THE NATIONAL Asset Management Agency (Nama) may break even or make a small loss in its first year on the toxic loans that it buys from the banks, according to well-placed Government sources.
The Minister for Finance Brian Lenihan has, however, said he expects Nama to make a profit over its lifetime as it recovers loans with a face value of €90 billion to be bought from the banks at an as-yet-unknown discount.
According to the Nama Bill published yesterday, participating financial institutions can only write off up to 50 per cent of losses incurred on loans transferred to the agency in any financial year.
The Government has included provisions in the Bill which shares the risks of the “bad bank” plan with the banks. The Bill allows the State to suspend part of the payments to the banks for the loans.
A small proportion of the payments will made in the form of subordinated debt – a type of bond on which the State can withhold interest payments to the banks if Nama fails to recover loans.
Most of the payment will be made in Government bonds which the banks can exchange for cash at the European Central Bank at an interest rate of 1.5 per cent.
Government sources have indicated that the subordinated debt issued to the banks will be treated like any other asset on the books of the financial institutions.
This means the banks will not have to adjust their overall capital ratios by taking on higher risk debt in exchange for selling their assets.
Bank analysts had expressed concerns that making part payment for the loans in subordinated debt would lead to the institutions requiring further capital up front as this type of bond carries risks.
Mr Lenihan said in a statement that he would provide “an estimate” of the amount of bonds to be raised – the cost of Nama – next Wednesday when the Dáil returns to debate the legislation.
However, he said that each loan would have valued individually,
“Only after the valuation of each loan will an exact price be determined,” said the Minister.
The Government has previously said that it will not know the full value of the loans until June 2010.
Department of Finance sources said that the Minister would provide a breakdown of the face value of the total loans to be acquired from each institution next week.
He will also outline the total breakdown in Government bonds and subordinated debt but will not provide the individual purchase price for each participating lender.
The Government plans to issue subordinated bonds which expire in 10 years or with a perpetual maturity that would give Nama flexibility on the time-scale over which it can defer part of the payments to the banks for the loans.
Mr Lenihan said that changes introduced in the Bill means that the banks will have to share a portion of the risks linked to Nama by through the subordinated bonds.
This use of these bonds will also serve as an incentive to encourage the banks to assist Nama in the recovery of the toxic loans.
Nationalised lender Anglo Irish Bank is unlikely to be issued any subordinated debt as part of the purchase of its loans as the State would end up charging itself interest payments for the assets.
Government sources said that the Minister had no shortlist of candidates for the board of Nama.
Mr Lenihan said he would seek the views of the opposition parties on appointments to the board.
The Nama Bill will make it a criminal office to lobbying the agency about any of its decisions.
The Government plans to introduce an 80 per cent tax on profits made by developers on gains from land rezoning and better corporate governance at banks.
