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

[joe sod]

@Sarenco no history has proven him to be spot on with his assessment of nama in 2012, he could see that more value could have been got by selling it off to private equity who would be far more capable in achieving the asset values.

Your assessment is based on the very short time frame around the initial founding of nama in 2010 where everything was at its most pessimistic in terms of valuations of loans and assets and finding buyers back then. Then in 2025 some 15 years later after a decade of double digit growth in property prices you are giving them a round of applause for managing to make a surplus of 5 billion, come on, you cannot be serious?

 

[Marsupial]

Good to see that The Journal is now being quoted as a reputable source of economic analysis. Next week, The Beano?

 

[Sarenco]

@joe sod

You are still ignoring the facts.

If the banks had sold the loan portfolios to privately managed distressed debt funds in 2010, they collectively would have received €26 billion.

Instead they received assets totalling €32 billion. Good for the banks, good for the taxpayer.

NAMA managed to recover €37 billion on the loans, €11 billion more than their fair value in 2009.

Could a privately managed fund have extracted more value from the loan portfolios? Quite possibly.

But what benefit would that be to the taxpayer?

Peter Bacon said in 2012 that NAMA would be happy to break even. Well, NAMA achieved a €5 billion surplus so he was proved wrong.

 

[TomEdison]

@Sarenco no history has proven him to be spot on with his assessment of nama in 2012, he could see that more value could have been got by selling it off to private equity who would be far more capable in achieving the asset values.

Did Bacon actually say that at any point? Because my understanding is that his criticism was the exact opposite; that NAMA was in too much of a rush to sell off its assets and recover its investment.

 

[letitroll]

So perhaps the cycle could have been turned sooner.

That's basically my point....the banks could and should have had more capital and given they we're under effective State control they should have been compelled to be more active in the provision credit (which was the whole point of the bailout itself).

The whole other conversation is what the fiscal should have done once bond yields fell of a cliff and you had ECB quantitative easing & ZIRP.....people will look at that period when rates we're so low and credit abundant and wonder why the hell we didn't build the national children's hospital, metro north and all other manner of capital/productivity enhancing projects that would have been stimulative and helped the economy recover. Instead we stuck with austerity too long even though once yield curve control was firmly in place it was the incorrect posture.

Now thank your lucky stars - Osbourne in the UK made the same mistake......and that stupidity contributed greatly to Brexit....which took an error in judgment and made it a decades long hit to GDP.

 

[letitroll]

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

Yes.....but also I think that NAMA as a state entity pretending to be commercial one.....ran a double bottom line....commercial with a societal lens.

If the assets had been sold to a consortium of Lonestar, Oaktree, Blackstone you may have had distortive commercial effects via their scale in market so small (i.e. colluding, manufactured scarcity).....it was better than the assets landed in state run bad bank IMO.

 

[letitroll]

they collectively would have received €26 billion.

Instead they received assets totalling €32 billion. Good for the banks, good for the taxpayer.

To be honest - at that exact point....with the banks effectively nationalized and with the state guarantee underpinning it all......it was really all left pocket - right pocket stuff.

What it did do was create strategic optionality for the State to get out of that dire situation of being effectively both the state and the financial system at the same time.......going down the good bank / bad bank route.....meant Wilbur Ross et al could come in and help the State de-couple from the banking system. The bad bank meant there was an empowered entity unencumbered by past failings and institutional PTSD.....that could deal effectively & efficiently with distressed debt funds.

Given the fog of war.....there are outcomes much worse than what transpired. Imagine what the geniuses in SF/PBP would have done!

 

[joe sod]

Could a privately managed fund have extracted more value from the loan portfolios? Quite possibly.

But what benefit would that be to the taxpayer?

Peter Bacon said in 2012 that NAMA would be happy to break even. Well, NAMA achieved a €5 billion surplus so he was proved wrong

by 2012 they could have bought out NAMA leaving a surplus for NAMA so the state would have had their money back in 2012 rather than waiting until 2025 for a tiny surplus.
When you use the CPI inflation calculator 32 billion in 2010 is now worth 42 billion, so in real money terms NAMA came back with 37 billion (32 + 5) so yes you are partially correct Peter Bacon was proved wrong because in real money terms they didn't even break even

 

[Sarenco]

@joe sod

You think the loan portfolios could have been sold in 2012 for in excess of €32 billion? Seriously?!

in any event, NAMA did gradually sell off loan portfolios and underlying assets over time and redeemed its bonds.

it’s not like it waited until 2025 to do anything!

 

[letitroll]

You think the loan portfolios could have been sold in 2012 for in excess of €32 billion? Seriously?!

Yep no chance.......but lets not forget that they weren't really "sold" either for €26bn......the state moved em from the banks that they owned/guaranteed......to an asset mgmt agency they owned....it would be like claiming you sold your house when all you did was sell it to your wife and you both still live there.

 

[Sarenco]

Not really.

It would have cost the State a heck of a lot more than an additional €26 billion to recapitalise the banks if these portfolios had remained on their balance sheets.

 

[Dr Strangelove]

People forget that the set-up of Nama also involved creating a state liability (Nama bonds) out of thin air that the banks got in return for transferring their dud assets to Nama.

These were eligible collateral for ECB liquidity which the banks desperately needed at the time.

These liabilities drove the state into the bailout a year later but that’s another story…..

 

[letitroll]

Not really.

It would have cost the State a heck of a lot more than an additional €26 billion to recapitalise the banks if these portfolios had remained on their balance sheets.

The State was on the hook for the NAMA bonds too you see...this is my point...it sold the NPLs in effect to itself....it was both the seller (via bank ownership) and the buyer (via NAMA).

People forget that the set-up of Nama also involved creating a state liability (Nama bonds) out of thin air that the banks got in return for transferring their dud assets to Nama.

Yeah exactly.....NAMA bonds we're defacto Irish Gov bonds just with a different wrapper......they didn't go into the bond market to get the €32bn needed to fund the establishment of NAMA and the purchase of the NPLs..they took a circuitous route via the NAMA SPV, which issued the securities and gave them to the banks in exchange for the NPLs.....the NAMA bonds were guaranteed by the State......the guaranteeing by the State turned them from water into wine, ECB collateral worthy wine........who sent the banks cash money in return for the NAMA bonds & charged the ridiculous low MRO rate of 1%.

Strip away all the financial engineering mumbo jumbo......and effectively Eurosystem liquidity at the ECB was used to finance about €32bn of Irish sovereign debt at ~1% or way below spot rates in the bond market at the time. These instruments we're called NAMA bonds....in practise they we're Irish Gov bonds....this clever scheme being done before the ECB was given the power to buy sovereign debt directly itself which it did in droves later (Draghi etc.)

So as I said a couple of posts up......this period.....the State, NAMA, the banks....it was all left pocket-right pocket stuff.....and as @Dr Strangelove says the bond market saw through all this nonsense anyway....Eurostat may not have counted NAMA bonds in Ireland's debt to GDP ratio.....but institutional capital did and they refused to lend to us precipitating the IMF bailout that followed.

 

[Dr Strangelove]

Thanks @letitroll your memory is better than mine.

Nama was about a lot more than what was the best price achievable for the rubbish on the banks’ balance sheets.

 

[joe sod]

Thanks @letitroll your memory is better than mine.

Nama was about a lot more than what was the best price achievable for the rubbish on the banks’ balance sheets.

Actually no, it was simply an asset management agency then after the bailout, the political cost had already been paid because the government was forced into the bailout su subsequently anyway. The onus was then off of NAMA to achieve the full potential of the assets it held, they weren't "rubbish " , they were mispriced and risky celtic tiger era loans, yes, but that was a short lived period. The problem with the commentariat is that they kept on with the financial crash narrative long long after it no longer applied and thereby framed the dismal performance of NAMA (by 2025 ) within that period (2009 to 2010) .

Why was NAMA about alot more? what other worthy functions did it achieve then?

 

[rob oyle]

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.

I know in the early days/years of NAMA at least, while ownership of the assets transferred to NAMA, the loans were maintained by the banks and administered on behalf of NAMA - IIRC, NAMA was initially paying a fee of 9b.p. to the banks to administer on their behalf (which was much less than banks spent administering their own loan books, but at the time they couldn't object to the fee).
I don't know if, over time, that changed and NAMA had direct overheads administering the loans but I suspect not.

 

[rob oyle]

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)

My memory of this was that there was no market for a small player in the Irish market with a franchise business model and a (very!) unsure future. Within a couple of years of acquisition, EBS staff transferred to AIB and EBS as an entity has been run by AIB under a Managed Service Agreement ever since.

 

[letitroll]

Nama was about a lot more than what was the best price achievable for the rubbish on the banks’ balance sheets.

for sure it was about fire-walling certain segments of the problem such that they could be dealt with separately with different capital/funding structures and exit/workout strategies.

Not sure what came first the chicken (NAMA) or the egg (greenlight for ECB MRO access for NAMA bonds).........my guess is the egg came first.....as soon as the ECB indicated to tthe state that an off-balance sheet SPV with securities guaranteed by the state could be used as collateral by the banks to access ECB MRO using them.....the choice was clear.....you set up NAMA to get the €32bn capital injection at ultra low rates (1%).....the hubris I guess was thinking that the bond vigilantes would somehow think of these NAMA bonds as anything different than sovereign liabilities and that they wouldn't add it to our national debt.

 

[letitroll]

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.

See above - in those early years NAMA's running costs we're a small price to pay for getting €32bn of defacto Gov loans from the ECB at 1%.....when the alternative (Irish Gov Bonds) would have cost high single if not double digits (assuming the Irish gov at that point could have even gotten its hand on €32bn funding from sovereign bond markets)......the NAMA 'win' was getting €32bn at 1% interest plus NAMA's SGA budget.....NAMA was a bargain way to get money.....and at the time the ECB had no other way to help other than to come up with a convoluted scheme like this.

 

[letitroll]

Why was NAMA about alot more? what other worthy functions did it achieve then?

€32bn Irish debt financed by the ECB at 1%....thats what it was really about.

It was also an exercise in strategic segmentation.....kind of like a company that spins-off a non-core subsidiary to allow it to better on focus on its own activities with a discrete incentivized mgmt. team.... unencumbered by the parent co bureaucracy etc.