The details released today regarding the first tranche of loans to be transferred to NAMA from the five participating institutions offer plenty by way of headlines:

  • NAMA is to apply an average discount of 47% on this first batch of  loans. These loans, originally worth €16bn, will be bought for €8.5bn.
  • Of the €8.5bn in loans, €4.9 billion relate to assets located in Ireland; €3.2 billion in Britain; and €0.4 billion in other countries. None of this first batch of loans relate to assets located in Northern Ireland.
  • Investment properties make up the bulk of the underlying assets, which account for €5.5bn. €1.3bn is in land, €0.8bn in hotels, and residential property makes up 0.4%.

However, the NAMA release also leaves much to ponder regarding what is to come in subsequent waves.

The following are just a few of the questions that arise:

  1. How representative is this first wave of €16 billion loans of the entire NAMA portfolio? In particular, development land and hotels are underrepresented in this sample. Will their inclusion increase the “haircut” still further?
  2. This first wave of loans only represents the ten largest builders/developers. Do their investments represent better or worse quality investments than those of smaller  developers associated with ghost estates across the country?
  3. Will it transpire that the ten largest builders/developers were required by Irish banks to invest less of their own equity into development projects than smaller developers?
  4. Security for loans: Where the title of the underlying assets is of bad quality, NAMA legislation provides for an additional haircut which would allow NAMA to purchase  loan for a nominal sum. To what extent will NAMA need to avail of this power?
  5. The first wave of loans gives no indication of the expected level of default that NAMA will experience. Does NAMA maintain that the default level will be 20%, as per the NAMA business plan?
  6. How will the geography of the first waves of loans, and in particular the omission of Northern Ireland from this sample, differ in subsequent waves?
  7. The following information has been provided regarding the Special Purpose Vehicle Investors:

“NAMA has secured a combined investment of €51m from three institutions (€17m each) for a 51% shareholding in National Asset Management Agency Investment Ltd, the NAMA Special Purpose Vehicle. The investors are Irish Life Assurance, New Ireland and major pension and institutional clients of AIB Investment Managers (AIBIM). NAMA will hold the remaining 49% but will have a veto over all decisions that are not in accordance with the objectives of NAMA as specified under the NAMA Act.”

What, if any, influence will these three private investors have in the future operations of NAMA?

If today’s exercise in “drawing a line in the sand” was aimed at removing uncertainty, there’s still a long way to go.

Declan Curran