NAMA won't recoup as much money for taxpayer as originally claimed

oceanclub

http://www.independent.ie/business/irish/nama-will-not-recoup-836448bn-for-taxpayer-2243204.html

I'm wondering is anyone actually honestly surprised by this "shock" admission.

If the estimates can be wrong by €5bn within a mere year, you have to wonder what is in store.

P.

George Orwell 1982

No great suprise really. For me, the most memorable image from Morgan Kelly’s Irish Times pieces, was in December 2008, when he suggested the first State investment of €1.5 billion in the builder’s bank Anglo, might as well be incinerated on St. Stephens Green - - and that was only €1.5 billion!

http://www.irishtimes.com/newspaper/opinion/2008/1223/1229728473144.html

Then, given lending of about €80 billion to developers, it follows that Anglo Irish is facing losses on the order of €15 billion. The true figure could easily turn out to be twice as large.
With likely losses of this magnitude, the Government’s proposed investment of €1.5 billion will vaporise in months, forcing it either to continue pouring good money after bad, or to repudiate Anglo Irish’s liabilities. For all it will achieve, the money might as well be piled up in St Stephen’s Green and incinerated.
Anglo Irish epitomised the Irish bubble economy. Its rise began a decade ago as the boom created a demand for houses and commercial property.
As prices started to rise, banks made a miraculous discovery: the more they lent, the more prices rose; and the more prices rose, the more people wanted loans to get into the booming market. And the more loans that bankers made, the bigger the bonuses they could award themselves.
It was brilliant while it lasted. One of Bank of Ireland’s stable of developers would buy an office block for €100 million, and sell it on a year later to one of Anglo’s for €120 million, and so on: a process known to bankers as adding value.
Everyone was a genius and nobody could lose.

Liam Byrne

Some of us believed this from day one, but were shouted down, even right here on boards.

I wonder where those same NAMA apologists and yes-men are now ?

And I wonder whether FF will be quizzed on this on TV ?

Because it certainly blows their whole "we're unpopular because we're doing the right things" lie out of the water.

How do Lenihan & Cowen sleep at night, having thrown away our cash on NAMA & Anglo ?

* Not that I give a damn about their wellbeing, mind; they obviously don't care about mine, or my ability to pay my way and survive, so I'll return the favour in that regard

Scarab80

Jesus, did any of ye actually read the article??

NAMA has told the Department of Finance in a new business plan it will not recoup the €4.8bn for the taxpayer it envisaged in its original forecasts published last year.



Political sources said while last year's business plan included an estimate of being able to return €4.8bn some time after 2020 when NAMA finishes its work, the number of performing Irish loans has deteriorated further, putting this at risk. However, the plan still envisages a profit for the agency and any loss will be recovered by a levy on the banks.

oceanclub

Scarab80 wrote: »

Jesus, did any of ye actually read the article??

So they're already €5bn out only a year after their estimate, but it'll be grand. *handwave* Trust us.

Jesus, how gullible are you?

P.

ANXIOUS

I think people should give Nama more than 12mths, before we start judging it. Nama can't lose money people forget that any loss made by Nama will be re-couped by a bank levy.

ANXIOUS

oceanclub wrote: »

So they're already €5bn out only a year after their estimate, but it'll be grand. *handwave* Trust us.

Jesus, how gullible are you?

P.

You obviously didn't read the article, that money is not meant to be paid back for another ten years. They are just revising it.

oceanclub

ANXIOUS wrote: »

I think people should give Nama more than 12mths, before we start judging it. Nama can't lose money people forget that any loss made by Nama will be re-couped by a bank levy.

Pardon me for disagreeing with someone who trumpets the .sig "Ten years of peace and prosperity... Ireland is a better place because of Bertie", but you do know where the banks are getting that money from in the first place, don't you?

P.

Liam Byrne

ANXIOUS wrote: »

I think people should give Nama more than 12mths, before we start judging it. Nama can't lose money people forget that any loss made by Nama will be re-couped by a bank levy.

Oh yeah......and remind us again where Anglo are going to get money to pay a bank levy ? Or how much AIB and BoI will simply up their charges in order to recoup it from the poor, unsuspecting taxpayers.

I tell ya this country must have absolutely zero credibility left thanks to this shower of incompetent Galway Tent cronies!

Liam Byrne

oceanclub wrote: »

Pardon me for disagreeing with someone who trumpets the .sig "Ten years of peace and prosperity... Ireland is a better place because of Bertie", but you do know where the banks are getting that money from in the first place, don't you?

Given said-same sig, I don't think I'd bank on a straight answer about where money comes from ?

George Orwell 1982

Any levy on the banks will just be passed on to customers via higher interest rates and charges.

George Orwell 1982

Scarab80 wrote: »

Jesus, did any of ye actually read the article??

Scarab, do you actually believe Nama will make a profit?

IrishTonyO

ANXIOUS wrote: »

I think people should give Nama more than 12mths, before we start judging it. Nama can't lose money people forget that any loss made by Nama will be re-couped by a bank levy.

And who do you think will pay for the bank levy? Us the customers

oceanclub

Liam Byrne wrote: »

Given said-same sig, I don't think I'd bank on a straight answer about where money comes from ?

Maybe from where his hero keeps his money - in a safe, after "winning" it on the "horses".

P.

Cookie_Monster

George Orwell 1982 wrote: »

Scarab, do you actually believe Nama will make a profit?

It'll make plenty of profits for those in the right circles :mad:

George Orwell 1982

Cookie_Monster wrote: »

It'll make plenty of profits for those in the right circles :mad:

Its a winner for the lawyers and property evaluators and other consultants.

ANXIOUS

I'm not getting into talking about possiblitys of what may happen. Nama may turn a profit so no levy will apply at the end if the day the goverment had to save the banking sector ( may be not to the extent that it did ).

No one knows how the bank levy may work so no point guessing. Or uf it will even be needed.

Scarab80

oceanclub wrote: »

So they're already €5bn out only a year after their estimate, but it'll be grand. *handwave* Trust us.

Jesus, how gullible are you?

P.

It's nothing to do with gullibility, it's to do with understanding basic english.

NAMA has told the Department of Finance in a new business plan it will not recoup the €4.8bn for the taxpayer it envisaged in its original forecasts published last year.

It will not recoup as much as was originally forecast, this does not mean that they are out by 5bn, it means the profit - which they still think they will make - will be less than 4.8bn.

If you look at the draft NAMA business plan on which the 4.8bn forecast was made, you see the following....

It is important to emphasise that much of the information regarding the prospective NAMA portfolio included in this draft Business Plan is based on aggregate data which has been provided by the various institutions. The interim NAMA team has not had direct access to individual transaction records and loan files and will not be in a position to verify the integrity of the data until it carries out its own due diligence on each of the loans proposed for acquisition. Given the unavailability, as yet, of the detailed asset information required for strategic planning and given that the Board has not yet been appointed, this interim plan focuses more on the operational planning required to ensure an efficient asset valuation and transfer process and the establishment of the NAMA organisation and its key governance structures.

The original figure was a draft figure based on information that the banks provided to them, following due dilligence a non draft plan has been produced showing a higher level of defaults and a lower level of running costs than has been assumed.

Liam Byrne

Sentence 1 :

ANXIOUS wrote: »

I'm not getting into talking about possiblitys of what may happen.

Really ?

Sentence 2 :

ANXIOUS wrote: »

Nama may turn a profit

:rolleyes:

oceanclub

Scarab80 wrote: »

It will not recoup as much as was originally forecast, this does not mean that they are out by 5bn,

It means their estimates are already out by €5bn - yes or no?

P.

Scarab80

estimates are out between 4.79 bn - 0.1bn, that's all you can say

oceanclub

Let's see how close to 30pc the default rate is when the report is published next week.

P.

Scarab80

oceanclub wrote: »

Let's see how close to 30pc the default rate is when the report is published next week.

P.

It would have to get closer to 35% for the taxpayer to make a loss, due to the issue of 5% subordinated bonds.

skelliser

And what of the 53% let off for the developers?
Recapitalisation ie. we pay
What makes it even more sickening is these developers are getting a nice deal whilst people are in negative equity and now have to
also pay their debts! you couldnt make it up!

Remenber NAMA only has to get back 47%, anything above that is this "profit" they are taliking about! They keep saying they will pursue them for 100%, will they ****, once they reach 47%, NAMA is done.

It is robbery, pure and simple.

George Orwell 1982

I'm going to go with Morgan Kelly on this. NAMA is "cash for trash".

His IT article on Nama on 3rd July 2009.

Nama is in effect Fianna Fáil’s shrine to the property bubble for which the party still yearns. Prepare to pay 10 per cent more in income tax for the next 10 years to pay for it all . . . we are headed for national bankruptcy, argues MORGAN KELLY
WRITING HERE two years ago, I pointed out that the exuberant lending of Irish banks to builders and property developers would sink them if the property bubble burst. Since then, the bubble has burst, the banks have sunk, and we are all left wondering how to salvage them.
Two ideas for fixing the banks have been suggested: a bad bank or National Asset Management Agency (Nama) and nationalisation. While these proposals differ in detail, their impact will be identical. Irish taxpayers will be stuck with a large bill, and in return will get an undercapitalised and politically controlled banking system.
A far more efficient and cheaper alternative to Nama is to copy what Barack Obama did with General Motors, and transfer ownership of Irish banks to their bond holders. In this way we can achieve well capitalised banks, run without political interference, at minimal cost to taxpayers.
By converting a portion of Allies Irish Banks’ approximately €40 billion of bonds, and Bank of Ireland’s €50 billion, into shares, each institution can be recapitalised. Transferring ownership to bond holders will not cost the taxpayer a cent and will avoid interminable legal battles over the transfer of assets to Nama.
While the shaky state of Irish banks had been worrying investors since early 2007, when the crisis finally broke in late September the Government was taken completely by surprise and reacted with blind panic. Faced with a run on Anglo Irish Bank by institutional depositors on September 29th, the Government was stampeded into guaranteeing virtually all liabilities, except shares, of the six Irish banks.
This guarantee contained two obvious but fundamental flaws. Everything that has happened since – the proposed recapitalisation of Anglo, the nationalisation of Anglo, the establishment of Nama – can be understood as the Government scrambling to catch up with the consequences of these two errors.
The first mistake was to guarantee not only deposits – which had to be guaranteed – but also most of the existing bonds issued by banks to other financial institutions. Bond holders receive higher returns in the knowledge that they are accepting the risk of losses on their investment. In addition, unlike depositors who can scarper, existing bond holders are effectively stuck.
It made no sense for the Government to insist that taxpayers would take the hit on any bank losses instead of the financial institutions that had already entered legal contracts to do so.
The second mistake was to extend the guarantee to Anglo Irish and Irish Nationwide. As specialised property development lenders with incompetent management, they were at risk of heavy losses as their market collapsed, and fulfilled no role in the wider economy.
In making the guarantee on September 29th, I do not doubt that the Government believed that the difficulties of Irish banks ran no deeper than temporary liquidity problems stemming from the international crisis. However, as it has become apparent that Anglo was a mismanaged wreck, with AIB and Bank of Ireland scarcely better, the Government has stuck with the mantra that all banks are equally important and equally worth saving at any cost to the taxpayer.
Brian Lenihan and Brian Cowen are happier to dice with national bankruptcy than lose face by admitting that they were misled about the state of Irish banks last September.
Nama, then, is the latest twist in the Government’s increasingly bizarre efforts to save the Irish banking system while claiming that it does not really need to be saved.
Underlying Nama is the delusion that the collapse of our property bubble is a temporary downturn. In a few years time when the global economy recovers we will be back building houses like it was 2006. All the ghost estates, empty office blocks, guest-less hotels and weed choked fields that Nama has bought on our behalf will once again be worth a fortune.
The reality is that, because of our surfeit of empty housing, there will be almost no construction activity for the next decade. Empty apartment blocks in Dublin will eventually be rented, albeit at rates so low that many will decay into slums. However, most of the unfinished estates that litter rural Ireland – where the only economic activity was building houses – will never be occupied.
Nama is a variant on the “Cash for Trash” scheme briefly floated in the United States last year where the government would recapitalise banks by overpaying for their bad loans. Our Government is proposing to buy €90 billion of loans and will reportedly pay €75 billion for them.
The International Monetary Fund (IMF) guesses that Nama will cost us €35 billion, and this is probably optimistic. The narrowness of the Irish property market meant that banks effectively operated a pyramid scheme, bidding up prices against each other. Now that banks cannot lend, development assets are effectively worthless.
The taxpayer is likely to lose well over €25 billion on Anglo alone. Among its “assets” are €4 billion lent for Irish hotels, and almost €20 billion for empty fields and building sites. In fact, I suspect that the €20 billion already repaid to the casino that was Anglo represents winners cashing in their chips, while the outstanding €70 billion of loans will turn out to be worthless. And it is well to remember, as the architects of Nama have not, that although the problems of Irish banks begin with developers, they do not end there.
The same recklessness that impelled banks to lend hundreds of millions to builders to whom most of us would hesitate to lend a bucket; also led them to fling tens of billions in mortgages, car loans, and credit cards at people with little ability to repay. Even without the bad debts of developers, the losses on these household loans over the next few years will probably be sufficient to drain most of the capital out of AIB and Bank of Ireland.
Brian Lenihan’s largesse to bond holders could cost you and me €50 to €70 billion. What do numbers like these mean?
The easiest way to put numbers of this magnitude into perspective is to remember that in 2008 the Government generated €13 billion in income tax. Every time you hear €10 billion, then, think of paying 10 per cent more income tax annually for the next decade.
In other words, the fiscal capacity of a state with only two million taxpayers, and falling fast, is frighteningly thin. Ten billion here, and ten billion there and, before you know it, you are talking national bankrutcy. Even without bankrupty, Nama will ensure a crushing tax burden for everyone in Ireland for decades.
The tragedy is that, were it not for the Government’s botched efforts to save financiers from the predictable consequences of their own greed, the Irish economy would have recovered far more quickly than most people, including the IMF, expect.
Recovery for the Irish economy will not be easy – there is no painless way for an economy to move from getting about 20 per cent of its national income from construction to getting about zero – but the flexibility of the Irish labour market would have ensured that our incomes and share of global trade would have rapidly recovered. Now, however, any fruits of recovery will be squandered on Nama.
Aside from the fact that Nama will spend huge sums to achieve little, its governance is problematic. Here, the fog of secrecy that has quietly settled over Anglo Irish since nationalisation sets an unsettling precedent.
After revelations of financial irregularities forced the resignation of three executive directors, Anglo moved decisively to replace them with . . . Anglo insiders. Most astonishing, in the light of the scandal over Irish Nationwide deposits, was the decision to replace Anglo’s disgraced financial director with his immediate subordinate, Anglo’s chief financial officer.
It is hard not to conclude that a deliberate decision has been made at the highest level of Government that what happened in Anglo, stays in Anglo. And we can expect Nama to be run in the same tight manner.
While there has been considerable speculation about dark motives for bailing out developers and banks, I do not believe that the Government’s behaviour has been corrupt: it has been far worse. At least corruption implies a sense that you are doing wrong, and need to be paid in return. Our Government actually thought it was doing the right thing in risking everything to safeguard the interests of developers who had given us an economy that was the envy of Europe.
Instead of recognising bankers and developers as parasites on our national prosperity, the Government came to see them as its source. While everyone else in Ireland has come to see the past decade as an embarrassing episode of collective insanity to be put behind us as soon as possible, the Government still sees it as the high point of our nation’s history. Nama is effectively Fianna Fáil’s shrine to the bubble, and likely to be an expensive and enduring one.
What should be done instead of Nama? First, we need to understand how the idea of Nama follows from a mistaken analogy with the Swedish banking crisis and bad bank of the early 1990s. The Swedish banks differed in one fundamental way from ours: they only had deposits as liabilities. If their government had not taken over their bad debts, ordinary depositors would have suffered. By contrast, Irish banks had borrowed heavily from other financial institutions through bonds, and these bondholders originally agreed to take losses if Irish banks got into difficulties.
By placing the costs of the banking collapse primarily on existing holders of bank bonds, the State can improve its credit rating and pull back from the edge of bankruptcy. Knowing that taxpayers are not liable for the losses of AIB and Bank of Ireland will make capital markets more willing to lend to the Irish State.
Instead, like a corpulent Tooth Fairy gently slipping billions under the pillows of sleeping bond holders, Brian Lenihan has chosen to extend the liability guarantee and further weaken the bargaining position of the State.
The drift into national bankruptcy looks increasingly unstoppable.

Mango Joe

NAMA won't recoup money for taxpayer

- Oh yes it will!!!!


- Sorry, I thought I was in a bad Pantomime, all the other ingredients were there......

lmimmfn

Nama is going to lose an absolute fortune, anyone with an ounce of cop on realises this, the running costs alone are astronomical along with all the dud stuff in it, some will sell, no doubt at rock bottom prices to matey developers or investment firms.

Not only that, theyre not even liable to publish the actual sales values of the properties in it when they do sell, theyre only responsible for end of year bottom line profit or loss( you'll see a lot of that at the end of every year for NAME ), so no one will know what the hell is going on until its actually completed whereby there will be some tribunal or something to setup some finger pointing

Again another nice vehicle with noone having any responsiblilty and hiding all the numbers from the public to aid that.

NAMA rox!!!!!!!!

jock101

You actually thought it would! Castles in the Sky!:rolleyes::rolleyes:

Fr0g

I'm with Peter Mathews. He knows better than most what is wrong with NAMA

http://bankermathews.com/nama-whats-wrong/

NAMA Loans Losses
Summary Projected Alternative Realisations Outcomes

NAMA original Loans value 77.00 bn Purchased by NAMA 54.00 bn
60% Non-performing: 46.20 bn
40% Performing: 30.80 bn
Let’s look at immediate / present situation, assuming that all Performing
Loans can be 100% recovered:-
Recovery rate on Performing: 100% X 30.80 bn = 30.80 bn
Recovery rate on Non-performing: 25% X 46.20 bn = 11.55 bn
Total recoveries 42.35 bn
NAMA loss: €11.65 bn

But let’s suppose that over time we get to (which experts believe will be best case):
Recovery rate on Performing: 80% X 30.80 bn = 24.64 bn
Recovery rate on Non-performing: 40% X 46.2 bn = 18.48 bn
Total recoveries 43.12 bn
NAMA loss: €10.88 bn

Now let’s suppose that instead we get (which experts believe will be likely case):
Recovery rate on Performing: 60% X 30.80 = 18.48 bn
Recovery rate on Non-performing: 20% X 46.20 = 9.24 bn
Total recoveries 27.72 bn
NAMA loss: €26.28 bn

Best case scanario: loss of 10 bn
worst case: loss of 26 bn

lmimmfn

Fr0g wrote: »

I'm with Peter Mathews. He knows better than most what is wrong with NAMA

http://bankermathews.com/nama-whats-wrong/



Best case scanario: loss of 10 bn
worst case: loss of 26 bn

erm i think he's missing the 5% interest that the government are paying to fund NAMA loans, 5% over 10 years = around 62% of initial loan cost.

So by 2020 worst case scenario the loan of 54bn would come to nearly 88bn, plus theres the expected 1bn+cost of it. Of course it wouldnt come to that, but still its going to cost an extra 5-10bn in loan interest.

hinault

I should be shocked.

But given that the politicians and bankers have lied throughout, I cannot muster shock/anger/annoyance anymore.

hinault

What the MoF told us 16th September 2009 when NAMA was been enacted.
It is worth re-reading his speech setting out what he said then and what has transpired since.





I move that the Bill be now read a second time.
A Cheann Comhairle, my speech is being circulated along with an information pack of supplementary documentation which I have also made available to the Deputies.
Introduction
In the history of this State, few subjects have been debated more intensively and more passionately than the Government’s proposal to establish a National Asset Management Agency. Since I published the draft legislation on the 30th of July last, there has been a fast and furious debate on the airwaves, in the print media, on websites, at public gatherings, at a lengthy Committee meeting of these Houses two weeks ago, and, I am sure, in every household around the country.

This is as it should be. It is impossible to over-state the fundamental importance of the resolution of our banking crisis to our economic recovery. A clear understanding of why our banking system got into this crisis is also of the utmost importance. We must learn lessons from this crisis and we must and will take the necessary steps to ensure that we never make the same mistakes again.

I accept the good intentions of most contributors to the debate. Some of the commentary was ill-informed; some of it, from those who know better, was mischievous. But many constructive suggestions and amendments have been put forward and the Government has taken the best of them on board. I want to stress that I am open to further constructive amendments from the members of this House which will improve the legislation and protect the citizens of the State.

Much of the debate has centred on the risk involved in NAMA. Let us be clear: the resolution of the banks’ difficulties involves risk; risk that the private sector will not take. That is why this government, like governments all over the world has had to step in. But there is another risk that is less prominent in the debate. That is the risk to the taxpayer of paralysis and delay. (crisis broke in September 2008!!!!!!!!)

If we do not act now to free our banks of their higher risk loans, we will not be in a position to benefit from the economic recovery that appears to be emerging in the United States and in Europe.
Without a healthy and functioning banking system our businesses and service providers will not be able to grow and develop their products for our main markets.
If we do not stand ready to take advantage of a global upturn, as an open free market economy dependent on foreign direct investment and international capital flows we will lose market share and we will lose jobs. That is the very real risk confronting our country.

So, the time for debate comes to an end. The Government has a duty to act. Our proposal to establish an Asset Management Agency has received the backing of the IMF and the ECB. It is also clear that the proposal has credibility in the financial markets.
Since its announcement, the cost of borrowing by the State has fallen by 1.5% for 10 year money; tangible evidence that the Government’s strategy is already working.
I also note that NAMA has received the endorsement of two distinguished predecessors of mine: Ray McSharry and Alan Dukes.
Both men sat at the desk I currently occupy at another period of great peril for the economic life of this country. Given their record of service, I think their assessment is deserving of our respect.

A Cheann Comhairle, the citizens of this country are understandably angry about the state of the banks. They are bitterly disappointed by the failure of our regulatory system. They are appalled by the details of the reprehensible behaviour of some in the financial system and in the property sector in whom they placed their trust. And they are also angry with the Government. Many ask why we are putting money into the banks while they endure the brunt of the difficult budgetary decisions which we must take. There is now unfortunately a breakdown of trust in the entire system.

But the public also knows we need the banks. The public understands we cannot have economic recovery unless we fix our banking system. It is not just about bank guarantees, recapitalisation and asset management solutions for impaired assets. It is something much more fundamental and tangible. People need to be reassured that their deposits are safe. They need to believe that senior management and Directors in the banks are responsible, trustworthy and accountable for their actions. This will not happen overnight. It will require much hard work by all of us.
So we must all now overcome our understandable anger and get on with the business of reform. This Government is determined to refashion the financial and banking system, and to address and correct all regulatory and governance shortcomings. We will give a clear direction to the banks about what is expected of them. And let me be absolutely clear as I stand here today on behalf of the people of Ireland: the banks should be extremely grateful for the continued support and forbearance extended by the citizens. In return, the Government expects the banks to play more than their part in the economic recovery of the State by providing appropriately risk adjusted credit to businesses to protect and create jobs. Our citizens deserve nothing less.
The Bill before you today, has been drawn up on the basis of the expert advice and counsel available to the Government from the NTMA, the Financial Regulator, the Central Bank as well as our financial and legal advisors. Everything we do here must and will be done in accordance with EU State Aid rules.

This Bill is the centre piece of the Government’s plan to resolve the problems that have beset our financial and credit system. Before dealing with the details of how NAMA will work I want to set out the context in which the decision to establish the Agency has been taken.

International and Irish Context
Just under a year ago, the banks in this country were on the brink of financial collapse. The wellbeing of our nation and our people was under threat. The State Guarantee introduced overnight on the 29th of September 2008 pulled us back from the brink. As a result, our banks and financial institutions were once again able to raise from international markets the funds they needed to ensure that their customers whether big or small, young or old, could go about their daily business in the knowledge that their deposits were secure.

In the year and especially in the months before the Guarantee, our banks were being squeezed by the severe correction and withdrawal of funding that was taking place in the international financial markets. This correction followed an unsustainable period of cheap credit and inadequate regulation of the global banking system. The failure of the international investment bank Lehman Brothers and the decline in other global financial institutions further exacerbated the position. Smaller, more open economies, like ours were particularly badly affected.
Having moved away from more traditional forms of funding, with Balance Sheets expanding by over 100% in a few short years, Irish banks availed more than most of this cheap credit: borrowing short term to fund long term assets; using it to fund extensive property based lending. When this cheap credit dried up overnight, the Government like most Governments in the developed world was required to step in.

But as other countries followed our example in the use of guarantees, funding conditions again became extremely difficult for Irish banks and building societies. Large levels of speculative property lending left the banks exposed to a property market which had passed the peak of its cycle. The property industry shuddered to a halt. Sales of houses and other property stopped and repayments of interest and capital could not be met by borrowers. International providers of funding and capital recognised the risks, cut credit lines and in some cases stopped dealing with the financial institutions. In this weakened state, our banks started to hoard capital to protect themselves.
Stress on their capital and funding positions understandably damaged the ability of banks to provide the vital flow of new and existing lending to the economy.

To address this problem, and to further stabilise the system, the Government moved to recapitalise AIB and Bank of Ireland. As details of shameful behaviour on the part of some senior executives in Anglo Irish Bank began to emerge, that Bank was taken into State ownership to prevent it from destabilising the rest of the banking system and the economy. As we know, these events are now the subject of a number of investigations which I hope will conclude sooner rather than later.
Suffice it to say that the damage done by certain individuals to the reputation of this country will take some time and much hard work to repair.
Throughout the last year, our membership of the European Union and the eurozone in particular has played a vital role in our response to the current financial crisis. The European Central Bank stood behind this country during its time of greatest need and let nobody forget that when it comes to the Lisbon Referendum on the 2nd of October.

It is important to remember that the Government’s support for our banks has not been unconditional. Financial benefits have accrued to the State from the fees related to the guarantee which will amount to €1 billion. The State also holds warrants for a 25% shareholding in AIB and Bank of Ireland which have gained significant value since the investment. Operational restrictions have been imposed on the banks. Executive pay has been limited. New rules have been imposed on the banks in their dealings with business customers and residential mortgage holders.

Nor has State support saved the banks from losses in this crisis. Shareholders, many of them ordinary citizens saving for their future, have suffered from enormous falls in share values and banks have taken large losses on their loan books. Subordinated Bondholders have also been hit, with a large amount of subordinated debt being bought back by the banks in recent months at a significant discount. The outcome of these transactions was a loss representing approximately €4 billion to these bondholders and a material contribution to the capital required for the institutions, that otherwise would probably have had to come from the State.

I want to reiterate that in all our actions over the past year, our sole concern has been the best interests of the wider economy. The simple fact is that credit remains the lifeblood of any economy. It allows business to source funding for productive developments and to foster creativity and innovation so that we can become a more competitive, export-orientated economy. It allows individuals to access mortgage funding and finance the purchase of consumer goods. The only way to restore the flow of credit is through a cleaned up banking system.

Asset Management Agency approach
That, a Cheann Comhairle, is precisely why the Government has decided to set up the National Asset Management Agency.
NAMA, will facilitate the speedy removal of higher risk property related assets which are clogging up the banks’ balance sheets and greatly hampering their ability to lend to credit-worthy individuals and households and thereby support economic activity.
This general approach to dealing with distressed assets has been supported and recommended by banking experts across the globe. The model has been successfully implemented in a number of countries in the past where similar issues with problem loans have arisen. Countries such as Germany and the UK are also introducing asset relief schemes. Indeed, the European Commission has issued State aid guidance in this area specifically to assist Member States that have chosen to take steps to establish asset relief schemes. International agencies such as the IMF and the ECB have commented favourably on the approach. In other words, this is a proven policy response that has been successful elsewhere and will be successful in Ireland.

As we rebuild our banking infrastructure we must reform our oversight mechanisms so that our regulatory and supervisory system ensures we have a banking system that is fit for purpose; a system that supports economic recovery; and a system that will prevent the economy from being undermined by rogue and undisciplined actions within the sector.
So how will NAMA work?
Turning to how NAMA will operate, individual institutions must apply and be accepted as participating institutions.
The NAMA Bill includes fair and objective criteria for the selection of the institutions that would participate in NAMA consistent with the EU State aid guidelines. As I made clear at the discussion with the Joint Oireachtas Finance Committee on the draft NAMA Bill on 31 August under the legislation any credit institution in Ireland can apply for participation in NAMA and each application will be assessed strictly in an objective and non-discriminatory manner in accordance with the statutory criteria included in the Bill and EU State aid requirements.
With this in mind, I will be proposing a Committee Stage amendment to Section 60 of the Bill to increase from 30 to 60 days the period of time that credit institutions have to apply for designation as participating institutions in NAMA to facilitate the application process for credit institutions.
The figures I am presenting today relate to five institutions:
· Allied Irish Bank,
· Anglo Irish Bank,
· Bank of Ireland,
· The Educational Building Society and
· Irish Nationwide Building Society.
These are the institutions in which we have had the opportunity over the last year to carry out the necessary due diligence, analysis and stress testing.
The Agency will buy the land and development property loans and certain associated loans from the banks at prices well under the current book value. It will then manage these loans out over time to achieve the best possible financial return for the taxpayer.
NAMA will start with the largest systemic exposures across the institutions and it is expected that by the middle of next year most of the loans will be transferred. NAMA will leave behind smaller, cleaner and better funded banks that can focus their resources on their core function of lending to the productive economy.
It is likely that some institutions will require additional capital in order to absorb the losses arising from the transfer of their impaired assets to NAMA and in order to maintain appropriate levels of capital.
I want to make it clear that the Government would expect such an institution to explore all available options for raising such capital. It is the Government preference that private market solutions are found and implemented. The banks and building societies will be expected to increase the equity component of their capital base as the NAMA asset transfers are implemented.

To the extent that sufficient capital cannot be raised independently or generated internally, the Government remains committed to providing such banks and building societies with an appropriate level of capital to continue to meet their requirements.
This will be done in a manner consistent with EU State aid rules and the credit needs of the Irish economy. I should also state that any recapitalisation of a credit institution in such circumstances must be followed by restructuring in a manner which complies with EU State aid requirements.

Projected Asset Details

It is expected that NAMA will purchase loans with a book value of approximately €77 billion.
The approximate breakdown is as follows:

Allied Irish Bank €24 billion
Anglo Irish Bank €28 billion
Bank of Ireland €16 billion
EBS €1 billion
INBS €8 billion

Further details of the loan books of the institutions are contained in the supplementary documentation.
It is projected that 36% of the assets will be land, 28% development property and 36% in associated commercial loans. The estimate is that 40% of these loans are cash-flow producing. The cash flow produced will be sufficient to cover interest payments on the NAMA bonds and operating costs. The geographical breakdown of the assets is about two thirds in Ireland, one fifth in Great Britain, 6% in Northern Ireland and most of the remainder in the USA and Europe. [1]

Valuation

The price to be paid for these assets will be a lot less than their €77 billion book value. The valuation formula has regard to EU guidance taking into account both current market conditions and long term economic returns. This strikes a balance between reflecting the long term potential of these assets while minimising any potential risk that NAMA will make a loss.
The legislation sets out a comprehensive methodology on how assets will be valued and I am publishing today draft valuation regulations which provide further detail on the valuation process.
This valuation framework must accord with EU State aid guidance and is subject to EU approval.
Application of the valuation methodology is a complicated and extensive process and it must be remembered that each loan must be valued individually in accordance with the methodology. In that context, any estimate of the price to be paid for the assets is provisional in nature. From our estimates, it is expected that NAMA would pay approximately €54 billion in relation to the €77 billion of loans that I mentioned earlier. This is an estimated aggregate discount of 30%. Loan quality, geographic distribution and type of loan will all vary from institution to institution. These figures cannot be applied to extrapolate to individual portfolios or loans.
It is essential to the NAMA process that final decisions on these kinds of numbers will be made only after an exhaustive bottom-up valuation process. The valuation process will be designed to meet the standard that will be expected by the EU Commission.

The estimated market value is €47 billion. Deputies should consult the accompanying documentation to see how this figure was calculated.
This is an estimate based on certain assumptions and information about the property market including a fall in average property values in the State of about 50% since the peak in 2007.
This average masks a very large degree of variation in property value movements depending on factors such as location, the nature of the property and so forth.
The fall in property values has pushed up property yields.
Yields are now above their long term average, and this suggests that values are bottoming out.
In fact, the gap between yields and interest rates is much higher than at any time since the mid 1990s. Further details are available in the supplementary documentation.

Using the adjustment factors set out in the legislation, the current estimate of the allowance for long term economic value is €7 billion. I know there are reasons to argue over whether there should be any allowance made for long term economic value. But we are here to help the economy and people by putting our financial system back on track. We cannot do that by forcing banks to sell assets at below what would be rational prices for them.
As US Federal Reserve Chairman Ben Bernanke has said ‘‘Banks will have a basis for valuing those assets and will not have to use fire sale prices. Their capital will not be unreasonably marked down.”
We also reject the idea of forcing distressed asset prices on the banks and we must ourselves find the right balance. We will not pay too much for these assets, but paying too little has its own consequences for our economy and this is not the time to expand our risks.
But this limited allowance for long term economic value will be de-risked.

The Bill provides for part of the consideration for the assets transferred to be in the form of subordinated bonds, which put the banks at risk if NAMA were to lose money, which is not our expectation – without giving them an upside in relation to its gains.
In addition, we intend to introduce a levy if on the winding up of NAMA there were to be a deficit.

Finally, I should note that the State owns 100% of Anglo Irish and currently has substantial economic interest in the two largest banks. Those who argue that I am transferring value to shareholders must agree that this is very much reduced by the fact that the State is in itself a shareholder for a substantial part of the system.

The proportion of the total consideration which will be in the form of subordinated debt and therefore at risk to the bank and linked to the performance of NAMA will be around 5%.
Let me repeat this point. The protections for the taxpayer of the risk sharing mechanisms, and if necessary a levy, will ensure that any unjust enrichment of private shareholders by paying an allowance over current market value can be recouped. But if NAMA makes money this will accrue to the taxpayer.
Taking the subordinated debt into account, it is estimated that NAMA will have to achieve less than a 10% uplift over the current market values on its assets over ten years to break even. Let’s put that figure in perspective. Assuming that NAMA were to dispose of the majority of its assets in the second half of the decade, this uplift in property values would be achieved even if values kept pace with general consumer price inflation. In that case, real (that is, inflation adjusted) property prices in ten years’ time would still be 45 per cent below their values of late 2006. To be clear there is no assumption in our work that peak property prices must and will be repeated. The Governor of the Central Bank, John Hurley, and the incoming Governor, Professor Patrick Honohan, have stated to me and I quote:
“Having regard to the uncertainty in property price movements, the proposed add-on of 15-18 per cent to the estimated current market price does not seem out of proportion with the range of potential upward price movements, especially when a risk sharing element is included.”

Developers and the Market for Development Land
The amount a borrower owes will not change because of the transfer of a loan to NAMA.
The Agency will have a statutory duty to maximise the tax payers’ return and will therefore be expected to use all of its means to this end. The Bill also provides the Agency with a wide range of powers it needs to pursue borrowers and enforce security in some cases this will mean that borrowers’ personal assets will have to be assumed by NAMA. (so we're paying developers a salary to workout the loans they own which are in NAMA - madness).

I am also conscious of the need to avoid a repeat of the current position in the market for development land. A requirement has been included in the Bill obliging NAMA to have regard for the need to avoid undue concentrations or distortions in the market for development land. I also intend to issue guidelines governing the Agency’s interaction with borrowers in the completion of properties acquired by NAMA.

Effects on individual financial institutions
The banking system has let us down. However, it can revive and serve our economy in a proper manner. But the existing structures cannot remain the same. Already a number of banks are developing restructuring plans to tight deadlines to meet EU requirements arising from recapitalisation options.
Any institution participating in NAMA will be required to restructure its operations and I will be insisting that this is a real process leading to a reformed and re-invigorated banking system. It is too early to outline a definitive shape for the new system and there has to be scope for subsidiaries of external banks to play their full part. This will be a focus of my work over the coming weeks.

Bank Guarantee
I referred earlier to the importance of the Bank Guarantee scheme in stabilising the banking system following its introduction last year. In June last, I introduced changes to the scheme as part of the Financial Measures (Miscellaneous Provisions) Act 2009 which allowed for the extension to the Government guarantee contained in the Credit Institutions (Financial Support) Act 2008 beyond the current expiry date of 29 September 2010. As I announced in the Supplementary Budget on 7 April last, the guarantee will be amended to facilitate access for Irish financial institutions to longer term debt. I propose to adjust the current guarantee but retain all of the most important features. The details of this will be published on my Department’s website this afternoon. The new scheme will be somewhat more targeted. It will allow for greater longer term debt issuance under the guarantee, moving it more towards the European model. The revised guarantee scheme will represent the necessary first step in the exit strategy for the State from the blanket guarantee offered in September 2008. However, it is clear that the stability provided by the guarantee remains important and for that reason it will remain extensive and retain the blanket guarantee for deposits.

A key feature of the modified guarantee scheme is that it allows the covered institutions to access un-guaranteed funding.
Over the last month certain Irish institutions have started taking the first steps towards issuing un-guaranteed term debt and we welcome this positive trend.
EU State aid approval for the scheme is at an advanced stage. A formal market notice will be issued later this month once approval of the European Commission has been secured and I anticipate that I will bring the necessary Statutory Instrument to commence the scheme before the House in early October. The liquidity advantages provided by NAMA, together with the continuing support of the guarantee scheme, will underpin the stability of funding for the Irish financial system.
The House will be aware that market participants pay keen attention to our debates on financial matters. For the avoidance of doubt in the market, all liabilities covered under the existing guarantee on liabilities, known as the CIFS scheme, will remain fully guaranteed until 29 September 2010.

Central Bank Reforms
The Central Bank of Ireland is taking its position at the centre of financial supervision and financial stability oversight. Professor Patrick Honohan will succeed Mr. John Hurley as Governor later this month. A new Head of Financial Supervision will be recruited shortly. New resources and additional expert staff will widen skill sets and expand and enhance the capacity for the reformed institution.
I expect the draft legislation providing for the reform of the regulatory system to be published before the end of the year

As part of the reform package for financial regulation and longer term planning, I am examining options for the introduction of a legislative regime to deal in a systematic way with distressed financial institutions. I want to ensure that the State has in place a range of tools to protect deposit holders and ensure that we can deal effectively with problem institutions and at the same time maintain the confidence of the international markets. My officials and the relevant authorities are examining the scope of such a regime. I hope to be in a position to bring forward proposals in this area in the New Year.

Promotion of Lending to the Economy
Everybody in this House is aware of the effect of the crisis conditions of the last year is having on the availability of credit to businesses and households. The flow of credit is essential to the proper functioning of the economy and all of the Government’s actions to stabilise the banks have been undertaken in order to ensure that the financial system continues to fulfil its essential functions in providing credit for businesses and individuals.
The establishment of NAMA and the removal of identified risky assets from the balance sheets of participating institutions should in itself improve credit supply. The basic business model of a bank - and what generates profits - is on-lending at a margin appropriate for the risk involved. NAMA will allow banks to focus on this and addresses the two key existing limitations to new lending:
· It will strengthen and improve the funding position of the banks meaning they have available funding to on-lend. The simple fact is that every Euro lent by a bank to a customer must be drawn from deposits or borrowed by the bank from somewhere else. NAMA will pay for the loans by giving the banks Government bonds that can be swapped for cash in international markets and at the European Central Bank
· The removal of higher risk assets will allow banks to focus their human and capital resources on their core business – rather than trying to work out problem loans. Every new loan requires new capital and banks in their current position need to maintain existing capital buffers to absorb current and future losses.
Specific credit supply measures were incorporated into the Government’s recapitalisation packages for AIB and Bank of Ireland. Credit for SMEs has been a particular focus of concern. As part of the recapitalisation package each bank committed to increasing capacity for SME lending by 10%, establishing a €100m fund for clean energy and environment-friendly investment and a further €15m for seed and venture capital. The banks report on all of these commitments quarterly and their reports are monitored by the Financial Regulator. The reports clearly show that new business lending is taking place month by month, although at a lower rate than last year, and that substantial numbers of new business accounts are being opened each month.
The Department of Enterprise, Trade and Employment have established a Credit Clearing Group, involving business groups, banks, State agencies and Departments, which is examining cases of credit refusal referred to it and an e mail post-box has been set up to facilitate referrals. In addition, of course, that Department is operating the Stabilisation Fund and the Temporary Employment Subsidy Scheme to help viable businesses get through the current difficulties.

To summarise, the Government has made SME lending a major priority. Various actions have been taken to support viable business, to track the real situation, and to facilitate access to credit on a proper commercial basis. In terms of specific credit supply measures attaching to NAMA, the Government continues to examine options in this regard.

Alternative approaches
Some have argued for alternative approaches. As I discussed earlier, the risks to the taxpayer of overpaying for assets by paying an allowance for long term economic value can be mitigated by risk sharing mechanisms and the levy. I wonder if those who argue that NAMA should ignore the fact that the market is currently distressed and pay the institutions current market value realise the cost implications of what they are proposing. The additional capital required by the institutions compared with what might be required under the NAMA approach would be in the region of €4 billion to €7 billion.
This capital would have to be provided -- and because the banks would be so weakened, the only possible provider would be the State. Some of this, clearly, would be offset by the effect of our ownership in the institutions concerned, but this money would have to be provided, with any payback coming later.
More expensive still is the Labour Party’s reported proposal for blanket nationalisation and a straightforward 50 per cent discount on the loans. This would immediately require the State to borrow an additional €10 billion to €14 billion to recapitalise the banks. Even under the benign assumption that additional borrowing of this scale would not affect the interest rates on Government bonds, the interest costs of this additional capital would be between €600 million and €700 million each year. That is dead money that should be used to fund vital public services. In the more likely event that the extra borrowing put upward pressure on the cost of borrowing money on international markets, the overall costs to the State of Labour’s proposal would be even larger.

Of equal concern is the damage that would be done to any possibility of recovery of the financial system. This new capital injection would lead to effectively full nationalisation of the banking system. Full nationalisation is, of course, Labour Party policy but it carries with it a very real possibility that the people who provide our banks with the funds they need to continue their operations would reduce their level of funding. The simple fact is that it is easier for a commercially oriented banking system to attract the funding it needs to provide credit to the economy. A forced nationalisation of the system would involve significant risks of reduced funding opportunities for the banks.
Against a backdrop of the global funding crisis, these are risks we cannot afford to take. I would draw your attention to the words of President Obama last April, when explaining his opposition to blanket nationalisation. He said, and I quote: “Pre-emptive government takeovers are likely to end up costing taxpayers even more in the end and … are more likely to undermine than create confidence.”

So that is what President Obama thinks of the policy of blanket nationalisation. That view is shared by many countries around the world and that is strongly the view of this Government.
Additional Economic and Social benefits of NAMA

NAMA will ensure that credit flows again to viable businesses and households by cleaning the balance sheets of Irish banks. This is essential for economic recovery and the generation of employment. NAMA will ensure that we avoid the Japanese outcome of ‘Zombie banks’ that are just ticking over and not making a vibrant contribution to economic growth. NAMA will force the banks to take the losses on their riskiest loans, earlier than may otherwise be the case and leave the banks ‘cleaned up’ and better able to get on with their future business. This asset management approach protects taxpayers. The evidence from property busts in other countries shows that the longer bankers and borrowers are allowed to deny the reality of the losses they face, the greater the ultimate cost to the taxpayer and the economy more generally.

Cleaning banks’ balance sheets of their riskiest class of assets allows banks’ management to refocus the banks’ operations towards lending to small and medium-sized firms and away from property speculation.

The announcement of the decision to set up NAMA has already triggered some improvement in confidence in our economy which has lead to a reduction in the cost of borrowing for the State.
Within the legal boundaries that NAMA must operate, and notwithstanding its commercial remit, NAMA could have a role in creating balanced and desirable places to live with obvious benefits for sustainable social values. NAMA could seek to facilitate the Department of Education and the Department of Environment, Heritage and Local Government where these bodies have requirements -- for example, such as schools, parks, and so on -- which facilitate the creation of desirable developments that encourage vibrant sustainable communities. Such bodies could be given first option on disposals for a limited period, and though they would have to pay the reasonable market price required they would at least be given the first mover advantage. These bodies have sometimes been held to ransom and have had to pay inflated prices for projects such as school extensions and playgrounds.

In disposing of properties, NAMA could play a role in the provision of social and affordable housing. For example, proposals to purchase or take long leases of suitable blocks of unsold apartments or units for social and affordable housing needs can be implemented, where this can be shown to create a commercial proposition for NAMA

Key Parts of the Legislation
I would now like to deal with the main provisions of the Bill, the Bill contains over 200 sections and I propose to outline the principal aspects of each Part:
Part 1 sets out in detail the purposes of the Act and includes some general provisions such as the definitions used in the Act. It also includes a provision dealing with the sanctioning of certain offences committed under the Act.
Part 2 deals with the purposes, functions and powers of NAMA. NAMA will have all powers to enable it to achieve its purposes and to carry out its functions. In particular, NAMA will have all necessary commercial powers of a financial asset management company enabling it to take full and determined action in relation to bank assets acquired. This Part also provides for the establishment of the agency itself, the appointment of a Board and CEO and makes related provisions.
Part 3 sets out how NAMA will be financed, provides for the issuance of securities, including subordinated securities, for the purchase of bank assets. This Part also sets limits on NAMA’s borrowing powers and includes detailed measures in relation to NAMA’s accountability. In particular, NAMA must produce certain reports for me as Minister and these will be laid before the Oireachtas. NAMA will be audited by the Comptroller & Auditor General and the Bill provides for the appearance of the Chair and CEO of NAMA before Oireachtas Committees.

Part 4 provides for the designation of participating institutions eligible to have bank assets purchased by NAMA. The decision to designate will be made by me, after consultation with the Governor of the Central Bank and the Financial Regulator, having regard to a number of factors including the systemic importance of the institution to the financial system of this State and whether the designation of the institution is necessary to achieve the purposes of the Act. This Part also provides for the designation of bank assets eligible for acquisition. After consulting NAMA, the Governor of the Central Bank and the Financial Regulator, these assets will be set out in a Ministerial Order.

Part 5 sets out the methodology for the valuation of eligible assets. I have dealt in detail with the valuation process already and indicated that draft regulations to be made under section 77 will also be published today.
Part 6 provides generally for the mechanics of the acquisition by NAMA of bank assets, and makes special provision for foreign bank assets. In particular, this Part requires participating institutions to provide NAMA with certain information regarding its bank assets. This Part also provides that bank assets to be acquired by NAMA will be listed on acquisition schedules drawn up by NAMA and served on the participating institution and makes provision for the terms and conditions of acquisition. This Part includes provisions to ensure that, save in respect of excluded obligations and liabilities, NAMA steps into the shoes of the participating institutions in connection with the banks assets acquired. This Part also makes provision to govern dealings in relation to bank assets acquired or proposed to be acquired.
Part 7 sets out two appeal mechanisms for participating institutions. The first is an appeal against the inclusion of a bank asset in an acquisition schedule on the basis that the bank asset is not an eligible bank asset as defined under the Act. The second appeal relates to either the valuation of individual bank assets or the valuation of the total portfolio acquisition value (being the value paid by NAMA for all bank assets it acquires from a participating institution and its subsidiaries).
Part 8 governs the relationship between NAMA and participating institutions. It requires participating institutions to deal with NAMA in good faith. It also provides for the servicing of assets by participating institutions on NAMA’s behalf, and includes provision for the making of directions in respect of this. This Part also makes provision enabling NAMA to agree an incentivisation arrangement with the participating institutions in relation to the servicing of assets.
Part 9 gives certain powers to NAMA to allow it to effectively deal with bank assets transferred to it. NAMA will be provided with powers necessary to enforce security relating to bank assets, including the appointment of statutory receivers and NAMA can, upon receipt of a Court order, be vested with ownership of land underlying the bank asset. To deal with the danger that persons might seek to impede NAMA’s operations in particular ways, this Part also provides NAMA with very limited powers to compulsorily obtain land or interests in land.
Part 10 deals with legal proceedings. It includes provisions that will protect the operation of NAMA in particular by enabling it to elect to be substituted in proceedings and by ensuring that, where appropriate, the only remedies available are those that will not affect the bank asset.
Part 11 governs the disclosure of confidential information by participating institutions to NAMA and by NAMA to certain other bodies. This Part also generally prohibits the disclosure or use of confidential information for personal gain by NAMA staff, Board members or NAMA service providers. The Part also includes certain information sharing provisions including between NAMA and the Revenue Commissioners and between me, as Minister, the Governor of the Central Bank and the Financial Regulator.
Part 12 deals with the conduct of participating institutions and allows the Financial Regulator, with my approval as Minister, to direct participating institutions to provide certain reports. This Part also includes provision for the drafting by participating institutions of restructuring or business plans.
Part 13 covers various miscellaneous matters. These include providing that NAMA can avoid certain transactions designed to defeat, delay or hinder the acquisition by NAMA of an eligible bank asset, or to impair the value of an eligible asset. The Part also includes certain taxation related provisions and makes it an offence to lobby NAMA.
Part 14 relates to the review of NAMA’s operation. I, as Minister, may at any time require NAMA to report on the progress it has made in discharging its functions under the Act and I will assess at 31 December 2012 and thereafter every 5 years the extent to which NAMA has achieved its objectives. The Part also provides that the Comptroller and Auditor General will report at 31 December 2010 and thereafter every three years on the progress being made by NAMA in reaching its objectives.
Part 15 deals with technical amendments to certain other Acts which are generally set out in the Schedules.
The Schedules deal with a number of technical amendments to other legislation. One of the key amendments in the Schedules is in respect of the Taxes Acts and has the effect of restricting the amount of a participating institution’s taxable trading income which can be reduced by losses carried forward, including losses arising from the NAMA process.
I also propose to bring forward a number of Committee Stage Amendments. The main proposed amendment is that windfall gains on rezoned land will be subject to Capital Gains Tax at the rate of 80%.

Conclusion
Since this crisis began a year ago, the sole objective of the Government’s actions has been the common good.
The common good of this country requires, first and foremost, a return to economic growth. Economic recovery is dependent on three key factors. The first is getting the public finances back in order: that work is well underway and will be debated in this House when I bring forward the Budget in December.
The second is restoring our competitiveness by reducing our cost base. The final key ingredient is a healthy banking system that will serve the needs of the wider economy. Without a properly functioning banking system, we will not have economic recovery. It is as simple as that. Having stabilised the financial institutions over the last year, we must now move to cleanse them of their infection and return them to full health. The necessary controls have been included in our plan to ensure that the interests of taxpayers have and will be protected throughout the process of repair. And the reforms I will introduce to our regulatory and supervisory structures will ensure that there will be fair, but forceful, oversight of the banking sector.
I want to thank those in various government departments and agencies as well as my financial and legal advisors who have worked incredibly hard over the last year in highly pressured conditions to deal with this crisis. The suggestion that in setting up NAMA and in drawing up this legislation, they were somehow colluding in some conspiracy to protect narrow sectional interests is unworthy of any member of this House. Their work has been entirely in the national interest and history will show that to be the case.
Let nobody underestimate the scale of the task before us. Our banking system during the boom years was driven at reckless speeds, and when it hit the wall last September the damage was huge. Our banking system needed radical surgery. We never once shirked our responsibilities or shied away from taking bold actions when we judged that such actions were needed. Others had the luxury of indulging in abstractions and recrimination. The Government had to act and we did. Our critics say we should have done things differently. They are entitled to their views. But nobody can deny that this Government took brave and decisive steps when they were needed. We took these actions because we care about the economy and the welfare of the citizens of this country.
As President Obama said in a speech about the banking crisis in the United States earlier this year: “…whether we like it or not, history has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months -- years of low growth, years of low job creation, years of low investment, all of which cost these nations far more than a course of bold, upfront action.”
NAMA is our “bold, upfront action.” A Cheann Comhairle, I commend this Bill to the House

jmayo

ANXIOUS wrote: »

I think people should give Nama more than 12mths, before we start judging it. Nama can't lose money people forget that any loss made by Nama will be re-couped by a bank levy.

Another one of the big Fallacies.
How can you regain money from Anglo or INBS ?
We own the feckers, they are dead ducks and may even be wound down.

So will we add another tax onto taxpayers burden and call it something like "the bank levy tax" ?

hinault wrote: »

... As President Obama said in a speech about the banking crisis in the United States earlier this year: “…whether we like it or not, history has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months -- years of low growth, years of low job creation, years of low investment, all of which cost these nations far more than a course of bold, upfront action.”
NAMA is our “bold, upfront action.” A Cheann Comhairle, I commend this Bill to the House

So he read this out in his speech thus I presume he realised they needed to take bold action to get credit flowing, etc.

And what have we got 8 months later, nearly 3 years on from the credit crunch ?
Where is all the credit that this bold action was going to set pouring out into the Irish economy to keep small historically productive entreprises afloat ?
Oh wait silly me, we are pouring the money the other way into two failed non productive enterprises, Anglo and INBS.

hinault

You can't trust even the so-called FF goodguys like Lenihan.

This economy is banjaxed.

Scarab80

Fr0g wrote: »

I'm with Peter Mathews. He knows better than most what is wrong with NAMA

http://bankermathews.com/nama-whats-wrong/



Best case scanario: loss of 10 bn
worst case: loss of 26 bn

Seeing as the loans purchased will be about 81bn for consideration of about 40bn he is already off by 20bn before he has even started. IIRC these are figures from a long time ago before discounts were announced.

If leaks from the updated NAMA business plan are to be believed the range of NAMA will be from -200m to +2bn. Even at -200m there will be no cost to the taxpayer because of the issue of subordinated bonds to the banks which can be defaulted on.

Scarab80

NAMA Business Plan here

Quarterly Report to 31 March 2010 here

ei.sdraob

says june 2010

I clearly remember reading a NAMA business plan last autumn

i wonder what changed... cough cough

Scarab80

ei.sdraob wrote: »

says june 2010

I clearly remember reading a NAMA business plan last autumn

i wonder what changed... cough cough

Due dilligence.

AlekSmart

I also note that NAMA has received the endorsement of two distinguished predecessors of mine: Ray McSharry and Alan Dukes.
Both men sat at the desk I currently occupy at another period of great peril for the economic life of this country. Given their record of service, I think their assessment is deserving of our respect.

This snip from the NAMA setup speech is,I think,of no little significance.

It also defines perhaps,the swagger of Mr Dukes as he brushed off Shane Ross`s attempts to get a direct answer to a perfectly sensible question.

There is for sure something rotten in our State of Denmark and it involves a select few who still pose as "Statesmen".

oceanclub

Scarab80 wrote: »

It would have to get closer to 35% for the taxpayer to make a loss, due to the issue of 5% subordinated bonds.

Well, the figure on RTE News tonight was 25% - far worse than you expected.


http://www.rte.ie/news/2010/0706/banks.html

NAMA has published its revised business plan that suggests that 25% of loans are producing income for the agency.

The original business plan published last October assumed that 40% of the acquired loans would be income-producing.

On the assumption that NAMA recovers all of the money it pays out, it now estimates it will produce €1bn in profit at the end of ten years.

I'm still not sure how you can have 75% of loans not pay anything and still make a profit.


P.

Sand

Scarab - I have to give you credit, you are relentlessly, almost satirically positive on NAMA and the wonderful minds that have brought it to us regardless of reality. A lesser man would have been crushed by the chill winds of reality.

I feel reassured by your positive posts that the same minds that delivered ecoli into the drinking water of the people of Galway will deliver profits for the taxpayer in NAMA.

Due dilligence.

Yeah, yeah, due dilligence. Thats reassuring, due dilligence. NAMA taking a long hard look at the deals. Just a shame due dilligence occured *after* we had paid for the trash. Oh well, lessons learnt, right? Every cloud has a silver lining.

subordinated bonds to the banks which can be defaulted on.

Government policy to this point has been that no bonds can be defaulted on. At all. All bonds, private or state are considered to be Irish government bonds implicitly, and now explicitly under the guarantee. Do you really, really, really think that the government will default on bonds?

Dont answer that, I already know you do.

@oceanclub

I'm still not sure how you can have 75% of loans not pay anything and still make a profit

Clearly ocean, you just arent smart enough to understand the intricacies of the NAMA business plan. Just leave it to your betters to sort it out. Keep paying your taxes and watch Britains got Talent.

hinault

Re-reading Minister Lenihans speech, it is clear that nothing has been learned in the interim.

The fact of the matter is that discounts under this NAMA plan, required the State to provide more money in terms of recapitalising the banks for the loans taken on to the States books.
Galling as this is, the situation is now compounded by the fact that the loans taken on to the States book appear to be very risky.
And remember these were deemed to be the better class of loans taken on in the first tranche.

What is the state of the loans to be transferred in subsequent tranches?
Are these loans even more delinquent than the loans in the first tranche?
Who knows.

Either way, the liability continues to tick up on the States balance sheet.

I opposed NAMA from it's inception and nothing I have seen since convinces me to alter that opinion.

Incidentally, the banks have still not started to extend credit in any meaningful or responsible way.

noodler

hinault wrote: »

Re-reading Minister Lenihans speech, it is clear that nothing has been learned in the interim.

The fact of the matter is that discounts under this NAMA plan, required the State to provide more money in terms of recapitalising the banks for the loans taken on to the States books.
Galling as this is, the situation is now compounded by the fact that the loans taken on to the States book appear to be very risky.
And remember these were deemed to be the better class of loans taken on in the first tranche.

What is the state of the loans to be transferred in subsequent tranches?
Are these loans even more delinquent than the loans in the first tranche?
Who knows.

Either way, the liability continues to tick up on the States balance sheet.

I opposed NAMA from it's inception and nothing I have seen since convinces me to alter that opinion.

Incidentally, the banks have still not started to extend credit in any meaningful or responsible way.

How people can wholeheartidly dismiss NAMA is beyond me.

Some sort of scheme was surely essential for BOI and AIB.

INBS and Anglo on the otherhand - well thats where the whole operation should surely have been more limited in scope.

lmimmfn

noodler wrote: »

How people can wholeheartidly dismiss NAMA is beyond me.

Some sort of scheme was surely essential for BOI and AIB.

INBS and Anglo on the otherhand - well thats where the whole operation should surely have been more limited in scope.

dumping all that junk and setting up a good bank funded by the government to keep the economy going would have been a much better idea

AIB and BOI are dead dogs, they'll only survive because of NAMA, they were privately run and should have suffered the consequences of their actions, likewise the bond and shareholders should have suffered. Each with 20+ years of huge profits and they need taxpayers money to sort out their mess and afterwards will continue to have massive profits.

noodler

lmimmfn wrote: »

dumping all that junk and setting up a good bank funded by the government to keep the economy going would have been a much better idea

AIB and BOI are dead dogs, they'll only survive because of NAMA, they were privately run and should have suffered the consequences of their actions, likewise the bond and shareholders should have suffered. Each with 20+ years of huge profits and they need taxpayers money to sort out their mess and afterwards will continue to have massive profits.

No argument on the shareholder losses, we should be in full control already given what we have pumped in. Bondholders should share in the pain as well naturally, it still wouldn't have been enough to keep them open.

One bank in the country has its own problems.

Anyway, it is extremely murky after that but why the bondholders weren't forced to take hits is fairly reprehensible.

hinault

lmimmfn wrote: »

dumping all that junk and setting up a good bank funded by the government to keep the economy going would have been a much better idea

AIB and BOI are dead dogs, they'll only survive because of NAMA, they were privately run and should have suffered the consequences of their actions, likewise the bond and shareholders should have suffered. Each with 20+ years of huge profits and they need taxpayers money to sort out their mess and afterwards will continue to have massive profits.

Exactly.

Any bank which was/is insolvent should be allowed to die.
AIB and BOI were/are insolvent.
How many times have we bailed out AIB?
This is the third time that I can recall.

INBS and Anglo were so far in to the manure that no amount of money can turn them around.

In the time since September 2008 (and I would guess that the Irish banks were insolvent when the original international crisis broke in August 2007), the billions poured in to the banking system could have been used to set up another bank.

Scarab80

oceanclub wrote: »

Well, the figure on RTE News tonight was 25% - far worse than you expected.

The rate we were talking about was the default rate, the new business plan does not give any more information about the default rate. The 25% is the performing loan rate.

oceanclub wrote: »

I'm still not sure how you can have 75% of loans not pay anything and still make a profit.

P.

A performing loan is a loan that is paying interest and principal repayments, i would assume that a lot of the loans are interest only.

You were saying that the new business plan was going to show a 5bn difference from the original plan. In fact the updated cash flows from the most likely scenario are 1.28bn less, the rest of the difference being made up in an increased discount factor for NPV.

hinault

noodler wrote: »

How people can wholeheartidly dismiss NAMA is beyond me.

Some sort of scheme was surely essential for BOI and AIB.

INBS and Anglo on the otherhand - well thats where the whole operation should surely have been more limited in scope.

No.

The only protection that should have been offered to any of the Irish banks was that the deposits of ordinary people should have been protected.

Anything else concerning the banks should have been left to market forces to deal with as they may.

Scarab80

Sand wrote: »

Scarab - I have to give you credit, you are relentlessly, almost satirically positive on NAMA and the wonderful minds that have brought it to us regardless of reality. A lesser man would have been crushed by the chill winds of reality.

I could say the same about you in the negative. Despite what you might think I am not blindly attached to NAMA and will happily change my opinion if a better course of action could be shown. I try to form my opinions on the basis of information available and frequently reference it in my posts. The alternative seems to be to assume that the world is going to hell in a hand basket and the best solution would be to go and lock ourselves in the garden shed until it all blows over.

Sand wrote: »

I feel reassured by your positive posts that the same minds that delivered ecoli into the drinking water of the people of Galway will deliver profits for the taxpayer in NAMA.

I'm not sure I understand what Galway County Council has to do with it???

Sand wrote: »

Yeah, yeah, due dilligence. Thats reassuring, due dilligence. NAMA taking a long hard look at the deals. Just a shame due dilligence occured *after* we had paid for the trash. Oh well, lessons learnt, right? Every cloud has a silver lining.

First - less than 20% of the total loans have been transferred and bonds issued to date.

Second - under Section 90 of the NAMA legislation there is a provision for clawback of bonds issued where it is found that NAMA has overpaid for an asset.

Sand wrote: »

Government policy to this point has been that no bonds can be defaulted on. At all. All bonds, private or state are considered to be Irish government bonds implicitly, and now explicitly under the guarantee. Do you really, really, really think that the government will default on bonds?

This shows a complete lack of understanding as to how NAMA works. 5% of the bonds issued are explicitly subordinated and will only be repaid if there is sufficient funds in the NAMA SPV on wind up. This clearly does not amount to a soverign default as the only holders are the banks, who would not be able to use these bonds as collateral for ECB loans.

Can i ask you, what do you think the losses from NAMA are going to be and what do you think would have been a better course of action if NAMA were not enacted.

noodler

hinault wrote: »

No.

The only protection that should have been offered to any of the Irish banks was that the deposits of ordinary people should have been protected.

Anything else concerning the banks should have been left to market forces to deal with as they may.

Well many economists disagree with you there.

I haven't met any economist who advocated just letting BOI and AIB fail, most of they just feel we should have gotten full ownership of the banks from the get go. As it is, the taxpayer has paid in a fortune to keep them going and has recieved a pittance in terms of ownership - all the risk and none of the benefit.

Scarab80

hinault wrote: »

Exactly.

Any bank which was/is insolvent should be allowed to die.
AIB and BOI were/are insolvent.
How many times have we bailed out AIB?
This is the third time that I can recall.

Strange then that shares are trading hands every day in these banks, maybe you know something that the markets don't?

3rd time? There was 3.5bn issued as preference shares, the coupon on these shares was paid in ordinary shares because of EU rules. Then NAMA, which couldn't be regarded as a bailout in the same way as the 3.5bn injection was.

hinault wrote: »

In the time since September 2008 (and I would guess that the Irish banks were insolvent when the original international crisis broke in August 2007), the billions poured in to the banking system could have been used to set up another bank.

Hindsight is always 20-20 and it's very easy to make these kind of statements once the truth has been revealed. Can you show me any posts where you were warning about the solvency of irish banks back in 2007?

By the way only Anglo and INBS have gone insolvent, all other injections were to maintain liquidity and capital requirements.