Hours away from the news that the first tranche of NAMA loans (estimated at €500m after haircut – €1150m before) have come across to the State, serious questions are arising as to whether the five NAMA financial institutions (BoI, AIB, Anglo, INBS and EBS) are selling designated loans to third parties below face value.
Today’s Sunday Times reports on the finances of one of Ireland’s most prominent property tycoons, the widely-respected Derek Quinlan. The Times claims that a third party investor has approached Anglo to buy the estimated €300m personally owing by Derek Quinlan to Anglo. The assumption must be that the third party has made an offer less than the face-value sum outstanding but more than the likely sum to be offered by NAMA. If the sum offered was equal to or more than the face value of the loan then why would Mr Quinlan not arrange for the loan to be paid off in full in concert with the third party? If the sum offered was less than the NAMA offer why would Anglo even contemplate it?
An ugly conclusion suggested by the above scenario is that (a) the State-owned Anglo is contemplating selling NAMA-bound loans and assets to private third parties at a loss to the State and (b) depriving NAMA of not-so-toxic assets.
The scenario outlined above is possibly not unique. BoI and AIB have reportedly reduced the value of their NAMA-bound loans – in the case of AIB by €1bn and BoI by almost €4bn since last September. The portmanteau explanantion has been that some borrowers have paid off loans or refinanced loans in order that they don’t come under the aegis of NAMA. A question that needs to be asked is whether BoI and AIB have sold these loans at less than their face value – if it emerges that developers are able to buy back their loans from NAMA financial institutions at less (and in some cases far less) than face value and avoid the fairly draconian procedures suggested by NAMA the consequences would be explosive.
UPDATE: 25th March, 2010, The Irish Times reports that two assumed NAMA-bound developers, Paddy McKillen and Joe O’Reilly, were attempting to sell assets in London which were backing loans from Ulster Bank. The article states “by selling the properties now, Mr O’Reilly and Mr McKillen ensure the money from these investments cannot be used to service any debts that may be destined for the toxic loans agency”! This pre-NAMA period is a bit of a twilight zone for banks and developers and it is to be hoped that when NAMA eventually conduct audits of banks that they ensure there was no activity which disadvantaged the taxpayer. Developer action doesn’t appear to be restricted prior to NAMA transfers save for the usual insolvency laws.
NAMA Wine Lake 
There is nothing wrong with banks that have NAMA, as a second last resort, selling loans to third parties. That is a market operating. NAMA is no desirable solution. The disposal od dodgy loans at a discount is the best solution. It will have a terrible effect on the banks capital ratios. But less bad than disposing to NAMA. And the taxpayer will not be at risk, unlike with NAMA purchases.
I presume you know all this? You provocative little devil!
If Anglo which you and I own 100% alongside the rest of the people of Ireland has a loan outstanding for €100m and sells that loan back to the developer for €80m (some developers are able to refinance once given discounts off the outstanding face value of the loan) instead of selling it to NAMA for €70m AND if NAMA’s assumption of an 80% full-collection success rate is correct then we, you and I and the rest of the Irish people have been deprived of upto €20m. That’s a scandal whether it occurs at NAMA (effectively state-owned despite the jiggery-pokery of the NAMA SPV) or at Anglo (nationalised).
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