To recap, NAMA bought €74bn worth of loans from five banks – AIB,. Anglo, Bank ofIreland, EBS and INBS. NAMA paid €32bn* for these loans, comprising €30bn in so-called “senior debt” and €2bn in so-called “subordinated bonds”. The intention was that NAMA would generate at least enough from its activities between now and 2020 to pay off the €32bn. In fact, according to the first NAMA business plan, the expectation was to pay off what NAMA paid for the loans and make a profit of €5bn. In NAMA’s second business plan the projection was to pay off what NAMA paid for the loans and make a profit of €1bn. It now seems that NAMA’s outlook has taken a turn for the worse with NAMA expecting to pay off the “senior debt” but there is, remarkably, no word about “subordinated bonds”
On Tuesday this week, the Sinn Fein finance spokesperson Pearse Doherty asked Minister for Finance, Michael Noonan to comment on NAMA’s prospects in light of the recent Comptroller and Auditor General report which said that NAMA will face considerable challenges in meeting its profit objectives over its lifetime. The Minister trotted out the by-now traditional NAMA mantra of it being confident the Agency would break even, but there was a nuanced change in the statement in that there is no longer any reference to “subordinated bonds”, only to the “senior debt”. The full exchange is here (with emphasis added)
“Deputy Pearse Doherty: following the recent publication of a special report by the Comptroller and Auditor General, if he will confirm that he accepts the judgment that the National Assets Management Agency will face considerable challenges in achieving its income goal in order to break even by 2020; if he will confirm that if there is any shortfall in NAMA’s financial position by 2020, it is the State that will underwrite any loss. [27947/12]
Minister for Finance, Michael Noonan: I am advised by NAMA that its Board has recently completed a review of its strategy and has re-affirmed its expectation that NAMA will at least break even over its projected ten-year lifetime, meaning that it is on course to recoup for the taxpayer, at a minimum, the Senior Bonds issued as consideration for acquired loans in addition to recovery of its carrying costs and the working and development capital expenditure it has advanced to debtors. Based on the Agency’s record to date, I have no reason to doubt the Agency’s confidence that it will achieve its targets over its lifetime.
I refer the Deputy to Section 225 of the National Asset Management Agency Act 2009, which sets out the circumstances in which a surcharge may be applied to the participating institutions if there is a shortfall in NAMA’s financial position following the completion of NAMA’s operations. Section 225 was included specifically to avoid a situation where the State would have to underwrite any loss that NAMA may make.”
So what happens if NAMA doesn’t generate enough to repay the “subordinated bonds”? The good news is that it is the banks which will need write off the unpaid bonds as a loss. The bad news is that we own Anglo and INBS 100%, AIB and EBS 99% and Bank of Ireland 15%. Bank of Ireland has only €280m of the “subordinated bonds”, so the vast majority of the loss will fall on the shoulders of the taxpayer. Of course, Minister Noonan made reference to “at a minimum” and “at least break even” in his response, but the quiet dropping of reference to the “subordinated bonds” will give support to those who are pessimistic about NAMA’s prospects and they may see this as a deterioration in the outlook for NAMA.
* To be precise, up to March 2012, NAMA had issued €30.23bn of “senior debt” and €1.594bn of “subordinated bonds”. NAMA has so far repaid €1.25bn of “senior debt” meaning that there was €28.97bn of “senior debt” owed by NAMA in March 2012.