National Asset Management Agency

Re: National Asset Management Agency

Postby garethace » Tue Sep 01, 2009 2:22 pm

George Lee certainly does have a point. This development in the NAMA debate emerged today.

George Lee said small businesses are none the wiser about their future after yesterday.


http://www.independent.ie/breaking-news/national-news/lee-accuses-lenihan-of-withholding-nama-details-1874764.html

Small business is still not satisfied it seems that things are moving quickly enough from their point of view, in order to start a recovery from the current recession. As Kieran O'Donnell, Fine Gael TD said in yesterdays joint Oireachtas question time on NAMA, we are looking now at property to try and find answers going forward into the future. It was a point raised by deputy O'Donnell yesterday, but like a lot of questions it fell to one side and never got picked up again.

O'Donnell is correct. We are looking perhaps in the wrong area for solutions to the current problems facing the Irish nation. The Fine Gael proposal of a 'good bank' or whatever mechanism, does present an excellent solution of getting funds flowing to in-debted Irish business again, in order to prevent further erosion and possible long term damage to the Irish economy.

It boils down at this stage to an argument over which solution out there, will be the fastest to prevent damage occuring. Minister for Finance, Brian Lenehan does not believe that the Fine Gael solution would work fast enough to be effective. That cleaning up the Irish banking institutions loan book, and allowing those private banking institutions to start doing their work again, is the best and fastest solution.

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Re: National Asset Management Agency

Postby trace » Tue Sep 01, 2009 6:38 pm

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Re: National Asset Management Agency

Postby PVC King » Tue Sep 01, 2009 8:21 pm

KerryBog2 wrote:...a real danger of talking ourselves into a recession? Er, em, did I miss something? I agree with that article. It hits the nail on the head on almost everything, and is a far cry from the BS that the Economist used to write about Oirland. Granted the comments about Quinlan and Carroll were a bit gratuitous, but they grabbed attention.


KB, I sat at my desk late one evening in November of last year watching Citigroup come close to collapse; you got a real sense that the financial set up as I knew it had come to an end; a $500bn titan reduced to a negative value at that time probably exceeding $100bn. Those types of evenings were spent up to March 2009 and there was a real feeling that the Anglo-Saxon model that I grew up with had reached its end and that we would all surely be on the street by the end of 2009. Everytime I turned on the TV there was Robert Peston convincing me again and again that we were all screwed.

However things in the US and UK have since that time turned around; much of it to do with confidence. I agree that Ireland has got deeper problems than any other Eurozone country coming out of the last cycle. I couldn't dispute that even if I wanted to. However the country also has a lot of positives.

1. Eurozone membership
2. Educated workforce
3. Low Corporation taxes
4. Ability to service the MNC sector
5. Sector specific excellence in high value areas such as IT, Pharma, Organic chemicals; fund custody and management

If a clear plan existed there is certainly a way out of the current impasse; it is not going to be easy and there will be pain but you are not all screwed. My issue is not saying that it was a problem to say that in 2007 talking the economy down was a problem there was and Mervyn King as Governor of BoE is the only leader I saw that was completely honest that we were in for a very tough time into 2010; My problem is the continued negativity long after the worst is over and whilst the rest of the World is gearing up for the next growth cycle; no-one in Ireland seems to be excited about that opportunities that this new growth phase in key markets presents.



KerryBog2 wrote:Not a hope in hell. We will not need 50k homes a year for at least a decade. Nor do we need 100k employed in the industry.

Over the six years up to 2004 employment in the construction sector had increased by 80,000 or 63.5%. By 2007, more than 206,000 were employed in the sector, accounting for 11% of total employment in the economy or 16% of total private-sector non-agricultural employment. Furthermore, in 2004, omitting the financial institutions in the Top 1000 list, building companies accounted for 147 (or 16%) of the remaining 920 companies.


By the time you add in architects, engineers, surveyors, mortgage brokers, conveyancing solicitors, concrete producers, PVC Window makers!! and interior desigers the figure was according to the CIF a lot higher at close to 400,000.

I also fundamentally disagree that it will take a decade to get production up to just over 50% of 2006 levels. I'm not saying that property is the driver of the economy; I would further say I wouldn't invest in an Irish bulky goods retail park for at least another 10 years. However property is an aspirational product that most Irish people wish to buy into. Where a lot of the bubble I think came from was the building of endless properties for the workforce that were building the units; as soon as production collapsed these guys lost their jobs and lost their homes or the intended purchasers couldn't afford the deposits or in some cases just repatriated.

If the sectors where World Class Excellence such as IT, Pharma, Chemicals and Financial Services can be put onto a sustainable growth pattern it is the employees and directors of those enterprises that will consume the property. What I can't see as having changed is that in 2003 when the population was lower than now; there was pent up demand in Dublin for 400,000 units (Dr. Brian Hughes DIT). To me is inconceivable is that in the intervening time when household formation patterns have led to even smaller family units that all of that demand has been satisfied and that with current demographic trends factoring in a recovery that those types of numbers can't be hit.

KerryBog2 wrote:Sadly too many people in the construction sector have not yet realized that it is totally screwed. I was talking to a builder at the weekend and he is confident that he will get paid by a company that, in my opinion, will be a core constituent of NAMA. The money he is owed is now more than 12 months past due. Sad, but true. I didn't spoil his few pints.
Care to comment on the merits of "pay when paid" contracts anyone?

Rs
K.


I work away from contracting so I have no idea what the phrase means but I would estimate that a lot of stage payments contractually due have not been made on time. What is clearly required is that the shakeout of the property investment, development and construction sectors happens and that once the viable are seperated from the failed that the sector is funded and not starved of cash to produce homes and employment.

Indications from published research indicate that Prime London Commercial stock has risen 25% in value since March. All about confidence in the rest of the economy to underpin long run average demand; 2006 levels won't be seen in this cycle, assuming a new cycle commenced in March 2009. If Ireland had the Punt you would all be screwed luckily you still have a currency, a low corporation tax and growing markets. Cleaning up property lending excesses of the past decade is the key to the indigenous sector; doing it in a way that preserves employment is crucial.
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Re: National Asset Management Agency

Postby missarchi » Wed Sep 02, 2009 12:26 am

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Re: National Asset Management Agency

Postby trace » Wed Sep 02, 2009 8:29 am

According to Moody's credit-rating agencies, California house prices will not return to peak boom levels until 2030 :eek: Anybody think Ireland will out-perform the Golden State? http://lansner.freedomblogging.com/2009/09/01/housing-price-peak/35113/
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Re: National Asset Management Agency

Postby garethace » Wed Sep 02, 2009 8:40 am

A scheme to incentive-ise buyers was put out there by Glenkerrin and McNamara's Radora company.

Finance Minister Brian Lenihan, however, expressed concern and asked the Financial Regulator to examine the regulatory and legal implications of the scheme.


http://www.independent.ie/business/irish/firm-locks-horns-with-grehan-over-euro100000-grange-dispute-1875130.html

These are times where one should have at least one crystal ball, if not too. Morgan Kelly's one seems to function better than most, these days.

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Re: National Asset Management Agency

Postby trace » Wed Sep 02, 2009 8:47 am

Powerful opinion piece in today's Irish Times by Seán Barrett, senior lecturer at the department of economics in Trinity College Dublin: "Nama is a macroeconomic three-card trick to refinance incompetent bankers and reflate a property bubble without addressing reform in the property market, banks, or bank regulation" http://www.irishtimes.com/newspaper/opinion/2009/0902/1224253663079.html

"On April 5th last year the Economist asked: “Where are house prices most overvalued?” The answer was Ireland. Almost a third of house price increases between 1997 and 2007 could not be justified by economic fundamentals. The Irish house price rise of 251 per cent between 1997 and 2007 was double the US national index and was notably uncompetitive compared to Germany, Japan, Italy, France, Denmark, Australia, Canada and Sweden, and even with other house bubble countries such as the UK and Spain."
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Re: National Asset Management Agency

Postby garethace » Wed Sep 02, 2009 9:44 am

Thanks Trace, I was going to link that article myself, because I felt it is worth reading. I thought this was a good paragraph.

The proponents of Nama describe the sale at market prices of impaired assets as a fire sale. The description is, of course, wrong. A fire sale involves assets harmed by the fire and the damage is incorporated in the price. The sale of empty houses, shops, hotels and land bought at inflated prices arises from the economic incompetence of the builders and bankers concerned and not because of any fire damage.


http://www.irishtimes.com/newspaper/opinion/2009/0902/1224253663079.html

I for one, am sick of hearing that 'media friendly' phrase of fire sale prices, in relation to everything about the Zoe developments court cases. Well done, professor Barrett.

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Re: National Asset Management Agency

Postby KerryBog2 » Wed Sep 02, 2009 1:37 pm

Prof. Barrett covers several of the points I’ve already made here, so it is hard to disagree with most of his article. However, much of what he writes is predicated on a supposition that NAMA will take on loans at an uneconomic value. At this stage we do not know the price/discount. Goes back to my point about a lack of communication from our Government, about which I have been rattling on for quite some time. Until we know what the discount is almost all comment is BS. In the 1630’s days of the tulip bubble, bulbs that were exchanged for houses went back to being a regular, albeit slightly expensive garden flower. Many speculative properties/sites in Ireland will never regain the prices paid. We as a nation can only hope that NAMA does not overpay, and that it will be properly constituted and managed. The longer NAMA's launch is delayed the worse it will get.

PVC King, your comments are based on your perception of the glass being half full. From what I see in the current market, I view the glass as half empty, badly cracked and leaking.

PVC King wrote:However the country also has a lot of positives.
1. Eurozone membership
2. Educated workforce
3. Low Corporation taxes
4. Ability to service the MNC sector
5. Sector specific excellence in high value areas such as IT, Pharma, Organic chemicals; fund custody and management


These apply to many other EU States, all of whom, unlike us, have said YES to Lisbon. The cost of our “excellence” is also considerably higher, leading to the closure of pharma and IT companies. Ask anyone at Dell. Our much-vaunted financial skills have long been undermined, as has our total absence of financial regulation for decades, e.g. Irish Trust Bank, Merchant Banking, PMPA, InsCorp, Ruznak, Ansbacher, offshore deposits, overcharging, Parmalat, etc.

PVC King wrote:My problem is the continued negativity long after the worst is over

The worst is far from over. See my concluding comment below.

PVC King wrote:By the time you add in architects, engineers, surveyors, mortgage brokers, conveyancing solicitors, concrete producers, PVC Window makers!! and interior desigers the figure was according to the CIF a lot higher at close to 400,000.

That strengthens my argument. With a total employment force of about 2 million, we have 20% employed in one domestic sector? Eggs, basket comes to mind.

PVC King wrote:Where a lot of the bubble I think came from was the building of endless properties for the workforce that were building the units; as soon as production collapsed these guys lost their jobs and lost their homes or the intended purchasers couldn't afford the deposits or in some cases just repatriated.


No. There was unwarranted building of houses in the belief that someone living in a housing estate in a city would buy a holiday home in a housing estate in a rural village, with no amenities, few services and no transport. When those houses did not sell, they were used to house the foreign workers and the rent deducted from their wages, to help the builders’ cashflow. This disguised the early signs of the collapse.

PVC King wrote:What is clearly required is that the shakeout of the property investment, development and construction sectors happens and that once the viable are seperated from the failed that the sector is funded and not starved of cash to produce homes and employment.

Indications from published research indicate that Prime London Commercial stock has risen 25% in value since March. All about confidence in the rest of the economy to underpin long run average demand


There is a dim glimmer in the UK property market but that is all it is. In a recent report by accountants BDO, UK manufacturing output – a key figure - remains significantly below pre-recession levels. They also estimate that there will be about 2,500 business failures in 2009, compared to the 1,600 recorded in 2008, and they estimate a figure of 2,000 for 2010. Personal bankruptcy levels are at an all-time high, and probably will exceed 120k this year. (Question – is it a matter of time before Ireland adopts a similar form of personal bankruptcy to the IVA in the UK?)

In Ireland, the rate of business failure is equally high. In the construction sector the increase in failures has been spectacular, with first-half construction failure figures for 2007,2008,2009 being 60, 130 and 250 respectively. Total insolvency figures more than doubled between H1 2008 and H1 2009, from about 300 to about 750.

When NAMA gets going we will see the start of the shake-out. Most of the contractors I have seen recently could not be classed as viable. The big guys will be defunct and will bring many more with them. The efficacy of personal guarantees will prove almost worthless, key assets will be unreachable and expensive homes will be in wives’ names. Then the subbies and suppliers will discover that they never will be paid for their debts. Their accountants will not sign off on y/e figures, or balance sheet valuations, so a lot more will fail. A contributory factor will be lack of finance due to the opaqueness of the financials, where lenders will mistrust the stated values of fixed assets and the real or true worth of the applicant's debtors. (The same reasoning can be applied to why FG's "Good Bank" idea is a dead duck. There currently is money available, but who would lend on an asset that cannot be properly valued and when the repayment ability is totally suspect?)

For those reasons Joe Public will be slow to buy, unsure of his investment, and the market will stagnate just as it did when the Rotweiler made his comments on Stamp Duty changes. That's why I remain negative and cannot change until we see what NAMA brings.
Rs
K.
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Re: National Asset Management Agency

Postby garethace » Wed Sep 02, 2009 2:17 pm

The efficacy of personal guarantees will prove almost worthless, key assets will be unreachable and expensive homes will be in wives’ names.


Again, I would like to agree with the above statement. A major bulk of transactions carried out in the construction sector were done with personal guarantees during boom times.

NAMA is not going to solve or even address that. Heck, we have problems in the High court case today, even trying to define in terms of the construction sector, what grossly insolvent means. If the courts are facing that problem today, NAMA will face precisely the same problem as we try to move forward.

ACC bank are probably correct in that regard. We need to establish some firm ground rules, for the market to work by, and fast.

KB is correct, the longer NAMA drags on, the worse things will get.

A contributory factor will be lack of finance due to the opaqueness of the financials, where lenders will mistrust the stated values of fixed assets and the real or true worth of the applicant's debtors.


That applies very much to the large names in the construction industry, who did not develop skills it the area of reporting.

With one or two exceptions. I understand it, that a couple of builders are honest with their subbies, and did inform them of cash flow situations throughout the boom years. Maybe those contractors and sub-contractors will be better off.

But in most cases, sub-contractors were involved with several different contractors. So their exposure, though better in some areas, will be a lot worse in others.

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Re: National Asset Management Agency

Postby garethace » Wed Sep 02, 2009 5:18 pm

I heard David McWilliams giving his opinion on Drive Time this evening with Mary Wilson. Those of you interested should check out the replay of the interview, available on the RTE website.

McWilliams wrote published something today in the Irish Independent.

http://www.independent.ie/opinion/columnists/david-mcwilliams/nama-money-pit-could-be-our-economic-stalingrad-1875206.html

John Mulligan had a letter published in today's Indo also.

http://www.independent.ie/opinion/letters/nama-in-danger-from-overseas-1875139.html

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Re: National Asset Management Agency

Postby PVC King » Wed Sep 02, 2009 10:04 pm

KerryBog2 wrote: Prof. Barrett covers several of the points I’ve already made here, so it is hard to disagree with most of his article. However, much of what he writes is predicated on a supposition that NAMA will take on loans at an uneconomic value. At this stage we do not know the price/discount. Goes back to my point about a lack of communication from our Government, about which I have been rattling on for quite some time. Until we know what the discount is almost all comment is BS. In the 1630’s days of the tulip bubble, bulbs that were exchanged for houses went back to being a regular, albeit slightly expensive garden flower. Many speculative properties/sites in Ireland will never regain the prices paid. We as a nation can only hope that NAMA does not overpay, and that it will be properly constituted and managed. The longer NAMA's launch is delayed the worse it will get.

PVC King, your comments are based on your perception of the glass being half full. From what I see in the current market, I view the glass as half empty, badly cracked and leaking.
http://www.rte.ie/business/2009/0902/jobless.html

The workforce only leaked 4,000 jobs last month; the worst is over. You are right the Government needs to communicate this.

EADS the parent of Airbus made their first headline investment in Ireland today

http://www.rte.ie/business/2009/0902/jobs.html

If Ireland wasn't a place to invest they would have gone elsewhere; the UK paid £340m to get 1,200 Airbus jobs or £283k per job. I'm sure this was done on much more favourable terms.

http://www.gazetteseries.co.uk/news/4549166.Airbus_jobs_safe_thanks_to___340_million_government_grant/

KerryBog2 wrote: These apply to many other EU States, all of whom, unlike us, have said YES to Lisbon. The cost of our “excellence” is also considerably higher, leading to the closure of pharma and IT companies. Ask anyone at Dell. Our much-vaunted financial skills have long been undermined, as has our total absence of financial regulation for decades, e.g. Irish Trust Bank, Merchant Banking, PMPA, InsCorp, Ruznak, Ansbacher, offshore deposits, overcharging, Parmalat, etc.


The worst is far from over. See my concluding comment below..
Dell made a decision on this before the downturn; once they outsourced production to Singapore based holding company last September this was always on the cards; to have retained the back office and sales support in Cherrywood speaks volumes of the quality of the workforce. Lets not forget the fact that we harbour finance frauds I mean Nick Leeson manages Galway United, Barings still have their entire art collection and most of their clients;it is simply owned by someone else; compare any of the above excluding Parmalat which was an Italian scam on Venezeulan assets and the rest is nickle and dime stuff which happens everywhere. Disaster Myopia is alive and well once you haven't suffered personally.


KerryBog2 wrote: That strengthens my argument. With a total employment force of about 2 million, we have 20% employed in one domestic sector? Eggs, basket comes to mind.

No. There was unwarranted building of houses in the belief that someone living in a housing estate in a city would buy a holiday home in a housing estate in a rural village, with no amenities, few services and no transport. When those houses did not sell, they were used to house the foreign workers and the rent deducted from their wages, to help the builders’ cashflow. This disguised the early signs of the collapse..


Can't disagree with any of the analyses on the collapse but I would say that no banker will rush into those types of lending decisions in the name of securing market share for a very long time. It is however essential that funds are available to complete North Wall, Heuston Station and other central areas. If Nama fails and the banks default on senior debt there will be one of two outcomes; either the taxpayer will have to inject tens of billions into the banks in some other form be it equity or debt or in the absence of this no Irish bank will raise finanace on reasonable terms for a decade. The Nama formula is best as the level of discount is the only variable and once the valuation methods are transparent the market will rise in anticipation of the sceptre of the perceived fire sale disappearing.


KerryBog2 wrote:There is a dim glimmer in the UK property market but that is all it is. In a recent report by accountants BDO, UK manufacturing output – a key figure - remains significantly below pre-recession levels. They also estimate that there will be about 2,500 business failures in 2009, compared to the 1,600 recorded in 2008, and they estimate a figure of 2,000 for 2010. Personal bankruptcy levels are at an all-time high, and probably will exceed 120k this year. (Question – is it a matter of time before Ireland adopts a similar form of personal bankruptcy to the IVA in the UK?).


25% in 3 months is not a glimmer it is a relief rally; there is no quality stock to be bought at the moment as no one is selling. Bankrauptcy is a lagging indicator and every country in the OECD has hit records recently on personal failure. The hangover for Ireland is that interest rates were out of step with pricing pressures for a sustained period; with deflation particularly in assets such as second hand property and cars I'm sure lenders are taking a view on whether they want the collateral back.

KerryBog2 wrote:In Ireland, the rate of business failure is equally high. In the construction sector the increase in failures has been spectacular, with first-half construction failure figures for 2007,2008,2009 being 60, 130 and 250 respectively. Total insolvency figures more than doubled between H1 2008 and H1 2009, from about 300 to about 750..


With so many companies having failed presumably one of two scenarios will play out; either directors of insolvant companies will start up new entities and compete with those still standing or the sector will not be funded and there will be mass emmigration.

KerryBog2 wrote: When NAMA gets going we will see the start of the shake-out. Most of the contractors I have seen recently could not be classed as viable. The big guys will be defunct and will bring many more with them. The efficacy of personal guarantees will prove almost worthless, key assets will be unreachable and expensive homes will be in wives’ names. Then the subbies and suppliers will discover that they never will be paid for their debts. Their accountants will not sign off on y/e figures, or balance sheet valuations, so a lot more will fail. A contributory factor will be lack of finance due to the opaqueness of the financials, where lenders will mistrust the stated values of fixed assets and the real or true worth of the applicant's debtors. (The same reasoning can be applied to why FG's "Good Bank" idea is a dead duck. There currently is money available, but who would lend on an asset that cannot be properly valued and when the repayment ability is totally suspect?).


I can see International pension funds filling the gap left by the developers who are now out of the market; once yields hit 7% with international tenants such as Vodafone, H & M, Pfiezer etc this ticks all the boxes of investment grade property; it is important to remember that the NAMA portfolio would be made up of loans that are split almost equally between, UK/European/US Commercial, Irish Commercial and Development land / half developed schemes. These are three very distinct asset classes; the former probably has a yield floor close to 6% or 16.67 times net rent; the Irish Commercial if International investors were targetted probably has a yield profile of about 8% although that does factor in local independents and over-rented out of town retail parks which no international investor would touch as they don't understand the people who pay the rent or don't as the case may be. The development category is where a third of the loans are and where you can't accuratley assess value until a market returns for new space.

KerryBog2 wrote: For those reasons Joe Public will be slow to buy, unsure of his investment, and the market will stagnate just as it did when the Rotweiler made his comments on Stamp Duty changes. That's why I remain negative and cannot change until we see what NAMA brings. K.


That it is why it is totally vital that NAMA is completed as quickly as is possible so that a market can regroup in whatever form is deemed sustainable by the participants.
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Re: National Asset Management Agency

Postby garethace » Wed Sep 02, 2009 10:55 pm

Can't disagree with any of the analyses on the collapse but I would say that no banker will rush into those types of lending decisions in the name of securing market share for a very long time. It is however essential that funds are available to complete North Wall, Heuston Station and other central areas.


Good that you mentioned Heuston Station above. It seems they were one of the more honest contractors out there.

If Nama fails and the banks default on senior debt there will be one of two outcomes; either the taxpayer will have to inject tens of billions into the banks in some other form be it equity or debt or in the absence of this no Irish bank will raise finanace on reasonable terms for a decade. The Nama formula is best as the level of discount is the only variable and once the valuation methods are transparent the market will rise in anticipation of the sceptre of the perceived fire sale disappearing.


That is great, and well understood. But what are we going to give the banks to do, in the absence of the property game?

I still agree with everything said, about North Wall Quay and Heuston Station. There is no point in the wide earthly world in leaving those sites go unfinished. There may even be additional projects in the right locations, that we need to consider building.

The problem I have, is I haven't drove an automobile around the upper Shannon region - which Joan Burton referred to as NAMA land. I haven't driven the 'Ring of Kerry' either, though I do know from trips years ago, that the house building racket was out of control in the Kerry region a long, long time ago.

Perhaps PVC King and myself are guilty of only knowing the central areas, where the story is much more positive. But someone such as KerryBog rightly deserves to be listened to, in terms of what happened around the country. I felt that KB's point, that the 46 economists should be focussing on what masterplan is required for semi-rural Ireland, struck a particular chord with me.

Although, I am ill-qualified to understand the problems of semi-rural Ireland anymore. Chartered Surveyor, Eoin McDermott aluded to the distinction between finished, un-finished, planning permission received, refused, etc, etc sub-categories in the NAMA portfolio yesterday. But there also needs to be a distinction in the NAMA portfolio between central, strategic projects and ones that are not.

I can see International pension funds filling the gap left by the developers who are now out of the market; once yields hit 7% with international tenants such as Vodafone, H & M, Pfiezer etc this ticks all the boxes of investment grade property;


I hope you are right. Point well made.

it is important to remember that the NAMA portfolio would be made up of loans that are split almost equally between, UK/European/US Commercial, Irish Commercial and Development land / half developed schemes.


Point well made also, and in fact it is much more fine grained that that in reality. I refer you above to my point, on distressed semi-rural assets as described so well by KB and others here in discussions. Comparing those assets to ones such as North Wall Quay, Heuston Station and what have you. If the likes of those prime real estate opportunities cannot make it pay, then we might as well all hang our hat up for good.

The development category is where a third of the loans are and where you can't accuratley assess value until a market returns for new space.


Good point.

That it is why it is totally vital that NAMA is completed as quickly as is possible so that a market can regroup in whatever form is deemed sustainable by the participants.


I am repeating myself here I guess. I have said it before. The media, and even Mr. Mulcahy may have been mistaken in saying it also. People refer to the value of 'property' rising in value over a period in the United States since the 1920s. What really happens of course, is that the market begins to understand, especially given such a vast space as the United States where the valuable land really is. What is created on the land, that which we call 'property' or construction has gone down in value over the decades.

Hence why it is so economical now to build high rise buildings, of no architectural character. Often replacing buildings with very fine architectural character. Stewart Brand's book, How Buildings Learn has some great photos, taken of cities through the ages. Normally there is only a church or something remaining in the modern photo.

Kenneth Galbraith relates in his book about the Crash of '29, about the Florida land rush. People were worried at one stage, that land would simply 'run out' in Florida before they got a chance to buy it. I think, that is something like what happened in the semi-rural portion of the Irish banks' bad property portfolio. Somehow, an assumption became lodged in the brains of middle aged Dublin dwellers, who saw no reason to live in Dublin anymore, and found they could sell their little homes for half a million or more. They engaged in something akin to a Florida land rush. They spread into the countryside and the unknown.

It was understandable, that once they spread into that unknown, that at some stage the journey for them would raise a whole lot of ugly questions they could not cope with. Hence the 'land rush' finished as suddenly as it started. I know one enterprising hair dresser in Dublin city, who owned 10 acres of bogland in Laois and still believes it would be worth building a house there. Despite the fact, that the site is land locked with no road into it. He is not a stupid guy, but he grew up and lived his entire life in Dublin city centre.

The local country builders in the upper Shannon region, saw the 'Dubs' coming there way, and got carried away equally. But the perception started in the brains of those people who sold homes in Dublin, and possibly had never even been outside Dublin for much of their lifes. That is my greatest criticism of the Greencore masterplans for Carlow and Mallow. If Greencore doesn't rise above their mis-perception of life outside of Ireland's capital, they will find themselves wading beyond their depth soon also.

The trouble is though, with those native Dubs, who are very cosmopolitan, open minded and intelligent - that is their biggest problem. It is so difficult for them to admit they could be incorrect about anything. Including the 'land rush' into the upper Shannon region. The failure to 'mark to market' that sort of rubbish, both on the buyer and builder side of things, is what really will upset everything in 'property' terms. It will affect, viable projects such as North Wall Quay and Heuston station. It shouldn't, in theory. But in practice, the good has got mixed up with the bad.

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Re: National Asset Management Agency

Postby garethace » Thu Sep 03, 2009 9:23 am

I really think NAMA might be missing the whole point, and mixing up what is 'good' or sustainable development and what is bad or un-sustainable development.

There is a lot of talk in the newspapers today about Liam Carroll's property loans going into NAMA. I think there is absolutely nothing wrong with the Zoe developments property portfolio. It is one of the healthiest in the country, from a point of view. There should be no real rush for NAMA to deal with Liam Carroll's loans, other than the fact that he made a royal mess out of his company[s]. That is an entirely separate issue, to saying there is something 'bad' or otherwise with Liam Carroll's property portfolio. That important distinction needs to be made.

The first loans I would probably move into NAMA, if it was up to me, are those really un-sustainable ghost towns and so-called 'development lands' speculatively purchased in the upper Shannon region. Which may take decades and decades to work through the system and be worth anything, if at all. But the problem with NAMA is, the big boys will be the first to be taken care of. I don't think there is any real risk with Liam Carroll's property though. We all know it is going to recover, be developed, leased or sold at some stage. I don't think there need be any doubt about that.

The side of the portfolio that really worries me, is the ghost towns way out there in the sticks of NAMA land. Unfortunately, though it is causing the worst fears and doubts in terms of the bank loans, it will be last in the queue to go into NAMA. Because the smallest of the 1500 lenders in the NAMA portfolio, hold those bad developments in the upper Shannon ghost towns. If there was some way we could get them moved in the NAMA vehicle first and simply bull doze the construction, which is never going to pay for itself, I would be all for it. I don't know how you do that in legal or financial terms though.

Also, in today's paper.

The incumbent, John Hurley, retires on September 25.


http://www.independent.ie/business/irish/tcd-expert-to-be-named--as-central-bank-chief-1876748.html

So this is how the timeline is shaping up. The Liam Carroll High court decision, the NAMA debate and an Irish Davos all in one week from 14-18th sept. With Pat Honohan setting into his new role in the Central Banking Commission a week later on the 25th Sept.

Of course, this is not to mention, a Lisbon Treaty referendum, another budget and a possible general election.

Did someone say politicians will be handling political dynamite over the next 3 months? A lot of work for media, a lot of opportunities for speakers and all in all, a lot of 'debating' to be done.

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Re: National Asset Management Agency

Postby missarchi » Thu Sep 03, 2009 11:01 am

Alot of spinach triangles popeye

Image
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Re: National Asset Management Agency

Postby garethace » Thu Sep 03, 2009 9:26 pm

Has anyone read the ECB's comments about the draft NAMA legislation? I am beginning to understand further now, how NAMA has to operate within the wider Euro-system. I mean, it is the ECB who is buying the bonds, or at least the Euro-system which the ECD is responsible for managing.

I can understand now, why this NAMA thing has to work within the European context. It cannot be treated as a primarily Irish thing. We tend to think that the Irish people are paying for NAMA, and hopefully Ireland will be able to 'settle up' its tab at the end of the day. But in the meantime, it is the ECB who is funding the entire project.

Why hasn't this distinction been made in most discussions?

Paragraph 2.2 specifically I am referring to in this document:

http://www.ecb.europa.eu/ecb/legal/pdf/opinion_con_2009_68_f_sign.pdf

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Re: National Asset Management Agency

Postby garethace » Thu Sep 03, 2009 9:45 pm

By the way, paragraph 2.4.1 in the ECB comments is flawed. It shows exactly the limitations of doing 'property business' of any kind within this sort of legal and civil servant type world of EU guidelines.

It demonstrates too what David McWilliams said about NAMA. It doesn't bring with it the point of view of the real life trader. Because it is drafted by civil servants and lawyers. That is basically what is wrong with the world today - China is more like a country which is run by engineers. Japan has even followed that trend nowadays. But in the EU zone we are getting all tangled up in legals.

The first things to go into NAMA are those ghost towns in the upper Shannon region. Taking a bull dozer to them right away would be the best thing that could happen to the Irish property portfolio. But paragraph 2.4.1 of the ECB comments states that:

Institutions with the largest concentration of impaired assets will be given priority.

Oh boy.

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Re: National Asset Management Agency

Postby KerryBog2 » Thu Sep 03, 2009 10:13 pm

garethace wrote:............. It cannot be treated as a primarily Irish thing. We tend to think that the Irish people are paying for NAMA, and hopefully Ireland will be able to 'settle up' its tab at the end of the day. But in the meantime, it is the ECB who is funding the entire project.


No, no, no.
Simplistically, Ireland issues bonds (think post-dated cheques) and uses these to buy the debts from the Irish banks. The banks then take these bonds to the ECB who exchange them for cash, which FF contend banks will lend to industry. FG say the banks will sit on it, Labour says it is all me eye and the banks should be nationalized.

It is a tenet of international finance that governments cannot “go bankrupt.” When they default, their debts are rescheduled, (Google Paris Club and you will find what you need) and payment is eventually made. Mainly used for binnned economies in Africa and Latin America. If the country is totally screwed, like Haiti, the debt is written off, which happened a few months ago.

Ireland (i.e. you & me as taxpayers, or rather our grandchildren) will have to pay for those bonds. If the EU is worried we are off-track, they will send in the ECB to make sure they get their money back.
The piper always has to be paid!
Rs
K.

PS. Haiti put me in mind of the time it closed its border with Santo Domingo. Migrant Haitian workers could not cross, so the Santo D sugar harvest was in doubt. The solution for SD? Its President told the public servants that they were to down pens, take up machetes and get out into the cane fields. Now there is a thought. The boys from Kildare St down the Bog of Allen with sleans, directed by wee Mary and Biffo!
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Re: National Asset Management Agency

Postby jimg » Thu Sep 03, 2009 10:17 pm

Brian, the fundamental mechanism is called a repo arrangement.

The government will print bonds and give them to NAMA to capitalise it. In return the government gets all the equity in NAMA (a fancy way of saying the government will own NAMA). NAMA will swap the bonds for worthless loans with the banks. The banks can then borrow from the ECB using the government bonds as collateral - this is the repo arrangement. Strangely the government will end up PAYING the banks the coupon on the bonds - which from what I've learnt about how NAMA is to be structured will be about 1.2 - 1.5 billion a year. This will be at a floating rate (like a tracker mortgage).

When the bonds reach maturity, the government will have to pay the banks the face value of the bonds (this is the 90 billion) if they are regular bonds. (There is another type called zeros which don't have this "interest only" behaviour - at the end of the repayment schedule you've discharged your debt.)

This is why the ECB has to be informed of and approve all government borrowing as every bond created by the government can be used as collateral with the ECB. So yes the ECB is vital and central to the whole plan. You could try something similar if you had your own central bank but it generally leads to the collapse of your currency ala Iceland or Zimbabwe and a flight of capital.

So to summarise: the government ends up paying the banks interest on the 90 billion (say 1.5 billion a year currently but this could rise if the ECB rates rise) plus at some date in the future will be obliged to pay them 90 billion cash. In exchange they get to own a bunch of loans to insolvent builders and developers many of whom are close to bankruptcy; the collateral for which (if the claims about O'Carroll are any guideline) is likely to be worth 30% of the value of the loan.

Thus leaving the government with some useless "development land", a load of deserted estates in the middle of nowhere (which are likely to be energy inefficient and will be unsellable even if a bounce occurs) and some half finished building sites in exchange for at least 1.5 billion cash a year plus a 90 billion balloon payment in 10 or 15 years time to the banks which caused this disaster.

I'm not joking, this - in essence - is the great plan which is supposed to rescue the Irish economy. Instead it will fuck Ireland good and proper. Admittedly, it will rescue politicians, the shareholders and bondholders of the banks and the bank executives and employees.

(By the way, it is not fully accurate to state it's a dig out for developers except in the sense that the government - through NAMA - are likely to be even less efficient than the banks at extracting value from loans which is a distinct possibility too given their record.)

If anyone tells you this is what Sweden did, they are telling a barefaced lie. I don't want to drive people to suicide but if the NAMA plan goes ahead as currently planned, then for once David McWilliams will not be spouting hyperbole when he describe it (the implementation of NAMA) as a Stalingrad moment for the Irish economy.
.
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Re: National Asset Management Agency

Postby garethace » Thu Sep 03, 2009 10:23 pm

The banks then take these bonds to the ECB who exchange them for cash,


Not necessarily.

The banks don't have to cash them at all. But the bonds may add additional collateral to the Eurosystem, and be used as parts of other deals within that system. NAMA has to be careful though, in how it deals with other collateral already existing within the Eurosystem. That was stated clearly in one of their paragraphs.

What the ECB is saying in other words, is that Irish property debt is going to be exposed to the Eurosystem in order to create more liquidity within that system, and thereby, as a consequence, free up funds that will be available to the Irish banking institutions - or free up funds to the Eurosystem as a whole. It is a way for the ECB to issue more money into the system too. The ECB want this as much as anyone. The ECB is betting on Irish property debt as much as anyone else. Call it an 'estimated risk' or whatever you want to call it.

So what is really being tested is not only NAMA, and the long term economic valuation model (which the ECB is not that keen on) but also the wider European economic union, as a concept. It is really, when the European economic union 'vehicle' if that is an appropriate term to use, starts up its engines, is when Irish people will see the benefits flow into our tiny economy.

Now you may be pro- or anti- European integration. But what everyone, who has anything to do with NAMA is saying, is that greater European integration is the answer. This is a completely different debate to the one, we have engaged in here. Where we tend to talk about Ireland, as if it was an island on the edge of mainland Europe.

If this European integration thing has anything going for it, then the ECB must be 'seen' to be providing a solution to a remote island of little consequence in the bigger picture. It has become my view, that it is Europeans who are paying for NAMA. The same way as they paid for road infrastructure etc in the 1980s. We are back to where we started from effectively, being supported by Germans. The only difference is, in this arranagement, this time, the Irish do get to contribute down the road, to the degree to which they are able. Yeah, you could say it is taxation on the Irish, but spread out.

Now, whether you are in agreement or disagreement with that, is a whole different discussion, a wider discussion to the one I have engaged in so far.

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Re: National Asset Management Agency

Postby garethace » Thu Sep 03, 2009 10:25 pm

The government will print bonds and give them to NAMA to capitalise it. In return the government gets all the equity in NAMA (a fancy way of saying the government will own NAMA). NAMA will swap the bonds for worthless loans with the banks. The banks can then borrow from the ECB using the government bonds as collateral - this is the repo arrangement. Strangely the government will end up PAYING the banks the coupon on the bonds - which from what I've learnt about how NAMA is to be structured will be about 1.2 - 1.5 billion a year. This will be at a floating rate (like a tracker mortgage).


Jimg,

Good explanation. You are in fact correct. I am only testing out some angles above, as usual. I am sure you will understand.

This is why the ECB has to be informed of and approve all government borrowing as every bond created by the government can be used as collateral with the ECB.


Gotcha. Now I'm getting a much clearer picture.

So yes the ECB is vital and central to the whole plan. You could try something similar if you had your own central bank but it generally leads to the collapse of your currency ala Iceland or Zimbabwe and a flight of capital.


Minister Brian Lenehan made that point on tonight's Prime Time TV interview.

the collateral for which (if the claims about O'Carroll are any guideline) is likely to be worth 30% of the value of the loan.


I share your skepticism there by the way. Zoe did acquire a great portfolio of property and various interests. But they were very optimistic in how they looked at the portfolio's value. Or more importantly, in my view, in their own ability to 'extract' value from their assets given their primitive business model. One of the main positive attributes of the Zoe model was its ability to cover great distance, at great speed. It was a blitzkreig approach if you like. The analogy with the German military machine and Zoe developments works on nearly every level. It explains, why in a fast moving environment such as the Celtic Tiger, why Zoe were able to 'move fastest' of the whole pack. The blitzkreig analogy also serves to explain why it caved in on itself in the end.

When I think of this NAMA business, I think of the Arabs and their oil assets. They could dispose of them very stupidly at the wrong price, depending on what their internal political structure is like, and who is calling the shots. Or they could be clever in terms of markets, trading and distribution and extract a lot more out of the whole deal for themselves. Time will tell. Ireland is in a similar situation, it depends on how clever or stupid Ireland will be. But I agree broadly with KB, Ireland is going to take a massive hit somewhere down the line. But if Ireland is clever, it can minimise the amount. This NAMA business is about the equivalent of a hundred LUAS line projects when you think of it. Bearing in mind that LUAS was built at the peak of the bubble, or damn close enough to the peak, so that costs spiralled out of control.

Thus leaving the government with some useless "development land", a load of deserted estates in the middle of nowhere (which are likely to be energy inefficient and will be unsellable even if a bounce occurs)


It would be a disaster if anyone paid money for many of those projects, as house buyers or otherwise. Hence my wish that a bull dozer will go in and clear half of them away. KB made a good suggestion, that you could leave the odd house standing. In that regard, the estate might then turn itself into a kind of opportunity for a higher class of home buyer, who wants a house with a large spread around them of private land. That might mean, that some of the project could be worth something after all. This is something our best architects should look at.

I'm not joking, this - in essence - is the great plan which is supposed to rescue the Irish economy. Instead it will fuck Ireland good and proper. Admittedly, it will rescue politicians, the shareholders and bondholders of the banks and the bank executives and employees.


If someone such as David McWilliams was on the ball, they would put together a documentary, which compares NAMA to all of the Metro projects, national infrastructural upgrades, LUAS lines, wind farms, tidal energy projects and whatever else. The bill for NAMA would probably build a new European supergrid. Bear in mind too, that if we had pumped water storage combined with wind farms in Ireland, we wouldn't have to burn a single kilowatt hours worth of gas fuel. We would be completely energy independent.

(By the way, it is not fully accurate to state it's a dig out for developers except in the sense that the government - through NAMA - are likely to be even less efficient than the banks at extracting value from loans which is a distinct possibility too given their record.)


I have heard Constantin Gurdgiev make exactly the same point very recently. He made a list of most of the Irish government departments, and didn't have much of an opinion of any, in terms of their ability to manage capital assets. I thought it was strong, even for Gurdgiev, an academic commentator, but there you go.


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Re: National Asset Management Agency

Postby Frank Taylor » Fri Sep 04, 2009 9:45 am

The credit crunch and NAMA and its banana bonds were predicted 4 years ago by McWIlliams
http://www.davidmcwilliams.ie/2005/08/03/how-secure-will-you-be-when-the-credit-runs-out

NAMA is a system for taking 60 billion euro from Irish taxpayers and using it to save two private limited companies. This is criminally stupid. There is a legally prescribed method for the wind down of the companies. It's called liquidation and it's paid for by the creditors of the companies concerned not the taxpayer.
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Re: National Asset Management Agency

Postby missarchi » Fri Sep 04, 2009 12:27 pm

take that to an EU court? conflict of interest? hehehe
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Re: National Asset Management Agency

Postby PVC King » Fri Sep 04, 2009 5:58 pm

jimg wrote:So to summarise: the government ends up paying the banks interest on the 90 billion (say 1.5 billion a year currently but this could rise if the ECB rates rise) plus at some date in the future will be obliged to pay them 90 billion cash. In exchange they get to own a bunch of loans to insolvent builders and developers many of whom are close to bankruptcy; the collateral for which (if the claims about O'Carroll are any guideline) is likely to be worth 30% of the value of the loan.


You are seriously wrong on this figure of 30% or an assumed 70% destruction of value; one third of the total loan book is development land or half completed developments. 65% - 70% is mostly tenanted commercial property of which half is outside Ireland. Wait until the valuation exercise is completed before swallowing the suicide capsule that is in you hand! I have not read such a defeatist ill informed statement previously
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Re: National Asset Management Agency

Postby garethace » Fri Sep 04, 2009 7:04 pm

Pat McArdle, an economist until recently at Ulster Bank wrote a good article in today's Irish Times newspaper.

The difference between the initial value of the projects funded, €115 billion, and the current market value of €50 billion is split 45:40:15 with the borrowers losing €30 billion equity, the banks taking a hit for €25 billion and the Government putting up €10 billion.


http://www.irishtimes.com/newspaper/opinion/2009/0904/1224253820646.html

Simon Carswell reported on what Kevin McConnell, analyst at Bloxham said on the NAMA issue.

http://www.irishtimes.com/newspaper/finance/2009/0904/1224253821195.html

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