Banking Expert Peter Mathews on fixing Ireland's Banking Crisis

THE NAMA Bill is essentially perhaps the most financially toxic piece of proposed legislation that has ever been presented to the Oireachtas.

Judging by the Dáil debate it is apparent that the nature, depth and extent of the banking sector’s perilous financial situation is just not properly understood by our politicians and even by some of their advisers.

My previous letter (November 7) clearly shows how the NAMA experiment will result in losses on loans recoveries of not less than €11.65bn. No one has been able to fault that analysis.

Huge denial in government, departmental and banking quarters still persists. Such stubborness and obduracy will cost the country enormously.

Irrefutable facts and correct analysis clearly show that the negative financial consequences of NAMA for the Irish people will be on an appalling scale. There was a much sounder alternative to the NAMA bill – a transparent, well structured, correct solution to the banking sector’s crisis. It would involve immediate, robust and adequate recapitalisation and pre-privatisation of the banks. It would require a writedown of their bad loans by about €40bn to realistic recoverable amounts and recapitalisation by writing down existing bondholders in the banks by about €20bn (in appropriate proportions) and injecting new state capital of about €20bn.

Both these elements could have been drawn up, negotiated and put in place expeditiously. This alternative is transparent and would have had the inbuilt advantage of motivating the banks to clean up their acts and earn their way back to market/shareholder independence over five or six years while a state investment trust company held a majority shareholding control following the recapitalisation.

If Finance Minister Brian Lenihan had shown courageous leadership and steered this correct course, it would have enabled him, without political embarrassment, to bypass the NAMA concept and move urgently to the robust recapitalisation and pre-privatisation of the banks, thus preventing stagnation and creation of a property market swamp and consequent long drawn-out economic decline, in addition to the enormous losses on loans recoveries exceeding €12bn (more probably approaching €20bn) that the NAMA model entails.

The country is facing a “financial Dunkirk” and it demands courage, leadership, decisiveness and all-party support as well as national co-operation from all our citizens to follow the right path.

President McAleese has the opportunity now to invite the minister to bypass the costly, inadequate NAMA concept and move swiftly to recapitalise the banks. Proper recapitalisation means proper liquidity.

Peter Mathews B Com, MBA, FCA, AITI
Mount Merrion
Co Dublin

This story appeared in the printed version of the Irish Examiner Saturday, November 14, 2009

Reported today in the Irish Times:

The Minister for Finance this morning said he was not contemplating failure in the operation of the National Asset Management Agency (Nama) following the passing of legislation to create it…

The Bill passed its final stage in the Dáil yesterday by 81 votes to 62.

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It would be pleasant and cosy but innocent to accept that all the cash flow loans will be recovered 100%….. If that was the case it would now be easy for the Banks to arrange a re-financing of those loans with other foreign Banks e.g. (HSBC that doesn’t have a capital problem) or to sell the entire cash-flow loan book and that would immediately solve 40% of the Irish banks €77bn bad loans problem. So, it is correct to infer that these cash flow loans too are really poor and highly exposed (i.e. hyper bubble loans). Also remember the true case example of the 3 year old Dublin Retail Shopping Centre [€3.2m Annual Rent Roll €52m 20 year loan (no problems yet!)] valued 3 years ago at just under 5% yield – to give a valuation of €72m; professionally re-valued in last number of weeks applying a more correct yield of 7.5% to the annual cash rent roll of €3.2m (in absence of bubble 7.5% yield should have always applied for this class of property investment), to give a current valuation of €43m – Bank now concerned that Loan/ Value ratio has disimproved from intial L/V (52/72 = 72%) – a perfectly acceptable L/V for the Bank at the time of disbursement for the Bank eager to “throw” a 20 year term loan at this “flagship” rent rolling property investment let to undoubted retail tenants, B&Q etc etc. and to an experienced, undoubted property investment client [who knows, without having to be told that the correct value of this investment is at most €40m!]

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Writing my last post and thinking about Deputy McGrath’s political speak raised a couple of questions in my mind about the NAMA business plan and so I’ve gone back, yet again, to look at the numbers. I wanted to study closer the argument about the value of the underlying assets and their ability to cover the NAMA loans.

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Lady S. Not at all; but, you know, there’s none so blind as they that won’t see.
Jonathan Swift (1667-1745, Dublin) A Tale of a Tub and Other Satires (1704)

For those of you who watched RTE’s Prime Time last night you will have seen what happens when a politician meets a banker. If you’d like to hear what happens when a banker meets a banker listen here. I’m reminded of Fiona Looney’s reply to Vincent Browne on his TV3 show last month when asked what she thought of NAMA: “Oh it’s all very honours, isn’t it?”

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Wondering if NAMA will help get liquidity back into the Irish economy, it’s primary purpose?

They say a picture paints a thousand words, but this one only paints one: NO.

Where will the NAMA money go?

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