LAST MONDAY, I sat in on a round-table discussion in Dublin on the subject of NAMA. I’d suggest that most viewpoints were represented – developers, landlords, the general public, banks and NAMA themselves.
It was a reasonable discussion on the merits and achievements of the organisation to date, or rather more accurately, the lack of achievement to date. The lack of achievement came as no surprise due to the extent of the problem and its unwieldy nature.
NAMA, as I have already discussed, is an organisation that has already spectacularly failed in its primary role. It was largely agreed that NAMA is suffering an identity crisis and is desperately trying to justify its role in Irish society. It operates at an enormous cost, estimated to be in the region of €1 million a week, and if it is to continue in its current format will likely be in existence for no less than ten years, possibly a great deal longer.
NAMA holds a value of property that the market could not even sustain in ten heady years of excessive speculation. Now that everyone is feeling sorry for themselves, down on their luck and scared to invest, the overhang on the marketplace will take even longer to work through.
It was pointed out that there are very large deposits held offshore by Irish nationals that should be encouraged to invest in their national market. These are largely savvy investors who have their money off-shore for one main reason: there are better opportunities. They likely have little interest in Irish property, seeing it as overvalued for some time and waiting for values to realign.
It is important that these funds as well as those held by private equity funds and overseas investors are attracted to the market place. To this end, NAMA’s intention to offer stapled finance and protected domestic entry to the marketplace by further reductions is a move in the right direction.
But is there a better, more complete solution? Creditor write-down or debt forgiveness is the fastest route to a recovery in the economy but one other solution, championed by the TD Peter Matthews has significant merit. He would be keen to reverse the loans back into the banks.
As the principle reason behind our recent difficulties, this would leave most people worried about a return to the past. Peter would reason that there are good bankers and bad bankers, just as developers would argue that there are good and bad of their ilk as well. I would agree; supervision would need to be far better than in the past but the skill-set is already there to deal with these loans.
Let’s think about it for a minute.
NAMA, at present is nothing more than a glorified Debt Collection Agency, much as Certus is for the now-defunct operation that was Bank of Scotland (Ireland). Were the loans to be repatriated to the banks, it would have to be accompanied by an element of creditor write-down. I still believe that this has to be as much as 50 per cent in the case of the Irish banks.
The problem of the non-performing loan portfolio would then be back where it started and the cost of pursuing those loans would be borne by those banks that created the problems. If there were any further losses on these loans, they likewise would be borne by the banks.
Reversing the loans back into the banks would mean a couple of things. The cost of the NAMA administration, currently running at around €50m per year would be transferred back to the banks as they would be collecting on the loans. In addition, these banks would likely be more aggressive in trying to resolve the loans or look at alternate uses for the massive land-banks that have been amassed.
My only concern would be that NAMA has already forced an average 58 per cent haircut on the loans, so they would be reversed in at these levels – but as we are all aware, values have likely dropped further. I would worry that the banks are possibly not capitalised well enough to withstand any further losses on these loans. Others are better placed to assess this than me but if they are, this should be seriously considered.
It makes abundantly sound common sense. I don’t think NAMA is so unwieldy that it cannot be dismantled quickly. Banks have always lent money, overseen the relationship between lender and borrower and enforced collection on loans that are non-performing. This is nothing new, the scale of the non-performing loans may have hit new heights but the process is the same as it has always been.
The unchecked, crazy lending patterns are a thing of the past and banks, regulators and government will not make the same mistakes again. Amalgamating the administration of NAMA with those banks so that the costs are assumed by the banks will save a fortune over the next ten years, but we must ensure that the board of NAMA or another government body retains meaningful regulatory control over how these loans are dealt with.
Recent ownership changes at Bank of Ireland may make this slightly more difficult than if both of the pillar banks were nationalised, but it is time to think outside of the box.