Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

NAMA: Top Five Facts

The draft NAMA bill came out yesterday afternoon and, before we go anywhere else, I thought it would be useful to do up a straightforward post about the basics of NAMA, one that eschews all discussion of “subordinated bondholders” and “credit default swaps” and just presents some plain facts. After this, it’s certainly possible to use tidbits in the draft NAMA legislation, being discussed here, to get some sort of picture about what’s going on ‘under the hood’ and whether NAMA’s modus operandi is realistic.

But first, the facts… here is a suggested top five facts you need to know about NAMA:

  1. NAMA plans to take ownership of loans underpinning land and developments originally valued at €88bn. All these 21,500 projects are the work of just under 2,000 customers. (This will represent assets for Irish taxpayers, i.e. we hold a piece of paper that says we need these 2,000 companies and individuals to pay back the loans to us.)
  2. For all that land and development, the amount loaned was €68bn, meaning that the typical loan-to-value for NAMA projects was 77%. (Just to give some idea of what these numbers mean, the value of all 320,000 homes in Munster is somewhere in the region of €90bn.)
  3. About €9bn in unpaid interest has been accumulated on those loans, which will also be transferred over to NAMA, giving a total amount of debt that NAMA will take on (as assets) of €77bn. (To the best of my knowledge, this is less a reflection of changed circumstances post-boom and more of a reflection of “standard practice” during the boom years: “Don’t worry about whether we can pay you back, prices are going up, so just roll up the interest and when we’ve it sold, we’ll pay you back the whole shebang.”)
  4. Interim-NAMA estimates that property prices have fallen by 47% on average (across land, retail, residential, office, industrial, etc) from when the loans were issued, leaving the current market value of the collateral on the €68bn at just €47bn. (It gives absolutely nothing to back this up, which is most unfortunate, but does refer to using data from the CSO, the ESRI and the Department of the Environment, as best as possible.)
  5. In theory, the supplementary information for NAMA ends here. However, it goes on to ‘suppose’ that NAMA would pay €54bn to the banks to acquire the loans. This would represent a haircut of 30% on the loans or – in plainer English – NAMA is assuming the fall in property prices from peak to some sustainable plateau is about 40%, on average.

There are, to be sure, a whole range of unanswered questions. Top of my list is how NAMA goes from the estimated current fall of 47% to the sustainable plateau of just 40%, i.e. where does NAMA come up with the idea that, when 2010 and 2011 are come and gone and we’re looking back in 2015, we will know that 40% was about the right fall from the peak.

Later today, I’ll take a look at the loan books of the various banks and see if we can get an idea of what is driving this train of thought, and whether it’s spot-on or is missing something. In the mean time, though, any questions, thoughts or comments are welcome.

  • Darren ,

    Thanks for being so plain about it. I kind of feel I have my head buried in the sand on the whole NAMA thing. I hope you might take a brief look at what this massive new debt for the country means to Joe Punter. Is it really going to encourage investment in Irish banks again or will it just present the nation as debt-ridden and risky?

    • Daniel Kenneally ,

      What I would like to know is what are the guarantees that the banks will start lending? That is the whole point to the exercise. Once they lend prices will recover with demand over a period of time.

      • Colm Green ,

        Hey ronan, something else that i’d like to see is what ‘haircut’ AIB and BOI are getting, because in theory they could be giving all the haircut to anglo irish bank, (which is just using punishing ourselves) and letting the others off the hook.

        Also why are the govt so afraid of the banks, we have them over a barrel, why not force conditions on them.

        • Aideen Keenan ,

          Hi Ronan.
          Good work! You didn’t mention the fact that NAMA is offering to pay above market value for the loans, because they assigned a “long-term value” to the assets (or something??) Is this possibly what accounts for the difference in “the estimated current fall of 47% to the sustainable plateau of just 40%”? Thought they would have put more explanation into it though…?
          We’d all like to see the banks being put across the Government’s knee and whipped to within an inch of their lives, but unfortunately it would be a bit like cutting off our noses to spite our faces. As far as I can see, the banks are too tied up in the fate of the economy at large to hit with too severe a “punishment”. Would be great if we could do both though. Bad banks.. the lot of them! 🙂

          • Do the NAMA figures add up? A broader and more realistic assessment of long-term economic value | Ronan Lyons ,

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