National Asset Management Agency
The National Asset Management Agency (NAMA) is a body proposed by the Government of Ireland in a bill due to be debated in Dáil Éireann in September 2009.
It is proposed that NAMA will function as a bad bank, acquiring property development loans from Irish banks in return for government bonds, primarily with a view to improving the availability of credit in the Irish economy. The value of these loans before the Irish financial crisis and the deflation of its property bubble is estimated at between €80 billion and €90 billion[1].
The proposal is controversial, with opposition politicians [2] and some economists[3] criticising the approach.
Who it would cover
Initially the scheme covers the six financial institutions that are covered by the Irish Government's deposit guarantee scheme, but those such as Ulster Bank who are not covered, can be allowed opt in to the scheme if they want.[4]
How it would work
Lenihan said the banks would have to assume significant losses when the loans, largely made to property developers, are removed from their books. If such losses resulted in the banks needing more capital, then the government would insist on taking an equity stake in the lenders.[5] Economist Peter Bacon, who was appointed by the Government to advise on solutions to the banking crisis, said the new agency had potential to bring a better economic solution to the banking crisis and was preferable to nationalising the banks.[6]
The assets will be purchased by using Government bonds, which will lead to a significant increase in the gross national debt of Ireland.[5] NAMA will be established on a statutory basis, under the aegis of the Irish National Treasury Management Agency.[7] [8]
Defining "Long-term economic value"
The assets will be taken on at a modest discount, referred to as a "haircut", estimated at about 20% of face value, and in exchange the banks will be given bonds to sell to raise cash. The current value of the assets will not be based on their estimated market value, but on a higher notional "long-term economic value". This higher value is ultimately based on the share prices of Irish banks, which were low in March 2009 but have risen since. Critics say that this is a circular argument; were the expected discount 50% or more, the banks' share prices would have collapsed. In early September 2009 Minister Lenihan pointed to this rise in share prices as positive news: ".. markets have assessed that information in the context of their current share price and rating agencies have used it in their assessment of these institutions." Should an independent NAMA valuation be too low, Lenihan said: "I can give directions to NAMA to have a valuation reconsidered."[9]
Criticism
The proposed agency has been the subject of major criticism in both politics and academia. Fine Gael Enterprise, Trade and Employment spokesperson, Leo Varadkar, said of NAMA: "(Fianna Fáil minister) Willie O'Dea and Peter Bacon, the architect of NAMA, both accept that this is a massive gamble. Taxpayers are right to ask why Fianna Fáil is so keen to gamble with their money without asking the banks, bondholders and institutional investors to take their fair share of the pain. In dealing with the banking crisis, the objective must to minimise the risk to taxpayers and to get credit flowing to businesses and homebuyers. NAMA achieves neither of these objectives. It won't get credit flowing and it exposes taxpayers to all of the risk." Fine Gael instead proposed a 'national recovery bank'.[10]
Labour Party Enterprise spokesperson and former Finance Minister Ruairi Quinn accused the Government of "proposing to establish the biggest property company in the world and asking taxpayers to foot the bill and bear all the risk." He stated that "this Bill will be one of the most important pieces of legislation ever to have come before Dáil Eireann. There will be enormous consequences for the taxpayer if the government get it wrong." Labour instead has proposed the temporary nationalisation of the banks.[11]
A commentary signed by leading academics also questioned the NAMA strategy.[12] They wrote in The Irish Times that they saw
nationalisation as being the inevitable consequence of a required recapitalisation of the banks done on terms that are fair for the taxpayer. We can summarise our arguments in favour of nationalisation, and against the Government's current approach of limited recapitalisation and the introduction of an asset management agency, under four headings. We consider that nationalisation will better protect taxpayers' interests, produce a more efficient and longer lasting solution to our banking problems, be more transparent in relation to pricing of distressed assets, and be far more likely to produce a banking system free from the toxic reputation that our current financial institutions have deservedly earned.[13]
The criticisms are disputed by the Government. The Tánaiste and Minister for Enterprise, Trade and Employment Mary Coughlan has defended the creation of the agency saying it was not a bailout for the banks, one of the charges made against it.[6]
See also
- 2008–2009 Irish financial crisis
- 2008–2009 Irish banking crisis
- Irish emergency budget, 2009
- Toxic asset
References
- ^ "NAMA to target land & property loans". RTÉ News. 9 April 2009. Retrieved 15 September 2009.
- ^ "Opposition criticises Nama Bill". The Irish Times. 30 July 2009. Retrieved 15 September 2009.
- ^ "Key economists criticising NAMA". The Irish Independent. 27 August 2009. Retrieved 15 September 2009.
- ^ "Bad debt agency may be scaffold for property developers". The Irish Times. 11 April 2009. Retrieved 11 April 2009.
- ^ a b "Ireland creates agency to cleanse banks' bad debts". CNBC. 7 April 2009. Retrieved 11 April 2009.
- ^ a b "Coughlan defends creation of asset agency". RTÉ News. 9 April 2009. Retrieved 11 April 2009.
- ^ "Agency to deal with toxic bank assets". The Irish Times. 7 April 2009. Retrieved 11 April 2009.
- ^ "Government FAQ May 2009(Dept of Finance)" (PDF). 18 May 2009. Retrieved 18 May 2009.
- ^ Karl Whelan (6 September 2009). "Lenihan formula will ensure banks win and taxpayer loses". Sunday Independent. Retrieved 7 September 2009.
- ^ "Fine Gael press statement". 31 July 2009. Retrieved 15 August 2009.
- ^ "Labour Party press statement". 30 July 2009. Retrieved 15 August 2009.
- ^ The academics were Karl Whelan, professor of economics, dept of economics, UCD; John Cotter, associate professor of finance, Smurfit School, UCD; Don Bredin, senior lecturer in finance, Smurfit School, UCD; Elaine Hutson, lecturer in finance, Smurfit School, UCD; Cal Muckley, lecturer in finance, Smurfit School, UCD; Shane Whelan, senior lecturer in actuarial studies, school of mathematics, UCD; Kevin O’Rourke, professor of economics, Trinity College Dublin; Frank Barry, professor of international business and development, school of business, Trinity College Dublin; Pearse Colbert, professor of accounting, school of business, Trinity College Dublin; Brian Lucey, associate professor of finance, school of business, Trinity College Dublin; Patrick McCabe, senior lecturer in accounting, school of business, Trinity College Dublin; Alex Sevic, lecturer in finance, school of business, Trinity College Dublin; Constantin Gurdgiev, lecturer in finance, school of business, Trinity College Dublin; Valerio Poti, lecturer in finance, DCU business school; Jennifer Berrill, lecturer in finance, DCU business school; Ciarán Mac an Bhaird, lecturer in finance, Fiontar, DCU; Gregory Connor, professor of finance, department of economics, finance and accounting, NUI Maynooth; Rowena Pecchenino, professor of economics, department of economics, finance and accounting, NUI Maynooth; James Deegan, professor of economics, Kemmy School of Business, Limerick; and Cormac Ó Gráda, professor of economics, UCD.
- ^ "Irish Times op-ed". The Irish Times. 17 April 2009. Retrieved 15 August 2009.