NAMA Twists and Turns
The original report recommending NAMA as a strategy for removing toxic loans from the major Irish banks was written by Dr Peter Bacon over a year ago. Other than railroading the legislation through with their majority vote and setting up a NAMA board, there has been little real progress by the government since then.
None of these toxic loans have yet been transferred to NAMA, the European Commission has still not confirmed that they will accept its business plan and there is no sign whatsoever of it achieving it’s primary object: getting credit flowing into the real economy again and advancing loans to businesses and individuals.
It is still accurate to describe the banks’ balance sheets as ‘distressed’ given that they continue to hold thousands of impaired loans and that they lack sufficient capital to function to a point where they could aid an economic recovery in Ireland. The government has already pumped in €7 billion in recapitalisation to these banks and according to the investment bank Morgan Stanley, is likely to need to find an additional €9 billion in further bank bailouts once the loans have been transferred to NAMA.
Although the banks (and the government) are suggesting that they could raise this additional capital requirement from private investors, this is very unlikely to happen until these toxic assets have finally been removed from their balance sheets. Even then, canny international investors may not want to put money into the Irish banking sector and the government will have to pick up the bill, increasing their ownership of the banks.
There have also been a couple of interesting twists in recent weeks. The first being a Freedom Of Information request (made by the Irish Times) discovered that the International Monetary Fund ( IMF) had told Finance Minister Brian Lenihan in April 2009, almost a year ago, that NAMA was unlikely to achieve its primary objective of releasing credit into the economy.
Unfortunately, this news came out on the same day that George Lee resigned from the Dail and was largely ignored. It begs the question as to why the government would go ahead with a scheme when an august body such as the IMF were telling them it wouldn’t achieve what they hoped it would achieve – or at least, what they were saying in public that it would achieve.
Then, just a few days ago, we learned that the Bank of Ireland (BOI) would not be paying the €250 million interest on the recapitalisation money put in so far. As an alternative to cash, which had been expected, they have now issued shares to the government amounting to nearly 16 percent of the company. Since then, shares in BOI have fallen by over 12%, further diluting the value of that repayment.
These shares were issued despite the National Treasury Chief Executive John Corrigan and the Finance Minister both saying just a couple of days before it happened that they could wait to collect the cash dividend. Unfortunately, BOI’s own bylaws required it to issue shares if it couldn’t make the cash payment. It would appear that John Corrigan and the Finance Minister didn’t actually know that shares were going to be issued and makes you wonder just whether anyone knows what is really going on.
Allied Irish Bank (AIB) are due to make a similar payment in May this year but is also likely to follow the same route as BOI and issue shares instead of paying cash to the Exchequer, further increasing the government’s shareholding in AIB.
Having rejected temporary nationalisation of the banks a year ago, the government seems to be on a course to get to nationalisation by the slowest and most expensive route available. And we will still end up with NAMA and all the potential horrors that may yet bring to the Irish taxpayer if these toxic loans never recover even their face value.
It all seems reminiscent of a joke that was once heard about Iceland:
Q: How do you buy a small bank in Ireland?
A: Buy a big one and wait.
p.s. as at lunchtime on Friday, 25th February our (taxpayers) Bank of Ireland shares weren’t doing too well - we are down some €66 million in less than a week 
:
Cost per share 1.358
Current Price per Share 1.000
Gain/(Loss) Per Share (0.358)
% Gain/(Loss) (26)
Gross Cost of 184,394,378 Shares €250,407,565
Unrealised Gain/(Loss) (€66,013,187)
I love those calculations at the end of your peice.
:)
Comment by Greg — March 3, 2010 @ 9:43 pm
Great article!
Keep telling the Truth. The ultimate act of subversion.
Comment by Pat Donnelly — March 4, 2010 @ 3:47 am
Cost per share 1.358
Current Price per Share * 1.240
Gain/(Loss) Per Share (0.118)
05-Mar-2010
% Gain/(Loss) (9)
Gross Cost of 184,394,378 Shares 250,407,565
Unrealised Gain/(Loss) (21,758,537)
AIB @ €1.46
I wonder who’s buying.
Small volume.
Will the Regulator query the trades if market changing news comes out.
Comment by Greg — March 5, 2010 @ 10:10 am
Thanks! I actually live in Saint Paul, Minnesota. Two of my grrtnpaaends were born in Clontarf, their grrtnpaaends having been some of the pioneer settlers to the area in the late 1870s. I have visited Ireland several times, and on my last visit I found the Irish people to be a bit more curious about their relatives who left for America. Since I have done some of my own research about my Irish relatives in America, I thought I could help them a little bit. Thanks again for the comment I appreciate it!Aine
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