September 2009 – Profit of €4.8bn
June 2010 – Profit of €1bn
July 2012 – Profit of zero (and subordinated bonds will not be honoured)
July 2012 – Loss of €1.594bn, representing the total of subordinated bonds
NAMA’s life-time profit projections
The NAMA CEO last week confirmed what the Minister for Finance Michael Noonan has been saying the Dail for several weeks – for example here – NAMA is projected to break even by 2020 and cover the repayment of its senior bonds, its additional advances to developers and its operating costs. There is now no mention of NAMA’s subordinated bonds which today amount to €1.594bn. And if these are not honoured by 2020, then it is the banks which will shoulder the loss, and as we own the banking system, that is a loss which we will bear*
So between the draft NAMA business plan in September 2009 and today, we have gone from a profit of €4.8bn to a loss of €1.594bn. But will we be lucky enough to exit the NAMA scheme in 2020 with only a €1.594bn loss?
At this stage, no-one, including NAMA, can really say.
NAMA is sitting on a paper accounting loss today of €1bn, comprising a loss of €1.2bn in 2010 partly offset by a profit of €0.2bn in 2011. NAMA paid €5.6bn in state aid for its loans, and that will materialise as a loss unless the loans or underlying property increase in value at a faster rate than NAMA runs up its costs – about €200m a year plus, presently about €500m in interest on its bonds.
The immediate outlook for property in Ireland remains challenging in the sense that further declines are expected in residential nationally. We will find out what has happened to commercial in Q2, 2012 over the next week as Jones Lang LaSalle releases its quarterly index, but the betting is that the market was weak. With both residential and commercial, there are serious oversupply issues overall, though it should be said that in specific areas for specific types of property, there are claims of normal supply and even scarcity.
NAMA itself controls about 13,000 homes in Ireland, which isn’t insignificant in terms of an 80-100,000 overhang of excess residential property but it’s not market dominating either. On the other hand, NAMA controls €6-7bn of Irish commercial property and that does potentially give NAMA a dominant role. But with both residential and commercial, it is likely to be the economy domestically and internationally that determines prices, and, as big and powerful as NAMA is, the overall economy is beyond its control!
What will our economy look like in the second half of this decade? Very difficult to say, we have projections to 2015 which assume growth returning to about 3% per annum, but in truth Ireland’s performance will be dependent on what happens principally in Europe, both economically and in terms of banking and money supply, and these are matters outside our control.
And that’s why I say, no-one, even NAMA can project to 2020.
But it is sobering that the trend in NAMA’s projections of its financial outturn, since September 2009 has been negative, and it should be appreciated now that we may end up with billions of euros of losses which will be shouldered by the Irish taxpayer from 2020.
It may be time to start planning what to do with these losses, and perhaps incorporate NAMA into discussions in Europe on our overall debt burden.
*We own 15% of Bank of Ireland which has €280m of NAMA subordinated bonds, so arguably 85% of €280m will be absorbed by the other shareholders in Bank of Ireland. But for the rest, we own 100% of IBRC and we own 99.8% of AIB/EBS.