NAMA loans transfer not expected to hurt taxpayer

THE country’s bad bank said the transfer of €77bn of bad loans from the banks should not prove to be a huge burden on the taxpayer, as experts have warned.

Brendan McDonagh, chief executive of the National Asset Management Agency said: “My view is we don’t need a huge recovery (in property values) to protect the taxpayer.”

NAMA, which is an arm of the National Treasury Management Agency, is also standing over its assessment that the average discount on the bank loans will average 30%, which is higher than what the banks were suggesting.

Due to he nature of the loans books of certain banks, he said some discounts would turn out to be higher, depending on the mix of loans.

In the event of the banks needing further capital, it is open to the state to convert the 25% preference shares it got for the €3.5bn it injected into each of the two main banks into ordinary shares.

The legislation provides for that to be done and a new law is not needed to make that switch, said John Corrigan, chief executive of the National Treasury Management Agency, at the launch of the group’s 2009 annual review in Dublin yesterday.

In the event of the banks needing further funding to improve their capital ratios, Mr Corrigan said “the first port of call” would be the preference shares. If additional funding on top of that is required the national Pension Reserve Fund, now worth €22.3bn, “would most likely be the vehicle for doing that”.

Providing capital for the banks was not the function of the bad bank, Corrigan said. It is there to provide liquidity to the stressed banks by paying over the anticipated €54bn for the €77bn transferred over.

NAMA was set up to rid the Irish banks of toxic property and land debts resulting from the property slump.

Irish house prices are now more than 40% below their peak in early 2007, but any declines in property prices since September were offset by increases in British land prices, McDonagh said.

The transfer of assets to the agency is to be completed by the end of the third quarter of 2010. About €19bn should be transferred across by the end of March.

At present intense discussions with the banks are under way to determine the worth of their individual loan books and detailed information on the “top 10 borrowers is already to hand”, McDonagh said.

NAMA is also insisting that companies whose loans are due to move across provide specific business plans. Having assessed them “we will determine if they are viable or not”, he said.

It is also open to the new agency to “take action” against companies if they refuse or fail to pay back monies owed.