Tag Archives: NAMA

Banana Nama – 2

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.

Banana Nama

So now we know.

The new National Asset Management Agency is to take €77 billion in “distressed” loans away from the banks.

The property to which these loans are related is currently valued at €47 billion, but we are paying €54 billion for the loans, to reflect “long-term economic value.”

Why? Because the banks need that amount, or they’ll be undercapitalised. So? Well, in which case we’d have to give them money. Oh.

That’s 7,000 million euro that we are paying out over and above what NAMA reckons the properties are worth at present.

And even those valuations are based on “the assumption that prices have fallen 50 per cent since 2007 and are now close to the bottom.”

Are they?

When we bought our house in 1985, it cost four-and-a-quarter times what I was earning then. Two years ago it was worth 12 times what I earn now, but as far as I can tell from sales around the area it’s still worth over eight times my current salary.

If I decide to sell it tomorrow, the buyer will need a mortgage. And you can bet your bottom dollar (which is probably all you have) that the attitude of the banks in the future will be very different to that of the last couple of years.

There will be no more 100% mortgages. The buyer will need a substantial deposit. The guidelines on the amount of the loan will be stricter, too. There will be no allowance made for predicted overtime or bonuses, or for the possibility that the buyer might get rent from prospective but currently mythical housemates.

They will stick to the old rules of granting a mortgage of 2-and-a half to three times one’s main salary, plus once any lower salary. Assuming the buyer earns roughly what I earn (anyone earning more would buy a better house), then the most they will be able to afford to pay is … about four-and-a-quarter times my current salary.

I’ve an awful feeling that prices still have a long way to fall, and will never again reach where they are even now.

Which means we’ve given the banks 7,000 million euro (seven billion doesn’t sound as much, does it?) that we’re unlikely to get back.

I think that’s frightening.

Oh Carroll

Those of you who live in Ireland will be familiar with the problems currently facing property developer Liam Carroll.

His Zoe Developments Group, builders and owners of hundreds of box-like little apartments all over Dublin, is currently deeply insolvent. One of the banks to whom it owes money has applied for, and been granted, the right to appoint a liquidator.  Zoe set out to block this by applying to the High Court for “Examinership” – a court-backed protection from its creditors while an attempt was made to see if it could work out a rescue plan. This was rejected by the High Court, since the Group’s evidence was

(a) Our assets will eventually be worth enough to cover our loans, but we won’t tell you how much they’ll be worth, because that’s sensitive financial information, and

(b) Our banks, other than the one pursuing us, will back us all the way, but we’ve brought no letters from them or anything to confirm that. (Anyone who thinks I’m unjustly belittling the evidence they produced should read the court report).

The judge shot their case down. Therefore they appealed it to the Supreme Court, as is of course their right.

The Supreme Court turned them down as well, so they applied to … well, the High Court.

They went along, said sorry, Liam Carroll is temporarily not well, it was his idea to give you no info last time, now here’s some letters & stuff, please can we have another go.

The judge said this was most unusual, and he was very reluctant to re-hear a case which had already been rejected by the High Court and Supreme Court, but – and here’s the important part – he agreed to hear it anyway.

So Zoe produced all its evidence.And, as of Thursday, it lost again (this time the judge said that the figures that it produced were either “badly presented or just plain wrong.” Wonder how much its Accountants will charge for that).

Anyway, the reason for this post is that amongst the more detailed evidence that Zoe produced was the little nugget that it was intended that no interest be paid on Anglo Irish Bank’s loan until 2014.

That’s the Anglo Irish Bank that we had to nationalise after its corrupt chairman, reckless lending and inept management brought it to the brink of collapse.

In other words, that’s us.

So, had Zoe’s application for Court Protection succeeded, then one of the biggest property developers in this state, one of those whose greed helped cause of all our tax increases, benefit cuts and job losses, would not have had to pay us any interest on the money he owes us for five years.

Do you remember agreeing to that?