But there is an added complication that was revealed by Liam Carroll's examinership case. As we all knew, loans to developers, by and large - all developers - to date have not been serviced with interest roll overs becoming a routine at the very latest mid 2008. This means that by the time NAMA purchases a given loan with face value €X, given the reasonably expected average rate of interest on refinanced loans of 8-11%, this loan will be refelective of:
- 12.24-16.95% cumulative rate of rolled interest, plus
- the orignal principal of €0.8305-0.8776 to the Euro of the face value of the loan
But wait, the actual principal (face value) amount has depreciated by, say, roughly 50% since the time the loan was written, so in reality, the discount NAMA will take will be negative 70-78%! What does it mean? Take a simple analogy. You walk into a shop and see a TV advertised 'For Sale'. The signs reads:
Original Price €100.00
Sale Price €178.00
How fast will you walk away from this 'deal'?
NAMA will overpay for the assets it buys on a vast scale!
Yes, NAMA is likely to overpay for any bad loans transferred, as the cse of Carroll exemplifies.
Basically, NAMA is a taxpayer funded vehicle which is giving the banks a path out of the jungle they and the regulator (and by implication the government) have created for themselves.
The 'underperforming loans' are in a mess and the transfer will save the banks and pass the mess onto us.
The question is, are people pwoerless to prevent it from happening? Do enough people realise what is happening to make their opposition to it known?
I fear not ....
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