If we massively underpay for NAMA assets, we can recapitalise banks easily?

[feargach]

This is based on the following spreadsheet, seen elsewhere.

It's an estimate of the costs of NAMA made by Constantin Gurdgiev.

The NAMA Napkin - Spreadhseet • thepropertypin.com

Now, I downloaded it and had slightly nerdy fun entering different numbers in the "Discount on NAMA assets" field.

We are told that we need to keep the discount low, in the region of 10% below asking prices, because if we don't, we're just robbing Peter to pay Paul: if we slash the price we pay for the empty buildings and weed-strewn fields that constitute the NAMA portfolio, we allegedly will have to stump up huge amounts to keep the banks afloat, on top of the many billions they already got from our pensions.

So, anyhow, I wanted to see what would happen if I put 95 into the "Discount on NAMA assets" box: that means we only pay one-twentieth of the asking price for the assets.

That changed the "New capital demand from banks post Nama, €mln" field all right, to a whopping €28.5 billion.

Now, that is a pretty manageable figure. About a fifth to a quarter of GDP.

(We could probably borrow €28.5 billion in a special bond, using our road network as security. In the case of default, creditors could charge tolls on drivers until they were repaid. We could ask the EU to go guarantor, with the threat of heavy fines if we default or impede access to creditors. That should mean a low interest rate on the loan, for the same reason that most secured debt is cheaper than unsecured. But let's not get bogged down in the issue of how we might get 28.5 billion, there are many ways.)

Is there reason to believe that the €28.5 billion figure is accurate, or have I pushed the limits of the spreadsheet too far?

[Dreaded_Estate]

If we combined a deep discount with a debt for equity swap then we could reduce the €28.5bn recapitalization bill to almost nothing.

[feargach]

So how is this not a no-brainer?

Why is it even considered worth doing to pay over 5%?

There must be some legal argument, even if it is described as a "fig-leaf" for why it makes good financial sense to pay more than 5%. If agents of the state were to deliberately, knowingly go ahead without such a business case, then courts would be able to invalidate the deal, if a case was taken by a subsequent government to reverse the decision.

[feargach]

If you had to change sides and argue against paying a high haircut, what arguments would you use?

[BodyofEvidence]

This is based on the following spreadsheet, seen elsewhere.

It's an estimate of the costs of NAMA made by Constantin Gurdgiev.

The NAMA Napkin - Spreadhseet • thepropertypin.com

Now, I downloaded it and had slightly nerdy fun entering different numbers in the "Discount on NAMA assets" field.

We are told that we need to keep the discount low, in the region of 10% below asking prices, because if we don't, we're just robbing Peter to pay Paul: if we slash the price we pay for the empty buildings and weed-strewn fields that constitute the NAMA portfolio, we allegedly will have to stump up huge amounts to keep the banks afloat, on top of the many billions they already got from our pensions.

So, anyhow, I wanted to see what would happen if I put 95 into the "Discount on NAMA assets" box: that means we only pay one-twentieth of the asking price for the assets.

That changed the "New capital demand from banks post Nama, €mln" field all right, to a whopping €28.5 billion.

Now, that is a pretty manageable figure. About a fifth to a quarter of GDP.

(We could probably borrow €28.5 billion in a special bond, using our road network as security. In the case of default, creditors could charge tolls on drivers until they were repaid. We could ask the EU to go guarantor, with the threat of heavy fines if we default or impede access to creditors. That should mean a low interest rate on the loan, for the same reason that most secured debt is cheaper than unsecured. But let's not get bogged down in the issue of how we might get 28.5 billion, there are many ways.)

Is there reason to believe that the €28.5 billion figure is accurate, or have I pushed the limits of the spreadsheet too far?

A couple of things.

• its a spreasheet by gurdgiev and brian lucey.
• the spreadsheet could be modified to have a recap based on the implied loss based on the amount paid
• like most spreadsheets, dont push it too far (as you might have dne
• its designed, from the original article, to cost nama not to look at recapping

[feargach]

OK well here's a dumb question: if we paid very small amounts to NAMA, why would it cost us more than 30 billion to recapitalise the banks?

They might be "technically insolvent" but clearly the authorities are going easy on them. If AIB and BOI had say 14 billion each, wouldn't that be enough for them to muddle along quarter to quarter?

[BodyofEvidence]

OK well here's a dumb question: if we paid very small amounts to NAMA, why would it cost us more than 30 billion to recapitalise the banks?

They might be "technically insolvent" but clearly the authorities are going easy on them. If AIB and BOI had say 14 billion each, wouldn't that be enough for them to muddle along quarter to quarter?

It probably wouldnt, just saying the sheets set up to do something else and this is a "by the way" outcome.
Were both agreed : they will overpay massibly

[feargach]

If you had to put a figure on it, how much recapitalisation would the banks need if NAMA wasn't there, or if NAMA paid a low price?

€50 bn? €150bn. €1tn?

[BodyofEvidence]

If you had to put a figure on it, how much recapitalisation would the banks need if NAMA wasn't there, or if NAMA paid a low price?

€50 bn? €150bn. €1tn?

Banks have c40b in capital. They need min 20b for regulatory purposes. They would therefore need 40-45b as the losses are at least that.

[feargach]

Banks have c40b in capital. They need min 20b for regulatory purposes. They would therefore need 40-45b as the losses are at least that.

I assume you mean to add those 3 together.

OK, and why isn't it better to simply give them 45bn, and have no large NAMA at all? To my untutored eye, it looks as though just letting NAMA pick up the buildings/fields for peanuts will save €30bn to €45bn.

I'm assuming this isn't so, so perhaps you could spell it out why not?