As reported by the Independent today, the chief executive of the NTMA, John Corrigan, yesterday told a Dail Joint Committee that NAMA would make enough money to cover its costs. Given what we know about the funding arrangements for NAMA and the likely interest rates charged to NAMA borrowers this should not come as any surprise at all. If NAMA is taking over €81bn of loans and the average rate charged on the loans is 6-month Euribor plus 2% (as stated by the NAMA CEO at the Finance and Public Service hearing last week) and if NAMA is paying 6-month Euribor on NAMA bonds (which make up 95% of the consideration for the loans) and 5.25%-5.75% on the subordinated debt (which makes up the remaining 5%) and assuming that the consideration that NAMA pays for the loans is €50bn (which is at the higher end of the estimates flying around – the NAMA CEO last week was talking about €43bn and the NTMA CEO yesterday was talking about €47-49bn) and if 6-month Euribor is 1% then
- NAMA will pay 1% of 95% of €50bn (€475m) plus an average of 5.5% of 5% of €50bn (€138m), or a total of €613m per annum in interest on its consideration.
- NAMA will receive an average of 3% on the performing part of the €81bn.
- If the performing part of the €81bn was 25%, ie €20.4bn then the interest receivable would be €613m.
So what the NTMA CEO was saying was that even if the performing loans are 25% of the portfolio then NAMA will receive as much interest as it pays out. The NAMA draft business plan assumed 40% of the loans would be performing. The NAMA CEO last week said that in relation to the first draft that 33% were performing. So it would appear, on the face of it, prudent to say that NAMA will receive more interest than it pays out.
For full details of the terms of the securities (NAMA bonds and subordinated debt) being used by NAMA, click here.