FT Lex : NAMA- The solution to Ireland’s banking crisis may be part of the problem

[Dreaded_Estate]

FT.com / Lex - Nama

Nobody knows. That is all that can be said in reply to Ireland’s most pressing question – is the National Asset Management Agency working? Nama was established to absorb €81bn of bad property loans held by Irish banks, allowing the lenders to recapitalise. Yet the country’s banking crisis continues, two years after Lehman Brothers collapsed. The banks remain on life support through a blanket guarantee on deposits and most debt; Anglo Irish Bank continues to make ludicrous losses; and there is growing scepticism over official assurances that the cost of rescuing the system has been contained.

Nama is an odd creature: part debt collection agency, part property developer. As well as toxic loans, it may end up with a portfolio of property which was collateral for the banks’ lending binge. It was meant to fix the broken banks, convince taxpayers they might be repaid and reassure the markets the banks’ liabilities would be met in full. Facing in three directions, it has not appeared convincing in any: slow, bureaucratic, initially indecisive, almost excessively transparent (every toxic loan is assessed individually).

[athlonedub]

The initial idea that NAMA might be a mechanism to prop up the banks by paying over the odds (LTEV anyone?) has long gone on the window. It seems that when the loans are identified and transferred to NAMA, this has the effect of triggering a further haircut. This seems to be because while the banks are valuing the loans by looking at the future cash flows, the underlying securities etc, NAMA then takes a valuation method that builds in worst case scenarios etc to arrive at a lower valuation and this is the transfer value. In effect every time there is a transfer to NAMA, this increases the capital requirements of the transferring bank since there is a further discount crystalising.

Now who is right and who is wrong on this? One might argue that the banks have a bad track record in evaluating their loan book. Alternatively one might postulate that it was in their interests to throw out all the dirty washing and write down as much as possible over the last year or two to get to an even keel.

I was told one story by an individual in relation to a block of appartments in the Dublin 4 area which is generating a solid flow of rent from long standing tenants. The bank, in looking at whether provision was needed, looked at the turnover in tenants (minimal in recent years) factored in rental discounts in current market at a steep but believable level (although not as much as was happening in practice there) and came to a modest provision. The NAMA view would be that there will be a significant turnover over say a 5 year period and every time there is, the place will be unlet for on average 4 months etc etc, this arriving at a much higher haircut required. Knowing the area, I think NAMA have got it wrong there. (and yes, we do know about the fields outside Ballygobackward and how they will never sell these etc etc)

Perhaps the difference is somewhere in between and if this is the case, then NAMA should make a profit in the long run - we're talking in the aggregate here.

But I thought NAMA was not about making a profit? It should be about making the banks fit for purpose again to serve the citizens and businesses of Ireland.

Should NAMA accelerate its sweeping up of the big boys, close its doors and leave the banks to deal with the remainder of their loans. If the banks are to be believed (!!) this should immediately reduce the capital requirements of AIB, BOI and (gasp) even Anglo. In other words, the bottom of the barrell has been reached and all NAMA is doing now is ripping a hole in that bottom?

Maybe NAMA has nearly had its day already??

[Squire Allworthy]

I have commented before on how difficult it would be to effectively manage NAMA. This conglomerate has been brought about by the stroke of a pen. It did not develop or evolve. There was no management structure in place and I doubt if there was even a clear vision of its limits.

I have some diverse interests but many of the structures, people and networks were built up over more than one generation. If we were suddenly landed with the property in NAMA it would take serious work and staff to get to grips with it. So imagine a new team. It is very much like inventing the cart before you have the horse.

Exceedingly difficult management problem, I wish them every success.

[rubensni]

Nice of the FT to agree with what experts here are saying about the governments banking "solution", problem is they are 12 months late and the damage is done. Jackasses.

[White Horse]

Nice of the FT to agree with what experts here are saying about the governments banking "solution", problem is they are 12 months late and the damage is done. Jackasses.

It also shows the lunacy of government ministers claiming that international commentators back their policies.

[Disillusioned democrat]

When you step back and consider NAMA's objectives it was always going to fail once the banks were nationalised, either wholly or even partially, directly or by stealth (like AIB).

All we have is teams of overpaid lawyers, consultants and "economists" working through the debt fairly arbitrarily to decide how to account for it. Add to that the fact that it was based on property values stabalising and even recovering and it was set up to fail, but to keep a few people (including some of the auditors who missed a few clangers along the way) profitably employed.

FT now comes out, with the benefit of hindsight, and says what many were shouting from the roof tops 2 years ago (myself included), but as another poster has said, too little too late as the FT has been quoted by FF/GP as a supporter of bailouts and NAMA in the past to justify its approach.

[rubensni]

Yet it is too early to write off Nama. Contrary to early fears, it has not become a creature of the banks...

Wasn't the real fear that Nama would become a creature of wealthy Fianna Fáil supporting property developers?

[HarshBuzz]

"Anglo is still the rotting corpse in the disaster zone of Irish banking"

how lyrical, couldn't have said it better myself

no doubt Frank Fahey and his merry men will dismiss this as more uninformed comment from people who don't understand the uniqueness of Ireland

[Asparagus]

It also shows the lunacy of government ministers claiming that international commentators back their policies.

Jimmy McGee and George Hamilton are firmly behind NAMA. John Motson is, at best though, cautiously hopeful.

[HarshBuzz]

Jimmy McGee and George Hamilton are firmly behind NAMA. John Motson is, at best though, cautiously hopeful.

Peter Aliss has described it as 'the only show in town'

we'll be Greek by next summer