Tuesday, August 4, 2009

Economics 04/08/2009: NAMA & Liam Carroll - the saga continues

Oh, you have to love the drama and tension surrounding NAMA.

The latest thing to hit the rumour mill as we expect this afternoon our Suprem Court's rulling on Liam Carroll's appeal of the High Court decision to deny his companies examinership protection is that, allegedly, BofI and AIB are considering a buy-out of ACC Bank. Now, this is a rumor at this moment in time, and I have to stress this once again - it is a rumor - but given that:
  • ACC can be, probably had for ca Euro130-140mln;
  • ACC's books are so toxic (30% plus impairement across the property portfolio, 39% impairment across commercial property alone that its parent Rabo Bank would simply love to get rid of it for any sort of money;
  • ACC's removal from the challenge to Liam Carroll and other developers would allow the big 3 of Ireland to continue on their chosen paths to the taxpayer-financed feeding trough of NAMA;
  • ACC's buyout wouyld please the masters in the Government; and
  • NAMA would more than compensate the buyer for the extra cost (say ACC is bought at a 50% discount to the book, then NAMA buys roughly 75% of former ACC 'assets' at 30% discount, implying a nifty return of Euro 5 per original expenditure of Euro 100, and you get to keep 25% of the ex-ACC assets too...
It would be no brainer for the AIB or BofI to load up on more toxic stuff to swap it for taxpayers cash.

From our, taxpayers' perspective, this is equivalent to throwing children off the sleigh in hope of holding back the wolves. The only hope we have at this stage is that a swift turning down of Carroll's appeal by the Supreme Court throws these schemes wide open.


Anonymous said...

It feels like we are approaching the endgame here.
If the SC appoints a receiver then mark to market rules and NAMA is stillborn.
If the SC find the high court judge erred on a point of law and subsequently an examiner is appointed or more likely carrolls properties are namafied through the mechanism you suggest(AIB and BOI buying up ACC) then we the Irish people are economic slaves .

Allowing for the unexpected in such a volatile environment(something like the jailing of the Thomas Cook protesters) and the prospect of financial armageddon ahead for owners of apartments there is a real prospect of FF blowing apart and civil unrest.


Anonymous said...

As usual the Supreme Court have bottled it! Surprise, Surprise!

John Pardway said...

I think Anonymous makes a good point. I thought that the popular support given to the Thomas Cook protesters seemed a bit odd. They were after all being offering 5 weeks pay for each year worked. Not terrific, but not bad in a brutal recession.

But I think their protest tapped into a greater sense of public anger. "We're mad as Hell and we're not going to take it anymore."

Time will tell. Ireland is not a stranger to violent civil unrest.

philip said...

Surprise suprise indeed. What's more surprising is that the ECB is allowing this to happen. Just how much sovereign IOUs will they accept to keep this farce alive. Remember, all the Euro Banks and besides are interconnected. The last thing they want is paddywhackanamary putting a drag on your ability to deal with the ECB going forward - they are not out of the woods either.

I think the end game is a definate blowout for NAMA. Relying on dwindling taxpayer revenue to service increasing debt is a non-starter - even in the long term. Someone is not doing the sums and the big world out there is simply not coming back quick enough to be of any benefit.

MK1 said...

Hi Constantin,

The 'exposure' of Carroll by ACC's case is giving all of us an insight into the depths that some of this credit bubble has gone to. NAMA is purposely stating that it will pay above mark to market levels.

One aspect that Carroll is correct about is that a firesale of assets now will reduce their value further due to the volume distortion on the marketplace. There is no demand.

If anything, the NAMA/Bad Bank model would work IF (and its a big IF) it paid a market price and controlled the assets as they are 'leaked' back into the general marketplace. It is government intervention of an unprecedented scale and againjst EU rules BUT the EU is likely to allow it due to the perceived necessity.

But NAMA may hold Ireland's recovery back as it will keep asset prices artifcially higher than a free bankrupt-driven marketplace would allow. Creative destruction is not taking place and we ay end up like a Japan where the write-offs were not written down as they occurred.