Thursday, April 16, 2009

It's baNAMArama time!

According to last Monday’s Irish Times
“certain senior figures in Government circles believe a 50 per cent discount should apply” to the value of assets to be transferred from the banks to NAMA.
“Government sources said that the new agency was unlikely to employ any Irish estate agencies for the purposes of valuing the properties”

The IT only names Dan Boyle but says that other unnamed senior politicians have also expressed the same view re 50% discount.

Apart the ongoing feeding of populist anger and using the banks as a lightning rod to deflect criticism for the state of the public finances away from the Oireachtas, on what basis would “certain senior figures in Government” arrive at a 50% number, never mind feel it appropriate to offer a view on the likely valuation of the loan books of individual banks at this point in the exercise?

The whole thing smacks of a tainted political exercise in hand-wringing, hand-washing, bank-bashing. Add the above to Lenihan’s declared intention of covering any long-term shortfall through a levy on the banks, but if the exercise ultimately produces a profit this will not be shared with the banks. Is it any wonder that market analysts – here and abroad – are taking a negative view?

If the Irish Times report is accurate, a “smash & grab” raid on the banks is planned – which would also help to explain the weakness in the share prices this week and the views of domestic and foreign analysts.

The scope of the banks to resist is limited, but they should use every means possible to block any Govt attempt to effectively expropriate their assets.
The primary duty of bank boards and executives is to protect what remains of shareholders value, rather than concern themselves with the public interest. The latter is the responsibility of the Govt & the Oireachtas, though they haven’t shown much skill in that regard over the past decade.

The interests of Bank shareholders would be better served by severely slimmed-down Zombie banks, with some long-term hope of recovery, than by nationalisation, which will extinguish entirely their investment interest. Zombie banks won’t serve "the national interest", but that’s not the concern of the banks or their shareholders.

I presume bank managements are actively working on such alternative strategies, in the event that NAMA is perceived to be acting in the manner suggested by the IT report. If the political, media and popular view is “fcuk the shareholders”, then shareholders can justifiably adopt a “fcuk the national interest” stance.

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