I thought I understood NAMA

8kvscdpglqnyr4

I hope someone can explain what's going on with NAMA - I thought I understood it but I was out for dinner over the weekend with friends and one of them is an accountant for a company who is now in NAMA - what she had to say left me very confused

It's best to give the example as she explained it to me:
Lets say the developer in question had a €100 million loan from Anglo and this loan was destined for NAMA. When a haircut of 60% was applied to the loan, NAMA acquired the loan from Anglo for €40 million. So at this point, NAMA have expenses of €40 million on their books as that's what they paid to acquire the "product" from Anglo. The developer must now repay NAMA the €40 million and the developer has nothing whatsoever to do with Anglo any more.

Is that correct? Does the developer only have to repay €40 million euros? Up until last night it was always my understanding the developer would have to try to repay €100 million to NAMA.

Thanks!

hinault

Peter Salty Roadrunner wrote: »

I hope someone can explain what's going on with NAMA - I thought I understood it but I was out for dinner over the weekend with friends and one of them is an accountant for a company who is now in NAMA - what she had to say left me very confused

It's best to give the example as she explained it to me:
Lets say the developer in question had a €100 million loan from Anglo and this loan was destined for NAMA. When a haircut of 60% was applied to the loan, NAMA acquired the loan from Anglo for €40 million. So at this point, NAMA have expenses of €40 million on their books as that's what they paid to acquire the "product" from Anglo. The developer must now repay NAMA the €40 million and the developer has nothing whatsoever to do with Anglo any more.

Is that correct? Does the developer only have to repay €40 million euros? Up until last night it was always my understanding the developer would have to try to repay €100 million to NAMA.

Thanks!

We were told at the time, using your figures as an example, that the developer would be pursued for €40m by NAMA and that Anglo would chase the €60m balance.

That's what we were told ie.the developer would have to meet the full extent of his liabilities.

Seth Brundle

My understanding of it was that the developer owes NAMA the full amount, i.e. the 100 million.

Dj Stiggie

hinault wrote: »

We were told at the time, using your figures as an example, that the developer would be pursued for €40m by NAMA and that Anglo would chase the €60m balance.

That's what we were told ie.the developer would have to meet the full extent of his liabilities.

But that's not going to happen is it?

I actually thought NAMA was meant to buy the loan, also using the same figures, but they were allowed pursue the full amount of the loan, but the likely-hood of them ever getting it was incredibly unlikely

themadchef

That cant be right or the big developers would be getting away with murder....................

oh wait.

Scarab80

hinault wrote: »

We were told at the time, using your figures as an example, that the developer would be pursued for €40m by NAMA and that Anglo would chase the €60m balance.

That's what we were told ie.the developer would have to meet the full extent of his liabilities.

No the full amount of the loan was always due to NAMA.

Some confusion may arise as NAMA recognise the loan as 40m in their accounts but this is the same as a bank creating a bad loss provision to record the loan at the expected recoverable amount. Similarly NAMA record interest receiveable on the basis of expected interest to be received.

All loans and interest are due in full, however the loans will not be recovered in full - otherwise we wouldn't be having a banking crisis - so they are recorded at their expected return value.

jimmycrackcorm

The whole amount is owed to NAMA. The banks have taken their loss on the loans due to the discount. Now NAMA is holding the loans for a longer term view to try to make a profit on some of them with the idea that it can balance out the worst cases.

Ideally it is looking to get the full amount repaid but realistically that is not going to happen so they're treating them as such. If there is no hope in hell if a developer repaying a €100m loan then they can only get what they can.

hinault

Scarab80 wrote: »

No the full amount of the loan was always due to NAMA.

Some confusion may arise as NAMA recognise the loan as 40m in their accounts but this is the same as a bank creating a bad loss provision to record the loan at the expected recoverable amount. Similarly NAMA record interest receiveable on the basis of expected interest to be received.

All loans and interest are due in full, however the loans will not be recovered in full - otherwise we wouldn't be having a banking crisis - so they are recorded at their expected return value.

Thanks.

In principle, the total sum owed by the developer is in theory going to be pursued.
Whether the amount owed can ever be collected is another thing.

A Dub in Glasgo

In other words, the bank gets 40% of the loan and NAMA chases the developer for the 40%. The taxpayer willingly takes the remaining 60% and also covers the original 40%.

Great way to look after those tented buddies eh?

peasant

The way I understand it, the taxpayer actually gets shafted several times over.

The 100 m loan on Anglo's books goes to Nama at 40m, leaving Anglo 60m short ...therefore Anglo need recapitalising for some fraction of the 60m ...which the taxpayer pays = SHAFT I

Nama tries to re-coup 100m from the developer but it turns out that all his assets are now owned by his relatives, his pockets are empty. The taxpayer has to put 40m back into Nama's koffers = SHAFT II

To top it all up, all these transactions cost legal fees, consultants fees and wages for Nama employees, taxpayer has to fork out for those as well = SHAFT III

Between these three, depending on how bad the loan was (and how good the developer was at hiding what's left of it) the taxpayer will most likely end up paying close to the starting sum of 100m anyway.

And if not, then there is always SHAFT IV: Any future gain in the value of the bad loan will come on the back of recovered (read increased or even inflated) property prices. So if the 100m loan actually ends up being worth 100m (or 100m + x) in 10 - 20 years and NAMA recovers the cost or even turns a "profit"...guess who will have to pay for that through over-inflated prices for property, services and associated costs ?

P. Breathnach

A Dub in Glasgo wrote: »

In other words, the bank gets 40% of the loan and NAMA chases the developer for the 40%. The taxpayer willingly takes the remaining 60% and also covers the original 40%.

Great way to look after those tented buddies eh?

Except that what you have just said is wrong.

Scarab80

peasant wrote: »

Nama tries to re-coup 100m from the developer but it turns out that all his assets are now owned by his relatives, his pockets are empty. The taxpayer has to put 40m back into Nama's koffers = SHAFT II

Most loans transferred are property based loans, i.e. the deeds are held by the bank so property can't be transferred. Many loans backed by personal guarantees (where the developer can transfer assets) have been transferred to NAMA at 100% haircut - as I understand it principally because the banks were so reckless that they did not realise that one developer had so many loans with different banks that personal guarantees became worthless. If a developer retains and transfers assets legislation MUST be enacted to reverse these transactions on the basis that it impinges on the personal guarantee given to the bank at the time the loan was made.

peasant wrote: »

To top it all up, all these transactions cost legal fees, consultants fees and wages for Nama employees, taxpayer has to fork out for those as well = SHAFT III

There was a 5% deduction included in the haircut for enforcement costs.

peasant wrote: »

Between these three, depending on how bad the loan was (and how good the developer was at hiding what's left of it) the taxpayer will most likely end up paying close to the starting sum of 100m anyway.

Fitch in downgrading Ireland's soverign rating this week have said that NAMA is likely to break even.

peasant wrote: »

And if not, then there is always SHAFT IV: Any future gain in the value of the bad loan will come on the back of recovered (read increased or even inflated) property prices. So if the 100m loan actually ends up being worth 100m (or 100m + x) in 10 - 20 years and NAMA recovers the cost or even turns a "profit"...guess who will have to pay for that through over-inflated prices for property, services and associated costs ?

I don't think anyone is expecting a recovery to the peak of the bubble in the short to medium term, NAMA is based on 10% increase in 10 years.

skelliser

Breaking even for NAMA is recouping the 40million.
If NAMA recoups 41million that extra 1 million is "profit". In reality its not.
If NAMA gets its 40 it wont bother pursuing the rest.There is no incentive to pursue the full amount.

Remember we the tax payer have recapitalised the bank with the balance of 60million.

Its generally accepted that NAMA will not even break even now.

Nice little SCAMA.

Scarab80

skelliser wrote: »

Its generally accepted that NAMA will not even break even now.

http://www.belfasttelegraph.co.uk/news/local-national/republic-of-ireland/nama-likely-to-break-even-predicts-top-credit-agency-14969345.html

P. Breathnach

skelliser wrote: »

... If NAMA gets its 40 it wont bother pursuing the rest....

On what basis do you make that claim?

ArtSmart

skelliser wrote: »

Breaking even for NAMA is recouping the 40million.
If NAMA recoups 41million that extra 1 million is "profit". In reality its not.
If NAMA gets its 40 it wont bother pursuing the rest.There is no incentive to pursue the full amount.

Remember we the tax payer have recapitalised the bank with the balance of 60million.

Its generally accepted that NAMA will not even break even now.

Nice little SCAMA.

Scama -lol. nice one.

yeah, however the idea is that the money invested in the banks from which we get preference shares will give a return for the 'investment' - maybe (edit, a very big maybe, and a big no for Anglo - though Nama assets might balance that out. Overall, 'twill be pretty tight, to say the least)

As for incentive, Nama is a harvesting machine, it will operate as such until all juice is extracted, unless their is political interference in years to come (which is possible, but probably unlikely)

skelliser

P. Breathnach wrote: »

On what basis do you make that claim?

What political motivation is there to pursue the full amount?

ArtSmart

skelliser wrote: »

What political motivation is there to pursue the full amount?

none. and hopefully it'll stay that way.

8kvscdpglqnyr4

Thanks for all the replies.

Scarab80 wrote: »

No the full amount of the loan was always due to NAMA.

The accountant I was talking to at the weekend was adamant that her boss (the developer) only had to repay €40 million on an initial €100 million loan.

Scarab80 wrote: »

Similarly NAMA record interest receiveable on the basis of expected interest to be received.

But she said all repayments/interest were based on a loan of €40 million - there was no mention of €100 million anymore!

I'm completely shocked if this is the case. Is there any official information on how NAMA will operate?

SkepticOne

She is wrong. The full 100 million is oweable. Where people have a problem is that when the developer goes bust the taxpayer is left holding properties and land of very little value and will never see anything near the 100 million in a lot of cases.

Seth Brundle

SkepticOne wrote: »

She is wrong. The full 100 million is oweable. Where people have a problem is that when the developer goes bust the taxpayer is left holding properties and land of very little value and will never see anything near the 100 million in a lot of cases.

Isn't it strange that someone who works as an accountant for a company who is now in NAMA doesn't understand the basic principle for NAMA?
One wonders how they ended up in NAMA! :rolleyes:

ei.sdraob

Scarab80 wrote: »

NAMA is based on 10% increase in 10 years.

10% increase from November 2009 levels may I add, prices fell since then and still falling, so good luck meeting that target

SkepticOne

kbannon wrote: »

Isn't it strange that someone who works as an accountant for a company who is now in NAMA doesn't understand the basic principle for NAMA?
One wonders how they ended up in NAMA! :rolleyes:

Or it could be that internally they are operating a policy whereby developers pay reduced interest based on the amount of writedown on the loans.

Nijmegen

In the very best case scenario we break even in the end.

But ask any good businessman about profit and loss and he'll tell you 'cashflow is more important'.

Cashflow in this case is the bondholders that lend us money on the markets to keep the lights on, and their confidence in Ireland.

Ireland Inc cannot - or can barely - afford the cashflow requirements to service all this stuff.

Even the greatest business that has fantastic growth can be strangled in its crib by a lack of steady cashflow.

xavidub

peasant wrote: »

The way I understand it, the taxpayer actually gets shafted several times over.

The 100 m loan on Anglo's books goes to Nama at 40m, leaving Anglo 60m short ...therefore Anglo need recapitalising for some fraction of the 60m ...which the taxpayer pays = SHAFT I

Nama tries to re-coup 100m from the developer but it turns out that all his assets are now owned by his relatives, his pockets are empty. The taxpayer has to put 40m back into Nama's koffers = SHAFT II

To top it all up, all these transactions cost legal fees, consultants fees and wages for Nama employees, taxpayer has to fork out for those as well = SHAFT III

Between these three, depending on how bad the loan was (and how good the developer was at hiding what's left of it) the taxpayer will most likely end up paying close to the starting sum of 100m anyway.

And if not, then there is always SHAFT IV: Any future gain in the value of the bad loan will come on the back of recovered (read increased or even inflated) property prices. So if the 100m loan actually ends up being worth 100m (or 100m + x) in 10 - 20 years and NAMA recovers the cost or even turns a "profit"...guess who will have to pay for that through over-inflated prices for property, services and associated costs ?

Could be a Shaft 6 as well. Some of the developers were involved in PPP projects for toll roads.

The contracts given to these companies generously guaranteed a level of traffic and therefore tolls. If the numbers of road users hugely exceeded this guarantee the developer gets to keep the money, no matter how much.
If however the number of road users fell below the guarantee (and the level was set at the number of people using the road in the biggest boom ever-good idea) then the taxpayer has to pay the balance of uncollected tolls.
So, having given billions to some developers to pay off their loans, we will end up giving them millions in toll fees over the next 20-30 years.

That was one very expensive tent at the Galway races. Instead of the usual practice of naming new hospitals, schools etc after politicians we should name derelict sites and empty fields after the Fianna Fail politicians who stole this infrastructure from us.

sensibleken

So if the developer only pays back 40 million. The taxpayer, having bailed out the bank looses 60 million?

Scarab80

Peter Salty Roadrunner wrote: »

Thanks for all the replies.


The accountant I was talking to at the weekend was adamant that her boss (the developer) only had to repay €40 million on an initial €100 million loan.


But she said all repayments/interest were based on a loan of €40 million - there was no mention of €100 million anymore!

I'm completely shocked if this is the case. Is there any official information on how NAMA will operate?

This is the relevant part of the legislation....

11.—(1) In order to achieve its purposes, NAMA shall perform the following functions:
(a) acquire, in accordance with Part 6, such eligible bank assets from participating institutions as it considers necessary or desirable for achieving its purposes;
(b) hold, manage and realise acquired bank assets (including the collection of interest, principal and capital due, the taking or taking over of collateral where necessary and the provision of funds where appropriate);
(c) perform such other functions, related to the management or realisation of acquired bank assets, as the Minister directs pursuant to section 14;
(d) take all steps necessary or expedient to protect, enhance or realise the value of acquired bank assets, including—
(i) the disposal of loans or portfolios of loans in the market for the best achievable price,
(ii) the securitisation or refinancing of portfolios of loans, and
(iii) holding, refinancing, realising and disposing of any relevant security.

Legally the developer is definitely still liable.

K-9

ei.sdraob wrote: »

10% increase from November 2009 levels may I add, prices fell since then and still falling, so good luck meeting that target

The haircut being applied is more severe than people predicted back then though, particularly the biggest critics. Not that it really matters anyway as we end up needing more capital for the banks.

ei.sdraob

K-9 wrote: »

The haircut being applied is more severe than people predicted back then though, particularly the biggest critics. Not that it really matters anyway as we end up needing more capital for the banks.

The whole haircut thing is irrelevant anyways and just a sideshow to distract us, since the remainder has to be paid in directly.

K-9

ei.sdraob wrote: »

The whole haircut thing is irrelevant anyways and just a sideshow to distract us, since the remainder has to be paid in directly.

But it is relevant to the post you made.

Prices have fallen since a year ago, so has the price paid by NAMA, substantially dropped from the 60/65% estimation of that time.

unit 1

peasant wrote: »

The way I understand it, the taxpayer actually gets shafted several times over.

The 100 m loan on Anglo's books goes to Nama at 40m, leaving Anglo 60m short ...therefore Anglo need recapitalising for some fraction of the 60m ...which the taxpayer pays = SHAFT I

Nama tries to re-coup 100m from the developer but it turns out that all his assets are now owned by his relatives, his pockets are empty. The taxpayer has to put 40m back into Nama's koffers = SHAFT II

To top it all up, all these transactions cost legal fees, consultants fees and wages for Nama employees, taxpayer has to fork out for those as well = SHAFT III

Between these three, depending on how bad the loan was (and how good the developer was at hiding what's left of it) the taxpayer will most likely end up paying close to the starting sum of 100m anyway.

And if not, then there is always SHAFT IV: Any future gain in the value of the bad loan will come on the back of recovered (read increased or even inflated) property prices. So if the 100m loan actually ends up being worth 100m (or 100m + x) in 10 - 20 years and NAMA recovers the cost or even turns a "profit"...guess who will have to pay for that through over-inflated prices for property, services and associated costs ?

Here's SHAFT IV Nama are reportedly paying a salary (inflated:rolleyes:) to some of these clients as well.

K-9

This might shed more light on it:

Nama secures first judgement against property developers | BreakingNews.ie

National Asset Management Agency (Nama) has today, for the first time, taken legal action against some of the country's most high-profile developers.

The Commercial Court has delivered judgement against Paddy Shovlin and brothers Anthony and Patrick Fitzpatrick regarding loans worth more than €60m.

Nama is looking for more than €50m that Bank of Ireland loaned to companies associated with Paddy Shovlin and the Fitzpatrick brothers and almost €13m that Ulster bank gave them.

The Commercial Court heard some of the monies were used to refinance the Bank of Ireland headquarters on Baggot street in Dublin and the Beacon South Quarter.

Mr Shovlin is guarantor for 50% of the amount owed, while the Fitzpatrick brothers are liable for 25% each.

Today was the first time that Nama had used its power to bring such debt enforcement proceedings.

Mr Justice Peter Kelly delivered judgement against Mr Shovlin and the Fitzpatricks, saying that it had not been a good day for them.



It appears to me that they went after the full amount, or near it.

ei.sdraob

K-9 wrote: »

But it is relevant to the post you made.

Prices have fallen since a year ago, so has the price paid by NAMA, substantially dropped from the 60/65% estimation of that time.

But the debt is still there at full bubble levels it didnt go anywhere, instead requiring direct injections in banks using money being borrowed at high rates and by issuing IOUs on which the banks could come knocking on the door at anytime asking for cash.

oh and didnt NAMA promise no nationalisation and a wall of credit as well

Nijmegen

Hang on, BoI loaned money that was used to develop BoI's HQ? Am I reading that right?

peasant

ei.sdraob wrote: »

oh and didnt NAMA promise no nationalisation and a wall of credit as well

...and that would be "SHAFT, the musical" or "SHAFT on ice"

K-9

ei.sdraob wrote: »

But the debt is still there at full bubble levels it didnt go anywhere, instead requiring direct injections in banks using money being borrowed at high rates and by issuing IOUs on which the banks could come knocking on the door at anytime asking for cash.

oh and didnt NAMA promise no nationalisation and a wall of credit as well

So it doesn't really matter that prices dropped then? The debt is still there, regardless of house prices.

I don't think NAMA promised anything like that, NAMA is doing what it has to do. It could have offered far less of a haircut but the Nammers would then be Namming about them paying far too high a price.

Nijmegen wrote: »

Hang on, BoI loaned money that was used to develop BoI's HQ? Am I reading that right?

Yep, to the developers.

Sand

@K-9

So it doesn't really matter that prices dropped then? The debt is still there, regardless of house prices.

I don't think NAMA promised anything like that, NAMA is doing what it has to do. It could have offered far less of a haircut but the Nammers would then be Namming about them paying far too high a price.

It does matter that prices dropped. Because the debt we are owed is due from property developers who have taken the money and spent it on bad deals where they are not going to make the money back. If they cant make the money back, they arent going to be able to pay us back.

The idea that the "debt is still there" is just moralising. If we cant recover it, we cant recover it. So whilst nominally, the money might still be owed, well be lucky to see 20% of it recovered.

ei.sdraob

K-9 wrote: »

So it doesn't really matter that prices dropped then? The debt is still there, regardless of house prices.

I don't think NAMA promised anything like that, NAMA is doing what it has to do. It could have offered far less of a haircut but the Nammers would then be Namming about them paying far too high a price.



Yep, to the developers.

The main purpose (there were other pluses used by proponents) of NAMA was to take toxic loans of the banks so they return to lending, a way of injecting them money without them being nationalised and sidestepping EU rules on aid.

Obviously enough that hasn't happened and the banks are not lending some say.
As I already noted, all the talk of haircuts is irrelevant to us the taxpayer,
since from our point of view whatever haircut NAMA gives we the taxpayers pony up the remainder in direct injections, as has happened (and no signs on stopping).

ei.sdraob

Sand wrote: »

The idea that the "debt is still there" is just moralising. .

I wouldn't call directly injecting billions into banks which are now nationalised/mostly nationalised as "moralising"

Robbery would be an appropriate word. The debt was dumped on top of the taxpayers and citizens of this country who will pay for it directly and indirectly for long time to come.

All while the economy continues to stagnate 2 years on, with even more uncertainty and fear sprinkled on top.

K-9

ei.sdraob wrote: »

Obviously enough that hasn't happened and the banks are not lending some say.
As I already noted, all the talk of haircuts is irrelevant to us the taxpayer,
since from our point of view whatever haircut NAMA gives we the taxpayers pony up the remainder in direct injections, as has happened (and no signs on stopping).

I also noted that the degree of haircut is basically irrelevant.

Where it is relevant is that the picture has changed since a year ago. NAMA initially expected a 10% increase in prices over 10 years.

You rightly pointed out that prices have dropped since then, but said good luck in meeting that target.

They don't need to reach that target as the haircut is much greater than expected then.

ei.sdraob

Yes you right, seems the whole purpose of NAMA has changed in last few months as the scale of the problem became apparent, makes you wonder why they didn't do an audit or whatever first before starting the transfer process.

2 years on we still dont know the full scale of the banking problem and their loans, having the likes of Anglo lying surely didn't help.

aside: I think the secrecy coupled with power and the amounts of money involved will ensure NAMA will be rife for all sorts of wasteful and corrupt schemes, leading to tribunals decade from now.

Scarab80

K-9 wrote: »

I also noted that the degree of haircut is basically irrelevant.

Where it is relevant is that the picture has changed since a year ago. NAMA initially expected a 10% increase in prices over 10 years.

You rightly pointed out that prices have dropped since then, but said good luck in meeting that target.

They don't need to reach that target as the haircut is much greater than expected then.

Not really, the haircut is a reflection of the real value of the loans at 30 November 2009. It is higher than first expected because the banks were in lala land when they came up with the estimated 30% haircut. There was still a LTEV calculation applied to the loans at that date so NAMA has to make up the LTEV and the fall since Nov.

Mitigating this is the fact that 1/3 of the loans relate to property outside Ireland (mainly UK and US) where property values have increased since Nov 09 and there is talk that NAMA have been undervaluing property - as claimed by Paddy McKillen and evidenced by Irish developers making some profits in recent sales in the UK (Joe O'Reilly, Derek Quinlan and Paddy McKillen)

The difference in recognising full loan losses up front in NAMA or leaving them in the banks is that the full cost is recognised via NAMA, if left to the banks they may take years to fully recognise the losses as happened in Japan and gave rise to a 10 year deflationary spiral. Further an aim was to recapitalise with private funds, obviously this has not worked with AIB but BOI and EBS have attracted funds.

dunsandin

To illustrate what boll0x this all is, I have a friend, a guy I know for 20+ years, someone I like, who owes the banks €70 million plus. I met him in Lidl the other day and we chatted, and from what I gathered, €70 thousand in repayments would be a big stretch, and if you wanted it in cash, €70 would be piling on the pressure.
So best of luck NAMA, and best of luck the Taxpayer, cos we're going to be trying that great old trick-blood from stones. The Taxpayer will pick up the bill, nothing surer, and all the rest is just telling your mammy that your test results weren't that bad, because everyone else failed it as well - ie window dressing.
The Taxpayer will pick up 99% of the bill, nothing surer. Nama is not so much a scam as a way to dress up a disaster so as not to scare the horses. And to anyone who says it is not so, I say, Neeeigh.

View

NAMA is a bit like cutting edge modern physics.

If you think you understand it, you haven't a clue what is going on.

Seth Brundle

ei.sdraob wrote: »

2 years on we still dont know the full scale of the banking problem and their loans, having the likes of Anglo lying surely didn't help.

IMO it is because they don't want you to know the full scale!

ei.sdraob wrote: »

aside: I think the secrecy coupled with power and the amounts of money involved will ensure NAMA will be rife for all sorts of wasteful and corrupt schemes, leading to tribunals decade from now.

Corruption?
In Ireland?
With FF in charge?
You can take it for granted!