Monday, May 18, 2009

The Department of Finance has a fascinating FAQ document about NAMA.

It asks the right questions but the ambiguities in the answers might explain why Michael Somers told the Public Accounts Committee that he didn't know how this would work.

A fundamental claim is that NAMA will "operate on a commercial basis". What commercial operation would buy these assets, even at a discount, and hold them for years without any guarantee that the borrowers will repay the loans? Another fundamental requirement is to act in line with European Commission guidance.

Here is my summary of the answers.

1.1 What loans will be transferred?
The eligible land and development loans of each bank, but "eligible" will mean whatever they decide.

1.2 Will land and development loans outside of Ireland be transferred to NAMA?

1.3 Will there be transparency in relation to loans transferred to NAMA?
Yes meaning No. Only overall numbers will be published.

1.4 What will happen if individuals or companies who have performing loans do not want their
loans to be transferred?
Don't know - wait for the legislation

1.5 Will some borrowers just stop repaying their loans?
If so, NAMA will chase them.

2.1 What write-down will be applied to loans?
"appropriate write-down", meaning "Don't know"

2.2 Will there be a fair discount or will the banks get off lightly?
Don't know yet.

2.3 Who will be footing the bill for the loans – the banks, the developers or the taxpayer?
NAMA will get a discount (but the buck will stop with NAMA)

3.1 NAMA isn’t a toxic bank – why not?
NAMA will not be taking deposits from the public and will not have a banking licence. NAMA will manage a mix of performing and non-performing loans’

3.2 Do the banks have to give up loans that they don’t want to?

Don't know - wait for the legislation

3.3 Will Anglo-Irish Bank be used as a ‘bad bank’?
No but Anglo will remain as a going concern

3.4 Will Anglo be able to participate in this scheme?
Depends on the Anglo business plan

3.5 How will the write off impact on the banks’ capital ratios?
Yes, replacing loans with Government bonds will help.

3.6 Will the Government be prepared to put more capital into banks, and on what conditions?
To be decided on a case-by-case basis but equity may be taken in return.

3.7 Will the loss of profits not further inhibit the capital position of the banks?
Hopefully, the banks will be left stronger and make profits.

3.8 Will the terms and conditions of a loan transferred to NAMA change?
Not initially.

4.1 Is the Government just bailing out the Developers?
No, just a change of counterparty with NAMA replacing the banks. (But no explanation about how to pursue the developers)

4.2 Will the taxpayers have to pay for the banks’ mistakes?
Depends on level of discount and long-term value of the properties

4.3 How much will this cost the tax payers?
Don't know. €80-90Bn. is the book value of loans. If there is a loss, there will be a levy (but how do we stop the banks passing the levy on to their customers?)

5.1 What effect will this have on Government debt?
Financed by either a Government or NAMA bond.(no further information)

5.2 How will this effect the country’s credit rating?
The bond will increase the Debt/GDP ratio. The ratings agency will decide.

5.3 Can the country afford this?
Ireland has more scope than other countries to increase the level of debt
Give it a few years of double-digit deficits.

1 comment:

  1. give me an email for the ST article and spreadsheet: Brian L