Comptroller says Nama overpaid for bank loans

THE NATIONAL Asset Management Agency overpaid for the loans it acquired from five Irish banks and will struggle to recover the €32 billion it paid to the lenders and its costs, the Comptroller and Auditor General has said.

The latest report from the State’s budgetary watchdog said that even after writing down loans by 57 per cent on their original value, the price paid by the agency represents “State aid” of more than a fifth of this to the banks, or a subsidy of €6 billion.

Nama faces “considerable challenges” in repaying the €32 billion it borrowed to buy the loans due to a weaker-than-expected economy, further declines in property values and risks to the collection of rental income from properties.

It must repay a quarter of its debts or €7.5 billion by the end of 2013 and the remainder of the €32 billion borrowed by 2020.

The comptroller said Nama had lost 5 per cent on its loans to the end of 2010 but property values had fallen further since then, by an average of 16.7 per cent in the residential property market in 2011.

Nama has taken an unaudited charge of €810 million for 2011 to cover further falls in the market but this will not be signed off by the comptroller until the summer.

The auditor said in its report that Nama was taking in less rental income than was expected when the loans were valued in 2009.

Of six borrowers sampled, rental income for 2011 was 26 per cent lower than projected when the loans were acquired and only €8 million out of €10.5 million projected had been realised.

The report said property management costs were not factored in on loan valuations which were conducted “in line with industry norms for immediate sales”.

Rental income is now being paid into accounts that it controls after Nama found the banks had not collected rent on certain properties.

The auditor said Nama must investigate rent collection to ensure the amount and timing of projections were “realistic” and income collection was “maximised” and that cash retained was “authorised and transparently accounted for”.

On a sample of property sales, disposals in Britain exceeded the market value at acquisition by 2.5 per cent while there was a 5 per cent shortfall on Irish disposals.

The cost of selling properties reduced proceeds by 3.7 per cent in Britain and 6.7 per cent in Ireland, mostly due to higher taxes in the Republic. Only 11 per cent of properties sold up to the end of last year were in Ireland.

The latest quarterly accounts published by Nama showed that the proportion of performing loans on its books fell again, to 20 per cent at December 2011 from 21 per cent three months earlier.

A Nama spokesman said this was due to loans being sold or refinanced by other lenders and that it expected performing loans to increase as debtors agree revised business plans with the agency.

The comptroller said Nama expected to lend €3.5 billion to develop and finish projects over its life, of which €2.6 billion would be loaned to debtors from 2012 to 2015.

Fine Gael TD Eoghan Murphy said that Nama “risks becoming a significant financial liability to the State further down the line when it doesn’t have the money to meet its later repayments”.