ECB Opinion on NAMA

Économiste Monétaire

The Minister for Finance requested an opinion on NAMA, as described in the draft legislation, from the ECB. Linky.

Some snippets:

On 30 July 2009 the European Central Bank (ECB) received a request from the Irish Minister for Finance (hereinafter the ‘Minister’) for an opinion on the National Asset Management Agency Bill 2009 (hereinafter the ‘draft law’).

The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third and sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions1, as the draft law relates to the Central Bank and Financial Services Authority of Ireland (CBFSAI) and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1.1 The purposes of the draft law are, inter alia, to remove uncertainty about the valuation and location of certain assets of credit institutions of systemic importance to the Irish economy, to facilitate their restructuring, to restore confidence in the banking sector, to facilitate the availability of credit in the Irish financial markets, and to address the serious threat to the Irish economy and the stability of credit institutions in Ireland generally. To this end, the draft law provides for the establishment of a corporate body, the National Asset Management Agency (NAMA), to acquire eligible bank assets from participating institutions, expeditiously deal with the assets acquired by it and protect or otherwise enhance the long-term economic value of those assets, in the interests of the Irish State. According to the Minister, the potential maximum book value of loans that will be transferred to the NAMA is estimated to be in the region of EUR 80 to EUR 90 billion, although the amount paid by NAMA will be significantly less than this to reflect the loss in value of the assets. Regarding the payment for bank assets, NAMA or the NAMA group entity which acquires the bank asset concerned will transfer or issue to the participating institution debt securities issued by the Minister, NAMA or the relevant NAMA group entity equal to the acquisition value of the bank asset. As noted by the Minister, replacing property related loans with Irish Government bonds will strengthen the balance sheets of the banks and this will increase their capacity to access liquidity in the financial markets and, if necessary, through Eurosystem liquidity operations, making them better able to lend and support the Irish economy.

Note above how the bonds are not labelled 'NAMA bonds'.

1.2 Under the draft law, a credit institution may apply to the Minister, within 28 days (or such longer period that the Minister prescribes) after the establishment date for the scheme, for it and its subsidiaries to be designated as participating institutions.

1.4 Under the draft law, the acquisition value of a bank asset is its long-term economic value as determined by NAMA, meaning the value that it can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated. NAMA will determine the long-term economic value of a bank asset by reference to: (a) the current market value of the property comprised in the security for the credit facility; (b) the current market value of the bank asset by reference to market rates and accepted market methodology; and (c) the long-term economic value of the property, meaning the value that the property can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated and in which a future price or yield of the asset is consistent with reasonable expectations having regard to the long-term historical average.

1.5 In determining the acquisition value of a bank asset, NAMA will have regard to: (a) any value that the participating institution concerned submits as being, in its opinion, the current market value of the property comprised in the security for the credit facility; (b) the acquisition value already determined in accordance with the valuation methodology of another similar bank asset; (c) the credit worthiness of the debtor or obligor concerned; (d) the performance history of the debtor or obligor in respect of that asset; and (e) any reports of an expert furnished to NAMA concerning factors relevant to the determination of the value of property or property of a particular type or in specific locations or with specific features.

1.6 The Minister may make regulations providing for adjustment factors to be taken into account in determining the long-term economic value of a bank asset and the property comprised in the security for a credit facility, having regard to: (a) Community State aid rules and any relevant Commission guidance; (b) in relation to determining the long-term economic value of the property, the extent to which the price or yield of the asset has deviated from the long-term historical average, supply and demand projections by reference to the type of asset and its location, macroeconomic projections for growth in GDP and inflation, demographic projections, land and zoning considerations, and future transport planning; (c) in relation to the long-term economic value of bank assets, the net present value of the anticipated income stream associated with the loan asset, current and projected vacancy rates for rental property, loan margins, an appropriate discount to reflect NAMA’s cost of funds plus a margin that represents an adequate remuneration to the State that takes account of the risk in relation to the bank assets acquired by NAMA, the mark-to-market value of any derivative contracts associated with the bank asset, any ancillary security (e.g., personal guarantees, corporate assets), fees reflecting the costs of loan operation, maintenance and enforcement; and (d) any other matter that the Minister considers relevant.

1.8 The draft law contains detailed provisions on adjudication by a valuation panel having relevant expertise on disputes referred to it by NAMA relating to the eligibility of assets for acquisition by NAMA and the total portfolio acquisition value determined by NAMA. Regarding disputes over total portfolio acquisition values, the valuation panel advises the Minister as to the correctness of NAMA’s valuation having regard to current market values; on this basis the Minister may either confirm the advice of the valuation panel or remit the matter to the valuation panel for reconsideration. Where the current market value of the portfolio concerned is not greater than the acquisition value of the portfolio, no adjustment will be made to the total portfolio acquisition value regardless of the basis on which that value was determined. Subject to this, where the Minister’s determination is that the total portfolio acquisition value of the acquired portfolio as determined by NAMA should be increased, the Minister may direct NAMA to compensate the participating institution.

(My emphasis.)

1.9 The draft law provides that the Regulatory Authority may, with the Minister’s approval, give directions to participating institutions in order to achieve the purposes of the draft law, to restrict balance sheet growth, restrict the institution’s ability to take over other credit institutions, require balance sheet reduction or restrict or require consolidation and merger of participating institutions. The Minister, after consultation with the Governor of the CBFSAI and the Regulatory Authority, may direct a participating institution to draw up, submit or amend, within a specified period, a restructuring plan or a business plan

Quite a lot of power for one minister to have.

1.10 Regarding NAMA’s administrative functioning, under the draft law there will be a Board of NAMA. The Minister may advance to NAMA (or a NAMA group entity) such sums of money as are necessary for performance of its functions, and NAMA (or a NAMA group entity) may, with the Minister’s approval, borrow, with or without the Minister’s guarantee, such sums as it determines to be necessary for the performance of its functions (including debt securities borrowed from the Minister or NTMA and debt securities issued by NAMA or a NAMA group entity to provide consideration for the acquisition of bank assets). The Minister, after consultation with the Governor of the CBFSAI, may issue written guidelines to NAMA in connection with any of its functions under the draft law, and may give binding written directions to NAMA concerning the achievement of the draft law’s purposes. NAMA is otherwise stated to be independent in the performance of its functions. In general, neither NAMA nor any NAMA group entity will be taken to be providing a service or carrying out an activity which would require it to be authorised or regulated by the CBFSAI.

2.2 It is understood that NAMA will not purchase any assets eligible as collateral in Eurosystem operations. NAMA may of course purchase assets that could alternatively be used as underlying assets for Eurosystem eligible asset-backed securities. However, as NAMA will finance asset acquisitions by transferring newly-issued bonds issued or guaranteed by the Irish State to participating institutions, it may be expected that NAMA’s activities will increase the amount of Eurosystem eligible collateral available to Eurosystem counterparties. Irish Eurosystem counterparties may therefore find it easier to raise liquidity in central bank operations. Moreover, as government bonds are generally accepted as collateral in interbank repo markets, Irish banks may be in a better position to borrow in the market. Accordingly, the NAMA scheme may contribute to improve the funding situation of Irish banks.

2.4 The Eurosystem has identified seven guiding principles which can be seen as sufficiently broad to apply to all schemes falling under the wide category of asset support measures. The NAMA asset removal scheme is broadly consistent with these principles.

2.4.2 Second, while eligible assets are largely focused on development loans arising out of projects both within and outside Ireland, the draft law contains the necessary degree of flexibility to allow the classes of assets eligible for acquisition by NAMA to be expanded, thereby ensuring that the definition of eligible assets is, in legal terms, kept relatively broad. Also, by excluding assets entering institutions’ balance sheets after 31 December 2008, the NAMA asset removal scheme does not provide banks with wrong incentives, encouraging them to originate assets following the announcement of the scheme.

2.4.3 Third, regarding the valuation of eligible assets, asset-specific haircuts on the eligible assets’ book values appear to be contemplated, and independent third-party expert opinions play a role in the valuation process for the NAMA scheme. The detailed provisions of the draft law regarding valuation issues reflect the fact that the pricing of eligible assets is a crucial and complex issue that is likely to determine the overall success of the NAMA scheme. Although the measures contemplated by the draft law should restore confidence in the Irish banking system, the ECB considers it important, in line with previous opinions that the pricing of acquired assets is mostly risk-based and determined by market conditions. The preference expressed in the draft law for the long-term economic value of assets, rather than current market values, requires careful consideration in this context. In particular, it should be ensured that the assumptions to determine the long-term economic value of bank assets will not involve undue premium payments to the participating financial institutions to avoid creating inappropriate incentives from their side as regards the use of the scheme.

2.4.6 Sixth, the ECB notes that the Irish Government shares the guiding principle that the preservation of private ownership is preferable to nationalisation. If the NAMA scheme will be successful in this respect, this strategy should help to avoid, in the short-term, the high costs involved in nationalisations and, in the medium-term, the risk of banks’ objectives being diverted from profit maximisation to alternative goals that might distort the market structure and jeopardise the level playing field.

2.5 The ECB welcomes that the NAMA scheme has been designed to comply with Community State aid rules.

3.2 Prohibition of monetary financing: It is understood that the draft law will comply fully with the prohibition of monetary financing laid down in Article 101(1) of the Treaty, read in conjunction with Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the prohibitions referred to in Articles 104 [now 101] and 104b(1) [now 103(1)] of the Treaty (‘Council Regulation (EC) No 3603/93’)37. In this respect, NAMA will qualify as a ‘public undertaking’ within the meaning of Article 101(1) of the Treaty and Article 8 of Council Regulation (EC) No 3603/93 as NAMA is to be established under the draft law as a ‘public undertaking’ over which the Irish State may exercise a dominant influence by virtue of its ownership of it, its financial participation therein and the rules which govern it. In particular, the Minister advances to NAMA the funds that are necessary for performance of its functions, and appoints all the members of the NAMA Board. Moreover, the Minister (after consultation with the CBFSAI Governor, acting independently) will have the power to issue written guidelines to NAMA in connection with its functions, and may give binding written directions to NAMA concerning the achievement of NAMA’s purposes. NAMA’s assets will thus be under the effective control of the Irish State. Therefore, overdraft facilities or any other type of credit facility with the CBFSAI in favour of NAMA, as well as the direct purchase from NAMA by ESCB central banks of debt instruments, will not be possible, in view of the prohibition of monetary financing under Article 101 of the Treaty.

amacca

Although the measures contemplated by the draft law should restore confidence in the Irish banking system, the ECB considers it important, in line with previous opinions that the pricing of acquired assets is mostly risk-based and determined by market conditions. The preference expressed in the draft law for the long-term economic value of assets, rather than current market values, requires careful consideration in this context. In particular, it should be ensured that the assumptions to determine the long-term economic value of bank assets will not involve undue premium payments to the participating financial institutions to avoid creating inappropriate incentives from their side as regards the use of the scheme.


So does the above basically mean: Yeah lads the plan sounds all right except we don't know what ye intend to pay for the toxic assets, we suspect ye intend to grossly overpay for the assets and were not down with this. We suggest you don't use the long term economic fairy tale value you are suggesting as all the institutions will only be to happy to participate due to the fact they will be getting way way too much?


Therefore, overdraft facilities or any other type of credit facility with the CBFSAI in favour of NAMA, as well as the direct purchase from NAMA by ESCB central banks of debt instruments, will not be possible, in view of the prohibition of monetary financing under Article 101 of the Treaty.


And would the above basically mean: Oh and btw, we have certain rules and regulations preventing the ECB from giving you any money so ye are on yere own with this little venture and it would be very much in yere own interests to get it right cos we cant/wont help. But super duper good luck with the whole NAMA thing and party on you crazy pixie head irish.


This is what I get from it on first reading anyway, please enlighten me if Ive seriously misinterpreted.

Économiste Monétaire

amacca wrote: »

Although the measures contemplated by the draft law should restore confidence in the Irish banking system, the ECB considers it important, in line with previous opinions that the pricing of acquired assets is mostly risk-based and determined by market conditions. The preference expressed in the draft law for the long-term economic value of assets, rather than current market values, requires careful consideration in this context. In particular, it should be ensured that the assumptions to determine the long-term economic value of bank assets will not involve undue premium payments to the participating financial institutions to avoid creating inappropriate incentives from their side as regards the use of the scheme.


So does the above basically mean: Yeah lads the plan sounds all right except we don't know what ye intend to pay for the toxic assets, we suspect ye intend to grossly overpay for the assets and were not down with this. We suggest you don't use the long term economic fairy tale value you are suggesting as all the institutions will only be to happy to participate due to the fact they will be getting way way too much?

They're qualifying any support of NAMA with an important caveat: You need to get the pricing right. It's a veiled statement of doubt in the ability of the DoF and NAMA to get long-term economic valuing right, in my opinion.

amacca wrote: »

Therefore, overdraft facilities or any other type of credit facility with the CBFSAI in favour of NAMA, as well as the direct purchase from NAMA by ESCB central banks of debt instruments, will not be possible, in view of the prohibition of monetary financing under Article 101 of the Treaty.


And would the above basically mean: Oh and btw, we have certain rules and regulations preventing the ECB from giving you any money so ye are on yere own with this little venture and it would be very much in yere own interests to get it right cos we cant/wont help. But super duper good luck with the whole NAMA thing and party on you crazy pixie head irish.

That's just covering the legal issues in directly financing government deficits through the direct purchase of government issued/guaranteed debt securities. The bonds issued will most likely be placed on the eligible collateral list (so that banks can use them in Eurosystem refinancing operations), but there won't be any direct support provided to NAMA through the discount window.

amacca

Économiste Monétaire wrote: »

That's just covering the legal issues in directly financing government deficits through the direct purchase of government issued/guaranteed debt securities. The bonds issued will most likely be placed on the eligible collateral list (so that banks can use them in Eurosystem refinancing operations), but there won't be any direct support provided to NAMA through the discount window.

Tks for explantion but having limited experience I require further clarification on the above, does this basically mean

We will not directly buy the government bonds (you hand over to the banks in return for their bad loans) from you or your banks.......................However do not fear pixie heads, there is a way around these pesky rules of ours, your banks can use these bonds as collateral to borrow our funds, we will accept them as valid collateral for such loans, in this way your banks can access our funds without you receiving the discount you would gt were we to buy bonds off you that were based on overvaluing bad loans.

If so does this mean the ECB wishes to avert disaster here because of the damage it could do to Europe, if so how far are they prepared to go....at what point do you think they decide were not worth it?

Économiste Monétaire

amacca wrote: »

Tks for explantion but having limited experience I require further clarification on the above, does this basically mean

We will not directly buy the government bonds (you hand over to the banks in return for their bad loans) from you or your banks.......................However do not fear pixie heads, there is a way around these pesky rules of ours, your banks can use these bonds as collateral to borrow our funds, we will accept them as valid collateral for such loans, in this way your banks can access our funds without you receiving the discount you would gt were we to buy bonds off you that were based on overvaluing bad loans.

If so does this mean the ECB wishes to avert disaster here because of the damage it could do to Europe, if so how far are they prepared to go....at what point do you think they decide were not worth it?

When a government runs a deficit (or decides to become a property conglomerate) it needs to fund this through the issuance of debt: government bonds (and short-term paper). It can do this by selling to private investors or it can tell the central bank to print money and buy the debt (credit the government's account at the central bank); this is called 'monetary financing'.

The problem with the latter approach is that it can lead to inflation, a la Zimbabwe—printing money beyond what's necessary to faciltate the increased demand for money from population and productivity growth. So, when the Maastricht Treaty was being negotiated the Germans required an explicit provision to stop this: a no-bailout clause that the ECB, or any national central bank of the Eurosystem, could not directly finance a government's deficits. It followed the general idea of central bank independence from politicians as the best way of achieving low inflation.

Banks need to provide collateral for the loans they get from the central bank. There's a list of eligible collateral updated everyday to say which securities are acceptable for Eurosystem refinancing operations (when banks borrow money at the rate RTÉ quotes as 'the ECB interest rate'). Irish banks will be given government bonds in exchange for the non-performing assets, and they can use these bonds in refinancing operations to improve their liquidity position if necessary. That, or they can sell them to willing investors. The ECB is just saying, "we're not going to give you an open window for NAMA to borrow as much as it wants while you print IOUs." In ECB terms, NAMA won't be an eligible counterparty to Eurosystem refinancing operations.

These bonds are backed by the future tax streams of the Irish tax-payer, so I don't think the ECB has serious concerns over our ability to meet interest payments. The bonds aren't backed by NAMA's assets alone, the debt issued will be no different from the bonds we've issued this year to cover the deficit (aside from possible differences in maturity profile and Eurostat accounting rules).

amacca

Thank you, its a complicated mess but like everything else it becomes just that little bit clearer when you follow the money.

Hasschu

This means terms and conditions must be negotiated in detail with the ECB before funds will be forthcoming. We will be saved by the ECB as they will be giving the third degree grilling to our representatives as to how value will be determined. The agreement will run a couple of hundred pages and there will be very few weasel clauses. Thank god for Frankfurt bankers.

thebman

This might be of relevance to this thread:
http://boards.ie/vbulletin/showpost.php?p=61882516&postcount=25

Posters source is the last word available via podcast and it was stated again on the news as referenced further down in the thread.
Valuations by NAMA based on :

1) That we are, right now, at the bottom of the market
2) That we will see property prices increase by 88% in 7 years - or an average of 9.5% increase per year between now and 2016.

Based on this, its delusional IMO.

Économiste Monétaire

I doubt anyone actually said that; there has to be a lost-in-translation moment somewhere... 88% from where we are now? Crude example:

thebman

Économiste Monétaire wrote: »

I doubt anyone actually said that; there has to be a lost-in-translation moment somewhere... 88% from where we are now? Crude example:

Don't know if it is or isn't, can't seem to get the podcast from lastword, keeps saying iTunes isn't installed (not doing that to my computer).
Podcast here:
http://audio.todayfm.com/audio/20090831170010.mp3

3/4 of way through (RSS feed started working again on their site). Apparently Minister for Finance in current legislation can overwrite any valuation from the board with his own valuation according to Joan Burton. Than a FF person comes on but sounds like he was backed into corner TBH. He just says will pay current market value. He is talking about what other people have said too so no really new information I guess.

According to another article on thread in Irish Times, Lenhian said that valuation hadn't been finalised but then it goes on:

While “not prejudging the issue”, he acknowledged that State ownership could end up exceeding 50 per cent.

Any such stake would be in the form of shares that could be traded on the stock market, Mr Lenihan added.

Full article here:
http://www.irishtimes.com/newspaper/finance/2009/0831/1224253511634.html

I only skimmed it TBH. Still seems high if true IMO.

Économiste Monétaire

Just something that was going around my head today:

• The average monthly compounding rate of growth in house prices for the last 7 years of the bubble (ending Jan-Feb '07) was 0.91%, or 11.43% annually.
• An 88% increase from where we are now would mean about 0.75%, or 9.44% annually.
• The U.S. monthly rate was about 0.86% from the last 7 years of their bubble (using Case-Shiller), or 10.8% annually.
• If you assume that the CPI will be an average of -4% for the next twelve months (it's nearly -6% now), that's a real return of about 13.5%, compared to 7.4%, 8.9%, 9.2% over the last three years of the Irish property boom.

As crude as these ideas are, should I write a book, à la Ginger McWilliams, proclaiming the new property boom?

thebman

Isn't the real problem wish assuming prices return to a few years ago level by 2016 that it basically means no matter what the government they have to push a property market/bubble agenda?

Économiste Monétaire

thebman wrote: »

Isn't the real problem wish assuming prices return to a few years ago level by 2016 that it basically means no matter what the government they have to push a property market/bubble agenda?

Well, an 88% increase by 2016, from where we are now, is 44.3% higher than at the peak of the bubble in 2007. Maybe the DoF representative meant to say that house prices will recover to 88% of their peak levels by 2016. I can't say for definite what s/he meant because I haven't listened to the podcast, but, just using the ESRI numbers, they list the average price of a home at €238,828 for July '09; I don't see how a fall in national income until 2010-12, a gimped banking sector (yesterday's figures showed negative m-o-m mortgage lending), and emigration (to whatever extent) would lead to these kind of values. The average price of a home rising to €450k in 7 years?

I'm open to correction with my interpretation of this, or if someone wants to argue to the contrary. My hopes were rising over the last few weeks that the DoF were taking the pricing criticisms seriously, but this seems to be on the edge of reality, in my opinion.

Hasschu

We are now at the bottom and prices will increase at an annual rate of over 9% in the coming years. It does not surprise me that Lenihan and co would come up with a super optimistic scenario. However, sane people usually come to the aid of the mentally delusional in their hour of need. Do not worry, external forces will combine to rein in the worst excesses.

Économiste Monétaire

I think Karl Whelan has packed-in any hope for Minister Lenihan in this piece on the IE blog:

Yesterday’s Oireachtas Committee meeting left me more certain than ever that the NAMA “stockbrocking scenario” of something like a 20% discount is going to happen and that long-term economic value will be adjusted to deliver it. The transcript provides the strongest evidence yet.
The following exchange between Richard Bruton and Minister Lenihan shows that the NAMA pricing process has effectively already been decided. First, Bruton makes a point that I have emphasised on this blog many many times (for instance, here and here) which is that the Minister has effectively set a lower limit on the average NAMA haircut with his public statements:

If NAMA decides a €50 billion write-down is to be applied to the loans that are being transferred, and the shareholders’ funds are, for example, €20 billion, while the subordinated bondholders hold another €10 billion, it seems that the write-down will wipe out the shareholders and the bondholders. The legislation which purports to allow NAMA be independent in setting its prices has not shown us what will happen if NAMA, acting independently, wipes out the shareholders and the bondholders and is then left further below the water. That is a crucial issue.

On the one hand the Minister is saying that NAMA will be independent and that whatever happens with the valuation the cards will fall where they will and the State may have to put in more money. However, at the same time he is saying the banks will remain in private hands. He cannot pretend these two positions are consistent. To be honest, one cannot pretend that those the Minister engages as valuers - who are supposedly independent - will be immune from the knowledge that the Minister is saying every day of the week that at the end of this process the bank shareholders must be left intact. That may not be a written directive but it is certainly directive in its implications to those who are setting values. People who set values are fairly flexible in the way they work.

Lenihan’s answer is priceless. Read the following carefully. Referring to AIB and BOI he says:

Why would I outline the fact that there may be a residual or substantial shareholder interest left in these institutions if valuations established that their entire shareholder value was wiped out? The reason is on the basis of the information that I have at my disposal. This is not information that only I have at my disposal because markets have assessed that information in the context of their current share prices and rating agencies have used it in their assessment of these institutions. Were these institutions in the condition which Deputy Bruton suggests they would not have these positive market ratings and they would not have the degree of shareholder value they do. That is why in my public statements I do not envisage a complete wipeout of all shareholder interests in those—

Deputy Richard Bruton: What valuation of the loan book transferred to NAMA underpins those views?

Deputy Brian Lenihan: Bear with me for a moment. With regard to those two institutions, the current market assessment is based on their entire balance sheets which include the assets to be transferred to NAMA. Even on that basis the current market analysis is that they are viable trading entities based on their share price and rating assessments. That is why I speak as I do. I have to maintain confidence in a system in which world markets have confidence. When one speaks of the total wipeout of shareholder value it is unlikely to materialise on the basis of the information I have to hand and that will be the basis of my Estimates in the middle of September.

Now sit back for a moment and take this in.

Lenihan is saying that he knows the assets have a high enough value that the underlying losses won’t wipe out shareholder value. And he says that he knows this because the stock market says the banks currently have positive value! When he says “Why would I outline the fact that there may be a residual or substantial shareholder interest left in these institutions if valuations established that their entire shareholder value was wiped out? The reason is on the basis of the information that I have at my disposal” —it certainly appears to me that he is saying that even if NAMA came back and told him that the assets rendered the banks insolvent, he would over-rule them, based on current share price valuations.

But anybody who has every studied financial economics knows that the stock market is valuing these banks based not on what the assets are truly worth but based on what NAMA is expected to pay. Bruton’s interjection is an attempt to explain this to the Minister. However, the Minister ignores it, ploughs on and essentially repeats the same point.

So there we have it. NAMA is a self-fulfilling prophecy. The markets expect something like a 20 percent discount. That’s built into the current share price. And the Minister will use the current share price to decide the discount.

It would be funny if it was happening somewhere else. To actually be living through this is very depressing.

thebman

Basically as I see it, it is an underhanded way to recapatilise the banks which will need further capitalisations without making it appear obvious.

NAMA is a great way to keep the banks solvent without appearing to be falsely holding them up.

Of course, IMO that is exactly what will happen. Pay over the odds because the banks will go under otherwise. No interest in making a profit out of NAMA IMO although they'll be glad if they do. Another property bubble of taxes, happy vested interests and they get to go to the tax payer and say they were right, vote us in again so it would be jackpot for them if they pulled it off.

To do so would require another property bubble though, good for vested interests again but bad for the young couple trying to just get by. Doesn't fix the problems with the wider economy either or banking regulation.

Seems exactly what they'd want to do IMO but disastrous for everyone without a vested intrest in banks/development/developers/current government IMO.

nesf

thebman wrote: »

Basically as I see it, it is an underhanded way to recapatilise the banks which will need further capitalisations without making it appear obvious.

It is obvious. I don't think there's anyone whose made any study of this who doesn't view this specifically as a way to support the banks. There's no underhanded conspiracy here, it's being done in open sight.

ranger4

Do most posters feel nama will pass dail vote with gov overpaying for toxic assets? surley Lenihan will have to be flexible with toxic asset payment figure to appease fg-labour and win vote for nama in dail? Will paying for toxic assets in stages be enough to win vote? either way gov will end up possibly owning @75% aib-65% boi when they inject further capital post nama?

Hasschu

The Dail can vote any way it likes. The facts of the matter are that the money will come from either the ECB or IMF. Both of those institutions are more interested in repayment than in FF political fortune or misfortune. Clearly cronyism and the usual self serving behaviour that passes for taking care of business in Irish political circles dictates that FF save the developers and the banks. The ECB in particular are only interested in putting the country back on the road to recovery as opposed to rescuing a small group of badly managed companies. If Ireland is to recover costs must be brought into line. Property values are grossly out of line and propping them up using taxpayer money will only prolong the recession. Wages in the productive sectors of the economy are correcting and have been declining in some sectors since mid 2007. Our gov't will soon be in a position to explain to their friends that the big bad ECB will not allow the bailout of the banks/developers. At that point the market will decide what the value of property is, bankruptcy proceedings will tax the available legal and accounting talent. Life will go on as it should.

ranger4

Hasschu wrote: »

The Dail can vote any way it likes. The facts of the matter are that the money will come from either the ECB or IMF. Both of those institutions are more interested in repayment than in FF political fortune or misfortune. Clearly cronyism and the usual self serving behaviour that passes for taking care of business in Irish political circles dictates that FF save the developers and the banks. The ECB in particular are only interested in putting the country back on the road to recovery as opposed to rescuing a small group of badly managed companies. If Ireland is to recover costs must be brought into line. Property values are grossly out of line and propping them up using taxpayer money will only prolong the recession. Wages in the productive sectors of the economy are correcting and have been declining in some sectors since mid 2007. Our gov't will soon be in a position to explain to their friends that the big bad ECB will not allow the bailout of the banks/developers. At that point the market will decide what the value of property is, bankruptcy proceedings will tax the available legal and accounting talent. Life will go on as it should.

so i guess you doint hold much chance of nama vote being passed, Greens will probably pull the plug withinn 6 months or so, probabaly sooner if nama and Lisbourn vote goes against them.

Hasschu

Ranger4 - My bet would be that NAMA will pass in the Dail so as the FF gov't can say to the boys " sure we did every thing humanly possible, we even passed it in the Dail. We are behind you boys 100% but you cannot get blood out of a waterlogged turnip and the ECB refuses to interfere with the property market. So now here we sit with the best of intentions but we cannot get the money."

As to Lisbon one has to assume that we are not self destructive and the vote will be a rational national decision making process considering the consequences.

Will the ECB lend to the gov't? The answer to that is yes but not to continue the destructive behaviour exhibited by the gov't so far. As taxpayers we should be down on our knees thanking God for the ECB saving the country and the taxpayers from bankruptcy.

The way out of this mess is to nationalise the banks and let the market take care of the property value and developer solvency issues. The bank debts or defaulting on their bonds whether they be subordinated or unsubordinated, senior or junior has nothing to do with Ireland's sovereign debt. It simply says to international investors that they have to exercise caution when lending to Irish financial institutions. The gov't deficit this year will exceed 30 Billion. Yes Sheila, we are heading for bankruptcy as a nation which is a much bigger problem than being a nation with bankrupt banks. When it stops raining I am hopeful that my mood will improve, drying turf here in Kerry is a futile task.

ranger4

Hasschu wrote: »

Ranger4 - My bet would be that NAMA will pass in the Dail so as the FF gov't can say to the boys " sure we did every thing humanly possible, we even passed it in the Dail. We are behind you boys 100% but you cannot get blood out of a waterlogged turnip and the ECB refuses to interfere with the property market. So now here we sit with the best of intentions but we cannot get the money."

As to Lisbon one has to assume that we are not self destructive and the vote will be a rational national decision making process considering the consequences.

Will the ECB lend to the gov't? The answer to that is yes but not to continue the destructive behaviour exhibited by the gov't so far. As taxpayers we should be down on our knees thanking God for the ECB saving the country and the taxpayers from bankruptcy.

The way out of this mess is to nationalise the banks and let the market take care of the property value and developer solvency issues. The bank debts or defaulting on their bonds whether they be subordinated or unsubordinated, senior or junior has nothing to do with Ireland's sovereign debt. It simply says to international investors that they have to exercise caution when lending to Irish financial institutions. The gov't deficit this year will exceed 30 Billion. Yes Sheila, we are heading for bankruptcy as a nation which is a much bigger problem than being a nation with bankrupt banks. When it stops raining I am hopeful that my mood will improve, drying turf here in Kerry is a futile task.

I know the feeling, Refooting my waterlogged sods on my 2 spreads, Will defo need a boat to get turf off bank this year, With regard too our banks do you feel full nationalisation is a forgone conclusion?

Hasschu

I do not see a sensible alternative to nationalising the banks Swedish/Norwegian style. It is still possible that the gov't will try to tough it out but that is an option that is bringing the country closer to bankruptcy as each week goes by. The talk of recovery is in the air but even in countries like Japan, Germany, France and Canada it will be a more of a stop to decline as opposed to a job creating reasonable growth recovery. Recoveries are usually export led, in the present recession Irish costs would have to decrease considerably if we are to create jobs. That is why this is not the time to artificially prop up the prices of property or labour. The Lisbon issue could still lead to a NO vote and dropping out of the EU which would leave the Irish gov't free to depreciate its own punt by 2/3 or so which would be a short term win but a major long term loss.

gar32

Look the ECB are just in it for the interest they get from all the euro countries. The ECB out of political hands because there is too much money to be made by the super rich of this world. We need to stop the ECB from making money off everyone’s backs and the Euro should be printed in direct relation to the economy. Then the country could use any tax for helping the people not paying national debt which I believe is going to be a long time benign paid off if something is not do fast.

Regards Gar32

Économiste Monétaire

gar32 wrote: »

Look the ECB are just in it for the interest they get from all the euro countries. The ECB out of political hands because there is too much money to be made by the super rich of this world. We need to stop the ECB from making money off everyone’s backs and the Euro should be printed in direct relation to the economy. Then the country could use any tax for helping the people not paying national debt which I believe is going to be a long time benign paid off if something is not do fast.

Regards Gar32

Err, the ECB is generally regarded to be the most independent central bank in the world. The revenue above operating costs of the ECB is returned to national exchequers based on their capital key. You'll find a transfer of €290mn from the central bank to the Irish exchequer for the first 8 months of this year. It's not the ECB's fault that we're borrowing €400-€500 million every week; the interest on loans accruing to the ECB is from refinancing operations with banks, not Euro area governments.

gar32

So is the ECB not a profit making company? Do you know what moeny they make and who are the Share holders? very interested

gar32

Found it see below 1500 people working for them and profit!!!! €1.32 billion where does the money go???



European Central Bank Reports Earnings Results for the Full Year 2008
03/5/2009

European Central Bank reported that its net profit for 2008 rose sharply on more income from monetary policy operations and as a result of shifts in currency values. The bank's net profit rose to €1.32 billion compared to a net profit of zero in 2007. The ECB said its surplus a measure of its operating business soared to €2.7 billion ($3.4 billion) from €286 million last year. The ECB said total income from monetary policy operations one measure of the bank's revenue rose 24%, amounting to €28.7 billion in 2008 from the €23.2 billion from those operations in 2007. The ECB reported a 1.7% drop in total net interest income to €2.38 billion in 2008, compared with €2.42 billion in 2007.

Économiste Monétaire

gar32 wrote: »

So is the ECB not a profit making company? Do you know what moeny they make and who are the Share holders? very interested

What do you think a central bank is? The accounts are published yearly, try looking on the ECB website. The member states of the EU are the shareholders (the capital base is paid through the national central bank of each country). What do you mean "what money they make"?

Flamed Diving

gar32 wrote: »

So is the ECB not a profit making company? Do you know what moeny they make and who are the Share holders? very interested

:rolleyes::rolleyes::rolleyes:

Time Magazine

gar32 wrote: »

So is the ECB not a profit making company? Do you know what moeny they make and who are the Share holders? very interested

Christ. No. The ECB was set up by the Maastricht Treaty, basically as a European-wide government department, to co-ordinate the operations of the Euro.

They are not a company.

MrMicra

Will the European Commission guidance on State Aid to Banks have an impact on the willingness of the ECB to lend us money? NAMA as presently evisioned is not in compliance with this guidance.

Time Magazine

MrMicra wrote: »

Will the European Commission guidance on State Aid to Banks have an impact on the willingness of the ECB to lend us money? NAMA as presently evisioned is not in compliance with this guidance.

AFAIK State Aid only becomes a concern when it has competition implications, i.e. where it is to the advantage of one competitor in a business over another. Article 87 states "Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market."

It would seem that a general bail-out of "the banking sector" fails to favour certain undertakings.

Additionally, EC88 has the get-out clause that "... aid which that State is granting or intends to grant shall be considered to be compatible with the common market ... if such a decision is justified by exceptional circumstances."

I'm pretty sure that "we're going to lose our financial sector if we don't do this" would count as an exceptional circumstance.

redarmyblues

Would a recapitalised Irish banking sector lend to Irish Businesses? I mean capital returns from a country whose government must tax more and spend less will shrink in line with spending. I know I would lend to a customer who was investing in the UK before I would lend to a customer who was investing here.

MrMicra

The_Economist wrote:

AFAIK State Aid only becomes a concern when it has competition implications,

Does the ECB's concern that the NAMA scheme should comply with the commission guidance imply that they might not lend us money if we do not comply.

Excuse my ignorance but is there a legal relationship between the ECB and the commission?

many thanks to the economist and eonomist monetaire for their help.

ECB wrote:

1.6 The Minister may make regulations providing for adjustment factors to be taken into account in determining the long-term economic value of a bank asset and the property comprised in the security for a credit facility, having regard to: (a) Community State aid rules and any relevant Commission guidance

The Commission has clarified how states may legally intervene to help their banking sectors. The Comission has clarified what is acceptable state aid in the current crisis.

The full document as a PDF:
http://tinyurl.com/lgaexo

The full document:
http://tinyurl.com/mpf7yl

The Press Release:
http://tinyurl.com/meq8ab

If you look at the press release it requires:
"full transparency and disclosure of impairments, which has to be done prior to government intervention" this has not taken place at all the level of impairment is a commercial secret and it will be an offense under the proposed legislation to reveal this information.

The commission do allow for:
"valuation based on real economic value (rather than market value), implemented by independent experts and certified by bank supervisors"

Part of the NAMA bill at the moment explicitly keeps the mechanism for valuation of impairments secret. This provision will be illegal.

The commission also advise:
"validation by the Commission of the valuation of the assets"
"adequate remuneration for the State, at least equivalent to the remuneration of State capital and coverage of the losses incurred from the valuation of the assets at real-economic-value by the bank benefiting from the scheme"





This is their advice as to the current legal position.

gar32

gar32 wrote: »

Look the ECB are just in it for the interest they get from all the euro countries. The ECB out of political hands because there is too much money to be made by the super rich of this world. We need to stop the ECB from making money off everyone’s backs and the Euro should be printed in direct relation to the economy. Then the country could use any tax for helping the people not paying national debt which I believe is going to be a long time benign paid off if something is not do fast.

Regards Gar32

Seems like the whole show of the Euro ECB is on the rocks. Lets see if France & Germany can get everyone else out of this one