It should come as no surprise that people on these shores have had difficulty understanding Nama in recent times. Nama is, after all, the language spoken by the Khoikhoi people of Namaqualand – and I don’t remember that language being on my junior cert syllabus. For a while I was struck by what seemed to be the gross inequity of landing the unsuspecting Khoikhoi people with the unenviable task of gambling billions of Irish taxpayers’ money on mini-bermuda triangles located on the outskirts of every town from Lixnaw to Letterkenny – but, of course, these are difficult times for all concerned and I figured that the Khoikhoi should have to shoulder their fair share of the burden also.

Namaqualand map

Needless to say, I have in the meantime picked up a smattering of the Irish variant of Nama – and, of course, in our local parlance NAMA (National Asset Management Agency) doesn’t lend itself very well to lyrical flourish. However, in the spirit of knowledge-sharing, I’ve decided to put forth the basic NAMA that I have acquired thusfar. Please feel free to correct my NAMA grammar.

  • NAMA will take €68bn of problem loans (+ €9bn unpaid rolled up interest) off the hands of five affected banks (AIB, Bank of Ireland, EBS, Irish Nationwide, and Anglo Irish Bank).  In recent days it has been reported in the media that Ulster Bank (owned by Royal Bank of Scotland) have shown an interest in having their “toxic” Irish-based assets acquired by NAMA rather than being processed through the UK government’s asset protection scheme (APS), the British alternative to Nama.
  • The Draft NAMA Business Plan estimates the current market value of the loans to be €47bn.  How this estimate has been reached isn’t explicitly stated in the business plan. In the discussions surrounding the document, data from CSO, ESRI, and Department of Environment has been referred to, as well as the calculation long term values based on pre-2005 property price indices.
  • NAMA will pay €54bn for the loans it acquired – a discount (“haircut”) of €23bn (30%). Critics have suggested that this 30% was opted for as a more severe “haircut” would create the need to inject further equity in to the banks in question. As it stands, the banks may still require further equity in the foreseeable future.
  • NAMA will issue the five banks with government-backed bonds (with a yield of 1.5%)to the banks, “eligible collateral” which the banks can use to borrow from the ECB.
  • The underlying assets originally valued at €88bn [LTV: 77%,  i.e. €88bn/€68bn]. This implies that the borrowers (property developers) brought, on average, 23% of their own capital to each project.
  • This fall in asset values from €88bn to €47bn suggests that property prices have fallen by 47%. NAMA’s willingness to pay €54bn for these assests indicates its believe that property prices will reach an equilibrium 40% lower than their original values. This 40% write-down brings us back to 2004 property prices. I’m not sure how 2004 prices represent some sort of equilibrium – weren’t we 7 years into the property boom/bubble at that stage? Property prices did, after all, increase by 300% over the period 1997-2007. But, far be it from me to come across all pedantic…
  • As is clear from the above, NAMA will pay €7bn (15%) more than the current value of the underlying assets.
  • 5% of amount paid will be risk sharing payments (in the form of subordinated debt).
  • The NAMA Draft Business Plan (p.10) estimates that 40% of the loans will be cashflow-generating and that 80% of loans will be repaid by borrowers. This default rate is expected to be 20%. This is based on the travails of one British bank over a 5-year period in the 1990s, when it experienced a default rate of 10%. The Draft Business Plan (in the spirit of prudence!) plums or a 20% default rate in the Irish case.
  • The repayments of 80% performing loans will from 2013 onwards change from coming in at a mere trickle to a deluge (p.10, table 5). Some commentators have pointed out that this smacks of giving property developers some breathing space in the hope that their luck will come in and they’ll be somehow able to service their loans!
  • The NAMA Draft Business Plan estimates that should property prices rise by 10% over next ten years, NAMA will make a profit. Such a property price increase, of course, is by no means a given! Even if this sounds like a fairytale, I think you have to admire the symmetry of it all: 10 years, 10% increase, 1% each year……
  • The Government has indicated it is willing to provide capital to banks if required, but only after other options have been explored (raising capital from the stock market etc).
  • 66% of the assets to be managed by NAMA are located in Ireland, 20% are located in the UK,  a further 6% in Northern Ireland, and 2.4% in the USA.  Germany (1.4%) is the largest mainland European location of NAMA-related assets. Eastern European countries, on the other hand,  account for a mere 0.2-0.5% of the assets.
  • AIB will transfer €24bn of loans to NAMA; BOI €16bn, EBS €1bn; Irish Nationwide €8bn; and Anglo Irish Bank €28bn.
  • And lastly (for now), the “special purposes vehicle” – which, by the way, was not mentioned in the NAMA Draft Business Plan: Under the EU stability and growth pact, countries are obliged to have a debt/GDP ratio of 60% or less. To keep the €54billion of government-back bonds from appearing on the state’s accounts, NAMA is to be subsumed into a Eurostat-approved special purposes vehicle (SPV) which, according to Eurostat, is to be majority privately owned and decision making autonomy. Private investors will provide 51% of the equity (the SPV will raise €100 million in capital), with the government holding 49%. If I owned 51% of anything, I would like to think that I would be calling the shots. But no, it’s just not like that. The government has claimed it will retain a veto over the decisions of the SPV board (I will return to this in this in a separate post). How’s that for pro-active decision-making!

I bet this would never happen in Namaqualand.

Declan Curran

Advertisements