The (crumbling) walls of Nama: another Irish accounting reel | FT Alphaville

The (crumbling) walls of Nama: another Irish accounting reel

God, but Ireland must simply hate Eurostat. The pesky statistics agency keeps forcing it to recognise all of those expenses it would otherwise prefer to ignore.

And the agency is at it again. In a report released Monday Eurostat announced that Ireland was the proud owner of the biggest budget deficit in the euro area in 2011 – a deficit inflated by capital injections into the country’s broken banks.

According to Eurostat, the deficit was 13.1 percent of GDP in 2011. That compares with a government estimate of 9.8 per cent and a figure of  31.2 per cent in 2010:

(In fairness, says the Irish government, the underlying deficit – the deficit excluding the capital injections into the banks – came in lower than expected at 9.4 per cent, below a target of 10.6 per cent under the EU/IMF programme)

And Eurostat’s report had another important consequence – Nama-fear (our emphasis):

Eurostat is also expressing a specific reservation on the data reported by Ireland, due to the statistical classification of National Asset Management Agency Investment Limited (NAMA-IL), which is currently classified outside the general government. Owing to the nationalisation of one of its previously private beneficial owners, whose interest is currently under a process of sale, NAMA-IL has been in majority public ownership since July 2011. Eurostat’s decision of 15 July 2009 on public interventions during the financial crisis specifies that majority private ownership is necessary for such an entity to be classified outside the General Government sector.

The original set-up of Ireland’s National Asset Management Agency was meant to avoid such a mess – Nama was created to very carefully shift its debts off the governments books.

In order to do so the government sought (and quickly got) investment from three private investors: Irish Life Investment Managers (which is, crucially, part of Irish Life and Permanent), New Ireland Assurance and a group of clients of Allied Irish Banks Investment Managers.

Each of these “willing” parties stumped up 17 per cent of the Nama special purpose vehical’s capital giving them majority control – the government stumped up the rest of the €100m figure.

But there is a spanner in the works. Ireland is fully nationalising Irish Life so will see its current 49 per cent stake in Nama tip into majority control.

As the wonderful Nama Wine Lake put it (again, with our emphasis):

Fast-forward to today and the Government is set to take 100% control of Irish Life so the State will own not just 49% which allows NAMA’s debts to stay off the national balance sheet but 66% which would likely mean NAMA’s debts – mostly its €28bn of bond which this State has guaranteed – would come onto our General Government Debt pushing our debt next year up from 119% to 138%. This is largely academic of course if you believe that NAMA’s assets will be sufficient to pay off the NAMA bonds by 2020. NAMA has recently reported a profit for 2011 of €200m after a loss of €1,100m in 2010 and who knows, maybe it will break even or make a profit but it is a risk and the ratings agencies which examine Ireland’s ability to repay debt, generally regard NAMA’s bonds as part of the national debt with a caveat that they are backed up by assets, but that there is risk to the value of those assets.

Noticing that Eurostat was not a fan the government moved fast. Ireland’s Department of Finance had this to say:

The Minister also noted the reservation in relation to the ownership of the NAMA SPV, which the Department had previously acknowledged.  He is not concerned by the reservation as the sale of the Irish Life shareholding to private investors has just been agreed. It is anticipated that the transaction will be completed in the coming weeks and this will ensure that the reservation will be lifted and the statistical treatment of NAMA will be unchanged. The effect of the sale will mean that NAMA will continue to have absolutely no General Government impact.  In addition, it is worth noting that provisional figures indicate that NAMA has posted a profit of €200m in 2011 and has very sizeable cash reserves.

That’s right, the sale of “Irish Life shareholding to private investors has just been agreed“.

Of course, considering the government said on April 12 that: “There has been ongoing engagement with Eurostat over recent months relating to the proposed sale of Irish Life,” and it was ” satisfied that this matter will not result in Nama being brought onto the Government balance sheet”, one imagines “just been agreed” can be loosely interpreted.

Finally, in the finest tradition of Nama we are unlikely to find out who the lucky buyers were.

Again from Nama Wine Lake:

Who might the “private investors” be? We don’t yet know but I can’t see any completely independent third party investor wanting to take the stake, the terms of which are examined here – and which allowed the third party investors to walk away with a dividend of €5.093m in 2010 despite NAMA making a loss of €1.1bn.

If anyone has any guesses please do let us know…

Related links:
17% of Nama sold to unnamed investors – The Irish Economy
Big deficit a ‘once off’ says Dublin – FT
Now you see the headline fiscal deficit, now you don’t – FT Alphaville