Sorry, but I can’t let this topic go.
The Government’s NAMA has bought €77 billion worth of loans from the banks. The property relating to these loans is worth €47 billion, but we’re paying €54 billion for them. We’re told that it’s not a bailout, that NAMA will pursue the developers for their loans just as diligently as the banks would have. And I’ve no doubt that Brian Lenihan believes that.
Ok, let’s keep it simple.
A property company, Balls of Brass Limited, borrowed €1.5 million from AIB to buy a property. This property is now worth €1 million. We have bought the loan from AIB for €1.15 million, to reflect “long term economic value”.
Next week Balls of Brass goes into liquidation. It is entitled to do this, indeed obliged to, as it is hopelessly insolvent. Its only creditor, which is us, gets legal ownership of its only asset, the property which is worth €1 million.
And we’ve just paid €1.15 million for it.
And that’s the end of it. The company is in liquidation – effectively deceased – so there is no-one and nothing left to pursue. The company has met all its legal obligations by handing over its asset to its creditors. No-one has done anything legally wrong.
But we’ve just lost money, unless the Government intends to hang on to the building in the hope that prices will rise. What if they keep falling? At what stage does NAMA lose its nerve and sell for even less than the €1 million it’s supposedly worth now?
Bank share prices surged on Thursday after the figures relating to NAMA were released. You can see why.