Ah remember the innocent old days of 2009 when NAMA was just a glint in Peter Bacon’s eye? The assumption was that loans extracted by NAMA from the banks would see the banks crystallising losses of €23bn, after an average 30% haircut – we were so innocent in those days that even the term “haircut” meant something different. And you might also recall the assumption in the draft business plan published in September 2009 that 40% of the loans acquired by NAMA would be performing. Since then, NAMA has actually forced €42bn of losses on banks and we have been constantly disappointed with NAMA reporting fewer and fewer loans performing, and in its most recent report and accounts for Q4, 2011, the Agency said that only 20% were performing, down from 21% the previous quarter. Alas it seems that even this was an overstatement.
In the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan for the up-to-date statistic on NAMA performing loans, but this time he asked for the statistic by reference to the original loan contract. And it turns out that just 18.4% of NAMA loans, by reference to the original contract and by reference to the original loan value, are performing. NAMA has restructured some loans and these account for another 1.6% of all NAMA loans which is why NAMA claimed to have 20% performing loans. The full exchange in the Dail is here (with emphasis added)
“Deputy Pearse Doherty: further to the publication by the National Asset Management Agency of its 2011 management accounts and its report for the fourth quarter of 2012, the proportion of performing loans held by NAMA by reference to loan nominal values excluding the effect of any restructuring of loans following acquisition by NAMA. [27943/12]
Minister for Finance, Michael Noonan: The NAMA Report for the fourth quarter of 2011 confirms that of the loans transferred to end December 2011, 20% of the nominal debt was classified as performing and 80% was reported as non-performing. This is a disimprovement on the third quarter when 21% of the nominal debt was classified as performing and 79% was reported as non-performing. NAMA advises that performance can only be accurately measured based on the terms and conditions recorded on participating institutions’ systems at the reporting date. The overall performance was reported as being 20% at end 2011. However, based on an analysis of the performance profile of these loans prior to the restructure event and comparing it to the performance profile at 31 December 2011, the Agency advises that the impact of debtor restructures on the performance of the portfolio to be a positive 1.6%. Accordingly, the proportion of performing loans held by NAMA by reference to loan nominal values excluding the effect of any loan restructuring is estimated to have been 18.4% at end-December 2011.
It should be noted that as NAMA divests itself of assets it is more likely to be selling performing assets and therefore each disposal will mean that the percentage of performing assets in the remainder will fall, even where no material change has occurred in that status of the remaining assets.
NAMA is continuing to address the issue of non-performing loans in the course of the Debtor Business Plan process. The outcome of NAMA’s deliberations on the viability of a Debtor’s business plan will determine whether these delinquent loans will be enforced or re-financed on new terms set by NAMA. It should also be noted that where Debtor Business Plans are agreed, the loans may be restructured and the performance profile of the overall loan book will change as performance is assessed against the restructured loans. The restructuring of loans will not reduce the amount owed to NAMA.”
So not only is the current number worse than previously thought, but it is likely to deteriorate further as NAMA selected a strategy to dispose of better quality loans first and these tended to be better performing. What this means for NAMA is that its current healthy cash flow which means the Agency is sitting atop a €5bn cash mountain – or at least it will be next week if Bank of Ireland shareholders give the greenlight to the controversial Anglo promissory note loan arrangement – but as time progresses, NAMA will find it harder and harder to generate cash, not just to redeem NAMA bonds but to pay its own operating costs and interest. The revelation this week should act as a wake up call now.