NAMA Bonds

Progress of NAMA for 2014 – Over 50% Complete With End In Sight

The National Asset Management Agency announced today that it has redeemed a further €1 billion of NAMA bonds from the banks, bringing the total redeemed amounts to €16.1 billion which means that 53% of the €30.2billion in senior debt has now been paid back to the banks. The government agency, charged with taking over the distressed debt of 5 Irish banks in 2009, paid the banks a total of €31.8 billion in the form of €30.2 billion of NAMA bonds and subordinated debt of €1.6.

NAMA has been selling the banks’ former loans and assets to the highest bidders and accumulates the proceeds until the agency decides it has sufficient resources to be able to pay the banks back for some of these loans and so redeems the NAMA bonds.

The €31.8 billion that NAMA paid the banks went towards transferring loans which originally had a combined value of €74 billion. This means that the banks involved took a total discount of €42.2 billion which they were able to endure; as the total government bailout totalled €64 billion which was given to the banks over time, both before and after NAMA took over the targeted loans.

Over half of NAMA’s work relates to the two banks which later became IBRC (Irish Nationwide Building Society and Anglo Irish Bank) as the two banks received €16.8 billion for the loans (52.8% of total). It would be no surprise to most people that these two banks gave the biggest discount to NAMA – coincidentally the same discount rate of 61%. When IBRC was liquidated in 2013, the Central Bank took over the bank’s outstanding €13.7 billion of NAMA bonds with €1.1 billion of that later redeemed by NAMA that year, bringing the outstanding NAMA bonds in relation to IBRC at year end 2013 to €12.6 billion (this is not to be confused with NAMA taking over the €12.9 billion in debts IBRC had with the Central Bank at the time of liquidation, which has since been successfully repaid by the liquidators- the liquidation of IBRC relates to the part of the bank that was not transferred to NAMA).

AIB and EBS gave discounts of 56% and 57% respectively for a consideration totalling €9.4 billion (29.6% of total)

The most prudent bank, Bank of Ireland (currently the only bank to pay back all its bailout funds) gave a discount 43%-reflecting its more sensible relationship with developers- for €5.6 billion (17.6% of total). Permanent TSB was the only bank not to face the humiliation of NAMA taking over any of its loans as it is mostly a mortgages bank and so was not exposed to the spectacular losses of certain developers.

The €16.1 billion redeemed to date represents 50.6% of the total amounts originally paid to the banks, officially making NAMA past the 50% completion milestone- 2 years ahead of schedule.

Exactly 6 weeks ago, NAMA announced that it redeemed €15.1 billion of the total €30.2 billion in senior debt/NAMA bonds. This may have mislead many people into thinking that NAMA was halfway through its work at the time, as the total consideration of €31.8 billion should have been taken in to account, making NAMA technically 47.5% complete at that date.

As previously mentioned, at the end of 2013 €12.6 billion of bonds formally relating to IBRC, were still outstanding according to the Central Bank which means that €4.2 billion out of the original €16.8 billion NAMA bonds were redeemed leaving a progress rate at that time of 25%. The accounts for NAMA at year end 2013 reveal that the agency redeemed €7.5 billion in NAMA bonds, which out of a total debt of €31.8 billion, leaves a progress rate of 23.6%. This appears to indicate that the loans in relation to IBRC have been marginally more successful than all of the loans of NAMA. However two factors to bear in mind are that around 25% of the income of NAMA from inception to end of 2013 was from rental income, not from loan disposals, some of which may have gone towards redeeming debt in relation to IBRC. Another issue is that NAMA is accumulating certain proceeds to be able to lend to developers to increase the value of land associated with NAMAs loans – in other words it is delaying to a certain extent paying the banks back. It is therefore not fully known how successful the agency has been in dealing with each of the banks’ loans. Nonetheless, there is no evidence to suggest that the loans in relation to IBRC have been causing more of a problem than the other banks’ loans, as the general public would have considered the 2 banks that later became IBRC, to be the dodgy banks with white collar crime investigations.

Today’s announcement means that NAMA has redeemed a further €8.6 billion of its debt in 2014 alone (27% of total) which brings to 50.6% of the total debt redeemed since 2010 when NAMA redeemed only €0.75 billion in that year. The original plan of NAMA was to be 25% complete by the end of 2013 (which they nearly achieved), 40% complete by the end of 2015 and 80% complete by 2017.

NAMA plans to achieve redeeming 80% of its senior debt (76% of total debt) by the end of 2016.

According to the CEO of NAMA Brendan McDonagh, “Achieving this 80% target will require a substantial volume of NAMA loan and asset disposals in Ireland as well as Britain and elsewhere; for the most part, sales will involve commercial assets (offices, retail, hotel and leisure and industrial assets) or loans secured by commercial assets,”

Based on what the NAMA are saying and on looking at the progress made, particularly during 2014, the following completion milestones should be achieved:

  • 60% complete by June 2015
  • 70% complete by February 2016
  • 80% complete by October 2016
  • 90% complete by August 2017
  • 100% complete by March 2018

From reading between the lines based on what NAMA are saying, it looks like they won’t be selling loans at the same rate as they did in 2014 (unless they change their 80% completion target) as any profit the agency makes (which would increase by holding off selling loans in a rising property market) will go towards reducing the nation’s €64 billion banking bailout. NAMA only need to redeem a further €8.06 billion of debt in the next 2 years to reach their current target which is €540 million less than what they redeemed in the last 11 months alone. NAMA are now taking on the role of a developer to hopefully maximise the return for the taxpayer.