January 2012, regarding the approval of the final tranches by the EU.