LTEV, 30% discount on loan value, release of documents upgrading the LTEV for land on Christmas Eve, NAMA breaking even.
Are we looking at the wrong thing? Is there a massive double-bluff going on?
Look at it this way. For NAMA to break even, what’s the quickest way to get the 60% of non-performing loans back to performing? Why, offer them a 30, 40, 50% discount (as per the original discount on the purchase price from the banks) for immediate settlement.
Who does this benefit? Not the banks, they have taken their loss. Not the taxpayer, we’ve already stumped up that loss in new capital for the banks. It benefits only the delinquent borrowers. They get a major discount on their debt which they can repay with a combination of assets and new loans from the now willing banks. They end up not being busted, NAMA gets its money back and all appears above board. And appears is the crucial word here.
The timing of the release of documents is a massive double-bluff. Everyone is looking for bad news being buried:
Government: we’re being tough on the banks.
Everyone else: no you’re not, you’re giving a bigger LTEV for some loans.
Government: oh yeah, sorry, we’ll reverse that snigger
Everyone else: phew, good thing we’re on the ball
The result? The taxpayer stumps up more in recapitalisation, the breakeven amount for NAMA is way reduced.
NAMA will still take massive losses on the big loans to the developers, but on the ‘other’ category (which is 20something% of loans?) my bet is they will make a slight profit with many of those loans being modified to just above purchase price (on average) and repaid.
and the big developers have cash but are just not paying (“performing”)…
and we only the big developers 50% discounts…
and hold onto the performing loans…
then we’re:
taking money from the banks (discounts applied to get loans into NAMA)
taking money from the taxpayers (public service cuts, higher taxes, carbon taxes, water charges etc)
and either:
bailing out the big developers (as they don’t go completely bust)
or:
giving the banks and taxpayers money to the big developers (as they were never going bust to begin with)
and in the end:
FF come out of Gov for a term
Next Gov is forced to take money from the taxpayers to make ends meet (boo from voters)
The big developers ride out the storm or possibly reap huge amounts of money
NAMA could make a profit
FF take credit for NAMA and blame next Gov for taking money from the taxpayers
FF ride back into office in 2017 (or even sooner?) with big developers on side
though I just re-read what I wrote above before submitting this post. I think the theory has got too many holes and can’t be close to right.
It’s not the big developers, it’s more an extension of the cui bono thesis. The smaller borrowers to NAMA stand to gain more than the big. The ‘other’ loans are the unrecognisable aristocracy in Ireland. Very much in the shadows. They are the people DT was talking about, the ones Mr. McWilliams has been writing about. They are the ones that will get the quick settlements (greater than 5 mn in loans, less than, say, 15 mn.
Ok, I’m NOT a government cheerleader (and not an economist either), but, in the scenarios you painted, yeas the builders get bailed out, but doesn’t the taxpayer at least end up with a significant shareholding of some (by then) profitable banks?
It is an interesting hypothesis. So the big guys who everybody knows will be let swing because even FF can’t save them without it being noticed.
For the smaller guys, what possible assets could they have left and who in the name of Jasus is gonna lend them money (now that Irish banks don’t have the money). I would suspect that these smaller guys have bought the worst type of shit as they didn’t really know what they were doing, all they knew was buy it now and it will be worth more next year. I am reminded of the guy on Prime Time who bought a field for 10 million, in Kilkenny I believe, which at the time of the show was worth less than 10%. Suerly nothing can save these types, no matter what type of shit is pulled.
Again, it is not the builders. It is the loans for shares in building projects - mezzanine finance. The sort of thing that Davys and Goodbodys were hocking to the richandnotsofamous. The todaypk loans that bypassed credit committees for pieces of rock they fancied would increase the value of their site. That sort of thing.
Oh and I’m not an economist either!
The taxpayer has already sunk 3.5 bn into each of the big two. It is likely to sink a further, say, 15 bn into the pair of them making a total of 22 bn. For this it will get an 80-90% shareholding, assuming no further shenanigans (and there are likely to be further shenanigans to alter this.
So the state has 90% of the banks. How much is this worth? It is only worth a combination of the underlying assets and the future earning potential of those assets. Care to guess how much 150 bn of consumer debt in Ireland is worth? Or what the likely profits are on it? Irish banks will, of course, make profits, but much of that profit will be set aside for reserves, more of it will be used to repay bondholders unwilling to rollover, and the rest won’t come near the cost of the money the state has borrowed to recapitalise the banks.
Like NAMA, the state’s investment in the banks will be slated to breakeven, excluding interest costs, opportunity costs (HPV vaccine, as an example of an opportunity cost = death, disease, maleducation). I will be astonished if it even does that. Eventually the idealogues will sell off the banks “because the state has no business being in banking” at entirely the wrong time…
Ah, but they do have money and more importantly, they have income. If all their other debts are being wiped out, they can easily get 30/40/50% in new loans. And then the banks will be able to say “look, we’re lending to entrepreneurs in the real economy”. Where will the banks get it from? The marginal improvement in asset quality that NAMA will provide will be spent on this.
But if NAMA only pays 10% to the banks, and he only has to pay 12.5% back to NAMA… pink champagne all round. No doubt he will be wringing his hands in the local paper saying it is terrible that the local train service/hospital/winter gritting (but not on his road) has had to be cut back, but he will no longer be ruined and will be grateful to the hand that fed him…
You start with the premise that the ultimate purpose of NAMA is to keep the banks in domestic ownership. Next to bail out the domestic share and bondholders. Beyond that everything else is peripheral except to support the above. Without domestic ownership of the banks then the whole crony capitalism edifice built up over the last few generations collapses. That is what they have been so desperately trying to protect since the summer of 2008.
The bail out to the developers is purely a side effect of needing to turn 100B plus of utterly worthless loans that the banks wrote into some kind of performing state for the short to medium term.
The other key fact to remember is that the NAMA of April 2009 was very different from the NAMA of July 2009 was very different from the NAMA of September 2009. The NAMA of July 2010 will be very different from today and what it will looks like in 2011 is anyone’s guess. NAMA is a moving target because its only purpose is to buy time so as external circumstances in Brussels, Frankfort, Berlin and Paris change so does NAMA.
But NAMA is now stuck on a downward trajectory as it has been forced to become more transparent and as the pure stroke elements have been unraveling one by one. NAMA really will prove to be a stoke too far.
At this rate of unraveling it will be fairly close to being a Resolution Corp within a year or two. And I think it will ultimately fail in its goal to avoid the inevitable, one or more major banks in foreign ownership. Once that happens NAMA will be seriously restructured and essentially wound up.
Nama is purchasing loans from the banks at (on average) 65% of face value. The banks - NOT the taxpayer - will take the hit on the 35% discount.
The media will put pressure on the politicians to get rid of the €40 billion of NAMA borrowings overhanging the taxpayer.
Loans (or the assets supporting them) will be sold to whoever will pay the most for them - and that will probably not be the originating debtor (developer), as that will be considered politically unacceptable by the media and the planks on the Board of NAMA. In fact, it is more likely that the purchasers will be “vulture” funds from the UK or the USA or the likes of Kevin Warren / Mark Duffy’s vehicle.
NAMA’s only interest will be in getting back the money that they paid for the loans. They will consider that if they make a profit on that and save the taxpayer any cost - they will have succeeded well in their brief.
If it plays out as it did in Sweden, some 80% of the original borrowers will either be liquidated or declared bankrupt.
The rest of the populace will have the pleasure of repurchasing the assets from the foreign vulture funds at an inflated price some time in the future.
Assuming that NAMA has not overpayed (a big assumption!), the taxpayers exposure will be as clients of the Irish banks. They will end up paying for the bank’s losses in higher bank charges and wider loan margins and being squeezed hard as the Irish banks reduce their balance sheets. Because of this, many clients will vote with their feet and tell the Irish banks where to stick their loans. Most will end up dealing with the UK banks, probably with Euro accounts in Belfast or Newry. It’s already started to happen.
For the third time, NOT talking about developers. They are part of the cover and are unsavable.
You’re missing the big picture. The less the taxpayer overpays, the more the banks need in recapitalisation (way beyond their value at a future date). The less the taxpayer overpays, the lower the amount that is required to pay off loans at a NAMA purchase price.
I really think the elephant has been painted a pink floral pattern and told to stand in front of a window. It then becomes, in the words of Douglas Adams, an SEP - Somebody Else’s Problem…
Which is why I said more than six months ago, follow the money. Or to be more accurate, who had money on the table in 2Q 2007, who was going to lose it all in 3Q 2008, and what have been the cash out events since.
What makes the game even more interesting is that steps taken by insiders to protect their gains and their assets, despite the well honed sneakiness, often have unintended consequences as the game keeps changing over the last 18 months.
So I get the distinct impression that the original bank guarantee and the Draft NAMA Bill, which was the dig-out game at its purest, have not had the intended results. That a lot of the gains that they were intended to protect and cash out are still unrealized and I suspect unrealizable. The people who were insolvent in 3Q 2008 are still insolvent and that they are still desperate trying to buy time hoping that something, anything, will come up.
As these people make up a reasonably large chunk of the great and the good (the Ansbacher class) they can buy quite a bit of time with the taxpayers money. Eventually the public money runs out and when it does the end game is going to be very very interesting .
YM, I don’t get what the big revelation is here - the above was always one of the govt. arguments for LTEV - the only thing new that I can see is the suggestion that the cost of recapitalisation would be greater than the value of the banks in the long run.
I’m saying that the smaller debtors whose loans will be bought (the mysterious ‘other’ category of 20some billion) will get offers on their loans. The lower amount the state pays for these loans, the lower the offer can be. The debtors will get bailed out. The debtors are the ‘great and the good’ that Mr. McWilliams, among others, has alluded to. All very well. But this is not costless. The lower the amount the state pays for the loans, the more is required in bank recapitalisation. The banks will never be worth the amount in recapitalisation that will be put into them, therefore the state will make a loss on its ‘investment’, probably a very large loss.
The ‘great and the good’ can probably, over time, make good on their loans at face value, but they will no longer be ‘great’. By bailing them out, they will remain ‘great’ and will continue to support their masters, indeed will be more inclined to do so, embedding the funding for their masters.
The losers here are ordinary taxpayers who will pay for the bailout through increased taxation and poorer public services.
The big developers are a sideshow. They are bust and will be busted for public consumption, since there is no saving them. The losses that NAMA makes will be on those unsalvagable loans. The ‘other’ loans, that could probably be made good and cover those losses, won’t be. They’ll be sold at cost back to their debtors…