NAMA: The numbers at last

By webtradeadmin, Wednesday, 16th September 2009 | 0 comments

Brian Lenihan, Minister for Finance, has just announced the long-awaited costings for NAMA.  NAMA will buy €77bn of problem loans and assets from the five affected banks, and will pay €54bn for those assets, a discount of €23bn or 30% on the value of those assets.  Five percent of the amount to be paid will be risk sharing payments. Both the total amount moving to NAMA and the amount being paid are somewhat lower (tougher) than expected.

The Minister did make some other points of interest:

  • The banks will have two months to decide whether to apply for inclusion or not.
  • Most assets should be transferred to NAMA by the middle of next year.
  • The government will provide capital to banks if they require it, but only after other options have been explored by the banks, including of course raising it from the stock market.
  • Two-thirds of the assets to be taken by NAMA will be in Ireland, the remainder overseas
  • 40% of the loans are paying interest, and this interest will be enough to pay the interest on the bonds issued by NAMA.
  • The current value of the loans being taken on is €47bn,based on an estimate that land prices, on average, have fallen by 50% since the peak.  This means that NAMA will be paying €7bn more than the current value of the loans, if they have been valued properly.
  • €9bn of the total €77bn is rolled up interest (interest that was not paid and therefore had been added to the value of the loan).
  • If asset prices rise by 10% over the next ten years, NAMA will be in profit.
  • The existing bank deposit guarantee scheme will be extended but modified.
  • AIB will transfer €24bn to NAMA, Bank of Ireland will transfer €16bn, the EBS will move €1bn, Irish Nationwide will move €8bn, and Anglo Irish Bank, now nationalised, will move €28bn.

It's far too early to assess the implications of these numbers for the likelihood of the plan being acceptable to the minority government party, the Greens, who have expressed concern about NAMA, or the likely impact on the banks share prices.  For now, all it is safe to say is that the numbers, at least at the headline level, are about what was expected by most analysts and commentators.  Most focus in the days ahead will be on the details, and calculating the capital position of the various banks after NAMA has taken the toxic assets off their books, and the extent to which the banks will have to raise new capital from either the government or the financial markets.  But there will also be considerable interest in the attitude of the Green party which is key to whether the legislation gets through or not.

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