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State to pay banks less for transferring loans to Nama
24 January 2010 By Cliff Taylor and Ian Kehoe
The state bill for loans being transferred to Nama will be considerably lower than the expected €54 billion, with the banks facing a bigger discount than outlined.
Detailed investigation of the first loans to be transferred from the banks to the new agency shows the loans are worth less than previously estimated. The initial Nama plan had said that loans were likely to be transferred at 30per cent below their original worth, but the indications are that the final discount will now be higher.
It is also understood that the number of loans being transferred to Nama will also be lower than anticipated.
Those two factors mean that the total amount of bonds that the exchequer will have to issue to pay the banks looks set to be well below the original estimate.
Loans from the ten biggest property developers, which had been estimated to total €17 billion, are due to be transferred to Nama by the middle of next month. While these loans may suffer different write-downs to those from smaller developers, they will give a strong indication of what the overall average Nama discounts are likely to be.
Sources said it was too early to estimate a precise figure, but it looked set to be above the 30 per cent originally estimated. Write-downs at this level will lead to the banks needing significant amounts of new capital and there will be further cash calls on the government.
In a research note last week, analysts at RBS said that AIB and Bank of Ireland would together require €10 billion in new capital. Some of this is likely to come from selling assets and from balance sheet restructuring.
However the banks will also require significant new equity, much of which will initially come from the state. As part of this process, Brian Lenihan’s Department of Finance is actively preparing to transfer some of the €3.5 billion it invested in the big banks in preference shares into ordinary equity - which will give the government significant stakes in the banks.
A key issue for Nama in valuing the loans is the security which the banks hold. Several institutions, in particular Anglo Irish Bank, have discovered that some of their charges and securities are weak. In some cases, banks are discovering that they have only second or third call on the company’s assets, and that they fall behind a number of other lenders.
Banks are also finding it difficult to determine their level of security over assets, given that many of the larger development deals were financed by a host of different lenders. In an effort to resolve the problems, senior executives from the main lenders have held a number of meetings to discuss the charges, liens and securities on loans to their largest clients.
Given the level of interaction on property projects between Irish banks, senior finance sources said it was highly likely that duplication of security would emerge as the process continued. In certain cases, doubts are also emerging that all the required paperwork is in place.
The issues of security emerged in the High Court last week, when Mr Justice Peter Kelly said it was ‘‘astonishing’’ and ‘‘extraordinary’’ that AIB had loaned over half a billion euro to property developer Liam Carroll, with only a letter and the deposit of title deeds as security.
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