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Dublin: 11 °C Saturday 25 October, 2014

Column: Amid unnerved stock markets, it’s time to give NAMA a chance

Nick Leeson believes NAMA is a “necessary evil”, but says it’s time to jettison those developers who can’t work with the agency.

Nick Leeson

AS FEARS over the debt markets continue to completely unnerve stock markets – and wipe billions off the value of exchanges around the world – I thought it might be a good time to look back at the start of the crisis here in Ireland, and see how successful certain measures have been.

The ever-widening contagious spread of the debt crisis is paying no respect to reputation or history. After hurriedly pushing through a bill to raise the debt ceiling in the US, Barack Obama was – within the same week – facing a downgrading of US sovereign debt, the first time that this has happened since 1917. Clearly no country is immune.

Faltering markets around the world have been showing complete disregard for political assurances that matters are under control. Belief and confidence are in very short supply. Shortly after President Obama’s address to the public on Tuesday, the Dow Jones closed down 2.19 per cent.

On Thursday it fell a further 500 points, and on Friday it was faring only marginally better – a sure sign that the contagious effect of the oversupply of credit in the marketplace, which was probably first noted in Ireland, has still not run its course.

When a stampede starts, I’d prefer to be in the front rather than at the rear of the devastation. Being first to the party, I hope means that we will be first to the recovery. But looking back at events from the past week, and at how attempts to resolve the crisis in Ireland have faltered, still suggests that, like cancer, nobody has found the right cure yet.

But are we edging closer? There are lots of differences of opinion out there, but it is time to grab the bull by the horns.

NAMA has been a dismal failure… so far

At its inception, NAMA was tasked to repair Ireland’s financial system. There is absolutely no doubt that it has failed dismally.

Banks are not lending. When banks don’t lend there is no economic growth and subsequently no recovery.

There was little or no other option than NAMA at the time: £32 billion worth of deposits were removed from Irish banks in the first six months of the crisis. Had any of the Irish banks been solvent at the time and adequately capitalised, they would have been able to control their own destiny. Unfortunately, they were not and true market forces were not allowed to run their course.

NAMA was a necessary evil.

I don’t think it was a particularly well0thought-out plan, but it did what a lot of governments and banks have been very good at doing: buying a bit of time. Early criticism suggested that NAMA was propping up the property developers, but as we have witnessed more recently, it is still evolving and starting to bare its teeth. Relationships with many developers have soured quite drastically in recent months and there is a lot of antagonism.

My opinion is that NAMA was shocked by the magnitude of the loan book it were taking on, and was bereft of ideas of how to work a way through it. It played along with the developers in the initial stages, to see which of the best it could work with, and ascertain just how bad some of the portfolios were. Now the time has come to jettison those that it is unable to work with and recoup whatever monies it can.

Here for the long haul

NAMA will be the dominant force in the Irish property market for many years to come. It has acquired over €72 billion worth of loans from 850 property developers at an average write-down of 58 per cent. Forcing those properties onto the market all at one time is in nobody’s best interests. NAMA is clearly looking to justify itself at the moment and ensure that they reach their objectives whilst also appreciating that a lot of land and property will need to be written down further.

In attempting to justify itself, I do believe that NAMA’s latest proposals rate amongst the better attempts that I have seen to arrest the property decline. As someone who spent three years trying to pick the bottom of the decline of the Nikkei 225 index (and failing miserably), I appreciate the risk involved and that it is a dangerous game – but it has to start, and start soon, if we are to see an end to these current difficulties.

The process referred to as ‘vendor’ or ‘stapled’ finance (where NAMA would lend to potential buyers if they are able to put up 25-30 per cent of the purchase price) is a good idea. It is quite simply a way of recycling existing debt, passing it on to less risky borrowers, and achieving a significant upfront payment. This would improve NAMA’s own cash position and allow it to lend further, while also repaying the government.

It is not without its downsides, but the upside is potentially enormous. It would start to remove some of the overhang on the property market that is keeping prices deflated, and it will take the pressure off the banks to lend and provide impetus to the ailing economy.

I, for one, think that NAMA should be given its chance.

Read more: Nick Leeson apologises to former Barings Bank boss>

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