Re: Excellent article (IMHO)
Overall, I don’t think the article adds anything to the NAMA debate.
I agree with Duke that the notion that bondholders could have been left to take the hit is fundamentally flawed. I also disagree with Kelly’s assertion that “Underlying Nama is the delusion that the collapse of our property bubble is a temporary downturn.”
While much about NAMA is unlikely to be clarified before legislation is brought forward, I can’t shake the feeling that NAMA is a charade. The proposal is about liquidity management rather than asset management. The agency is a construct to allow the government overpay for loans with bonds it would have difficulty selling on an open market in such volume.
With a staff of 30 or 40 NAMA cannot hope to effectively manage the loans it is to have oversight of/ responsibility for and day-to-day management will have to be left with the financial institutions that originated those loans in the first instance. Sure NAMA will probably have ultimate approval on actions taken, but not having direct interaction in a workout situation effectively removes it form the decision-making process. In most instances where approval from NAMA is required an experienced lender will be able to present their preferred option as a fait accompli.
Overpaying for the loans (personal opinion is that we could see them transferred at an average of 80-85% of book) will avoid the necessity to inject significant capital into the banks immediately. It could be argued that it will, via the proposed levy, incentivise the lenders to obtain the maximum recovery possible. Taking a medium term view, some value will be recovered from the loans as part-finished developments are completed, fire-sales of assets are avoided and the economy (hopefully) stabilises and eventually recovers. Losses will be recognised slowly as the workout process continues, allowing the government to fund them over a longer period rather than up front. Part of this loss can be recovered from the banks via the levy, which will be paid from future profits. A point that seems to have been missed in the debate is that, at their core, Irish financials excluding Anglo and Irish Nationwide are viable, sustainable and profitable businesses.
My conclusion? NAMA is window dressing and nothing more. The loans concerned will effectively remain with the institutions that originated them and the taxpayer is still picking up the tab, but the scale of the problem will be fudged to manage liquidity.