NAMA Legislation FAQ

I received this official NAMA question and answer sheet from a member of the Fourth Estate on the day the draft legislation was released but then I noticed that it didn’t appear on the DoF website so I never linked to it. In any case, it turns out that it is now on the NAMA website. It is a very interesting document containing plenty of discussion about issues not addressed in the draft legislation itself.

15 replies on “NAMA Legislation FAQ”

It answers my question from a few weeks ago. Where there is a loan default, and property is vested in NAMA, it looks like the land will be valued at market value (rather than the higher economic value, which would be more favorable to the developer) in determining how much the developer still owes. (See answer 13).

No. In principle it should not make a difference, all other things being equal – that’s my read anyway. In practice, developers might well fare a bit better under Nama in my opinion, because Nama will put some sort of floor on prices.

More importantly, it would not be in the interests of a bank to foreclose if it could wait and hand the loan over to Nama. It would get a better settlement that way. That is with all other things being equal of course.

If the government truly believed it was important that banks “operate within market disciplines and constraints”, as this document says multiple times, it would realise that one of the main ‘market constraints’ is the fear of going bust when you recklessly gamble on high stakes investments…The idea of playing the ‘free market’ card when you are in the processes of committing 60% of a country’s GDP to a crony bailout strikes me as farcical.

“What will be the interest rate paid on the NAMA bonds?

NAMA will pay a floating rate of interest on any securities it pays to buy the loans. It is expected that the stream of income from the loan assets transferred to NAMA will be sufficient to meet the interest payments on the NAMA bonds as based on information provided by the financial institutions, the cashflow generating loans pay an average margin of 2% above the floating rate of interest.”

This is taken from the Q&A sheet and is one of the few areas with adequate(ish) detail to comment.

There are some problems that jump out here. Firstly, what stress tests have they applied? What if x% of good loans go bad? What if the ECB rate doesn’t remain at historically low levels? etc.

Secondly, what is the repayment/prepayment profile of the good loans? In my experience, good loans get repaid or can refinance. Bad loans don’t tend to do this. This is likely to cause cashflow shortfalls at a future point. How big I don’t know (we don’t have the detail to make a good guess), but let’s hope the ECB rate is low at the time.

Point 5 is to me a very interesting point:

“It will have all necessary commercial powers of a financial asset management company to establish subsidiaries, to operate through agents, to buy and sell assets, to manage loans and work with borrowers, and to take full and determined action in relation to debts owed.”

The way I read and understand it, NAMA will have full discretion in how to deal with borrowers. If so, I believe the dealings will for commercial reasons have to be held behind closed doors and if so, then they cannot be transparent.

If NAMA were to be in place, then who would ever know whether all borrowers would receive fair and equal treatment regarding which (if any) borrower should be taken to court? The ones not taken to court suffers no risk of liquidation.

Point 3 should have been more interesting. I can’t find anything that is arguing against nationalisation. The argument above about transparency and fair & equal treatment would have been my guess of one of the arguments against nationalisation. To me it seems the argument, if it can be applied, can be applied against both.

Point 32 is interesting in that it doesn’t specify who will pay the levy, participating banks or the general public? (In the event it would be necessary with one)

Point 9, is this about the level of transparency to be expected in the purchases? If it is, I can’t quite understand the answer?

Point 24, on or off balance sheet? The valuation of the assets of NAMA is at best uncertain. The value of the liability of the bonds are certain. Will auditors sign off on the “long term economic value” or will they only accept the traditional valuations? If long term economic value is not accepted as a valuation method, then I believe NAMA will in theory be an insolvent entity with a government guarantee for the shortfall. If that is the case, I believe the shortfall in NAMA should be reported as a liability for the state. In short, not off balance sheet.

It seems to me that if the government can own and manage loans through NAMA, they can also own and manage the same loans through nationalised banks. Two very similar options, temporary nationalisation is cheaper.

all good points Jesper….

I know shag all about accounting, law (or anything else) but this long term price has me flummoxed…..

I cant see how an auditor could sign off on the accounts for an agency that has its own valuation method that nobody else can use…. The accounts are supposed to provide a true reflection of a companies position.

If they leave it as a makey uppy concept, ie. a gift to the banks, then they should recognize this as an upfront loss in their accounts.. (the difference between the value and the long term prices)

If they try to make long term as an acceptable accounting term that an auditor can sign off on……….. then it can be used outside NAMA , the problems only start……. I reckon theres huge scope for fraud and tax dodging. It effectively legalises 2 sets of books 🙂

Its like the article in the press today about changing NAMA so people cant sue or have to agree to pay NAMA costs should they lose…. All sounds good, (and I agree with the stated motives) but I reckon such a law would be unconstitutional, you cant change the rules to suit one agency…. just because it would be a good thing…..If they can do that for NAMA, then do it for other departments/agencies so people cant sue the state on anything, or costs are always automatically awarded to the state….

The strangest thing is that this is all very elementary stuff. ….. One day trying to subvert accounting standards, the next trying to subvert constitutional rights.

Maybe I should email them a copy of the laws of thermodynamics and see if they can subvert them.. and invent a perpetual motion device….


No need to be flummoxed about anything Irish Governments do !!

Who says NAMA has to be Audited ??

The Irish Government has consistently brought in Legistlation for the Private Sector and then does not apply the same legistlative standards for their own operations. Accounting Standards were never heard of by the Civil Service. They still prepare accounts on a cash receipts and payments basis.

This NAMA is a complete hybrid so do not expect any standards in regard to it’s operations but be sure it will be secret to the end. Public Servants are operating these Quangos and they do not like to be subject to scrutiny like the rest of the Private Sector. They also do not want most of the taxpayers to really know how much it is costing us until most of us are in our graves say minimum 30 years ……zzzzzzzzzzzzz

Gross National Debt seems to be the relevant measure.If NAMA is considered to have paid “to much” for the underlying Bank asset,namely the Developer loan then the Bond/Security issued by NAMA to the Bank will affect the off balance sheet nature of the above transaction causing Irelands Gross National Debt to increase.So in essence the value of the assets exchanged have to equal the security/bonds handed over by NAMA to the satisfaction of the ECB.The ECB will be the final arbitrators as to the value of these assets.So what checks and balances need to be put in place to ensure that the Gross National Debt and measured reflects and incursion from overvalued loans?????

Apologies last line above should read ” So what checks and balances need to be put in place to ensure that the Gross National Debt as measured reflects any incursion from overvalued loans???”

Small footnote to published document….Its interesting that the refusal rate by Banks to Companies with less than 10 Employees is 30% or above,while at the same time Mary Coughlans 250 million package was targeted at Companies with 10 or more Employees.To my mind this throws a wet blanket over Richard tolls excellent piece on the SBP. So much for our next Google et al. Maybe Mary does’nt do smart Economy.

Rather than scrambling around trying to read the tea leaves on the biggest public spend ever, force NAMA et al to publish audited accounts….

You couldn’t run a small private company the way NAMA is proposed, the revenue would be on to you.


Take it that this is a Con job. They are writing the Accounting rules for valuing stocks that suit NAMA and D of F . If the Financial reporting Standards and Auditing Standards that apply to the Private Sector and enshrined in Law etc were used then the Directors of NAMA would be in breach of the Law and properly prosecuted. So how can really anybody audit the NAMA accounts. NAMA will backfire on the smartasses in Finance and the NTMA. I think the worst part of it is that they are trying to convince the ECB and Eurostat that the NAMA Bonds do not form part of overall Government Debt.

@TRP what their trying to convince ECB and Eurostat is that the value placed on these “assets” will be equal to bonds issued in Monetary terms by NAMA thereby making it a zero sum game.They say that an exchange of one form of collateral for another of equal value,thereby having no affect on the overall Gross Domestic Debt.Zero sum game ,I’d like to see the calculations for Interest repayments,further price falls,development completion costs + interest,Externalities etc. etc…Crystal balls need to be cleaned given recent errors in Economic forcasts.I think its time for “back to basics” for DOF. Suggest requisition order to be issued for Abacus x 800.Mark order as “URGENT”.

Bar the vested interests and the AG’s office – where could any suggested amendments to the Nama legislation be found?

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