2Pack Nama Proposal

Here is what I think.

  1. €90bn of property related lending has been identified on the books of our banks .
  2. It is proposed to ‘remove’ this from their balance sheets .
  3. Removal of dead wood will unfreeze markets , in theory .

Here is what should happen .

  1. Approx €30bn of the €90bn is commercial lending for operational purposes by non property companies , Paddy Mac the Supervalu guy got a commercial mortgage to expand as an example . This class of loan is to be left on the banks books .
  2. Approx €60bn of the €90bn is ‘pure’ property lending . Of this €10bn is already criticised or in default or outright provisioned as bad debt .

Treatments

a) €50bn is not yet flagged as bad , €10bn is .
b) NAMA takes the full €60bn €50bn @ 75% face and the €10bn @ 0% face . ( cost €37.5Bn to state )

The banks are only down €12.5bn as they already wrote off €10bn more or less .

Workout ,

Each banks dross is offset , any gain above €0 on the €10bn of pure rubbish is offset against the not yet badder than 75% face . The likes of Anglo will likely go further underwater .
Net Writebacks are to be ledgered, the net position is to be transferred back to the banks at the end of the 10 or 15 year workout but is ‘credited’ annually on a deferred basis , ie published .
Banks that have a net book value on ‘their book’ of only 50% after 3 years ( 2012) must take the hit and die if necessary . If over 50% they get another 3 years to 2015 , if 75% + they may buy their whole book back at cost to state , all of it .
Loan book to transfer @ the half year in september/october 2009 after due diligence external audit of writeoffs and criticisations.

At that rate after 2x 3 year periods we should have closed the really shite banks and maybe handed back the book to one or two leaving abouut 1 or 2 banks worth of rubbish still to be worked out .

The €3.5bn that AIB and BoI got are to be netted off the property book net off at the end of 9 years with one deferral permitted to 12 years .

The whole shitpile must be closed after 15 years .

NAMA is to be given CAB powers of investigation in order that they protect their collateral on behalf of the taxpayer . If your loan is NAMA’s then NAMA can investigate all your assets as would the CAB should it come to that .

The figures that form your premisses or assumptions have had quite a lot of column inches recently. But that does not mean they are necessarily the correct figures to be using to work out a solution. Are they the figures that describe our real problems? Do they describe an informed narrative of our real problems? I think not. As an example, the basic fact that the developer loans are only the tip of a large bad debt iceberg, means that the problem analysis should include such inputs. Currently, the problem analyses I am seeing are entirely lacking in such factors and associated variables. Although I admit that your problem analysis seems better to me than what is coming across to me from the mainstream media.

Personally, I think that at root, we need to liquidate, liquidate, liquidate, as soon as possible. Before the cash disappears and the assets depreciate further. In terms of the developers, we should go after them for all their assets and cash, and acquire and hold their landbanks and half finished developments to use in future public works. ie. Provision of social housing, public spaces, depots for buses, public market spaces etc. This would save much future taxes earmarked for public spending in the future.

Put these damn developers out of business and open the way for a new generation of builders and developers… as per *‘creative destruction’…
*
Then, when it comes (as it inevitably will) to our normal citizens getting in trouble with personal debt, mortgages, business loans etc… THIS is the time when we are going to need all of our resources and borrowing power to write down debts, re-finance, absorb losses etc.

It will be wise to do all possible to keep people in their primary homes. BUT, steps should be taken to liquidate investment properties and go after cash and assets. And in the case of very over indebted people (unable to service their debt) living in expensive mansions, we should put them into the ‘empties’ and liquidate their mansions.

Seriously, we need to get liquidating heavily to return to a sound basis to start building from again. I think it would be wise not to lose sight of that fact in seemingly plausible figures. A short sharp shock would be better than drawing out the pain over generations methinks.

The two most sensible posts I have read on this saga to date. Cant really disagree with the main points of either.

Unfortunate use of “building” there… :stuck_out_tongue:

Good logic, rationale post form 2Pack. But playing Devil’s Advocate here; what about natural law and property rights under the constitution? Loaded question with sprinkles on top :nin

Read further long that article on private property Max ( Article 42 ???) and note that the qualifiers to the right allow the likes of SD Zones to be set up which ‘expropriates’ private control/rights in the public interest . It also allows strategic infrastructure to be defined .

I feel that a NAMA with an explicit right to take the whole book back will pass muster, were NAMA not to allow the transfer back of an entire book to the bank it was taken off then it might not .

But I would make the book all or nothing as regards pure property and would force ‘recognition’ of losses before the takeover , the writedowns are already reflected in their share prices and writing off another €2bn of BoI debt pre transfer cannot result in a €2bn fall in BoI share prices can it now ??? :smiley:

I would further make it illegal for a banker to do a mate a favour by keeping property rubbish on the banks books post nama by pretending it was something else. Make each banker running a given loan personally liable for any of their cack remaining on the banks book if the value of the loan is over €100k and make any accountants or lawyers involved in declarations personally liable too. I mean CAB in the morning and confiscation type personally liable and no family home act to stand between the taxpayer and the dosh . This is emergency legislation after all.

While it is not simple we need to sort the big picture before the summer so that the envelope is known .

While on the topic of big pictures and emergency legislation, can we bring in some legislation to enable us confiscate all of the ill-gotten cash and assets of the obviously corrupt (both the pathologically egotistic masters and their fawning, well rewarded minions) of the political, banking and construction cabal, and put said yokels and gombeens into the empties they spawned on two hundred a week? That would give the national coffers a sizable boost before the rest of us have to put our hands in our pockets. Ah, that would be justice indeed. Knew those empties would come in handy. Wonder how the coup is shaping up? :smiling_imp:

Willie O’Dea’s fledgling military junta is poised and ready to take over the levers of power or a bar in Limerick, they haven’t made their minds up yet…

No, no - they’re just recruiting down there. The bar shennanigans are just a front for a sophisticated modus operandi as I understand it.

In your plan all the losses are shared between shareholders and taxpayers. I don’t see a mechanism for making debtors taking their fair share of the losses

This bit DE , and if after all that it ain’t there …then it ain’t there .

You may as well start the Tribunal now, I suggest we call it
The MOAT Tribunal … Mother Of All Tribunals

Constantin has set the record straight on where we sit. OW originaly posted this elsewhere
trueeconomics.blogspot.com/2009/ … irish.html
we (tax payer) need to get as far away from a NAMA type institution as possible and the solution proposed here is idyllic, rose tinted and unworkable. This is not the time for valiant efforts. People need to get real.
State takes on 37.5 billion just like that… and then we work out the details over 15 years… sure things will be locked up in legalease for 12 years , if the DCC case is anything to go by…

Good idea about going after the developers assests, but thats nothing new, thats just implementing rules and regulations that are already in place.

That would be good. I’d like to see every working person in Ireland up in the dock in turn and each asked to justify their existence in terms of the real economic value that they have helped to create. Remembering those maxims about how good commodities are ones that retain their value when passed hand to hand. And good service having the characteristic of enhancing cultural and social life.

Takes off tinfoil hat and gets coat…

It would be cheaper and more effective to create DAB , the Developers Assets Bureau.

That maximises the amount we eventually get back from the developers but the total losses are likely to be in excess of €40B even if we are ruthless with the developers. The plan you have outlined means shareholders take the first hit with the taxpayer shouldering the burden.
I think any good plan needs to figst make all debt holders take a substantial hit on their investments. This could reduce the taxpayers bill by €20B or more.

The shareholders cannot really be hit any more , they are well underwater at this stage .

Anglo shares are gone and the other two are sub €1 , the Permo are looking at some way of dodging the bullet by separating out the life component but that will not work .

€40bn is 30% of GNP and IF that is all it amounts to we would survive . More liquid banks lending to second time buyers etc would stabilise house prices somewhere south of where they are now. As things stand the only mortgages being offered are out of the €1bn each that AIB and BoI got for first time buyers and the odd few quid on top .

The Irish mortgage issuance market was €40bn in 2006 and 2007 , it is set fair to be €4bn this year. That more than anything else is destroying ‘value’ in the NAMA workout collateral pool . We need liquidity and transactions , pronto.

That dope Lenihan knows exactly how many houses are being bought every month but is suppressing the data , yet it is key to understanding the workout :frowning:

Hello all…

been pondering the valuation model for this or any proposed type of institution…

Some interesting things.:

What the government giveth with one hand, they may only end up taketh with the other if they have haircuts just a wee bit too steep.

So, aprox, both Aib and Boi have capital of aprox 8% (of all types of tier 1, 2 etc).

Looking then at their balance sheet, they simply do not have the capital to transfer the loans off balance sheet to NAMA at any realistic value that would reflect the Market Value of this “property portfolio”.
So, some of the methods mentioned above would end in both banks being termed insolvent, failing every single regulatory requirement, blowing through all Basel reqs and quite simply cause themselves to explode.

So, massive haircuts can’t work.

Why,
Well is the banks explode, the taxpayer will find themselves in a financial tsunami the likes of which would have cataclysmic effects on the ould country…and will find that the inevitable rescue plan that would be required then would be far more expensive and extreme than it would right now.

Crunching the numbers for this is something i don’t have the time to really do right now, but quick and dirty calcs.

Property loans are 100% risk weighted, indicating that they have set aside 8 cents of capital for each euro of money lent (lets think vanilla here and ignore the fact that they have wrapped some stuff off balance sheets that makes their situation somewhat worse).

Now suppose that half of their book is under water, this would indicate that a 16% drop in value of their exposure on this part of the portfolio will destroy the capital…

So at 50% exposure to LTV - 32% value drop destroys capital

@ 75% - 24% property value drop destroys capital.

and so on.

Now, looking at commercial property CMBX spreads, the widening has been at astronomical levels. Whilst this doesn’t really price the true movements of Irish commercial property, it is fair to assume that it acts as a good proxy. Anecdotal evidence in newspapers shows that commercial property is down aprox 40% from peak.

So, if that is the case, and assuming a net portfolio exposure of 50% LTV, then the capital is already gone, if the assets are marked correctly.

So, i believe, from the ad-hoc reasoning above that NAMA is not capable of working.

Value the assets correctly and the banks collapse, which will result in the taxpayer ponying up capital. Zero sum game that will only create such an enormity of volatility that would push govt bond spreads out to huge levels and end up increasing our financing costs…end result is that everyone loses.

If i was to offer a solution, it would take the form of a SPV, wrapped in Govt credit g’tee (after the banks g’tee is removed). This SPV would by the assets at a slight discount to the book value of the assets and enter into a TRS agreement with the banks for these assets. The SPV, should, then be able to reorganize the loans into various tranches and hopefully repo them out to the ECB and street participants. This would help reduce the funding costs. The ECB would have to play ball on this, as they know the consequences would hurt the euro too much, as well as the fact that their monetary policy was wrong for so long.

We need to find way that works from all sides…no point in punishing the banks to the point where it ends up costing us more money….cos lets be realistic, we are going to be paying one way of the other…

Of course, all equity and debt holders should lose, they took a punt and lost……

You are running Basel adequacy tests there Baby T .

I am delighted that the government has kinda leaked their agreement with *my 15 year timescale *already , it made Todays Herald and I can see the faint beginnings of a gradual convergence here so I can :smiley: . It’s even good to hear Country Tom quoting the pin at the meeja seeing as we are much better at cooking up solutions than he is .

My proposal was somewhat cruder than Baby T’s but aspects do mesh . I am more concerned with broad brush solutions at this point .

  1. Firstly in my one the government ‘gives’ €37.5bn to the banks . Hard cash is more important than book values and accounting treatments right now . Of course Irish banks actually have no use for €37.5bn as they have no idea what to do with it , this means the bulk of it is promissory rather than actual but it can be magicked up over a few years .

It also sets a limit to The bank guarantee mark 2 which we all know will replace the €400bn bank guarantee mark 1 in place for the next year and a bit.

  1. Secondly it may very well be an SPV or extraSPV as you say but by having separate parallel accounting reports for each banks NAMA tranches and a 15 year workout it means that if the fund is not actually underwater at a point in time beyond the 75% and 0% portions then the banks can write this SPV surplus against ‘their’ book back on as goodwill or to request that maybe elements of the surplus are injected in for repo and the funds deposited at least with them on soft terms or as a contra on a foregone dividend on preference shares .

I am concerned that there be some attempt to rescue at least one bank out of this mess, I take it that 2 or 3 are beyond saving all the same and that the NAMA libaility shall not be redeemed …thie means that personal guarantees and collateral must be chased to the bitter end

Precisely. And this fact reveals the real function of NAMA. Or, putting it plainly, NAMA is about creating a mechanism whereby the market price of land is controlled
viewtopic.php?f=50&t=21936&p=253456#p253456

The initial floating of this idea: independent.ie/opinion/analy … 96537.html

Later consultants report rationalising same: fticonsulting.com/en_us/reso … _wp_v4.pdf

… and the IT article announcing this report irishtimes.com/newspaper/fin … 53357.html

I believe that much of the malarkey and furore around taking over the develop loans is a front for this move to control the market. Firstly, because as I said, the developer loans are only the tip of the iceberg. Secondly, because as Bt says, NAMA is unworkable on realistic projections of likely future market figures based on current paradigms.

But we have known for months that any realistic valuation of the assets would result in the collapse of the banks. This is what prompted the 20 economists to plunge in…
Any solution mentioned will result in the banks needing massive recapitalisation. That has to be tier one - cash in hand or ord shares. So thats the state