People suspect Nama and the banks, writes ISABEL MORTON

THE WORD on the street is if you’re not with Nama by now, then you were never really at the races in the first place.

Since its inception, Nama, (the nation’s bad bank), has attracted a lot of criticism. It took a long time to explain the basic concept to the nation and an even longer time battling with them over “haircuts”.

But despite its efforts, the Government never succeeded in making Nama appealing to the general public. Its purpose was to rid our banks of bad loans, refinance them and get them lending again. But so far Nama doesn’t seem to have succeeded in doing what it said on the tin.

In much the same way as we consider all banks a bit suspect these days, Nama is equally distrusted. And because of recent experiences, many were fully prepared to believe recent accusations made against it by Fiana Fáil Senator Mark Daly, who claimed that Nama broke its own code of conduct by not selling assets by public auction.

Furthermore, Daly claimed that he is aware of one particular UK property, which, apparently, Nama sold for a figure below its market rate, to an associate of the original owner, who in turn, sold the property on at a profit.

These serious allegations will no doubt, be investigated in full by yet another tribunal but in the meantime, they leave us all wondering what exactly is going on behind Nama’s closed doors.

At this stage, nothing the banks do surprises us anymore but their wholesale about-turn regarding lending to the property market is now causing chaos and makes no logical sense. When the banks don’t lend to potential buyers, vendors are unable to sell, which in turn causes property values to drop, which creates negative equity, which results in mortgage defaults and banks losing money.

Nama is intended to be the Property Purgatory – a place where banks can sell off their bad property loans at a discount, which loans are then purified and cleansed (stockpiled and let to tenants for a while) before gradually being released (sold) back into the market, in order that they may sin again (make a profit for someone else).

Great in theory, but not in practise as properties which have been “Namafied” are being discounted to such a degree they are dragging down the (already greatly reduced) values of similar neighbouring properties, to “new lows”.

As one cautious homeowner complained: “Regardless of how carefully one played the property game, with each day that passes the loan-to-value ratio is being altered, as prices continue to fall”.

And as values have fallen by as much as 65 per cent in some areas, many homeowners who had presumed they were safe and secure are now finding themselves in negative equity.

Furthermore, last week it became clear that Allied Irish Bank (now owned by the state) believes that Nama has served its purpose and, as far as they are concerned, is now surplus to requirements.

Having started at the top (so to speak), Nama is now making its way down through its list of bad loans. However, just as it was looking like Nama’s work might never be done, AIB gave them a helping hand by asking that they be permitted to hang on to bad loans valued below €20 million, claiming that the banks could manage them better than Nama.

AIB believes that it would be better placed to maximise the recovery of smaller property loans than Nama, which apparently does not have the resources to manage such an increase in debtors.

The bank is now concerned that if all SME customers with loans relating to land and development were moved to Nama, it would threaten the bank’s core business and could potentially cause job losses and branch closures. The bank also admitted it was concerned that if it continued to transfer loans at a discount to Nama, it would have a further effect on its capital reserves.

In other words, AIB was saying: -

Dear Nama,

Thank you very much for removing the big boys and their billions of euro of impaired loans from our books and paying us 50 per cent of the value of the assets.

However, if you don’t mind, leave us the small-time operators’ debts, as we feel confident we can terrify these customers and keep them under control ourselves.

Also, remember that, should you take these customers away from us, we’ll have damn all to do every day (as we’re certainly not lending) and eventually someone will ask us to reduce staff and close branches.

And, as we feel sure that we could squeeze a lot more out of our petrified customers than the measly fifty per cent you’ve been giving us to date, we strongly suggest that you leave these debtors with us or we’ll end up having to go back again, cap in hand, for more capital to keep us afloat.

Many thanks, AIB.

* Isabel Morton is a property consultant