National Asset Management Agency NAMA

This is the greatest economic mistake ever perpetrated by an Irish government in cold blood. The purpose is to take all loans related to property development and land speculation with a view to development off the books of the banks.

According to the government – NAMA will buy bank loans with a face value of €77 billion for €54 billion (the good loans are €62 billion and €15 billion bad loans). The current market value is supposed to be €47 billion. That means that Joe Public is handing the banks a free €7,000,000,000. Looks wild when the zeros replace the word billion. Traders normally bulk buy huge amounts in a market with a discount to the current market value. So the handout to the banks is even more than the advertised €7billion.

The government is buying the loans from the banks using €51.3 billion of IOUs called bonds. These bonds can be cashed in at the European Central Bank for money. Another €2.7 billion worth of state IOUs will only be paid to the banks if the value of the assets when sold covers what the government (NAMA) paid for them. That may reduce NAMA losses by €2.7 billions

NAMA – Income – €12 billion in interest payments from good developers owing €62 billion over 11 years. NAMA expects to get 4 billion for the €15 billion in bad loans.

The 80% windfall profit tax on all rezoned land in the NAMA bill will further reduce the NAMA returns on dealing in development lands. This tax rate in up from 20% capital gains tax. The government ignored this in their calculations because it was introduced as a late amendment.

NAMA expects to spend €16 billion in interest payments in the NAMA bonds (IOUs). This depends on interest rates. NAMA bonds will get a 1.5% interest rate variable. Most borrowers will pay Euribor rate plus 2%.

Fees and expenses paid out by NAMA are projected to be €2.64 billion in 11 years. And the government claim that they will make a profit of €5.5 billion by 2020. The government expect a 20% default rate on the €77 billion.

The €77 billion face value of loans is difficult to judge because it is unclear how much collateral was taken by the banks before the loans were paid out. How many 100% loans were issued without collateral.

When is a debt not a debt – when you are the Irish government!

The owners of NAMA will be a Special Purpose Vehicle owned 51% privately and 49% by government. The €54 billion that the government will issue as bonds (IOUs) will not appear on the state’s balance sheet. No folks, we really don’t owe this at all!

This fiction is approved by Eurostat, the EU statistics agency. I will be very careful before I believe any EU statistics again.