OFFICIALS WORKING on the establishment of Nama, the State’s “bad bank”, have met representatives of five guaranteed financial institutions to brief them on the details required on developers.
Senior bank executives met officials from Nama and investment bank HSBC, financial advisers to the agency, on Thursday for what was described as an “operational” briefing to discuss information sought on each developer client moving under Nama’s control.
HSBC and estate agents Jones Lang LaSalle will use the information to devise a methodology by which they can value assets of €80 billion to be acquired by Nama.
The institutions must fill in more than 300 fields of information on each borrower, which range from the scale of debt and associated collateral to personal guarantees and projected rent on investment properties.
Officials have asked for details on each lender’s top 25 borrowers to be advanced within the coming weeks. The information sought also includes details on the credit scoring of tenants in investment properties provided as collateral.
The scale of the information will highlight the extent to which the back-office administration within the financial institutions was able to keep up with the surge in property lending. Lenders will be asked to ensure the paperwork on loan documentation is in order before transfer of the loans to Nama.
The agency plans to purchase at a significant discount about €80 billion in loans. The full discount will not be known until next year.
Minister for Finance Brian Lenihan said this week the Government was still considering what method Nama will use to value the loans being acquired. He said the details of how the bad bank will operate will be published this month. “We must value the assets on both a market and individual basis but, under the European directive, there is an option of taking into account a longer-term economic value,” he said.
The Minister said some loans may be bought at a “very steep discount”, reflecting the decline in property prices, while others have “medium-term economic value”.
Davy has estimated the Government may overpay for Nama-bound loans by at least €4 billion.
NAMA: in brief
So how many loans will move across to Nama?
The agency is likely to buy loans with a face value of €80 billion from the guaranteed banks and building societies. This comprises €47 billion in development loans and €33 billion in other loans, mostly secured on investment properties provided as collateral for development land.
Which developers will be dealt with first?
Initial plans suggest that Nama will handle the largest 25 to 50 developers first and that only individual loans of more than €5 million will be acquired, reducing the number of borrowers to be handled from 14,000 to 1,500.
Are all the loans bad?
No. The Government is buying good and bad assets, with interest payments on good loans helping to contribute to the cost of the impaired or toxic debt.
How will Nama value loans?
The Government says it will buy the loans at a significant discount. The price will depend on the loan as a percentage of the property’s value, when it was provided and how far the value of the property has fallen since then.
What mechanism will be used to value the assets being acquired?
Nama can apply a harsh mark-to-market value – in effect at today’s prices – which is likely to lead to further State capital injections. Alternatively, under EU guidelines a less severe “through the cycle” or “economic value” can be used, which could mean overpaying for the loans but which the State could recoup by selling properties over time or applying a levy on the banks.
