When NAMA presented its draft Business Plan in October 2009, it showed that NAMA intended purchasing €77bn of loans (at par value) for €54bn. In the June 2010 Business Plan this has changed and NAMA was then planning to purchase €81bn of loans for €40.5bn. With the statement from the Minister for Finance this morning which sets outs the estimated haircuts on remaining tranches and with the news that Bank of Ireland now intends transferring a total of €10.1bn of loans to NAMA (down from €16bn in 2009 and €12.2bn as recently as last month), it seems that NAMA will in fact be spending approximately €34bn buying loans with a par value of €79bn – here are the workings:
Note that the Minister did not provide a forecast for the haircut on remaining INBS NAMA loans. I have used 65% which is a simple average of the haircuts in Tranches 1 and 2. Also the Minister referred to a “final” haircut of 60% for EBS and it is not clear if he was referring to an overall average for all tranches or just the haircut on the remaining tranches.
That NAMA’s purchase costs have come down from €54bn to €34bn in less than 12 months is, I think, a colossal change. It signifies that NAMA is paying less for the loans than was originally planned. More importantly it signifies greater losses at the banks (€20bn of additional losses). It also means that our friends at S&P and elsewhere can revise downward their estimate of State debt relating to NAMA (though unfortunately they will be revising upward the cost of bailing out the banks). It should also reduce the risk of the NAMA project being loss-making.
UPDATE: 1st October, 2010. The Minister’s announcement yesterday that the increase in the threshold of NAMA-eligible loans at BoI and AIB from €5m to €20m will reduce the total par value of loans going to NAMA by €6.6bn – BoI apparently accounts for €2.1bn and AIB accounts for the remaining €4.5bn. Reflecting that reduction in AIB’s loans means that NAMA is not forecast to spend less than €32bn in buying loans – see below for the analysis.
Emmet Oliver in today’s Irish Independent citing “bank sources” suggests that the “final” discount (interpret as discount on remaining loans) to apply to INBS’s loans will be 75%. Factoring that discount into the calculations suggests that NAMA will be paying €31.13bn for the loans. Here are the workings:
NAMA Wine Lake 
The really big new here is that BoI had their NAMA transfers reduced to such a level that they are deemed to have completed their capital raising. Precisely how they /Nama/Lenihan agreed this is the most interesting story and will of course be obfuscated for reasons of commercial sensitivity :)
I understand that a number of ‘offers’ were made for loan assets, said offers generally originating from the USA.
I don’t know who orchestrated these offers. I do know that the net effect of these ‘offers’ was to increase carrying value and reduce proposed NAMA discounts.
The ‘hole’ filled by this orchestrated ruse was €1.2bn-€1.5bn and the ruse neatly averted a preference share issue of a similar amount.
In the case of AIB it was too complex to organise a similar ruse so all the eggs were put into the BoI basket.
The ‘offers’ will expire, unexercised or unrequited ( who knows) and naturally tomorrow after the quarter end.
The BoI story will be the subject of a more detailed entry here later but yes this change to BoI’s loans is significant and as they say it’s the dog that didn’t bark in Minister Lenihan’s statement.
It is still a dog but with some of its fleas ‘under offer’ .
Lenihan will large up the “success” of Bank of Ireland with its “Fundraising” but not till next week.
We shall soon see what Finreg makes of it all :)
It seems that the €2.1bn in Bank of Ireland’s NAMA bound portfolio is due to the Minister increasing the limit from €5m to €20m.
http://www.irishtimes.com/newspaper/ireland/2010/1001/1224280082681.html
I look forward to the now delayed publication of the July 2010 EU Decision approving BoI’s proposals for restructuring/capital raising.