Nama Republic

January 1, 2014

There are a slew of legal actions from developers fighting NAMA through the court system. This was expected by those who cautioned against the setting up of NAMA in 2009 eg. Here are some. Expect more.

“Central to proceedings is the developer’s bid to have Nama’s appointment of receivers to 36 of its prime Irish property assets overturned.

In taking the case against the State’s so-called ‘bad bank’, Treasury is, according to sources familiar with the matter, prepared to do everything within its still-considerable power to secure victory, and in the process expose what it sees as Nama’s “misleading, unreasonable and entirely unacceptable” behaviour in relation to its business.”

Awaiting an upturn in the Irish economy - geog...

Awaiting an upturn in the Irish economy – – 1734903 (Photo credit: Wikipedia)

Meanwhile sales of large property portfolios are ongoing at NAMA.

According to Peter Flanagan, Sunday Independent, Dec 1, “A slew of international bidders, including some of the top US funds who specialise in buying so-called distressed debt are believed to have made first round bids for the loan books, known as Project Rock and Project Salt.

Project Rock is worth about €7.8bn in total, but a little over €2 bn worth of those loans – mostly UK commercial real estate – are up to date and are expected to be refinanced by the borrower. That leaves more than 5.5 bn worth of loans that are in arrears.

Project Salt, meanwhile, is made up mostly of Irish commercial property loans, with close to €2 bn worth of lending that is now in arrears.”

Now that Ireland has been sent into cryogenic stasis through its odious bailout, it would appear international vulture funds are ready to make a killing on the Irish property market.

Along with an increase in property prices in Dublin over the past year,  a mini property boom in Dublin, this has attracted vulture funds  into the Irish commercial property market believing the market has bottomed out. They are ready to takeover at knockdown prices the pyramids built by failed Irish property developers.

This state of affairs has not been achieved without some cost. The Phoenix project below, check out website for articles and stories surrounding the 200,000 mortgages in distress currently. The recent personal insolvency bill has given precious little relief to the vast majority ensuring that mortgage arrears and loan default has still not been addressed satisfactorily by Irish banks.

The Irish property market remains severely distressed. The extend and pretend maxim has given ballast to the view there is a small recovery in the property sector. The extend and pretend maxim of the banks works hard to hand out propaganda to all sides that the balance sheets of the banks can be made good.

Thus letters sent by banks to commercial buy to let defaulters signifying no more than the banks want their money back allow the banks to pretend loan resolution is in progress. The reality is a large part of the loan book of Irish banks is in distress and the banks refuse to mark down realistic losses.

Hopefully in 2014 stress tests on Irish banks will reveal this truth.

A large effort is underway to deny the truth. In Ireland austerity has paved the way for deflation helped by banks not lending coupled with the onerous and odious fact that given Ireland’s cocooning in the euro, unable to devalue its currency, lack of inflation with its debt burden  growing not diminishing as a result of this, investment in the Irish economy is becoming more burdensome.

By not facing the truth of debt write down/burden sharing, those in default suffer by not having the reality of their circumstances dealt with realistically by the banks. Repossession would leave the banks with a problem of selling on distressed assets. The property market  would see a further collapse in values if its true worth were tested in fire sales.

With extend and pretend Nama benefits,  banks benefit,  enabling them to set  benchmark on property prices pretending doubts about the asset base of the banks are doubts without substance; vulture funds benefit, by seeing their investment yield a return.

Local business investors and the retail sector find it more difficult to pay the scalping rent and property procurement prices, find themselves  driven from the market. The retail sector is put under further pressure.

There can even be a small mini boom  prices as a result of the NAMA and bank induced coma of the property sector.

The euro has acted like a boa constrictor for the Irish economy. Because the bailout of €67 bn given to the Irish economy is backed by the IMF and the EU and ECB Ireland is subject of a leveraged buyout that can send the Irish economy into a state of permanent stasis.

Any doubts that we received back our economic sovereignty should be banished.

The Poisoned Well

More doubts about the manipulation of property prices by Nama surfaced last Sept:

According to Daniel McConnell/Ronald Quinlan,Roisin Burke, 22 Dec, Sunday Indo
“Nama bosses Frank Daly and Brendan McDonagh have come under fire from Fine Gael’s Eoghan Murphy of the Public Accounts Committee about the agency’s decision to take a 20 per cent equity stake in the €800m Aspen property portfolio, which it also provided the finance for.” “Labour Senator Lorraine Higgins claimed a senior government figure attempted to gag her on NAMA.

One concern is NAMA is setting inflated property prices, it may provide the finance to a private company, it takes an equity stake in that company, so smoke and mirrors, it sets the selling price and is first buyer hoping others will follow.

The whole matter of withholding commercial and residential property from the market in order to avoid fire-sales, once again, the reader can draw their own conclusions.

The dead cat bounce represented by such business activity has many questions to answer. In spite of mortgage lending being down last November on this time last year, there has been a surge in the Dublin property market.

The source of financing for such deals would be worth investigating by the PAC(Public Accounts Committee) to eliminate the possibility of market price manipulation by Bad Bank NAMA.

But PAC have other concerns re NAMA. Darragh O’Brien TD  has said, “The case for a sustained public inquiry by the Oireachtas into NAMA is compelling. The volume of complaints being received across all parties is astonishing.”

In August 2009 a list of academics, economists, signatories appeared in the newspapers:

“We therefore urge the Government to reconsider its approach to payment for loans to be taken into Nama, to pay no more than current market value – which can be ascertained even in these times – and to require the investors in the banks to bear some of the cost of restructuring the system.

To do otherwise would be economic folly.”

Government ignored this advice and bondholders were paid off.

In 2009 regarding NAMA I blogged the point:

” An enormous amount of business critical information will be collected if it hopes to manage the toxic assets. The value of this information to interested parties ready to exploit it will be extremely high and sensitive. It could very well be like a sieve with a potential for exploitation exceeding our worst fears.”

A large turnover of staff in NAMA have been snapped up into organisations run by international investors. It’s not inconceivable that NAMA is leaking information like a sieve.

Here’s how the scam might work. You get a portfolio management position in NAMA – gains you access to a lot of information right across NAMA. You see what deals are being made, what sells, what doesn’t, pricing, evaluations. Such information is gold to international property fund managers. Gaining a NAMA man must be like being given a torch in a gold mine.

To be fair to NAMA, its difficult to assess whereabouts NAMA is at present in spite of recent newspaper reports raising doubts once again: it is so cloaked in commercial secrecy laws that virtually no Freedom of Information requests from journalists are allowed.

Sharing concerns re the high turnover in staff at Nama, the PAC recently entertained the chairman of NAMA to give assurances assuaging similar concerns.

Transparency is the key word here ! Who is going to regulate NAMA. How much information will be given, for example, of the developers, bank shareholder  investments, the evaluation procedures and  nature of the toxic assets under review?

Hopefully coming court cases will ascertain what journalists have been unable to find out.

We do need an inquiry to assess directly if the public are being safeguarded from bad procedures, mistakes, incompetence, abuse, corruption.

Perhaps the most curious issue of all will be the evidence offered in support of the value put on toxic assets by a so-called independent system of independent valuers !!

NAMA may keep property off the market because a fire sale would lower property prices! In this regard, the tax payers and the business people of Ireland get to carry the high cost of inflated property prices thus making us more uncompetitive and returning us to the bubble situation where even professionals could not afford the falsely astronomical prices of recent years.

NAMA currently has no remit to discharge its affairs in a time frame of one or 2 years, it’s a lot more longterm than that! Perhaps it ought to be broken up and chinese walls set in place to protect the interests of the public. Perhaps its disposal of assets are on the basis of the worst wine kept until last.

Realistic targets and goals should be set in place and monitoring should be introduced to regulate its performance and investigate its workings. Currently it would appear the only monitoring would appear to be the monitoring of a casino high roller in Las Vegas.

NAMA at tax payers’ expense will increase the profitability of shareholder stakes in the banks, wipe out the debt of developers, create a gravy train of administrative feeders on NAMA, and burden tax payers of generations to come with a mountain of toxic debt. Though it could yet still cost the banks dearly.

There is still the valuable full blown argument that the toxic assets should have been left in the banks. They still had the best business experience to deal with rogue developers and supposedly have learned from their mistakes. The banks could have dealt much better than NAMA could.

Nama pusillum

Nama pusillum (Photo credit: Wayfinder_73)

Instead a state bureaucracy was created with developers who ran their toxic portfolios into the ground now on the state payroll. Are you having doubts about the Agency’s methods yet?

Opportunity given to developers working for NAMA to abuse their position and benefit from insider dealing have surfaced in the McKillen case:

The main struts of Paddy’s case hinge on the following:

“1. Paddy’s loans aren’t NAMA eligible assets.

2. Paddy wasn’t given enough time to re-finance his assets

3. NAMA valuations are lower than Paddy’s valuations

4. To be associated with NAMA is damaging to your commercial reputation

5. NAMA offends the Constitution and EU rules with respect to property rights”

Added to above is:

An allegation that NAMA undermined McKillen by selling off property loans he was associated with to the Barclay brothers with whom he is in commercial dispute.

Chief Executive of NAMA, ” Mr McDonagh said he believed there had been “a carefully orchestrated operation” to damage NAMA and undermine the financial interests of the State.”

In the absence of full disclosure of its business model in all its aspects, its impossible to accept the existence of an “orchestrated operation”. So far NAMA has cases ongoing against two of its former employees for leaking information.

Of critical interest is 3 above. Depending how the property market returns, other developers may choose to follow suit. State legal costs range in McKillen to €6-14mil to be borne by the taxpayer.

NAMA as a Hedge Fund?

In many ways NAMA is a hedge fund gamble by the Irish government to lock in investors, the Irish Tax Payer and the Bond Holders who fund NAMA.

While the rest of the world is steering clear of this type of investment having learned from the mistakes of others, we seem to be prepared to go where others have become undone before us!!

According to the Agency it is now making significant progress on managing the €72.3 billion of loans it has acquired from the five participating banks and maximising the return for the taxpayer.

But the taxpayer has few tools to monitor, assess and evaluate progress. An independent inquiry by Ireland’s PAC has about as much chance of coming into being as an open inquiry into Ireland’s banking collapse.

To pin the detail and bring clarity to this, we need to insist on more information, not smoke and mirrors, on how NAMA is going to work.”

Corruption involves more than the misappropriation of assets, eg  monetary or property assets. When an institution the state is responsible for or the state itself becomes corrupt or incompetent, power itself becomes corrupt.

I listened ruefully to Stephen Donnelly on NAMA


“Basically, what this note is saying is: we have enough money to last us until the end of 2013. By the end of 2013, we hope to have found a way to go back to borrowing from the private sector. Until then, we’re ok. Under previous plans, there was only enough money to last us until mid-2013, so this means we have six more months to work on the country’s financial situation and come up with a solution.

– €11,882 million: this is the amount of maturing debt that we need to pay back in January 2014. This is a big stumbling block. We have two years to find that amount of money – and to pay it off, Ireland can’t use its remaining assets at that stage, which would only amount to 10 billion euros. Besides, using them would mean we’d be left with nothing at all.

– €67.5 billion: this is the amount we owe the EU and IMF, and it’s only part of Ireland’s huge outstanding debt, which is close to 200 billion euros. The problem is that, for a long time (as long as there was enough money to go around), European governments racked up debt instead of trying to balance their budgets.”

It is not feasible to overcome the debt situation with the range of financial disciplinary measures that will cripple the economy and kill the patient in order to cure the illness….

Raison d’être of NAMA and Ireland’s possibility to pay back its bailout at every juncture hinges on growth of 3-9%. None of these figures are achievable in the current climate in the euro zone.

External Deficit procedure and Fiscal Treaty Rules

Michael Andrew FF ireland-republic-of

Freedom of Information rules….NAMA not obliged to publish itemised accounts only an overall account  cost us €30 bn..You can see what is for sale on its website….opportunity for corruption is enormous… selling under the market price

Ireland’s Debt Profile

Credit Ratings    ”

The Ratings

DBRS, Inc. (DBRS) has confirmed the Republic of Ireland’s long-term foreign and local currency issuer ratings at A (low) and maintained the Negative trends. DBRS has also confirmed the short-term foreign and local currency issuer ratings at R-1 (low) and maintained the Stable trends.

….. The IMF projects the Irish economy will expand 0.6% in 2013 and 1.8% in 2014. However, these supportive factors are balanced by significant challenges: the fiscal deficit is still large, the public and private sectors are heavily indebted, and the banking system continues to face deteriorating asset quality and weak profitability.

The Negative trend reflects DBRS’s assessment that risks stemming from the external environment remain skewed to the downside and that the expected primary fiscal balance in 2014 is still short of its destabilizing threshold. However, the trend could be changed to Stable, potentially in the near term, if there is greater evidence of a sustained economic recovery and fiscal consolidation remains on track.”

There are no signs of the kind of economic recovery that can make Ireland’s debt sustainability prospects more positive than negative.

Winter may see the dead cat bounce, but one swallow won’t make a summer.

Happy New Year.



One Response to “Nama Republic”

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