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Updated 16.46
NAMA HAS BEEN accused of being used to deliver a “bailout by stealth” to the banks after paying way over the odds for the billions in bad loans it took over.
The head of the state’s bad bank today told the Oireachtas banking inquiry the loans it bought would have fetched about €10 billion less if they were put on the open market.
Nama paid €31.8 billion between 2010 and 2011 to buy out loans with a face value of €74 billion from five “participating” banks. The agency is expected to pay back all that money to taxpayers by 2018 with a €1 billion “surplus” for the state.
But chief executive Brendan McDonagh today said the same loan book would have only fetched about €22 billion if sold to private investors.
That was because Nama was required under its EU-approved mandate to buy the loans based on their values in November 2009, despite property prices falling up to 30% further since then.
No private investor would have transacted on this basis,” he said.
The majority of that benefit went to the nationalised Anglo Irish Bank and Irish Nationwide, and AIB, in which the government owns a 99.8% stake.
However over €5 billion was also paid to the Bank of Ireland – in which the state took only a 14% share - for its bad loans, which means much of the benefit flowed to the bank’s shareholders.
‘If the rules applied’
Socialist TD Joe Higgins said “if the supposed rules of the capitalist markets applied” the banks would have taken billions less than they eventually received from Nama.
So … rather than a €1 billion surplus to taxpayers, wouldn’t it be more accurate to say Nama was used to give a further €10 billion by way of a bailout to the banks,” he said.
Late last year, the net cost to taxpayers of the bank bailout was put at €40 billion after the state recovered some of the €64 billion in total it had pumped directly into the failing financial institutions.
Nama chairman Frank Daly said the agency “didn’t really have much say over what was actually paid to the banks” because of the valuation rules.
“If Nama had paid the banks €10 billion less, the reality is that that money would have had to be put into the banks anyway – they would have recapitalised and that’s all still really coming from the taxpayer,” he said.
There had to be a solution, we had an extraordinary economic situation at that time – the whole credibility of this country was at stake.”
Biggest borrowers owed €34 billion
Earlier the inquiry heard the biggest 29 borrowers whose debts Nama took over owed a combined €34 billion to the banks.
McDonagh said it was clear lenders and developers “shared a groupthink view” during the boom that prices would continually keep on rising.
“Few, if any, financial institutions wanted to be left out of what was seen as a profitable business due to larger lending margins and relatively low operating costs,” he said.
It was difficult to avoid the impression that the institutions perceived lending as a sales activity and that, in the rush to expand bank balance sheets, a rigorous focus on lending quality was lost.”
Nama figures handed to the inquiry showed the three-biggest debtors that fell under its control owed a combined total of nearly €8.3 billion, while 12 owed more than €1 billion apiece.
‘Clearly excessive’
While McDonagh said lending to major developers was “clearly excessive”, the quality of those deals was still higher than many loans given to smaller operators.
Many of those agreements were struck with individuals or syndicates whose main businesses weren’t property development and for clearly non-viable projects in rural areas.
There appeared to be a highly accommodating attitude among financial institutions towards the more prominent debtors and a concern that if the institution was not suitably amenable, the debtor would look elsewhere for the funding of future projects,” he said.
‘Hope value’
Daly said banks often lent developers 100% of the money they wanted for projects while putting themselves in a position to wear all the losses if the deals went sour.
He said a lot of the lending appeared to be based on “hope value more than anything else” with disregard for how much developers had also borrowed from other banks.
That was despite only a small future fall in house prices being enough to make whole tranches of development land virtually worthless.
First published 11.30am
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Yes the banks did. But they got a bail out. The ordinary people didn’t ! Capitalism at its worst. Not a single banker was jailed
I know it’s off the beating track, but have a read of this, hilarious. http://www.irishtimes.com/news/politics/ff-considering-complaint-over-its-treatment-on-rt%C3%A9-show-1.2184246#.VTc4vVZze6c.twitter
It was a one way bet for the banks, which they evidently won (due to their corruption/criminality and the corruption/criminality within our government)
Lol Peter,
Claire takes no prisoners and no bullshit.
I imagine she will soon find herself ostracized by all politicians.!
Relax, Conor, they are trying to tax the very water we drink, but they cannot tax good music,!
https://youtu.be/myvyGl6yo64
We know all there is to know about the banks and the problems for everyday people they caused. Regurgitating these stories is now pointless. When we here of convictions, debt repayment to us the people and variable interest rate cuts then we’ll be interested in hearing/reading about our “wonderful” banks. But for now it’s yet another case of YAWN!
Not a banker jailed or a member of FF or the Green Party the government who caused all this.
@Chris The seeds for this disaster were sown in the early 2000′s and nurtured by successive FF-coalition governments. Whilst all government coalition parties carry some responsibility, the PD’s are way further up the list of people to blame compared to the Greens. The house of cards collapsed when the Greens were in power but its too simplistic to blame them in the same breath as FF. To clarify, I’m not affiliated with any party but i really want to ensure the actual architects of this mess are not forgotten.
Its not Capitalism at all. True capitalism would have allowed the banks to fall.
The sad fact is that AIB, BOI, IPBS, Bertie’s bank – Friends First, UB et al, were all trading fine with broad-sector loan book balance and with no particular bias towards property lending , right up until early 00s, when each adopted the toxic Anglo Irish Bank lending model ie a Texas hold’em type all-in on a property stampede.
Will never understand how the highly-paid numpties / watchdogs at the ECB, Ireland’s, Central Bank and Department of Finance, internal and external auditors, allowed this fiasco to occur.
Yep! all missed the developing tornado that was Irish banking sector during 00s.
Read Kathy Sheridan’s excellent article in today’s Irish Times relating to Bankers to get some perspective on why top dogs in the sector just couldn’t make objective decisions in halting the stampede.
How does 29 people get 34 billion between them in borrowed money it’s a disgrace the people of the country paying for these clowns borrowings and I bet not a one of them is broke we don’t even take that in taxes in one year
Astonishing how little shame the big developers have for the chaos they have caused this country . The top 3 developers owed 8.3 billion yet they go around saying we repaid our debts to Nama so we’re tge good guys- no you didnt pay back your debts , you paid back 60 percent on average so the taxpayer picked up the tab for the rest . O Flynn Construction cost the taxpayer 900 million when their loan book was sold off yet Micheal O Flynn says on TV programmes that developer shouldn’t be a ” dirty word ” and that the country “needs ” developers – the country needs developers alright just not the type that cost the taxpayer 900million . All the abuse seems to be heaped on bankers yet the developers were equally if not more to blame yet most people seem to have been fooled by the 3 card trick that is NAMA – moving debts from one pocket to the next so that they don’t seem so bad
Developers develop to make money
Bankers bank to make money
Politicians and their regulators are supposed to be the watchmen acting in the public interest. It is at their door the blame should lay.
I am unconvinced that measures have been put in place to prevent a similar catastrophe happening
Government lets it happen.
It seems like in the blink of an eye, it went from millions of pounds being considered enormous sums, to tens and hundreds of millions of euros being no big deal ..
And in other news experts agree that the surface of the sun is hot.
Ireland a great little country to do corruption in. Sick to the teeth of the white collar criminals that fester in the Dail and those who have bought their pet TDS.
Trust me ..it was no bet..it was a sure thing
When does the inquiry move on to the “Stuff we didn’t know already” phase?
Its all coming out this week.
Simple question… if all these countries are broke/bankrupt, etc. and have spent “all the money” then where, apart from the pockets of the already rich, then where did all the money go?
Mostly on public sector salaries and social transfers. That is not a value judgement, it is a fact.
There were no mistakes made, – this was all engineered.
- Milk the poor, – feed the rich,
it has always been the way.
So once the public sector workers were paid and the unemployed received the “benefits” they just put the money under their mattress? Is that what you’re implying? They didn’t spend it and put it back into the economy immediately? Didn’t pay their mortgages, tax, VAT, USC, etc., etc.? If you do some research before you comment you’ll find that some 85-90 % of our income disappears in taxes during the spending of same. Anything that is “saved” in the various banking institutions is then subject to more tax. I call bullsh*t on your answer and your understanding of how the economy actually works. Now, please explain where all those taxes went because it seems like one big vicious circle of lies to me and if you’re too blind to see it then I wish you well with your FG vote next time out.
And naill mullins, THATS the million dollar question…
“Mostly on public sector salaries and social transfers” How so, Emily Elephant? Are Public Sector employees and The Poor the only people who have any involvement in the Property Business, and the Banking Sector?? :-/
How can any country be “bankrupt”? There are two forms of wealth, mineral wealth and the wealth provided by the work of the people. Mineral wealth is long since controlled, the control of the workers..well the attempt is in full swing..again. Unless Ireland is as desolate as Antarctica I fail to see how we are “bankrupt”?! If we built an aoul wall to the skies and kept these vultures out Ireland would be grand. Sure, eventually we’d probably all have some physical abnormality, three eyes or some such, but, jaysis, then we’d surely see them comin’ next time!
“Mostly on public sector salaries and social transfers.” I don’t believe that it’s mainly Public Sector workers and The Poor who are involved in Property or Banking.
Let’s assume those figures are accurate. Let’s also assume that the banks would in fact have sold to private investors. (They whined about what they were told to transfer to NAMA and the price, so that’s far from clear.)
We’d now be in a situation where the banks had €10B less and would have needed extra capitalisation to the tune of the same amount. That would have come from us, the taxpayers. We would have owned a bit more of BoI. But AIB was already 99.8% state owned by 2011, and Anglo was fully nationalised. So we would have seen almost no return on that €10B.
Private investors would by 2018 have sold out at an €11B profit, and we’d all be giving out about sweetheart deals.
Instead, all the extra money we put in is going to be returned to state coffers with an extra €1B on top.
This is a bad thing how exactly?
No answer. Nama bad. Boo. Hiss.
ppl are mainly pissed at the way the whole thing was handled along with the fact that the muppets in charge have never been held to account or by been jailed or suffered like the ordinary ppl have
“We’d now be in a situation where the banks had €10B less and would have needed extra capitalisation to the tune of the same amount. That would have come from us, the taxpayers. ”
I must admit I am no expert on Finance, but as far as I am aware, Government does not normally capitalise Private Banks (PTSB might be an exception, I’m not sure) any more than they capitalise, say, Dunnes Stores, M&S etc., (even Roches Stores). I don’t quite follow, therefore, why Taxpayers would need to capitalise a Private Industry.
In fact, from what I can remember of what was published in the Irish Independent’s articles on “The Anglo Tapes”, Anglo Executives were afraid the Central Bank wouldn’t bail them out, so they lied about their “liquidity problem”, and were heard telling each other to belittle Anglo’s problems to pitch it at a level where the Central Bank would have “skin in the game”.
While it appears the Taxpayer is getting returns on NAMA’s “investment”, as you suggest, I wonder (a) about the Interest over 10 years on this “mini-mortgage”, and (b) if banking is really the lifeblood of the economy, maybe it should be 95% permanently in State hands.
Why the need to show a photo of Brian Clown. we all know who he is and we certainly know what he looks like.
Cowan the clown should be jailed for impersonating a leader!!!!!!
today’s evidence shows clearly the two Brian’s had a solo run and listened to nobody now anyone who votes for ff in the future is an imbicile.
O God how…
The level of red ink can’t be hidden. Ireland will need to do some sort of a deal or this recession will last for another 20 years.
“Did the banks get ANOTHER bailout ‘by stealth’ – to the tune of €10 billion?”
“That was because Nama was required under its EU-approved mandate to buy the loans based on their values in November 2009″
You answered your own headline in the article.
Also, Joe Higgins: “if the supposed rules of the capitalist markets applied” …. jesus wept, the most anti-capitalist advocate imaginable using capitalist standards to further his agenda..
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