The National Asset Management Agency (NAMA), the
Irish State toxic property loans
agency, confirmed in
a business plan on Tuesday that the percentage of loans
which are generating interest is only at 25% compared with an expected 40%
level. The agency said estimated profit/loss scenarios range from a profit of €3.9bn to a loss of
The plan published on Tuesday updates and revises the interim business plan
published in October of last year which was prepared on the basis of information
supplied at that time by the five financial institutions (Anglo Irish Bank, AIB,
Bank of Ireland, EBS and Irish Nationwide) and in advance of the detailed
examination of any of the key loans by the agency.
The latest plan says that the original draft plan of last
October, included projections of a Net Present Value (NPV) gain (profit)
of €4.8bn arising from NAMA’s activities over its expected 10-year lifespan and its acquisition of €81bn in property loans from the banks: "This was based on information available from the institutions in
October 2009. In the interim, it has become clear that some important underlying
assumptions provided by institutions were, in many cases, overly positive e.g.
loan-to-value (LTV) ratios and the proportion of income-producing loans. In the
case of the latter, the draft Plan assumption was that 40% of acquired loans
would be income-producing; however, the level of debtor impairment evident from
the first tranche loan transfers suggests that 25% may be a more reasonable
estimate. Similarly, the actual LTV ratios that have become evident during the
Tranche 1 due diligence process have been higher than those indicated by
institutions last autumn."
In the revised plan, NAMA has produced a number of NPV
scenarios based on a range of assumptions about the level of recoveries that
NAMA can achieve from its assets, both the loan assets it will initially acquire and
any underlying property and other assets it will acquire on foreclosure. On the
assumption that NAMA recovers the long-term economic value of its acquired assets, the projected
NPV outcome is a profit of €1.0bn - - quite a change from €4.8bn. Over a ten year
period, the likelihood of a loss is as high as the potential for a profit.
It was clear that the period from the initial announcement of NAMA in April
to October of that year that the Department of Finance (DoF) had not insisted on hard facts from
However, an LTV of 75% was used to spin the official line.
This was my comment on
the Irish Economy blog on an Irish Times article of Sept 05, 2009, by
Minister Brian Lenihan's economic adviser, Alan Ahearne of NUI Galway:
AA: “First, the estimated average
loan-to-value ratio of 75% will have to be verified by
examining each loan individually, as required by EU Commission
"Alan Ahearne represents the Dept of Finance in the article but
it’s unclear how much he knows about the loan situation.
There is anecdotal evidence that many residential mortgages were
topped up with other loans.
It’s likely that the same applied with commercial lending.
It is assumed the the average loan-to-value ratio of 75% based on
the original value of the deal but it may be based on a more recent
It’s hard to believe that 25% of the value of big deals in the
period 2004-2007, was paid in cash - - in particular in respect of
Anglo Irish deals.
Security is on both domestic and local property.
It is likely that many transactions involved complex tax shelters
and other vehicles - - not a bog standard €75m loan on a €100m purchase deal.
What does AA know about such deals?
The DoF have had a 6-month lead time to check the facts.
Given AA’s public statements, there should be more clarity on the
loans in advance of the Dáil debate and vote i.e. before Sept 16th.
AA should state that he is satisfied that the 75% average applies
to most of the loans on the basis of the original purchase
price/stamp duty basis price and includes top up loans.
Simply, as a representative of the Minister for Finance, it’s his
duty to provide clarity on this issue.
How confident can he be regarding the risk that the same security
was not used for multiple loans?
Keep in mind, that many of the later deals were ego driven as the
top developers competed for prime sites.
If they were paying 25% of the site costs in cash, were the banks
providing 100% of the development costs?"
NAMA said on Tuesday that it examined two variations on this central scenario; one in which NAMA
recovers the long-term economic value of assets plus 10% and one in which it
recovers the long-term economic value minus 10%. The respective NPV outcomes are
a profit of €3.9bn and a loss of €0.8bn.
The plan anticipates that the average discount applied to the full portfolio
of loans acquired will be 50%, reflecting the discount paid on the loans
acquired in Tranche I. Final discounts are of course applied loan by loan and
will only be determined as individual loans are transferred.
NAMA anticipates spending approximately €1.6bn on services over its
lifetime to support its activities. This figure is €1.0bn less than had
been forecast previously, "partly due to the competitive and thorough public
procurement process applied by the agency."
However, it still maintains the Victorian era tradition of secrecy on public
Frank Daly, chairman of the board of NAMA, said
on Tuesday that the plan
provided a robust framework for the challenges ahead: “We have enormous
challenges in the months and years ahead but this Plan gives us a realistic
expectation that we can manage this extraordinary project effectively and return
a profit to the taxpayer. That -- together with the rigorous pursuit of all
outstanding loans - - is our key objective.”
Daly added that the plan confirms that the financial institutions had
not disclosed or had been unaware of the extent of the financial crisis
afflicting their borrowers: “To say the least we are extremely disappointed and
disturbed to find that, only months after being led to believe that 40% of loans
were income producing, the real figure is actually 25%. We are equally taken
aback to learn that the banks were not even using the full range of legal
options available to them in order to secure income in respect of troubled
loans. The banks displayed a remarkable generosity towards their borrowers. NAMA
has no intention of maintaining that approach. We will pursue all avenues to
ensure the fullest possible repayment of all outstanding monies from relevant
borrowers and we will work towards increasing the income stream for NAMA as soon
as possible as part of the Debtor Business Plan review process.”
Brendan McDonagh the chief executive, said that NAMA is now operational and it had been an enormous
challenge to bring NAMA to this point from a start-up operation at the beginning
of 2010: “The economic environment continues
to be challenging and this will have a significant bearing on NAMA’s ability to
deliver on its targets but I am confident in the ability of the strong team at
NAMA to protect taxpayers’ interests.”
As of the end of June 2010, however, NAMA
has recruited 45 staff, is in the process of recruiting a further 33 and aims to
achieve its full complement of just over 90 by the end of the year.
The agency made a loss of €7m in its
first two months of operation, according to its first set of quarterly accounts
for the period to March 31st,
NAMA to date has acquired €15.3bn of
the total €81bn in property loans to be transferred.
McDonagh, said he didn’t believe
that the level of non-performing loans would fall below the 25% and he provided
a figure of 33% to an Oireachtas committee in April as this excluded the loans
of the 10 biggest borrowers at Anglo Irish Bank where non-performing loans were
Karl Whelan, professor of
economics at UCD
commented: "...why it should be difficult
for a government to find out how many people are repaying the NAMA-bound loans
beats me (a point that applies doubly when the bank in case has been nationalised
bank.) Less palatable is the idea that we are finding new nasty surprises about
loans after we have already paid for them."
The Minister for Finance noted that NAMA remains on schedule to achieve the
transfer of all loans by February next year. Brian Lenihan said: “While it is still too early to be definitive about the final
discount to be applied to the transferring loans, the business plan confirms
that NAMA expects to pay about €40 billion for loans with a book value of €81
billion. This would represent a discount of 50% which is consistent with my
statement of the 30th of March last.”