NAMA – A Monopoly On Stupidity – €12bn gift to the banks!

November 5, 2009


(italics denote my own comments into quoted text)

You’ll be sorry to hear these blogs on the topic of NAMA will soon end. Currently NAMA is going through final amendment/committee stages in the Dail. A welcome development has been the agreement to set up a committee to scrutinise the operations of NAMA on a regular ongoing basis. How this committee will be empowered to look beneath the security and confidentiality protocols used by NAMA is not yet apparent.

It was interesting to listen to An Taoiseach, Brian Cowen, speak this morning on the occasion of the 25th anniversary of Morning Ireland on radio 1 this morning. In relation to the financial crisis we are in, he used phrases like ‘taking control of our own destiny’ along with a favorite of his ‘open, equitable and fair’ all used in the context of the united actions we all need to take to tackle the crisis.

The problem is Cowen shows a strange Jekyll and Hyde personality when it comes to dealing with the banks. He turns into the misanthropic Mr Hyde with a contempt for the general taxpayer when he deals with the banks. How is this so?

I believe this is explained with reference to a failure in competence in the Department of Finance. Dept Finance should have overseen the institution of a proper regulatory body to oversee the antics of our wild banks, but they didn’t do it! Dept Finance mandarins should have been able to raise their game to look to best practice in Sweden/UK/US equity in ‘return for investment’ models, but they didn’t. Instead, they ran for cover and sought advice from the bankers themselves, both Irish and European. They washed their hands of it and handed the reins over to Europe and our wild west bankers.

The best solution for the banks, not the best solution for the taxpayer, was to persuade the Irish Government and Europe to back a plan to take away the toxic assets. It was not in the interest of the European Central Bank to have a small country like Ireland challenge the bond holders and threaten to default on loans advanced to the banks. The logic of nationalization means risk for the ECB and a potential threat of default on loans advanced, whereas the NAMA model means more support for the bankers and shareholders of the Irish banks and thus a greater degree of safety for the dig out support of the ECB for the Irish banks through NAMA. Its ironic Brian Lenihan appears regularly alongside EU commission supporters of his NAMA policy, they are the guardians of their own interests, the banks, and these are not the same interests as those of the Irish taxpayer. There again Lenihan has a background in law and has no formal background in economics.

We need PHD programmes in science engineering that will allow for secundment to government on a temporary basis of university talent capable of raising the standards required to meet our needs in the development of policy and upgrading of political and civil service structures. Contempt shown for the brave input of academic voices in the whole NAMA debate shows a deep rooted weakness in leadership and blind allegiance to ill informed, delusional bias over contructive and informed argument.

Primetime 03/11/09 had a final wrapup on NAMA prior to the legislation going through. We had Robbie Kelleher, Director of Davy Stockbrokers, arguing the banks had to be saved because they were systemic to the Irish economy and the economy would grind to a halt without them. How Anglo could be regarded as systemic is a question that could be addressed to CAP (Criminal Assets Bureau) !  Over the past year  ‘€4 bn to Anglo and 3.5 billion each to AIB and BOI already given equivalent to all the income tax the state will collect this year. Through NAMA the banks will be given €54bn which is €7bn more than the claimed market value.  According to Brian Lucey, Associate Professor of Finance, TCD, no economic models or systems or measurement protocols offered to back these figures of long term economic value up!

In respect of the 35000 expected to default on mortgages over the next few years, Michael McGrath, FF, Vice Chairman, Oireachtas Committee on Finance said a balanced approach would be adopted. Defending NAMA he had little to counter arguments against NAMA. With a blind kick for touch to defend an open goal he countered that many of the figures bandied about were false as they would be the subject of individual loan assessment by NAMA. That this position gave more of an open check to NAMA than the figures announced by Brian Lenihan, was not put to him. According to JP Morgan, banking analysts,  AIB will need more than 6.8bn with BOI needing 4.8bn more total 11.6bn for minimum capitalisation requirements. One ray of hope is the fact that NAMA will have up to 10bn to give to various projects to help them finish.

Robbie Kelleher of DAVY, said ‘our own estimates give AIB requiring 2 to 2.5 bn, BOI require 1.5bn. AIB  might be able to realise that capital by selling their stake in M&G in the US and their subsidiary in Poland. According to Brian Lucey, Davy are at the low end of commentators assesssments, its going to be difficult for the banks to raise capital in the private or public markets, in addition there is uncertainty about the assets they are intending to sell off. The likely scale of the amount required to prop up the banks is €20.3 bn euro made up of

€11bn paid already to Anglo
€7.8 bn AIB & BOI
€1.5 bn Irish nationwide and EBS

So a year from now we could have full state ownership of the banks.

Peter Mathews Independent Banking Expert on the same programme challenged NAMA with the following damning figures, its simple math. ” NAMA will make a loss by definition!

The banks will sell €77bn in loans to us, the people, NAMA. The banks will be charged €54bn for them.

The €77bn are made up of performing loans and non performing loans.

40 per cent are performing = €30.8bn

60 per cent are not performing= €46.2bn

Assume all €30.8 recovered very unlikely,

You will be lucky to get 25% of non performing loans back high estimate = €11.5bn

Add €11.5 to €30.8 = €42.3bn

Subtract this from €54bn – €42.3bn = €11.7bn. You lose up front day one without taking into account the cost of collection.

That’s why its all wrong the taxpayer should be saddled with this loss on day one.”

Michael McGrath FF said the state investment in the banks was already yielding a return but had no technical data to counteract the figures above.

False assumptions in managing the financial crisis point to a failure of competence both within the Dept of Finance and within the FF party.

Both parts of government need to look at structures in place to nourish talent. We have not been smart.

That’s why the taxpayer, FF, Dept of Finance mandarins, much as we would like to persuade ourselves and others otherwise,  have been gobbled up by native and Euro banking conglomerate representives,  in a game of financial Pakman we will yet have to pay dearly for!  Enough said!


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: