The news that interest was being paid on far fewer of the first tranche of bad loans bought from the banks by NAMA has reinforced fears about the state's "bad bank". Is NAMA working? Can NAMA work?
Why is NAMA in the news again?
Turns out that interest is only being paid on a quarter of the first tranche of loans, which have a book value of €15.3bn, that NAMA has purchased from the banks. This is despite the banks telling NAMA that interest was being paid on 40pc of these loans.
So the banks told NAMA a load of porkies then?
You might say that, I couldn't possibly comment.
Why does it matter if interest is being paid on a lower proportion of the bad loans NAMA has purchased from the banks?
The latest news has finally put to paid to the fantasy that, over a 20-year period, NAMA would make a profit for the taxpayer. In its business plan NAMA had forecast that it would eventually make a €4.8bn profit. No chance of that happening now.
How much has NAMA cost so far?
NAMA paid €7.2bn for the first tranche of loans. As these had a book value of €15.3bn, that works out an average "haircut" of 47pc.
How much will NAMA cost?
NAMA plans to eventually buy loans with a book value of €81bn. If it applies the 47pc haircut it applied to the first tranche that adds up to a total cost of €43bn, the equivalent of almost one-and-a-half years' tax revenue. The latest revelation that interest was being paid on only a quarter of the first tranche means that it will be extremely lucky to break even over a 20-year period.
Where on earth are we going to get that sort of money?
The Government gives the banks bonds, effectively IOUs, which they then take to the ECB, which gives the Irish banks cash for these bonds.
Who is in NAMA?
Most of the country's most prominent property developers had their loans transferred to NAMA in the first tranche. Among them were Bernard McNamara and Treasury Holdings, which is part-owned by Johnny Ronan. Eventually virtually all property-based loans of more than €5m will be transferred to NAMA.
Is NAMA working?
In a word, no. When plans for NAMA were first unveiled in April 2009 we were assured that it would get the banks lending again. That hasn't happened. Instead bank lending has continued to fall.
Can NAMA work?
Almost certainly not in its current form. The banks have an enormous incentive to exaggerate the value of the bad loans they are selling to NAMA. If they do, they get more money for these loans.
What can be done to ensure that the banks don't puff up the value of the rest of the bad loans?
While the banks remain majority-owned by private shareholders, nothing. It is only by nationalising the banks, that the inherent conflict of interest between NAMA and the banks over the pricing of bad loans is resolved.
What will happen if the banks aren't nationalised?
The banks will continue to put the interests of their shareholders first and stiff both NAMA, i.e. the taxpayer, and their borrowers.
What should NAMA do with Anglo?
With half of its loan book destined for NAMA and most of the rest destined for an internal "bad bank", it is abundantly clear that Anglo has no future. With the EU having already rejected the first Anglo "survival plan" submitted by the Government, this zombie bank should be closed without any further delay.
What should NAMA do with AIB and Bank of Ireland?
As the experience of the first tranche of loans demonstrates the banks can't be trusted to tell the truth. NAMA needs to adopt a much tougher line with both AIB and Bank of Ireland. By insisting on paying a realistic, i.e. much lower, price for their bad loans, NAMA will almost certainly force the full nationalisation of AIB and majority State ownership for Bank of Ireland.