Hard questions on a ‘fuzzy’ subject.
Statement of Fact: Presently, the beneficial interest in these ‘toxic’ property assets resides with the developers. It is proposed to transfer the loans secured on these properties and the ‘security’ attached to these loans to NAMA, by means of a payment priced at a discount to nominal value but above what could be achieved in the ‘market’.
Question: With whom does the beneficial interest reside, post the transfer? If it is still the developer, then by definition they are being bailed out. If it is not the developer, then how can they be held to account when they have been deprived of their property?
Question: How likely is it that someone can be deprived of their property under the notoriously conservative Irish Constitution?
Question: Can a personal guarantee be worth anything when the guaranteed party has voided the contract by exercising a preemption on the asset?
Statement of Fact: The banks have been doing deals in the capital markets, buying back their unsecured bonds (which represented a generalised claim on their assets) at discounts of anywhere between a third and a half. The distressed assets represents 20% of the ‘bucket’ (90 Bln out of 450) and the other 80% of the banks business’s have also declined in value, but by less than the property portfolio (let’s say 25% – half way between the contraction in the economy and the fall in house prices). When (80% of the assets @ 75% of value) plus (20% of the asset @ X%) equals 66% then X is 30%, meaning the implied discount in the market that the banks have been happy to accept is in the order of 70%. The banks seem happy to accept a discount of 70% from their colleagues in the market but are negotiating for a better price from the taxpayer (in the order 220% better)
Question: Should the taxpayer be rewarding this duplicity?
Statement of Fact: NAMA is meant to be a vehicle for distressed property assets and their attendant debt, held in isolation in order not to swamp a ‘disorderly’ market so that in the long term some form of ‘fair value’ may be obtained.
Question: Why are performing assets being included in the basket?
Question: Are all the distressed assets being so treated? If not what is the threshold level of distress? How is this threshold being determined in a disorderly market? What are the other criteria for inclusion/exclusion?
Question: Why are ‘derivatives’ being included in the bundle? Are these derivatives in the developers names or are they failed ‘hedges’ placed by the banks themselves?
Statement of Fact: At least 25% of the 450 Bln assets are physically outside of the jurisdiction. At least 25% of the liabilities are owed to non-domiciled ‘bodies corporate’.
Question: Why is the Irish taxpayer on the ‘hook’ for German fundmanagers trading on bonds issued in London by Irish banks to finance the Bulgarian apartment speculations of their developer clients?
Question: What benefit did the Irish citizen or taxpayer receive in terms of incomes earned, exchequer returns or infrastructure enhancements that obliges them to support these failed adventures.
Statement of Fact: The return to the taxpayer is a levy on bank income, a floating interest rate and hopefully the whole of the principal instead of an equity stake. In all other business ventures, if your stake is at risk then you get a share of the upside as well as the downside.
Question: Why is the taxpayer not entitled to the upside appreciation of the banks shares?
Statement of Fact: A lot of people borrowed more than they can repay presently or indeed what they expect to be able to repay in the future, either in terms of repayment or asset price appreciation.
Question: Why are those who borrowed more than a million being treated with more Govt concern and effort than those who could not?
Statement of Fact: The longterm for NAMA is in the order of 15 years or 3 Oireachtas terms (in normal times). The Greens expect huge changes in the environment, in the availability of oil and other resources. At the same time, the Internet will continue its disruptive transformation of our economies. We will, in Amory Lovins’ phrase, ‘be moving electrons instead of protons’. There will be reduced demand for property on foot of this (cf the travel agency business).
Question: Why are the Greens risking the future of the State on a development model that they had always criticised and never subscribed to and do not believe is good for this country or the planet?
Question: If the Govt believes that the smart economy is the way forward, why is it betting the last of our capital on a class of assets developed in the 19th century?
Statement of Fact: The boom arrived on the back of a large growth in salaries and unprecedented salary multiples and gearing ratios. The boom saw price levels driven by 100%plus mortgages of 6 times some ficticious salary on 40 yr paybacks. Globally, the norm is 3.5 times verified annual earnings at leverage of 80% for 25 years.
Question: What level of multiples and gearing will our Government owned banks prudently sanction?
Question: How long does the Govt think it will take at, say 4% ann growth, to return to the price levels required to take the loans back into the black?