NAMA . Private Equity and Risk and the Taxpayer


One deliberately obscured section of the assets that NAMA proposes to take off the banks “private equity” . It quite possibly accounts for as much as €20bn of the €90bn-€100bn , nobody is saying .

This obscurantism is not least because the types who invested in ‘private equity’ schemes are the financial backbone of FF in the constituencies nationwide and FF will not countenance their being subjected to margin calls and defeasence events and being forced to stump up money against their gambling losses to keep within agreed LTV margins .

FF would much rather dump these gambling losses on the taxpayer, they most certainly have nothing to do with development loans . These are pure gambling plays akin to racehorse purchasing syndicates and we are not bailing racehorse syndicates out , are we ??? Furthermore many of these gamblers have large cashpiles since the celtic tiger and later rabid tomcat booms and are good for their gambling losses .

As these are typically doctors and solicitors and barristers they have a good income stream and are in a position to pay up , just like the Lloyds ‘Names’ had to pay up their gambling losses in the early to mid 1990s with no taxpayer bailout either.

Here is a good example of how private equity works . There were quite a few of them operating in Ireland c. 2003-2008 of whom Quinlan ( who recently moved to Switzerland 8) ) was the biggest . They got say €100m and borrowed another €400m against that and then bought a load of shopping centres and office blocks in some US / EU city with that . … y24420.asp

Quinlan’s assets hit €10bn after Jurys deal
Sunday, June 17, 2007


I believe that the danger is that this private equity is mostly invested in the same assets as the bank loans.

So developer builds building A, he raises 70% of the finance with a bank loan (70% LTV).
He gets a stockbroking firm to invest 40% through them setting up a fund.
Building is now worth 110% of original value. Everyone has an instant profit.

Anyway, on to the bust.
The first losses are the private investors (mezzanine finance) assuming the banks have their contracts correct ( :open_mouth: ). If the bank loan defaults, the bank appoints a liquidator, the building is sold and the mezzanine investors wait on the price.

So they stand to lose most from the bust, not the banks on their development loans.

But wait. Where did the mezzanine investors get their money? They borrowed it against their equity stake in the building. Imagine if the banks had made loads of non-recourse loans for this… So while each bank may have only a 70% loan against the original value of the building, it or another bank have any remaining existing equity and more in speculative loans against equity.


The 10% ‘instant equity’ you mentioned is long gone. Think of the annual management fees charged by the syndicators against that 100% since the structure was created …hedge fund style . And yes, most of it was blown on property.

I would have thought the initial investors own cash was junior not mezzanine in the overall structure and that the mez element was the second tranche of private equity funding that the likes of Davys / Friends First and Goodbody were raising like billyo in the mid decade . I would assume both junior and mez elements were underwater by now.

If we take it that there is €4-5bn of real money and €15-€16bn of borrowings in the overall €20bn then the losses on private equity incurred by junior and mez are GREATER than the losses incurred by private shareholders in irish banking stock and over the same timescale …ie since early 2007 .

But then there is the contractual recourse on losses on the €15-€16bn of borrowings which risk does not exist with shares outside of CFD gambling obviously :slight_smile: .