Ireland Seeks to Battle Toxic Loans with NAMA

The National Asset Management Agency (NAMA) has been set up by the Irish government in an effort to battle what have been called ‘toxic loans’ that are bogging down the Irish Republic’s banking system. For some, however, the acronym has become something of a four letter word, causing great concern as to its mission and actual effects on the economy of Ireland. A conference in Belfast is being held to make sure that the agency’s purpose and directive is fully understood.

According to some experts, Irish banks are already changing from a soft approach to a more aggressive stance towards debtors and this is likely to increase with the coming of NAMA, but for the majority the agency’s arrival will simply mean that their loans have shifted to a different lender.

The change is not expected to be immediate due to the political and legislative process involved in the transfer of those jeopardized loans. NAMA’s role is to cleanse the banking system by handling certain troubled debt and therefore encourage the banking system to resume lending to consumers once again.

In the seven year period stretching from 2001 to 2008, Ireland went on massive borrowing spree that saw debt soar from 10 billion to 110 billion euros within that brief period largely due to loans taken out by companies in the property and construction sectors of the market. In 2010, a full 77 billion euros worth of that debt will be transferred to NAMA with 23 billion euros worth of the debt written off prior to the transfer.

Financial experts have commented that recently Irish banks have been more frugal in their lending, even in regards to credit worthy companies. The hope is that with NAMA’s intervention, the banks will once again find lending to businesses with a sound financial outlook to be a smart move due to increased liquidity in the banks themselves.

While the majority of the debt, 66 percent, is located in the Republic of Ireland, another 6% is from Northern Ireland. This has raised some alarm for that region since critics of NAMA worry that its actions may trigger a fire sale of Northern Irish assets that, in turn, wreak economic havoc in that state. The remainder of the debt lies in Great Britain (21 percent), Europe (4 percent) and finally, the United States (3%).

Certain investors in the private sector have expressed trepidation that NAMA’s involvement could mean discounting of assets before they are purchased and thus major losses for those involved, but at this time that remains speculation.

Another potential contribution NAMA may make is the release of 10 billion euro’s worth of capital to help kick start stalled construction efforts that remain stalled due to lack of funding. The effects of NAMA remain to be seen, but the impact is expected to be felt primarily within the borders of the Republic.

Irish citizens do have certain rights when it comes to challenging valuations of foreign based debt, but not such debt within the Republic’s borders.

If you would like more information on debt in Ireland, there is a website that focuses on these issues, Irish Debt Solutions.

Four Seasons Settles on Debt Restructuring Plan

Four Seasons Health Care, a company that operates care homes, recently announced that it has agreed to a debt for equity deal with its creditors. Four Seasons has over 400 homes across the UK in which it cares for its charges. This agreement marks the end to one of the longest running restructurings of debt since the start of the current recession.

The deal will reduce the company’s debt from £1.5 billion to £780 million through a trading of debt for equity in the company. This means that the largest shareholder in the Four Seasons will be the Royal Bank of Scotland thanks to the amount of the company’s debt it has been holding. The agreement means the bank will own 40% of Four Seasons.

According to top executives at Four Seasons, the company will begin working toward a long range solution to paying off its remaining £720 million debt. This is crucial because that debt comes to maturity in September 2010.

In 2006, Four Seasons was purchased by Three Delta, a Qatari-backed investment fund. Three Delta paid £1.4 billion in a complicated arrangement that involved securitisation, 11 tranches of debt and a syndicate of lenders including over 30 parties.

Court Ruling Frees UK Woman of £8,000 Credit Card Debt Debt in Landmark Case

A judge has written off the £8,000 credit card debt of South Shields woman who was unfairly sold payment protection insurance (PPI) in a deceptive manner. The country court judge determined that MBNA was attempting to collect on insurance the woman had refused when she opened her credit card account.

This ruling is expected to initiate millions of pounds worth of similar cases being brought to court against building societies and banks across the UK who practice similarly deceptive methods of selling such policies. Throughout Britain there have been 40 million PPI policies solid in the past six years, making PPI the second highest selling insurance product being sold today.

While Debt Management Plans and Individual Voluntary Arrangements (IVAs) are excellent solutions for those with legitimate debt problems, wrongly administered fees are on the rise in the UK, so legal experts predict that this court case, while possibly extreme, may signal the need for sweeping changes in the way that credit card issuers are doing business.

In this particular case, the woman had checked ‘no’ for PPI when she signed up for the card, a Sunderland ASC-branded credit card funded by MBNA. Despite this, the company applied a fee of £20 per month. With a credit limit of £1,500 that suited the mother of three’s needs, the card was useful occasionally. That was in July 2002, but gradually the limit was was raised until she reached £7,000 in debt upon having her hours as a cleaning supervisor reduced from full time to part time.

Even contacting the company did no good, representatives informed her that she could not have gotten the card without signing up for PPI. As the debt collection calls became more frequent and MBNA began to threaten to repossess her house, she turned to legal help which assisted her in taking her case to court.

Deputy District Judge Jacqueline Smart ruled that the partnership MBNA with the PPI providers was in breech of the Unfair Relationships and Unfair Consumer Credit Act Section 78 due to the fact that MBNA earned a commission upon each sale of the insurance.

Borrowers Keep Faith in Bankers Despite Elusive, Costly Nature of Bank Debt

In spite of a call from Alistair Darlings for banks to better their lending services, 55 percent of mid-market businesses still report that they are experiencing trouble getting credit and that the process is often a long one. While credit is expected to become easier to obtain in the coming year from a select group of lenders, 46 percent of borrowers remain unconvinced that it will become easier or less costly for them to obtain the financing they need.

These figures were announced as part of the findings from a survey of senior financial decision makers at UK companies whose task it is to work with the banks. The survey was conducted by BDO Stoy Hayward, a firm of business advisors and accountants.

Overall, the survey found that borrowers still retain some faith in the banks they work with, though a full 67 percent of companies reported that their opinion of banks has lessened during the course of the previous year. Of those surveyed, 85 percent stated their company experienced no change with their own bank and 62 percent claimed their bank understands the evolving needs of their business.

The cost of bank debt and the ability to obtain it continues to be an issue for any businesses which makes it something of an obstacle to total economic recovery. Even those state-owned banks with lending commitments have not managed to make much of an impact thus far. Though banks will find themselves increasingly interested in lended to solid businesses, due to the low levels of competition they will not have to undercut one another in terms of pricing for some time to come.

Nearly half of those companies surveyed reported they were seeking out alternative funding sources, including asset based lending, in the coming year. Nearly 85 percent have said they currently use an independent advisor to help them obtain financing and are generally experiencing positive results.

Desparate Britons Seek to Sell Kidneys to Pay Debts

In a sign that economic times are definitely getting far rougher that previously believed, undercover reporters have exposed a shocking trade that financially strapped UK citizens are turning to in an effort to pay down their debt.

The reports show that a variety of individuals from different walks of life have found themselves so far in debt that they they are unsure where to turn and so they have sought out potential buyers for their own internal organs. One taxi driver from Lancashire advertised his kidney on the internet, seeking to raise £25,000 to pay off his credit card bills and mortgage as well as buy himself a new kitchen. In addition, the man seeks £1,200 for lost wages that the operation would cost him plus £1,000 to cover his hotel expenses because the transplant surgery would have to take place in a foreign country where regulations are far less strict.

For his part, the taxi driver explained he was less motivated by financial gain as by the thought that he might be able to save another person’s life with his kidney. Having already been approached by a man from Pakistan whom he felt was not a person in need, but rather a organ broker, the man wanted to meet the person to whom the kidney would be going before submitting to the potentially dangerous operation.

Those who undergo such operations risk an assortment of potential health problems not from lack of a kidney, but from the operation itself. Infections and blood-related issues are the most common killers of those who undergo even a successful organ donation surgery.

Another man, a mental health professional in his mid 20’s, sought £25,000 for his kidney in the hopes that it would help him pay down a debt and make a better life for himself and his son. His debt stands at £20,000 and is held by people whom the man claims are not of the type that anyone would want to be in debt with. Since he sees no other option, this is the route he has chosen to go.

The reason no British surgeon would ever agree to perform such an operation is due to the fact that the mere offer to sell one’s organs is a violation of the Human Tissue Act with a fine and a penalty of up to three years in jail, even if the surgery itself is not set to be performed on British soil.

A global underground organ trade is certainly growing, but in the UK options such as an IVA or even Bankruptcy are far better alternatives in terms of their effectiveness and legality.