Category Archives: vulture funds

29/12/18: Vultures, Prime Ministers and the Mud of ‘Values’ in Newtonian Finance


In a recent conversation with the Irish Times (https://www.irishtimes.com/news/politics/leo-varadkar-defends-vulture-funds-and-criticises-practices-of-irish-banks-1.3742477), Ireland’s Taoiseach (Prime Minister), Leo Varadkar, “has defended so-called vulture funds”, primarily U.S-originating buyers of distressed performing and non-performing mortgages, “stating that they are more effective at writing down debts than banks which “extend and pretend” rather than reaching settlements with homeowners.”

Mr Varadkar alleged that:

  • “…homeowners whose mortgages were sold off to such funds would be “no worse off” than those whose loans were owned by the banks.”
  • And, “he disagreed with the use of the term “vulture fund” and criticised the practices of our own banks.”

A direct quote: “I’m always reluctant to use the term vulture funds because it is a political term. What we’re talking about here is investment banks, investment funds, finance houses, there are lots of different things and lots of different financial entities there and the term is used, vulture funds. But you’ll know from the numbers that they’re often better at write-downs of loans than our own banks. Our own banks tend to ‘extend and pretend’ rather than coming to settlements with people.”

Let’s deal with Mr. Varadkar’s claims and statements:


1) Is ‘vulture fund’ or VF a political term? 

The answer is no.

As a professor of finance, I use this term without any political context or value judgement. As do Investopedia, and the Corporate Finance Institute (CFI), along with a myriad of text books in finance and investment, as do the Wall Street, Bloomberg, Reuters, Wall Street Journal… In fact, all of the financial sector. For example, CFI defines VFs as “a subset of hedge funds that invest in distressed securities that have a high chance of default”. So, Mr. Toaiseach, the term ‘vulture fund’ is a precisely defined concept in traditional, mainstream finance. It is not a political term and it is not a term of ethical value assigned to a specific undertaking. In fact, as a finance practitioner and academic, I see both positive and negative functions of the VFs in the markets and society at large. Just as a biologist would identify positive aspects of the vulture species in natural environment.

Vulture Funds are invested in and often operated by ‘different financial entities’, including ‘investment banks’. They are a form of ‘investment funds’ when they are stand-alone undertakings. Which covers the entirety of the Taoiseach’s argument on this.

As an aside, a term ‘financial house’ used by the Taoiseach is not a definable concept in finance in relation to mortgages or other assets lending. Instead, FT defines a financial house as “A financial institution that lends to people or businesses, so that they can buy things such as cars or machinery. Finance companies are often part of commercial banks, but operate independently.” 

In other words, financial organisations and entities purchasing distressed and insolvent Irish mortgages cannot be classified as ‘financial houses’, and any other classification of them allows for the use of the term Vulture Fund.


2) Can VFs be regulated into compliance with the practices other lenders are forced to adhere to?

The answer is no. 

They simply cannot, because VFs always, by their own definition, pursue a strategy of recovery of asset value, not the recovery of debtor solvency. Regulating them as any other undertaking, e.g. banks, will remove their ability to exercise their specific strategies. It will de facto make them non-VFs.

Here is CFI on the subject: ““Vulture” is a metaphor that compares vulture funds to the behavior of vulture birds that prey on carcasses to extract whatever they can find in their defenseless victims.” Note the qualifier: defenceless victims: CFI is not a softy-lefty entity that promotes ‘victims rights’, but even corporate finance professionals recognise the functional aspects of the vulture funds. VFs cannot trade/exist on the same terms of traditional lenders, because: (1) they are not lenders (they do not pursue transformation of short term funding into long term assets, as banks do), (2) they have zero (repeat zero) social responsibility (no legislation can induce them to have any such a mandate in terms of social responsibility in funding assets as banks have, because such a mandate would invalidate the VFs investment model), and (3) unlike lenders, VFs deal with specific types of assets and specific areas of risk-pricing that cannot be covered by the lending markets precisely because of the implied conflict between the lenders’ longer-term market strategies, and the need to recover and capture asset values. In other words, you can’t make vultures be vegans. And I place zero political or social value in these arguments. It’s pure finance, Taoiseach.

“Vulture funds deal with distressed securities, which have a high level of default and are in or near bankruptcy. The funds purchase securities from struggling debtors with the aim of making substantial monetary gains by bringing recovery actions against the owners. In the past, vulture funds have had success in bringing recovery actions against sovereign governments and making profits from an already struggling economy.”

What this tells us is (a) VFs pursue legal seizures of assets from debtors as a norm (in the case of mortgage holders - this amounts to evictions of renters and forced sales of owner occupied properties); and (b) VFs are good enough at that job to force sovereign nations into repayments (which puts into question even the theory of efficacy of any consumer protections the Government can put forward to restrict their practices).


3) Are debtors better off or as well off under the vulture fund management of their debts as under other banks’ management?

The answer is: it depends. 

If a debtor genuinely cannot recover from insolvency, then forcing earlier insolvency onto them actually provides a benefit of offering an earlier restart to a ‘normal’ financial functioning of the debtor. This is the ‘clean slate’ argument for insolvency, not for VFs. In order to achieve this benefit, the insolvency must be done with a pass-through of losses write-downs to the debtor (avoiding perpetual debt jail for the defaulting debtor). The VFs simply do not do this on any appreciable scale, and are even less likely to do so in the tail end of the insolvency markets (later into insolvency cycle).

Why? Because they have no financial capacity to do so. Do a simple math: suppose a VF purchases an asset for EUR60 on EUR100 of debt face value (40% discount on par). Costs of managing the asset can be as high as 5%. Cost of capital (and/or expected market returns) for VFs is ca 15%-18% due to high risk involved. The asset is assumed to return nothing - it is severely impaired, like a mortgage that is not being re-paid. To foreclose the asset, the VF has to pay another cost of, say, 10% (legal costs, eviction-related and enforcement costs, etc including costs involved in disposing of underlying property against which the mortgage is written). And the process can take 1-2 years. Suppose we take the mid-point of this at 1.5 years. There is uncertainty about the legal costs and timings involved. Suppose it involves 10% of the total mortgages pool purchased by the fund. The cost or recovering funds for the VF, accounting for compounded interest on VF’s own funding, is now EUR22.99-25.91. Take the lower number of this range, at EUR22.99 per EUR60 asset purchased. Suppose the VF forecloses on the house and sells it. Suppose the house is an ‘average’ one, aka, consistent with the current residential property price index metrics, and the mortgage was written around 2005-2007 period. This means the house is roughly 20 percent under the valuation of the mortgage at the mortgage origination. So the VF will get EUR80 selling price on EUR100 loan. If the mortgage was 90% LTV, roughly EUR90. Take the latter, more favourable number to the VF. and allow for 1.5 years cumulative asset growth of 20% (property values inflation). VF’s cumulative returns over 1.5 years are 25.06% or 16.04% annualised. The VF has barely performed to its market returns expectations. There is zero room for the fund to commit any write downs to homeowners in this case. None in theory, none in practice.

In contrast, the banks do not face market expectation of returns in excess of 15% pa on their assets, nor do they face the cost of funding at 15-18%, which means they can afford passing discounts to the homeowners.

The situation is entirely different, when a debtor can recover from insolvency, e.g. via pass-through to the debtor of market value discounts on their debt (30-40% that VFs would get in the sale by the bank), or via restructuring of the loans, a VF will never - repeat, never - allow for such a restructuring, because it results in extending the holding period of the asset required for recovery. VFs are not in business of extending, and, yes, Taoiseach is correct on this, they are also not in business of pretending.

Now, the logic of selling non-recoverable (via normal routes of working out) assets to VFs can accelerate the speed of insolvency. But the logic of selling recoverable assets to VFs only forces insolvency onto borrowers where they do not require such for the recovery. Any restructured, but performing mortgages sold to VFs will be inevitably foreclosed (insolvency created), even though they are recoverable (insolvency is not optimal). And there is nothing the Government can do, short of forcing VFs to become non-VFs, to avoid this.

I append zero, repeat zero, social impact costs to this analysis. These are, however, material in the case of mortgages and foreclosures, especially due to the adverse impact of such actions on demand for social housing, and in light of ongoing housing crisis in Ireland.


4) Are VFs subject to “the the same regulations and the same consumer protections as the banks,” as the Taoiseach claimed?

Answer is no. 

VFs do not adhere to the same regulations and the same oversight as the banks. The proof of this is the fact that Government is currently supporting legislative attempts to bring VFs into the regulatory net, aka the Michael McGrath’s bill that FG support. If the Government is supporting a new legislation, the Government is admitting that current regime of regulation for the VFs is not sufficiently close to that of the banks. If the current regime is sufficient to cover consumer protection to the extent that the banks regulations are, then why would there be a need for a new legislation?


In a summary: the Taoiseach is simply out of his depth when it comes to dealing with the simple, well-established in mainstream finance, concept, such as the VFs. This is doubly-worrying, because the Taoiseach is leading the charge to provide a new regulatory regime, to cover the areas that he appears to have little understanding of.

Per Taoiseach: “We support that and we are going to make sure that anyone who has a mortgage, who is repaying their mortgage, making a reasonable effort to pay it, continues to have the exact same protections, the exact same consumer protections as they would if the loan was still owned by the banks.”

This is a wonderfully touchy statement of the objective. Alas, Mr. Taoiseach, you can’t have asset ownership by the VFs combined with the regulatory protection measures that invalidate VFs’ actual business model. And you can’t scold the banks for ‘extending and pretending’ on borrowers, while at the same time codifying these ‘extensions’ for all investment funds, including the VFs. The cake vanishes once you eat it. Finance is Newtonian, in the end.

29/12/18: Vultures, Prime Ministers and the Mud of ‘Values’ in Newtonian Finance


In a recent conversation with the Irish Times (https://www.irishtimes.com/news/politics/leo-varadkar-defends-vulture-funds-and-criticises-practices-of-irish-banks-1.3742477), Ireland’s Taoiseach (Prime Minister), Leo Varadkar, “has defended so-called vulture funds”, primarily U.S-originating buyers of distressed performing and non-performing mortgages, “stating that they are more effective at writing down debts than banks which “extend and pretend” rather than reaching settlements with homeowners.”

Mr Varadkar alleged that:

  • “…homeowners whose mortgages were sold off to such funds would be “no worse off” than those whose loans were owned by the banks.”
  • And, “he disagreed with the use of the term “vulture fund” and criticised the practices of our own banks.”

A direct quote: “I’m always reluctant to use the term vulture funds because it is a political term. What we’re talking about here is investment banks, investment funds, finance houses, there are lots of different things and lots of different financial entities there and the term is used, vulture funds. But you’ll know from the numbers that they’re often better at write-downs of loans than our own banks. Our own banks tend to ‘extend and pretend’ rather than coming to settlements with people.”

Let’s deal with Mr. Varadkar’s claims and statements:


1) Is ‘vulture fund’ or VF a political term? 

The answer is no.

As a professor of finance, I use this term without any political context or value judgement. As do Investopedia, and the Corporate Finance Institute (CFI), along with a myriad of text books in finance and investment, as do the Wall Street, Bloomberg, Reuters, Wall Street Journal… In fact, all of the financial sector. For example, CFI defines VFs as “a subset of hedge funds that invest in distressed securities that have a high chance of default”. So, Mr. Toaiseach, the term ‘vulture fund’ is a precisely defined concept in traditional, mainstream finance. It is not a political term and it is not a term of ethical value assigned to a specific undertaking. In fact, as a finance practitioner and academic, I see both positive and negative functions of the VFs in the markets and society at large. Just as a biologist would identify positive aspects of the vulture species in natural environment.

Vulture Funds are invested in and often operated by ‘different financial entities’, including ‘investment banks’. They are a form of ‘investment funds’ when they are stand-alone undertakings. Which covers the entirety of the Taoiseach’s argument on this.

As an aside, a term ‘financial house’ used by the Taoiseach is not a definable concept in finance in relation to mortgages or other assets lending. Instead, FT defines a financial house as “A financial institution that lends to people or businesses, so that they can buy things such as cars or machinery. Finance companies are often part of commercial banks, but operate independently.” 

In other words, financial organisations and entities purchasing distressed and insolvent Irish mortgages cannot be classified as ‘financial houses’, and any other classification of them allows for the use of the term Vulture Fund.


2) Can VFs be regulated into compliance with the practices other lenders are forced to adhere to?

The answer is no. 

They simply cannot, because VFs always, by their own definition, pursue a strategy of recovery of asset value, not the recovery of debtor solvency. Regulating them as any other undertaking, e.g. banks, will remove their ability to exercise their specific strategies. It will de facto make them non-VFs.

Here is CFI on the subject: ““Vulture” is a metaphor that compares vulture funds to the behavior of vulture birds that prey on carcasses to extract whatever they can find in their defenseless victims.” Note the qualifier: defenceless victims: CFI is not a softy-lefty entity that promotes ‘victims rights’, but even corporate finance professionals recognise the functional aspects of the vulture funds. VFs cannot trade/exist on the same terms of traditional lenders, because: (1) they are not lenders (they do not pursue transformation of short term funding into long term assets, as banks do), (2) they have zero (repeat zero) social responsibility (no legislation can induce them to have any such a mandate in terms of social responsibility in funding assets as banks have, because such a mandate would invalidate the VFs investment model), and (3) unlike lenders, VFs deal with specific types of assets and specific areas of risk-pricing that cannot be covered by the lending markets precisely because of the implied conflict between the lenders’ longer-term market strategies, and the need to recover and capture asset values. In other words, you can’t make vultures be vegans. And I place zero political or social value in these arguments. It’s pure finance, Taoiseach.

“Vulture funds deal with distressed securities, which have a high level of default and are in or near bankruptcy. The funds purchase securities from struggling debtors with the aim of making substantial monetary gains by bringing recovery actions against the owners. In the past, vulture funds have had success in bringing recovery actions against sovereign governments and making profits from an already struggling economy.”

What this tells us is (a) VFs pursue legal seizures of assets from debtors as a norm (in the case of mortgage holders - this amounts to evictions of renters and forced sales of owner occupied properties); and (b) VFs are good enough at that job to force sovereign nations into repayments (which puts into question even the theory of efficacy of any consumer protections the Government can put forward to restrict their practices).


3) Are debtors better off or as well off under the vulture fund management of their debts as under other banks’ management?

The answer is: it depends. 

If a debtor genuinely cannot recover from insolvency, then forcing earlier insolvency onto them actually provides a benefit of offering an earlier restart to a ‘normal’ financial functioning of the debtor. This is the ‘clean slate’ argument for insolvency, not for VFs. In order to achieve this benefit, the insolvency must be done with a pass-through of losses write-downs to the debtor (avoiding perpetual debt jail for the defaulting debtor). The VFs simply do not do this on any appreciable scale, and are even less likely to do so in the tail end of the insolvency markets (later into insolvency cycle).

Why? Because they have no financial capacity to do so. Do a simple math: suppose a VF purchases an asset for EUR60 on EUR100 of debt face value (40% discount on par). Costs of managing the asset can be as high as 5%. Cost of capital (and/or expected market returns) for VFs is ca 15%-18% due to high risk involved. The asset is assumed to return nothing - it is severely impaired, like a mortgage that is not being re-paid. To foreclose the asset, the VF has to pay another cost of, say, 10% (legal costs, eviction-related and enforcement costs, etc including costs involved in disposing of underlying property against which the mortgage is written). And the process can take 1-2 years. Suppose we take the mid-point of this at 1.5 years. There is uncertainty about the legal costs and timings involved. Suppose it involves 10% of the total mortgages pool purchased by the fund. The cost or recovering funds for the VF, accounting for compounded interest on VF’s own funding, is now EUR22.99-25.91. Take the lower number of this range, at EUR22.99 per EUR60 asset purchased. Suppose the VF forecloses on the house and sells it. Suppose the house is an ‘average’ one, aka, consistent with the current residential property price index metrics, and the mortgage was written around 2005-2007 period. This means the house is roughly 20 percent under the valuation of the mortgage at the mortgage origination. So the VF will get EUR80 selling price on EUR100 loan. If the mortgage was 90% LTV, roughly EUR90. Take the latter, more favourable number to the VF. and allow for 1.5 years cumulative asset growth of 20% (property values inflation). VF’s cumulative returns over 1.5 years are 25.06% or 16.04% annualised. The VF has barely performed to its market returns expectations. There is zero room for the fund to commit any write downs to homeowners in this case. None in theory, none in practice.

In contrast, the banks do not face market expectation of returns in excess of 15% pa on their assets, nor do they face the cost of funding at 15-18%, which means they can afford passing discounts to the homeowners.

The situation is entirely different, when a debtor can recover from insolvency, e.g. via pass-through to the debtor of market value discounts on their debt (30-40% that VFs would get in the sale by the bank), or via restructuring of the loans, a VF will never - repeat, never - allow for such a restructuring, because it results in extending the holding period of the asset required for recovery. VFs are not in business of extending, and, yes, Taoiseach is correct on this, they are also not in business of pretending.

Now, the logic of selling non-recoverable (via normal routes of working out) assets to VFs can accelerate the speed of insolvency. But the logic of selling recoverable assets to VFs only forces insolvency onto borrowers where they do not require such for the recovery. Any restructured, but performing mortgages sold to VFs will be inevitably foreclosed (insolvency created), even though they are recoverable (insolvency is not optimal). And there is nothing the Government can do, short of forcing VFs to become non-VFs, to avoid this.

I append zero, repeat zero, social impact costs to this analysis. These are, however, material in the case of mortgages and foreclosures, especially due to the adverse impact of such actions on demand for social housing, and in light of ongoing housing crisis in Ireland.


4) Are VFs subject to “the the same regulations and the same consumer protections as the banks,” as the Taoiseach claimed?

Answer is no. 

VFs do not adhere to the same regulations and the same oversight as the banks. The proof of this is the fact that Government is currently supporting legislative attempts to bring VFs into the regulatory net, aka the Michael McGrath’s bill that FG support. If the Government is supporting a new legislation, the Government is admitting that current regime of regulation for the VFs is not sufficiently close to that of the banks. If the current regime is sufficient to cover consumer protection to the extent that the banks regulations are, then why would there be a need for a new legislation?


In a summary: the Taoiseach is simply out of his depth when it comes to dealing with the simple, well-established in mainstream finance, concept, such as the VFs. This is doubly-worrying, because the Taoiseach is leading the charge to provide a new regulatory regime, to cover the areas that he appears to have little understanding of.

Per Taoiseach: “We support that and we are going to make sure that anyone who has a mortgage, who is repaying their mortgage, making a reasonable effort to pay it, continues to have the exact same protections, the exact same consumer protections as they would if the loan was still owned by the banks.”

This is a wonderfully touchy statement of the objective. Alas, Mr. Taoiseach, you can’t have asset ownership by the VFs combined with the regulatory protection measures that invalidate VFs’ actual business model. And you can’t scold the banks for ‘extending and pretending’ on borrowers, while at the same time codifying these ‘extensions’ for all investment funds, including the VFs. The cake vanishes once you eat it. Finance is Newtonian, in the end.

23/8/17: Ireland: A Haven for SPVs?


Ireland scored another ‘first’ in the league tables relating to tax optimisation and avoidance, staying at the top of the Euro area rankings as a Special Purpose Vehicles (SPVs) destination: http://uk.reuters.com/article/uk-ireland-funds-idUKKCN1AY1AK (featuring my comment, amongst others).

As my comment in the article linked above alludes, there is a combination of factors that is driving Ireland’s ‘competitiveness’ in this area. Some are positive for the economy and non-zero-game in relation to our trading partners, e.g. 
- Ireland providing a functional access to the European markets via regulatory and markets infrastructure arrangements that facilitate trading from Dublin into the rest of the EEC;
- Ireland offering a strong platform for on-shoring human capital, a much more functional platform than any other EU nation, due to greater openness to skills-based migration, English language, common law and open culture;
- Ireland serves as a clustering centre for a range of financial services functions, making it more attractive than traditional tax havens for conducting real business.

Over the recent decades, Irish Governments and business organisations have been aggressive (or better said - active) in positioning the country as a platform for inward investment. The first waves of this strategy involved emphasis on pure tax optimisation (e.g. during the 1990s), with subsequent efforts (often less successful and slower to develop) involving building specialist niches of financial services activities in Ireland (e.g. funds management in the 2000s and focus on specialist listings, such as debt and SPVs, in the 2000s-2010s).

On the other hand, aggressive positioning achieved by Ireland in tax optimisation-driven FDI and tax-focused corporate inversions has become a significant drag on the country’s reputation as a functional (as opposed to post-box) business centre. In addition, the Financial Crisis has introduced new dimensions to this reputational erosion: in addition to the G20-initiated push for greater tax transparency and harmonisation, Ireland also - mistakenly - pursued tax-based incentives for vulture funds acquiring distressed Irish properties from the likes of Nama and IBRC. A combination of growing tax inversions, BEPS reviews and reforms, vulture funds aggressive use of the tax structures has resulted in a more recent tightening of the SPVs regulations and oversight. 

Striking a balance between real economic incentives and egregious tax optimisation is a hard target to hit for a small open economy that, like Ireland, faces very tangible and aggressive international competition. The bad news is that we are yet to find a ‘golden ratio’ for proper regulation and supervision regimes that can allow us to retain a competitive edge, while rebuilding positive reputation with our trading partners and investors as a place for doing functional/tangible business. The good news is that we are becoming more aware of the need to strike such a balance.



8/8/17: Irish Taxpayers Face a New Nama Bill


Ireland has spent tens of billions to prop up schemes, like Nama and IBRC. These organisations pursued developers with a sole purpose: to bring them down, irrespective of the optimal return strategy from the taxpayers perspective and regardless of optimal recovery strategies for asset recovery. We know as much because we have plenty of evidence - that runs contrary to Nama and IBRC relentless push for secrecy on their assets sales - that value has been destroyed during their workout and asset sales phases. We know as much, because leaders of Nama have gone on the record claiming that developers are, effectively speculators, 'good for nothing else, but attending Galway races', and add no value to construction projects.

Now, having demolished experienced developers and their professional teams, having dumped land and development sites into the hands of vulture investors, who have no expertise nor incentives to develop these sites, the State has unrolled a massive subsidy scheme to aid vultures in developing the sites they bought on the State-sponsored firesales.

As an aside, this June, Nama officially acknowledged the fact that majority of its sales of land resulted in no subsequent development. What Nama did not say is that the 'developers' hoarding land are the vulture funds that bought that land from Nama, just as Nama continued to insist that its operations are helping the construction and development markets.

Why? Because Nama was set up with an explicit mandate to 'help the economy recover' and to drive 'markets to restart functioning again', and to aid social housing crisis (remember when in 2012 - five years ago - Nama decided to 'get serious' about social housing?). And Nama has achieved its objectives so spectacularly, Ireland is now in the grips of a housing crisis, a rental market crisis and a cost-of-living crisis.

Read and weep: http://www.independent.ie/business/personal-finance/property-mortgages/taxpayer-to-fund-developers-with-no-guarantees-on-prices-36009844.html?utm_content=buffer39407&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer.
Irish taxpayers are now paying the third round of costs of the very same crisis: first round of payments went to Nama et al, second to the banks, and now to the 'developers' who were hand-picked by Nama and IBRC to do the job they failed to do, for which Nama was created in the first place.

Oh, and because you will ask me when the fourth round of payments by taxpayers will come due, why, it is already in works. That round of payments will cover emergency housing provision for people bankrupted by the banks and Nama-supported vultures. That too is on taxpayers shoulders, folks...


25/4/17: Couple of Things We Glimpsed from KW Europe ‘Deal’


Yesterday, an interesting bit of newsflow came in from Irish markets-related Kennedy Wilson Europe operations: http://www.independent.ie/business/commercial-property/1bn-worth-of-irish-property-assets-in-kennedy-wilson-discounted-takeover-deal-35650134.html. Setting aside the details of the merger between Kennedy Wilson Inc (U.S. based parent) and Kennedy Wilson Europe (UK and Ireland-based subsidiary), the news have several important disclosures relating to the Irish property markets, Nama and the Irish economy.

Consider the following: 

"Kennedy Wilson Europe Real Estate, which is tax resident in Jersey, pays 25pc tax on taxable profits generated in its Spanish subsidiaries, and it pays income tax at 20pc on rental income derived from its UK investment properties. But the qualifying investor alternative investment funds (QIAIFs) it uses in Ireland to hold its assets were until this year entirely exempt from any Irish taxation on income and gains. The group's total tax bill last year was £7.3m (€8.6m) on profits of £73.3m."

Which implies:
  • Kennedy Wilson's Europe operations are running an effective tax rate of 10 percent. Not 12.5 percent, nor higher. Which shows the extent to which Irish operations tax exempt status drives the overall European tax exposures.
  • Kennedy Wilson's merger across the borders is, it appears, at least in part motivated by changes in the QIAIF regime, imposing new "20pc withholding tax on distributions from Irish property funds to overseas investors".  Bringing the, now more heavily taxed, subsidiary under the KW wing most likely create more efficient tax structure, making Irish taxes paid offsettable against global (U.S. parent) income, without the need to formally remit profits from Europe. Beyond that, the merger will facilitate avoidance of dual taxation (of dividends). Finally, running within a single company entity, KW operations in Europe will also be likely to avail of more tax efficient arrangements relating to transfer pricing.
Another bit worth focusing on: "Kennedy Wilson Europe pointed out in its recently-published annual report that in 2014 it acquired a €202.3m Irish loan book for €75.5m". Yes, that's right, the discount on Irish properties purchased by the KWE was in the range of 62.7 percent, almost double the 33.5 percent average haircut on loans purchased by Nama. Assuming EUR 202.3 million number refers to par value of the assets, this implies that Nama has foregone around EUR59 million, if average discount/haircut was used by Nama in buying these assets in the first place. Look no further than the KW own statement: ""The enterprise will benefit from greater scale and improved liquidity, which will enhance our ability to generate attractive risk-adjusted returns for our shareholders. The merger significantly improves our recurring cash flow profile". The improved cash flow profile is, most likely, at least in part will be attributable tot ax structure changes for the merged entity.

Which is exactly how vulture funds' arithmetic works: pay EUR1.00 to buy an asset that Nama purchased for EUR2.68, which was on the banks' books at EUR 3.58. The asset devalued (on average) to EUR1.43-1.79 in the market at the crisis peak, and the fund is in-the-money on this investment from day one to the tune of at least 43 percent. Without a single brick moved or a single can of paint spent...

Of course, there are other reasons for the deal, including steep discounts on asset valuations in the REITs markets for UK properties, but the potential tax gains are hard to ignore too. Whatever the nature of the deal synergies, one thing is clear - vulture-styled investments work magic for deep pockets investment funds, while traditional small scale investors are forced to absorb losses.