What has happened to developers debts?

Scofflaw · 14-02-2012 12:37pm

Hayte wrote: »

It is kinda weird paying a developer €200,000 a year when you have appointed a receiver to squeeze his company for every rusty cent its got prior to its inevitable liquidation. At which point, you go after the personal guarantee i.e. the developer's many homes, cars and personal bank accounts that are not in the company's name.

That sounds like a...pity f***.

I'd say it has a brutal logic to it. The guy knows a lot about his proposed developments - more than anyone else - so you hire him to make a profit for you on those while squeezing his company and then his personal assets to retrieve his borrowings.

The only left-over question, I suppose, is whether €200k is too much. We can work that out reasonably easily - were developers living on less than that when their businesses were in full swing? I don't think they were - which suggests that you couldn't hire a currently successful developer for that little.

cordially,
Scofflaw

Laminations · 14-02-2012 1:55pm

Scofflaw wrote: »

The idea being that the €50m NAMA bought the loan for was less than the amount the developer will be able to pay. If the property securing the loan is worth €30m, then NAMA needs the developer to pay over €20m before foreclosure in order to yield a profit.

So in this case, say the amount the developer defaults on is €75m of the €100m. NAMA seizes the asset (property) in question, and sells it for €30m. NAMA makes €55m, having paid €50m for the loan - result, profit of €5m.

I think the OP might reflect the idea that when NAMA paid €50m for the loan, the state somehow acquired the balance of the developer's debt as public debt. That's not the case. The state has acquired an asset theoretically worth €100m for €50m. The asset in question is the loan to the developer - or to look at it another way, an agreement that the developer pay the bank €100m - which it has bought off the bank for a discount that reflects NAMA's view of how much the developer is actually likely to pay as well as the likely value of the security on the loan.

cordially,
Scofflaw

Sorry but you are helping to perpetrate the con.

Bank has a loan to a developer for €100m. NAMA buys the loan for €50m. Bank has lost €50m and requires recapitalization. The bank receives the full €100m (if not more) through NAMA and recapitalization i.e. the tax payer, likely through borrowed monies.

The developer pays back €25m and NAMA sell for €30m - a total of €55m recovered and a loss of a possible €45m, which people like you then try and pawn off on the Irish people as a success. Meanwhile the developer and his family keep their large homes and holiday abroad.

Scofflaw · 14-02-2012 2:30pm

Laminations wrote: »

Sorry but you are helping to perpetrate the con.

Bank has a loan to a developer for €100m. NAMA buys the loan for €50m. Bank has lost €50m and requires recapitalization. The bank receives the full €100m (if not more) through NAMA and recapitalization i.e. the tax payer, likely through borrowed monies.

The developer pays back €25m and NAMA sell for €30m - a total of €55m recovered and a loss of a possible €45m, which people like you then try and pawn off on the Irish people as a success. Meanwhile the developer and his family keep their large homes and holiday abroad.

I'm certainly not trying to claim NAMA has been a success - there wouldn't be any grounds for deciding either way yet, so spare me the instant categorisation. Nor am I unaware of the point about bank recapitalisation - but unless someone makes a case for how bank recapitalisation benefits developers at the expense of the taxpayer it's not really relevant.

I'm pointing out that in the scenario above the developer has paid €25m and lost an asset worth €30m, and in exchange he's had €45m of his debt written off - but what was that debt acquired for? Are people under the impression that it went into a private bank vault?

regards,
Scofflaw

Mr.Micro · 14-02-2012 5:55pm

Scofflaw wrote: »

The only left-over question, I suppose, is whether €200k is too much. We can work that out reasonably easily - were developers living on less than that when their businesses were in full swing? I don't think they were - which suggests that you couldn't hire a currently successful developer for that little.

cordially,
Scofflaw

That is a big question. What do they do for the 200K? NAMA admits that much of the loans on its books will never be recovered, so who is fooling who....the cute hoor developers on to an earner or Nama justifying its existence? Not a lot of debate or real examination went into the operation of NAMA before its set up. The value and credentials of these failed business
types remains to be seen, and NAMA in the meantime will provide them with a good pension at the taxpayers expense.

MadsL · 14-02-2012 8:39pm

Mr.Micro wrote: »

That is a big question. What do they do for the 200K? NAMA admits that much of the loans on its books will never be recovered, so who is fooling who....the cute hoor developers on to an earner or Nama justifying its existence? Not a lot of debate or real examination went into the operation of NAMA before its set up. The value and credentials of these failed business
types remains to be seen, and NAMA in the meantime will provide them with a good pension at the taxpayers expense.

A bigger question in my book is how much of the 200K is being deducted at source to pay off their debt? If I default on a debt a court order can attach my earnings..is this being done to NAMA'd developers??

I'd be a lot happier that failed developers were being paid 200K if I knew they were left with an average industrial wage at the end of it.

Mr.Micro · 14-02-2012 10:47pm

MadsL wrote: »

A bigger question in my book is how much of the 200K is being deducted at source to pay off their debt? If I default on a debt a court order can attach my earnings..is this being done to NAMA'd developers??

I'd be a lot happier that failed developers were being paid 200K if I knew they were left with an average industrial wage at the end of it.

I suspect its a bit of a closed shop as to what's going on with that, maybe a bit too cozy. NAMA has done its job in reality, taking the bad debts out of the banking system, and all these debts will be buried IMO in time. Not at all keen on the NAMA thing, to me, its like a big front, to pretend to the public/taxpayer that the debts will be recovered, so as to make the burden of debt on the taxpayer more palatable. I wonder would FG/LAbour have agreed to such a scheme if they had just been elected before FF set up this scheme?

Slideshowbob · 15-02-2012 3:31am

antoobrien wrote: »

Really? 66% of the residential mortgage market is, wait for it, owner occupied houses. So by now the people who bought homes were also speculating?

Isn't that undermining the whole argument that homeowners aren't responsible for the €100 billion (currently outstanding) they borrowed to pay for their homes.

The demand wasn't artifical, it was there. There were idiotic decisions made by all sides, but at the base of it all were people who wanted to buy.

But since you ndon't want to see that I'll introduce an example you might understand. MP3 players. Where would the ipod be if it weren't for people who wanted to listen to their entire music collection on a little device? Probably along side the devices brought out by thompson, sony and philips at the same time. There was no shortage of a supply of mp3 devices, but the demand was there (and people decided to saint steve jobs in the process).

I am refering to debts of developers which was brought about by speculation.

They would have still wanted to buy if the prices were alot less also - the government / regulator did not take cognisance of underlying market / economics

Ipod comparison is totally irrelevant. There is no housing equivalent of an ipod so not sure why you are using it

Slideshowbob · 15-02-2012 3:37am

Scofflaw wrote: »

OK: http://www.proz.com/kudoz/english_to_french/finance_general/3028727-long_term_economic_value.html

cordially,
Scofflaw

Ah thanks for that obscure, French, translated, 2009 (possibly came from NAMA direction) link there ;-)

Slideshowbob · 15-02-2012 3:40am

Scofflaw wrote: »

The reason I say they're comments on the optics is because we haven't actually established any reason for developers being bad people. I'd accept the idea that developers who didn't see the of the bubble probably shouldn't be hired as economic consultants, but that's not what's happening - your reasoning above essentially says that NAMA shouldn't employ developers because they should be being punished.

Punished for what, exactly? Losing a lot of money? If they haven't declared bankruptcy, then they're repaying that money - and under current circumstances, not with any real hope of profit.

Developers borrowed from the banks large sums to build the properties which Irish people wanted to buy. If they didn't foresee the end of the bubble, they were left with large amounts of debt, and a reduced ability to pay. They may, as a result, have had their loans transferred into NAMA. They didn't choose to have their loans transferred into NAMA, and indeed several of them fought the process. NAMA may make a loss - or a profit - but it's not a "bailout" for the developers. They're not being saved from their debts - that idea seems to be based on a complete misunderstanding of who the NAMA haircut applies to!

There is no difference there between a developer and any other business there, though - you borrow to expand. If you borrow to expand and a downturn hits, you go out of business and you owe money. Why are developers somehow evil whereas those who, say, borrowed to expand their tech company in 2000, and were wiped out in the dotcom crash in 2001, aren't?

There's a clear consensus here and elsewhere that developers are somehow "bad" - yet we've established that wanting to make money isn't intrinsically bad, that taking risks is not just not bad but usually admirable, and that borrowing money is just part of doing business. So where's the bit that makes developers "bad"?

cordially,
Scofflaw

I think what they did was terrible for the country with their whimsical over valuations being left on the heads of our children.

They were negligent in assessing the market, so too were the government and the regulator.

I said it before, the profits were not socialised in the good times so why are their debts now?

Chancers the lot of them

Pity debtors prison was written out of law and it may have prevented all this!!!

swampgas · 15-02-2012 11:23am

Scofflaw wrote: »

[snip]

There is no difference there between a developer and any other business there, though - you borrow to expand. If you borrow to expand and a downturn hits, you go out of business and you owe money. Why are developers somehow evil whereas those who, say, borrowed to expand their tech company in 2000, and were wiped out in the dotcom crash in 2001, aren't?

There's a clear consensus here and elsewhere that developers are somehow "bad" - yet we've established that wanting to make money isn't intrinsically bad, that taking risks is not just not bad but usually admirable, and that borrowing money is just part of doing business. So where's the bit that makes developers "bad"?

I'd agree completely except to say that the close relationship between the big developers and FF / government during the boom means that the developers - the bigger ones anyway - are not seen as ordinary hard-working businessmen and entrepreneurs but as corrupt insiders - "bad", in other words.

antoobrien · 15-02-2012 12:11pm

Slideshowbob wrote: »

Ipod comparison is totally irrelevant. There is no housing equivalent of an ipod so not sure why you are using it

Okay, the position that a lot of people seem to have taken is that the credit bubble and supply of dwellings generated the demand.

The ipod market isn't a new one it's an evolution of the walkman/diskman markets. Did you have a walkman/portable cd player - they do the same function as an mp3 player, albeit in a different fashion.

The ipod comparison is valid because in both cases the demand was already there (there was a demand for housing and a demand for music players).

You, as well as may others, seem to be under the impression that there was no demand for housing before the boom - there was.

What changed:
more people started earning more
credit became cheaper

These two items, which happened almost simultaneously in the mid-late 90's, is what started it. People asked what can I do - buy a house/car is the first two items on many people's lists

After that came the reckless lending (which was seen as normal by almost all concerned until it was way too late).

Slideshowbob wrote: »

I am referring to debts of developers which was brought about by speculation.

They would have still wanted to buy if the prices were alot less also - the government / regulator did not take cognisance of underlying market / economics

No idea what you're getting at here. What I'm reading out of it is that the developers purposely drover up their own costs (i.e. land, wages, materials), trying to benefit from it. That wouldn't be in the best interests of a company or homeowner.

Yeah the regulators failed, but so did everyone else, the whole way along the chain to the consumer (who wre crazy enough to buy off the plans before any concrete was poured).

When the consumer eventually started to feel the pinch (which wasn't predicted either) the whole thing came to a shuddering halt. Failing to see this coming is what I'd blame the developers for, not trying to do their jobs.

Oh, btw, I'd crucify any developer that used pyrite (intentionally or not doesn't matter) or out up shoddy buildings like priory hall, they definitely did not do their jobs.

MadsL · 15-02-2012 2:55pm

antoobrien wrote: »

What changed:
more people started earning more
credit became cheaper

You missed a big portion of the jigsaw.
What changed:
more people started earning more
credit became cheaper
Banks relaxed lending rules and incentivised staff massively to sell mortgages up to 110% - they could not slow down even when it was apparent the party was over.
FF gifted developers tax breaks to built high profit apartment complexes
County Councils saw how much money they could pull in Development Levies through granting stupid levels of planning permisions (you should see what ABP turned down during the boom - we would be in more sh1t were it not for them and An An Taisce bringing appeals)
The media whipped up a property ladder frenzy based on advertising sales and 'property porn' shows
Anyone with a modest land holding suddenly got money fever at what it was potentially worth and badgered councillors for rezoning.

End result, anyone who saw right through the whole circus and sat it out and rented now faces two choices, pay up or emigrate. Meanwhile developers and bankers have either fled or have 200k jobs with NAMA.

antoobrien · 15-02-2012 3:19pm

MadsL wrote: »

You missed a big portion of the jigsaw.

Nah, just don't think it's the cause. It made it worse but did not cause the property bubble.

I notice you totally ignored the next line, about this happening in the 90's before the banks got out of hand. But hey, lets not let facts get in the way.

MadsL · 15-02-2012 3:40pm

antoobrien wrote: »

Nah, just don't think it's the cause. It made it worse but did not cause the property bubble.

I notice you totally ignored the next line, about this happening in the 90's before the banks got out of hand. But hey, lets not let facts get in the way.

Hmm... FF Section 23 type incentive schemes started in 91 with Temple Bar, Customs House. We then had Urban renewal in 94-97, Seasides and Islands, then Rural Renewal, Town renewal and Integrated Area Renewal 98-2008

But hey, lets not let facts get in the way.

Scofflaw · 18-02-2012 12:06pm

MadsL wrote: »

Hmm... FF Section 23 type incentive schemes started in 91 with Temple Bar, Customs House. We then had Urban renewal in 94-97, Seasides and Islands, then Rural Renewal, Town renewal and Integrated Area Renewal 98-2008

But hey, lets not let facts get in the way.

I agree with your facts (!), but antoobrien is quite right that none of those incentives would have made much difference without the original demand for houses and the easy access to credit.

While the initial demand for houses was a demand for houses to live in, that steady demand, coupled with easy credit access, allowed people to bid more for a preferred house than they otherwise would/could have done, and increasingly made buying and selling houses as a speculative asset a money-making proposition. The various tax breaks etc certainly made the bubble even worse, and the media and political cheerleading made it both more difficult for individuals to resist joining in and harder for Ireland as a whole to call a halt to it.

cordially,
Scofflaw

Liam Byrne · 19-02-2012 12:56am

Scofflaw wrote: »

Nijmegen wrote: »

I disagree there: I think that 'poor optics' is not the reason why people object to a culture like this in giving out public monies. I also believe that people have a credible past history to work on from government, this one and the previous one, in making the mental leap that NAMA might be benefiting a select few.

Optics is not the reason why people have a problem with this. It's the pervasive culture among those who should be spending our money wisely.

The reason I say they're comments on the optics is because we haven't actually established any reason for developers being bad people. I'd accept the idea that developers who didn't see the of the bubble probably shouldn't be hired as economic consultants, but that's not what's happening - your reasoning above essentially says that NAMA shouldn't employ developers because they should be being punished.

Punished for what, exactly? Losing a lot of money? If they haven't declared bankruptcy, then they're repaying that money - and under current circumstances, not with any real hope of profit.

Developers borrowed from the banks large sums to build the properties which Irish people wanted to buy. If they didn't foresee the end of the bubble, they were left with large amounts of debt, and a reduced ability to pay. They may, as a result, have had their loans transferred into NAMA. They didn't choose to have their loans transferred into NAMA, and indeed several of them fought the process. NAMA may make a loss - or a profit - but it's not a "bailout" for the developers. They're not being saved from their debts - that idea seems to be based on a complete misunderstanding of who the NAMA haircut applies to!

There is no difference there between a developer and any other business there, though - you borrow to expand. If you borrow to expand and a downturn hits, you go out of business and you owe money. Why are developers somehow evil whereas those who, say, borrowed to expand their tech company in 2000, and were wiped out in the dotcom crash in 2001, aren't?

There's a clear consensus here and elsewhere that developers are somehow "bad" - yet we've established that wanting to make money isn't intrinsically bad, that taking risks is not just not bad but usually admirable, and that borrowing money is just part of doing business. So where's the bit that makes developers "bad"?

cordially,
Scofflaw

Where is the argument that they should be "punished" ?

I have 2 requirements

1) That they pay their own debts
2) That we not pay them as if they had some "expertise" worth the astronomical €200,000 a year - because their track record shows that they don't have expertise worth anywhere near that

Neither of those is "punishment" - it's just the facts of the matter

Slideshowbob · 09-01-2014 9:50am

Thread topic touched on here, fears confirmed:

Richard Curran: Tears over money gone up in smoke -- but it's time to move on
http://www.independent.ie/business/irish/richard-curran-tears-over-money-gone-up-in-smoke-but-its-time-to-move-on-2990023

Morrisseeee · 11-01-2014 1:50pm

Victor wrote: »

Let us say a developer borrowed €100m from a bank.

NAMA has bought that debt from the bank for say €50m.

To pay the bank, NAMA/NTMA has borrowed €50m.

The developer still owes NAMA €100m, but NAMA realises that it is likely to only be able to recover a smaller number.

Scofflaw wrote: »

So in this case, say the amount the developer defaults on is €75m of the €100m.

I think the OP might reflect the idea that when NAMA paid €50m for the loan, the state somehow acquired the balance of the developer's debt as public debt. That's not the case.

Getting back to post 2 and Scofflaw's responce:
Q. Does anyone actually have to account for this written off debt ?

Victor · 12-01-2014 1:02am

Slideshowbob wrote: »

Thread topic touched on here, fears confirmed:

Richard Curran: Tears over money gone up in smoke -- but it's time to move on
http://www.independent.ie/business/irish/richard-curran-tears-over-money-gone-up-in-smoke-but-its-time-to-move-on-2990023

Link not working, try this: http://www.independent.ie/business/irish/richard-curran-tears-over-money-gone-up-in-smoke-but-its-time-to-move-on-29900236.html

Morrisseeee wrote: »

Getting back to post 2 and Scofflaw's responce:
Q. Does anyone actually have to account for this written off debt ?

I'm not sure what you mean. The developer is bankrupt, with all the implications that brings.

antoobrien · 13-01-2014 3:39pm

Morrisseeee wrote: »

Q. Does anyone actually have to account for this written off debt ?

The creditor (usually banks) that loaned the money has to account for the money lost. The effects include writedowns of values of the assets (balance sheet) as well as loss of income (profit & loss).

I suspect you mean will anybody be held accountable for the losses. Any developers that have been bankrupted have been held accountable (as Victor said there are implications to being declared bankrupt), so it's a question of whether or not bank employees been held accountable for their parts in the losses.

mariaalice · 13-01-2014 3:50pm

antoobrien wrote: »

The creditor (usually banks) that loaned the money has to account for the money lost. The effects include writedowns of values of the assets (balance sheet) as well as loss of income (profit & loss).

I suspect you mean will anybody be held accountable for the losses. Any developers that have been bankrupted have been held accountable (as Victor said there are implications to being declared bankrupt), so it's a question of whether or not bank employees been held accountable for their parts in the losses.

That a good point are the banks client relationship staff going to be held accountable for lending the developers money.

antoobrien · 13-01-2014 4:04pm

mariaalice wrote: »

That a good point are the banks client relationship staff going to be held accountable for lending the developers money.

I wouldn't stop there, there'd be multiple levels of oversight (at least as far as risk managers) that I'd be asking questions of.

What has happened to developers debts?

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