I thought I understood NAMA

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.

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

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.

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.

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 ?

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 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

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 wrote: »

What political motivation is there to pursue the full amount?

none. and hopefully it'll stay that way.

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.

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 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.