THE FIVE participating financial institutions are likely to be “shocked” at the size of the discount demanded by the National Asset Management Agency (Nama) for taking over the first tranche of problem loans, according to an informed source.
Nama plans to tell three of the five participating financial institutions next week how much it will pay for the loans of the top 10 developers which are to be transferred by the end of this month, The Irish Timeshas learned.
Bank of Ireland, Irish Nationwide Building Society and EBS building society will be the first to learn of the scale of the discount when Nama issues so-called acquisition schedules outlining the first loans it will buy and the discounted price it will pay for them.
Allied Irish Banks (AIB) and State-owned Anglo Irish Bank will receive their schedules soon afterwards in sufficient time for the first 1,000 loans totalling €17 billion to be transferred from the five lenders by the end of the month.
The acquisition schedules for AIB and Anglo will be sent later than the others as they are transferring the largest loans overall to Nama, and because they provided valuations and legal due diligence on the loans and underlying properties later than the others.
Anglo is transferring a total of about €36 billion in loans to Nama, while AIB is moving €23 billion. A total of €81-€82 billion will move to Nama from the five participating lenders.
It is understood Bank of Ireland is transferring a total of €12 billion in loans to Nama, while Irish Nationwide is moving about €9 billion and EBS about €800 million.
If Nama’s plan goes according to schedule, the first transfers will be completed just before the end of the month, allowing the State’s two largest banks, AIB and Bank of Ireland – the only two publicly quoted participants in Nama – to notify the stock market on the expected writedowns on the first loans to be transferred.
This will allow the institutions as well as financial analysts and market commentators to assess the overall losses to be incurred by the banks and the expected capital deficits in their books to be filled.
This will in turn help to determine the full cost of the bank recapitalisation plan, and clarify whether the banks need additional capital from the Government and whether the State will take greater ownership of the banking system.
The valuations of the first €17 billion in loans to be transferred and the underlying properties backing them are expected to be lower than originally anticipated. This means the expected discount or so-called “haircut” facing the banks on the first loans will be higher than the average 30 per cent discount originally estimated by the Minister for Finance Brian Lenihan last September. This in turn implies the Government may have to take larger stakes than currently projected.
It’s understood the information sought by Nama has shown loan documents held by some lenders to be inadequate and poorly managed, with lenders not having sought sufficient paperwork and legal checks in some cases before making original loans.
Once the first loans are transferred, Nama plans to write to the top 10 borrowers giving them a month to prepare business plans outlining their proposals for development projects, investment properties and their wider businesses.
Many of the borrowers have begun drafting comprehensive plans, which will be assessed by Nama over the summer months.
It’s understood that some €12 billion in loans will be moved in the second tranche and €9 billion to €10 billion in the third, bringing the total loans moved in the first three waves to €39 billion, covering up to 100 borrowers.
Nama plans to manage these borrowers directly. The remaining 1,400 borrowers to be moved – who account for the remaining 50 per cent of loans – will be managed by the lenders, with staff seconded from Nama overseeing them.
The agency still plans to take transfers of all 1,500 developers and 17,000 to 18,000 loans by the end of this year, despite the vast amount of paperwork and information required from the banks.
