Author: Karl Whelan

NAMA has released a draft business plan. It is a truly extraordinary document. To summarise, those who thought that NAMA would largely be a property fund—closing on delinquent developers and selling on the assets—are wrong. It appears that NAMA’s game plan is to wait a few years and then the vast majority of the developers will be able to pay back their loans in full.

Among the highlights:

1. NAMA is assumed to make a net profit of €5.48 billion by the end of its anticipated lifetime of ten years.
2. However, contrary to the million times that we have been told that NAMA will “wash its face” on an ongoing basis, it is projected that NAMA will pay out €16 billion in interest payments on its debt but will receive €12 billion in interest income on the loans acquired.
3. In addition, fees and expenses will add up to €2.64 billion over ten years.
4. The profit of €5.48 billion stems from NAMA recouping payments of €66.1 billion from loan repayments and asset recoveries to pay off the €54 billion in loans issued.
5. Interestingly, from Table 5’s cash flow projections, the only year in which NAMA is not projected to lose money on an income flow basis is 2010 when an interest outflow of €1.3 billion will be offset by interest income of, em, €1.3 billion. Table 7’s “budget projections” attempts to show that NAMA will make a profit in 2010-2012. The difference between this and Table 5 is “The interest income projections in this table include the impact of contractual rolled-up interest on land and development loans in addition to interest income from cash flow-producing assets.” So any “profit” reported will be of a phantom variety.
6. From Page 10: “The projections assume that, of the €77 billion nominal value of loans acquired, €62 billion will be repaid by borrowers and that loan defaults or debt restructuring will occur on €15 billion (a rate of 20%). Over a five year period in the early 1990s, one UK bank experienced a default rate of less than 10% on its whole book. Given the concentrated nature of the prospective NAMA portfolio and the risk of a prolonged recession, a 20% default rate assumption has been made. It is also assumed that €4 billion will be realised from the sale of underlying assets secured by the defaulting loans of €15 billion. These are conservative and prudent assumptions.” Yes you read that right. 80% of the loans will be repaid in full.
7. The 80% who pay back their loans will be in no rush to do so. Repayments will be €1 billion next year and the year after, €2.5 billion in 2012. Then in 2013 (after the next election!) the loan repayments will start arriving in buckets—€7.5 billion every year.
8. What if more than 20% of the loans can’t be paid back? The document tells us: “Stress-testing of this assumption indicates that the default rate would have to increase to 31% to erode in full NAMA’s projected Net Present Value gain of €4.8 billion.” Feel better now?
9. NAMA will acquire €14.6 billion in derivatives positions, mainly interest rate swaps.
10. By the turn of the year, NAMA will only have taken on 10 loans with a total value of €16 billion.
11. NAMA’s potential new lending: “NAMA will inherit any commitments entered into by the banks as far as the drawdown of funds is concerned; it is estimated that undrawn commitments on loans transferring to NAMA are of the order of €6.5 billion.” This exceeds the €5 billion limit placed on it in the legislation. The document says “the limit can be adjusted by order of the Minister and Resolution of the Dáil, thus ensuring parliamentary accountability for borrowing levels.”

Anyone in the Green Party up for a revote?