Mortgages.ie - Mortgages and Mortgage Protection Insurance

The Nama solution is probably the best alternative available to help us to get out of the terrible banking mess we find ourselves in .Unfortunately the banking mess is our mess because we have guaranteed the banks liabilities!

Our own view on Nama is founded on the fact that "the horse has already bolted".

Once we guaranteed all the banks liabilities there was never going to be an easy way out.The are strong fundamental arguments against nationalisation which we would support but we see nothing wrong with increasing the government share ownership of the banks as part of the Nama process.

Of far greater importance in our budget defecit which is running in the region of € 15 billion per annum. Unless we tackle this we will not survive ,no two ways about it.Tackling the defecit is also central to the success of Nama becuase if we fail to so property prices will remain depressed and economic growth will be a distant memory. .

The Following arguments in favour of the NAMA solution have been extracted from a recent Bloxham Rreport.

NAMA "discount" widely misunderstood: We estimate that a 23% discount in the gross lending book destined for NAMA equates to a 42% peak to trough fall in property prices. This purchase price is close to the property market lows seen in the worst banking crisis in Finland in the 1990s, and much lower than in the Swedish banking crisis. The threat to the taxpayer of NAMA overpaying for assets is overlooking the reduction in valuation already built into the cost of acquisition and the potential future levy on the banks if a profitable recovery is not achieved.

Full nationalisation is the most risky option: The size of the Irish banking sector loan book to GDP is far greater than in previous well referenced banking crises (Finland, Sweden, Japan). Therefore the potential cost of a nationalisation of the Irish banks is far greater to Ireland's debt raising ability than in previous cases. Rather than the pension, life and investment community, which act as equity/debt holders of the two main Irish banks, being seen as avoiding "moral hazard" in a non-nationalisation scenario, they are acting as a buffer against the recognition on the national balance sheet of these further banking liabilities. There is a significant threat to the State's funding power and cost with a total nationalisation scenario.

There is already a €825 million benefit to taxpayers from recovery in the market value of Allied Irish Bank and Bank of Ireland: Holding options worth a 25% stake in both AIB and Bank of Ireland, the taxpayer has benefited by €825 million as a result of the shareholding. This is apart from the benefit of the annual 8% yield from the €7 billion injection into the two main banks, which adds a further €560 million to the return per annum.

The Irish economy is suffering from a starvation of liquidity: According to the Bank of International Settlements, international cross border lending is collapsing. Ireland represents the biggest private credit exposure in the Euro-zone for the UK major banks according to the Bank of England. Foreign owned banks in Ireland, which contribute 1/3 of the total Irish lending book, are operating at loan/deposit levels far in excess of optimum levels. There will be an inevitable pull down of lending in the Irish economy from foreign participants as a group as they seek to redress this imbalance. The Irish economy is urgently in need of the liquidity event which the National Assets Management Agency (NAMA) creates by pushing €60--€65 billion into the Irish banking channel.

A "cleansed" Allied Irish Bank and Bank of Ireland post NAMA reduces future tax payer liabilities: Apart from the recent approach by a potential overseas buyer, the Irish banks could be in a much stronger position to raise independently sourced capital after NAMA. With the objective of reducing taxpayer liability to the capital requirements of the banks, the NAMA plan significantly reduces the potential capital burden of Allied Irish Bank and Bank of Ireland on the Irish taxpayer. However, both banks need to have strong residual profitability to raise that capital.

NAMA can reduce potential capital demands on the taxpayer: By removing €85-€90 billion of a lending book from the Irish bank balance sheet, with the coinciding reduction in risk weighted assets (RWA), potentially up to €6-€7 billion in capital demands for the Irish guaranteed banking sector is averted, reducing the burden on the taxpayer for that amount. This is a key under recognised feature of the NAMA plan.