Special Purpose vehicle (SPV) → en.wikipedia.org/wiki/Special_purpose_entity
See also AIB → aib.im/servlet/ContentServer … annel=AIBP
Special Purpose vehicle (SPV) → en.wikipedia.org/wiki/Special_purpose_entity
See also AIB → aib.im/servlet/ContentServer … annel=AIBP
I’ve seen a couple of prospectus for ABS’s and MBS’s, and read some fairly detailed research papers (JPM and Leehan Bros I think) for how to put together an offering on the sell side and pull apart an offering on the buy side. I was mainly interested in how the theory of the pricing model world mapped onto the real world of product but I think I got a feel for how the process works at the street level. I think I’ve reached the stage where I know enough to know what I dont know…
I smelled a rat in the NAMA bill for several reasons. One was when the list of sanctioned derivatives in the bill wandered away from ones would expect for an entity like NAMA, FX, interest rate swap etc…into the more ‘creative’ ones. The second reason was the general tenor of the whole bill, this was not a bill outlining an RTC like agency (who did some fairly creative securitization in their day) but something all together more underhand and evasive. The third reason was that I’ve been watching these bastards operate for more than 30 years and I know how their minds works.
I suppose my suspicious turn of mind was not helped by reading Tavokoli’s book “CDO’s and Structured Finance” in parallel with the rest of the NAMA Bill once I found the suspicious reference to derivatives. She is very good on the more creative uses of structured finance.
My guess is that due to the great die-off in new issues in the structured finance markets over the last 18 months the beast that will come out of NAMA will not look exactly like a pre Crunch CDO / CLO / CMO wrapped in a SPC/SPV/SIV but the functionality block diagram will look very very familiar. I have great faith in the ability of financial engineering to create something that works and acts the same but that looks very different. Just as I suspect there is going to be a lots of willing buyers next year with under utilized cash sitting out there looking for ‘enhanced’ yields on instrument that have a sovereign / ECB guarantee credit enhancement.
Thanks for your analysis JMC, I don’t understand most of it but from reading you posts, enough to have the impression what’s proposed is well dodge and not in our best interests.
Long term scenario and guess on my part based on what I think you are saying that NAMA could buy/seize owning tremendous amount of Ireland and sell back to key players down the line.
I mean who else is going to buy this stuff apart from the taxpayer by proxy now and in the future?
Is that viable. IS that the reason for all of the evasiveness. As someone said in this thread or another NAMAwatch thread anyone with a2 bob and credit line will do very well out of this.
If it is a the last desperate cashout then it make sense in that context regardless of longterm strategies and the bill itself no?
Perhaps NAMA after doing the dirty work is incorporated into a new National Bank and forgotten about as new porblems and issues unfold.
BTW I haven’t read it yet and don’t know when I will get the chance so thanks for all the analysis thus far.
I have a question. What about the “performing” loans that are supposed to be transferred ? Weren’t they supposed to come over too , won’t a coupon be earned on that stuff as well ? Surely the banks won’t want to move that stuff over… this is one of the things that had sold NAMA to me, that ALL of it, good and bad came over.
Or did I pick that up wrong ?
Tell me where and when BB. I’m at the end of my rope with the criminality thats gone on in this country and get angrier every time I open a paper. I’ve many like minded friends outside the Pin ready and willing also. If you build it, they will come…
Its already here… we are building it, see here viewtopic.php?f=50&t=23801&hilit=+project+3b
If nama can pass losses to the ecb or international investors via a securitisation, that’s a positive result for the Irish taxpayer. What ‘negative’ are you suggesting?
Everything I have read so far points towards the deal being structured so as to enable as many of the main player as possible to trade through the crisis. Everything is organized for their benefit, to their benefit.
Lenihan has already made explicit the three way split: land; commercial and in-development. 30 billion each.
The land will either end back with the Land Bankers or else with the farmers it should have stayed with in the first place. The commercial will have great potential for insider trading but will probably mostly be REIT’ed or equivalent, again with great potential for insider and side deals. But its the in-development group that has all the real potential for both bailing out the developers and hide the long term losses to the tax payer. Its all there in the bill, provisions for joint ventures, partnerships, the long term economic value valuation metric, the minister can decide what is in the best interest of the tax payer, etc. etc and just the whole tone of both the bill and the public statements by the minister and the leaks and spin to the papers.
The first part of the bailout would look something like this. Developer A is completely insolvent. Big Bad Bank sells essentially worthless development mortgages/loans to NAMA. NAMA now holds all the loans/mortgages for Developer A. He has five projects in the pipeline. The projects are turned into joint ventures or partnerships with NAMA, the reason given is that this will enable NAMA to participate in the profits when the project complete thereby clawing back most of the upside for the taxpayer. Yada. yada. Yada. . Two projects succeed (completed, sold, turn a profit), three projects fail. Without NAMA participation all would have failed and the developer would have been bankrupt long ago. With the take from the two successful projects Developer A buys out the NAMA share of the partnership / JV. NAMA can claim that are successfully recovering tax payers money (and a bit extra) and developer A gets to keep his development company and a reasonable chunk of the loot. Plus dont be too surprised if he successfully walks away from all the three dud projects liabilities, because after all, I was just a partner and NAMA were part of the decision process…etc.etc.
The second part of the bailout is what to do with the NAMA mortgages for the in-development projects. I started looking at the various structured finance products once I realized that NAMA is going to need a convenient way of both securtizing the mortgages to clear their balance sheet and to provide a fairly opaque mechanism to spread the losses over a long period of time. The whole valuation farrago in the Bill is the dead give away on this point. They want to back load the losses to the tax payer so they can salami it over an extended period of time.
When the securitized products are launched NAMA will have to quote for political reasons a far smaller failure rate for the underlying mortgages and loans than both the seller and the buyer know is realistic. So you create a structured finance product that will hide away this awkward detail with the buyer protected from any long term down side. I dont see them buying otherwise. They publicly state 70% but realistically its 30%. That sort of thing. Again NAMA can claim that they are looking after the tax payers interest by offloading the mortgages through securitization but in reality it will just spreading the tax payer losses over the term of the product.
ECB is just short term parking. And you can be certain that they would not look favorably on the kind of haircut we are looking at.
This is not 2006 when any kind of junk can be packaged and sold to those chasing yields. In the new more sober (and paranoid) world of structured finance products the international investors will be doing a lot more due diligence and they we see the same short and medium term desolation for the Irish economy. Either NAMA takes the losses up front by being honest about the potential of underlying assets and securitize on that basis, which is political suicide and would just deepen the domestic financial crisis. Or it can structure the deal so that both the seller and buyer can pretend the scenario is much rosier than it actually is and the buyer is happy to go along with the story because they are ‘hedged’ by the seller against the inevitable down side. Why else would they buy a pig in a poke.
And NAMA would be trying to shift shed loads of pigs and pokes in the coming years.
There is no exit for NAMA. C’est la probleme.
Lenihan seems to know fucking everything at the moment. How Japan got it wrong. How it will work out for us.
He is about to buy the Brooklyn Bridge with our money and everyone around him seems to think it is a good idea.
Everyone is drunk and cannot fathom the notion that the assets would not yield their cost over 15 years. We wont be Japan. Ireland is different. We will fix our banking problems.
Will we fuck.
Good discussion. The only hope is to get the Greens to wake up to whats happening. If FF get away with this then Ireland is finished.
Sterling work from JMC.
Thought it was interesting today that Brendan O’Connor and Eoghan Harris are not hot on NAMA, didn’t know they had it in them.
Is O’Reilly angling against NAMA, because he doesn’t particularly benefit? He’d prefer a NAMA for media companies, I guess.
Ballsy O’Connor’s article was pure dross. There’s a funny bit in it where he says that Eoghan Harris is predicting 500k unemployed. Ballsy needs another source for interesting facts and figures.
Anyway, I digress…
We are already finished. Greens wake up? There is No chance the Greens will bring down Gov. they are in too deep now.
Aside from this point, I have to agree with the excellent probing from the OP. This entire SPV is basically shifting MASSIVE risk from the banks and onto the Irish taxpayers. OK in return, the banks will be paying a few points on the bonds we advance to the banks. The tax payers of this country will not be out of this SPV (Nama) for at least 15 / 20 years (not the 7/10 Bacon has thrown about last week during a Newstalk morning interview with Ivan Yates). Meanwhile liability disposals deliver yeilds, the developers hold their companies and live for another day. Ordinary people are so blinkered. The hidden costs to the nation will remain with us for decades. I don’t care what language or carefully chosen words/text are delivered by Gov. in relation to Nama - all of us are being hoodwinked. I like Project 3b idea - that will pack a punch.
But you dont need to force the Greens to bring down the government to seriously hole the pirate ship NAMA. The Irish Green Party, like Green parties everywhere, are the party of affluent middle class self righteousness and moral outrage. The modern day Prohibitionists with green replacing god. Remember that, and you can quickly hone in on their weak spots.
What is fascinating about the Bill is that in all the voices one can hear that went into the drafting process one voice seems to be completely absent, the Greens. Normally in an important money bill like this there are usually a number of sub clauses written by the minor coalition partners. Bones thrown to them so that they can go back to their supporters and say, looks at us, we have political power, here is the proof. There is nothing in the Bill that indicates the input of the green party. No silly conservation / green sub-clauses. Not a single oversight / control / or public notification clause. Not a sausage.
This is either to give plausible deniability to the Greens or more likely, this Bill is as much of the scam as the Greens were willing to sign off on in public and that some of the major silences and omissions are there because it suits FF and give the Greens a fig leaf of probity in the aftermath.
So I see the Greens as top of the list of people who can be embarrassed into doing something. Pin some specific and well defined talking points on the Greens from the Bill (NAMA=Enron type of thing), something that has real traction with both the Green supporters and with the general public, and most importantly, something that will seriously derail their post election wipe out recovery strategy (they have one, trust me - Sargent is as big a cute hoor as anything in FF).
To change a bill like NAMA at minimum you try to derail the general narrative of the sponsors and establish a negative counter narrative that is just two or three well defined points that are focuses on the political weaknesses of the bill and that play upon the suspicions (well-founded or otherwise) of the government by the electorate. The counter narrative must levereage off well defined negative stories and idea that are aleardy in the public domian (hence linkage with Enron. The Enron = secretive scam meme is very well established)
The next step is to then use the counter narrative when established to focus discontent on one or two well defined parts of the bill that are key to the implementation of the Bill and at the same time who scope and effect are easily communicated to the general public. The ideal solution is to have the bill neutered by amendment. The NAMA Bill could be essentially eviscerated as a scam by a few carefully drafted amendments.
Even if the attempts at amending the bill fails and it is passed into law the negative counter narrative could still effectively stymie the execution of key parts of the bill. Establish the narrative that NAMA = Enron in the public mind and everytime NAMA starts trying anything dodgy the media have a ready made story that they can run with it. Journalists love ready made stories. The back story is already established. NAMA = scam; NAMA = ripping off tax payer; NAMA = secret and underhand. So a never ending supply of ready made Daily Mail style taxpayer moral outrage stories. Theses type of stories do have an effect over time, drip by drip, especially if you are scurrying around furtively in the shadows trying to pull off a bail out.
And then there is the ideal outcome. They withdraw the proposed draft bill and revise it so it is no longer a very elaborate scam. A competent drafting committee, once you excise the input in the Bill from the Banks, the Developers and the Party, could knock the draft bill in a few weeks into something the bears a real resemblance to a Financial System Recovery agency that has a real chance of working.
The pirate ship NAMRON?
Avast me hearties…
Actually the more I think about it the more the metaphor of NAMA as a pirate ship seems just so right.
The plan to load up all their booty on board and then launch upon of a voyage of many years pillaging as they go.
@jmc - thanks for the interesting information - I’ve always had my suspicions about Nama because there was never any real information on it and now from this thread (and having not read the draft legislation yet) and some newspaper articles I caught yesterday it sounds very suspect in how it’s likely to be implemented.
For me the key questions are around
(1) How the loans/assets will be priced - I’m not comfortable with references to “long term economic value” - I suspect this will bite the taxpayer hard as Nama overpays on market value to the benefit of bankers and developers.
(2) The idea that developers can continue to trade and ultimately buy back their assets after a period of time - IMHO these cowboys are being given temporary state support to their benefit where the taxpayer assume all the risk and non of the benefits - remember the developers are on the cards to lose everything anyway so if Nama fails they’re no worse off - we however will be even more fucked.
Sounds like a convoluted no-risk form of examinership to me!
This sticks in my throat because I personally believe (like bondholders) these developers took risks and as such should bear their loses no matter how great. As a result I beleive they should not be given an opportunity continue trading once they’re loans are in Nama - the original company should fold and Nama should manage and ongoing development in isolation!
I can see egotistical assholes like Sean Dunne rubbing their hands in glee at the prospect of this state sponsorship scheme.
(3) Disposal of the (ultimately) remaining toxic waste that fails? Will loans just be written off? Will Nama (the state) simply hold assets indefinitely to avoid firesales?
Ultimately I suspect we will overpay for all assets, the status quo will remain with those who orchestrated this mess retaining their wealth while properpty prices are further propped up thanks to a refusal of Nama to offload assets at realistic market value.
So ultimately we’re likely looking at 20 year Japanese style cycle which simply becomes a normal accepted part of life for the next generation (a-la the tribunals!)
Interestingly - this was the description of an SPV on investopedia (investopedia.com/terms/s/spv.asp)
sure we even have zombie banks, half man-half shark developers, plus a monkey on the quarterdeck…