RTÉ - "Did Ireland's 'bad bank' NAMA work?"

@joe sod

I’m probably wasting my time but I’ll have one more go at explaining this to you and then I will leave you to your barstool.

Distressed property and development loans from the five banks with a fair value (ie the market consensus on the value that could be recovered on the loans based on the underlying collateral value) of €26 billion were transferred to NAMA in exchange for bonds (essentially IOUs) issued by NAMA totalling €32 billion.

The amount of the loans originated by the banks or the discount to same is irrelevant to this transaction.

In other words, NAMA overpaid for the assets to the tune of €6 billion.

Why?

Because it very significantly reduced the cost to the State of recapitalising the banks.

So, in the circumstances, the fact that NAMA is returning a surplus to the State is a surprisingly good result.

Again, the facts simply do not support your contention that NAMA was a “woeful” asset manager. Quite the opposite.
 
joe sod said:
There was a lot of incompetence such as limiting the buyers that could purchase a portfolio because the portfolio was too big but easier for NAMA to administer
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So effectively you're describing what NAMA would probably call efficiency, as "incompetence"?

How much bigger would the administrative overheads (and associated payroll costs) have been and how much longer would the whole process have taken if NAMA had been forced to hold tender competitions for significantly smaller sized portfolios on the off-chance that smaller developers might have paid more for such portfolios - especially in an environment where such smaller developers were probably unable to raise ny finance from the banks?
 
My girlfriend is constantly telling me about the amazing savings she made, buying things at incredible discounts. For me, that's not relevant - what's important is the price she paid for what she got. As an Irish taxpayer (and in an indirect relationship with NAMA too), I'm not interested in the discount to acquisition cost either.

The discounts themselves were not consistent across banks, I would view the discounts as more of a reflection of what they (collectively) transferred to NAMA.
 
Sarenco said:
Again, NAMA paid €32 billion for distressed loans with a combined face value of €72 billion (that was never going to be fully recovered).

But at that time nobody would have paid more than €26 billion for those assets on the open market. So, simply referring to a 70% discount is misleading.
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Im possibly going to say something in NAMAs favour, where did this 70% discount come from , its been repeated adfinitum , however if NAMA paid 32 billion for assets with a face value of 72 billion thats only a discount of 56% not 70% surely?
 
Let's not forget the cost of running Nama for all of those years - that's an extra overhead that could have been reduced, had assets been left in the banks (that remained open) and an alternative method of injecting funding into those Banks used.
 
Discounts total and by counterparty available here.

NAMA: Loan Acquisition

www.nama.ie www.nama.ie

joe sod said:
where did this 70% discount come from , its been repeated adfinitum
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In this thread, the second post?
joe sod said:
it got assets at a 70% discount to cost
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The original rte article did make reference to a max discount:

"When the loans were transferred to NAMA, some of the writedowns were as large as 70%."
 
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Why didn't AIB sell off the "good" part of EBS, to raise additional funds to return to the Government ?

AIB was clearly needed to help stabilise the EBS, given the EBS didn't have sufficient skills themselves, but why not spin out the "good bank" afterwards and sell it on ?

In addition to raising some funds, it would have helped ensure more competition !

It seems very odd to me that the Government didn't want this (and it's face it, they were pushing an open door, as majority shareholder at AIB, for a fairly long time)
 
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Sarenco said:
Again, the facts simply do not support your contention that NAMA was a “woeful” asset manager. Quite the opposite.
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Yep taken narrowly NAMA was a good asset manager....it overpaid for a portfolio of assets that a private asset manager would have sought a much larger haircut on.....a wholesale discount if you will.....that the banks got this stuff offloaded in one fell swoop instead of piecemeal was a big deal. NAMA then managed these assets well.....given its operating costs and the initial overpayment.....to come out with a 5bn surplus returned to the exchequer was good overall.

Now when you think of the 'system' in its totali (NAMA + Banks + Economy) and in the round - you come up with issues >

- NAMA had serious tailwinds - Irish government incompetence on housing policy....drove the value of NAMA's holding up more than would have occured in a housing market being adequately supplied/supported by sensible Goverment policy.....the €5bn surplus can be seen in the context of housing crisis and policy failures by first FG and then FF/FG. Not much to be proud of

- the NAMA asset sale (even at a premium) blew a whole in the banks balance sheet that had to be re-capitalized by the State....and so you've got a right hand - left hand thing here....NAMA + bank bailouts in aggregate is the real test.....the IRR, in the round, on this capital is/was very poor when you factor in the 5bn surplus on one hand...and the bank bailout scale and oss on the other....and then add in a time value of money + inflation adjusters + the cost of capital.....it was not a good investment as measured in IRR or CAGRs

Having said all that - who counts IRRs when your house is on fire? and Ireland's house was most definitely on fire!

In hindsight - they could and should have moved more stuff off the banks balance sheets...the NPL problem NAMA was meant to solve lingered on for far too long at the remaining banks....and they could and should have overcapitalized the banks more to give them the mojo required to stop being scardy cats and write some good quality loans again...........the idea of NAMA was to de-zombie-fy the banking sector and get credit flowing again.......but as anyone remembers in the early to early mid 2010's......the banks remained zombies, conserving capital and afraid to make new loans except to the most pristine of credits (civil servants etc.)....IMO NAMA should have been bigger (more NPL's moved, more assets)....and the re-cap of the banks should have been bigger......when your getting €62bn from the IMF.....you might as well get €72bn and do the job right in terms getting credit flowing through your economy again by invigorating your banking system.
 
MrEarl said:
Let's not forget the cost of running Nama for all of those years - that's an extra overhead that could have been reduced, had assets been left in the banks
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1) economies of scale. Are 3 separate resolution units, sufficiently staffed and resourced, likely to be more efficient and cheaper to run than pooling the resources into a single entity.

2) not too sound like a broken record but we wanted banks that actively lent. By leaving bad loans on their balance sheet it would have distracted them from what they were suppose to do. NAMA took on the uncertainty of those bad books. Thus allowing banks to focus on the basics of lending. It wasn't an instant remedy but it allowed them to eventually turn a corner.
 
letitroll said:
idea of NAMA was to de-zombie-fy the banking sector and get credit flowing again.......but as anyone remembers in the early to early mid 2010's......the banks remained zombies, conserving capital and afraid to make new loans except to the most pristine of credits (civil servants etc.)....IMO NAMA should have been bigger (more NPL's moved, more assets)....and the re-cap of the banks should have been bigger......when your getting €62bn from the IMF.....you might as well get €72bn and do the job right in terms getting credit flowing through your economy again by invigorating your banking system.
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NAMA cleaned up part of the banks. As you say it didn't remove everything that was potentially toxic.

The other thing is for all that NAMA did do what it didn't do or couldn't do was clean up the economy.

Unemployment was sky high, the economy was in recession, the government was broke and house prices were collapsing. In short, Ireland inc, which had been addicted to cheap credit and property over the previous decade, had to go cold turkey. It needed to deleverage to a sustainable level. Only then would fresh credit make sense.

Not exactly an ideal situation to start lending in no matter how well capitalised a bank might be.
 
skrooge said:
NAMA cleaned up part of the banks. As you say it didn't remove everything that was potentially toxic.
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yep too large a tranche of NPLs was left on their b/s.....they remained a distraction and a cloud over TBV....todays NPL is tomorrows 100% write down....and so they became a hindrance to new lending....which in a circular fashion showed up as incremental new NPLs due negative equity and neagtive wealth effects from falling property prices cause nobody could borrow money to buy the houses already on the banks b/s

skrooge said:
had to go cold turkey. It needed to deleverage to a sustainable level.
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I'd argue by 2010/11....it wasn't deleveraging Ireland needed....but rather some releveraging & consumer confidence restored......house prices are set at the margins....the absence of mortgage credit in the market killed the marginal purchase price.....and given the wealth effects of property it caused Irish consumers who still had a job to be overly cautious in their spending which lead to greater unemployment & ironically (given the paradox of thrift) less or much slower aggregate de-leveraging (one man's spending, is another man's income).

skrooge said:
Unemployment was sky high, the economy was in recession, the government was broke and house prices were collapsing. In short, Ireland inc, which had been addicted to cheap credit and property over the previous decade, had to go cold turkey. It needed to deleverage to a sustainable level. Only then would fresh credit make sense.

Not exactly an ideal situation to start lending in no matter how well capitalised a bank might be.
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Counterintuitively - coming out of a credit bust is the best time to lend......asset prices are low (upside/downside risk is skewed in the banks favor), those presenting themselves in employment have demonstrated a certain darwinian ability NOT to be fired during a harsh recession and so are likely diligent, competent & hard working and so have good prospects to remain in employment for the life of the mortgage.

Right now IMO is the most dangerous time in a credit cycle for bank or lending institution. To take your sentence above and invert it - unemployment is at rock bottom, the economy is booming, the government is running fiscal surpluses and house prices are booming.

NOW is the time as a lending institution you should start getting scared.....this is all late cycle stuff....any layabout with a pulse can get a job and he'll be the first to let go and default on you.....you have no way of underwriting as bank underwriter whether the loan application before you is a lazy lump or competent/hard worker...both are gainfully employed in a boom....your customers are buying homes at the edge of their affordability, at the highest multiple they can get with likely some off balance sheet help from mom/dad/sisters/brothers..... the risk of overt or covert negative equity is high now....it's now in the cycle where banks really get hurt and make loans that go bad......such is life....people & banks move in herds....they buy when they should be selling....they wont make loans when its the best time ever to make a loan.....and they make loans at the worst possible time.
 
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letitroll said:
Counterintuitively - coming out of a credit bust is the best time to lend..
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Very true of course the challenge is knowing when to correctly call the bottom.

I haven't looked across all possible indicators but to pick a (overly) simple one: Numbers of people employed stood at over 2 million in 2008. It subsequent declined and it wasn't until 2014 that it surpassed (my made up) threshold again. Looking at household spending there was a similar trend.

Looking at credit it didn't start to grow again until 2017 (households) and 2018 (firms).

Of course those dates are arbitrary as the provision of (sensible) credit is usually a positive for economic activity. So perhaps the cycle could have been turned sooner. But a degree of caution seems reasonable as it was credit what was the problem to begin with.

While this is a NAMA thread it's probably no harm to note the other measures taken. The recap of 2011 and the expiry of the bank guarantee in 2013 were all important steps to recovery.

It wasn't just bad assets that was the problem for Irish banks it was also the fact that relative to their customer deposit base they were too big. So there was also a bit of further disposal to be done.

The argument was likely something along the line that NAMA removed the most egregious loans. It also gave them government debt to use as a tool for funding. The latter recapitalisation gave the banks financial headroom to deal with the remainder of the bad loans (consumer).

Did they? Not really and I think it was the ECB and a change in policy sums 2017 that finally made the banks face up to those loans.
 
www.rte.ie

NAMA not achieving its potential - Bacon

A new report by the economist who designed the National Asset Management Agency has recommended selling the agency to a private equity investor.
www.rte.ie www.rte.ie

Well Peter bacon the designer of nama was not happy how it was being run even back in 2012. He said it was not achieving its potential and would have been better off to have been sold off or partly sold off to a private equity outfit in order to achieve the value in the assets it held

www.thejournal.ie

NAMA architect fears agency's pursuit of debts is "not sufficient"

Peter Bacon, who is credited with coming up with the idea for NAMA, says the agency’s debt pursuits are too narrow-minded.
www.thejournal.ie www.thejournal.ie

In this article he is highly prescient, he says that nama would be happy to just get back the value of its original money the 32 billion and not achieve the full value of the assets it held and how correct he was way back in 2012
 
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letitroll said:
Right now IMO is the most dangerous time in a credit cycle for bank or lending institution. To take your sentence above and invert it - unemployment is at rock bottom, the economy is booming, the government is running fiscal surpluses and house prices are booming.

NOW is the time as a lending institution you should start getting scared
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Be greedy when others are fearful, and be fearful when others are greedy.

There's an awful lot of greed around the place at the moment....
 
joe sod said:
In this article he is highly prescient, he says that nama would be happy to just get back the value of its original money the 32 billion and not achieve the full value of the assets it held and how correct he was way back in 2012
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Well, not that correct, since NAMA in fact recovered significantly more than it paid for the assets.

And, while there's a reference in the article to the nominal value of the loans, and Bacon is quoted as saying that NAMA was not seeking the "whole value" of each loan, he doesn't say — or isn't quoted as saying — what the whole value was. In particular, he doesn't say that the whole value was the same as the nominal value. (Which it clearly wasn't — if the loans actually had a value equal to their nominal value they wouldn't have been toxic assets, there wouldn't have been a banking crisis, and NAMA would never have been established.)

Interestingly, he's also quoted as criticising NAMA for not "taking an active social role". That doesn't sound like he thinks NAMA should be seeking simply to maximise financial recovery; it sounds as though he thinks, perhaps, that NAMA should have put a higher focus on, e.g., using its property portfolio to mitigate problems in the housing market.

Tl;dr: I don't think Bacon's criticism of NAMA was for failing to sell its assets for a sum equal to their historical nominal value. I think the "whole value" concept refers to the broader social signficance of its asset portfolio — the portfolio (or, at least, the domestic part of it) should have been held for longer and managed in such away as to maximise social/public benefit, rather than being sold as quickly as possible to recover, and if possible provide a return on, the state's investment.

NAMA did acheive the latter aim; Bacon's main criticism was, I think, that that shouldn't have been its primary aim.
 
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Peter Bacon was a paid mouthpiece for Treasury Holdings. Hardly a disinterested party.

In any event, history has proven him wrong.
 
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