Revealed: the cost of transferring loans from the banks to NAMA – €246m to date excluding Bank of Ireland

It seems that Spain is carefully considering creating its own version of NAMA to sort out its banking sector which seems to be sinking deeper and deeper with each passing week. NAMA in its essence extracts loans which are of doubtful value, uses a transparent process to value those loans, and then manages those loans hopefully better than the banks would, and over an extended period of time realises the values of the loans at times when the stress in the economy has passed. As a principle, it makes sense. Implementing it is an altogether different matter, and this blog tries to keep track of what the Agency is doing.

One aspect of NAMA thatSpainwill be interested in, is the cost of transferring loans from the banks to NAMA. In the Irish case, this involved NAMA and the banks both valuing the loans, which included valuing the underlying the property and checking the loan paperwork. In total, NAMA is acquiring €74bn of loans at par value, and paying €32bn for these loans. We found out this week the scale of the cost of making the transfers.

In the Dail on Tuesday, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance, Michael Noonan for the cost of valuing the loans transferred, including due diligence on loan documentation. The answer: €246.1m to date excluding costs incurred at Bank of Ireland. Bank of Ireland loans comprised about €10bn compared with €20bn at AIB, so a back of the envelope estimate might be ½ of AIB’s costs which totalled €102m to date, or in other words €51m for Bank of Ireland giving an overall figure to date of €297m. The full exchange in the Dail is here (with emphasis added):

“Deputy Pearse Doherty: following the recent publication of a special report by the Comptroller and Auditor General, the final total of the gross cost of due diligence and valuation of loans acquired by the National Assets Management Agency, the gross cost including NAMA’s costs and costs incurred by the participating institutions.  [27954/12]

Minister for Finance Michael Noonan: I am advised by NAMA that it has incurred gross due diligence costs of €74 million in acquiring the portfolio of loans from the participating institutions. These costs include legal due diligence costs, loan valuation costs, property due diligence and audit costs. The loan valuation methodology approved by the EU Commission and used to value acquired loans makes an allowance for due diligence costs as a reduction from the acquisition value of the loans. Arising from this, NAMA was in a position to recover most of the costs of due diligence from the participating institutions. NAMA does not have access to data on participating institutions due diligence costs. However, AIB have advised that total costs to date incurred by AIB in relation to NAMA are circa €102 million.

IBRC have similarly advised that the total gross cost of loan transfers from the former Anglo Irish Bank to NAMA is c. €59.3m. Separately, the total gross cost of loan transfers from the former INBS to NAMA is c. €10.8m. These figures relate to all loan transfers made to NAMA across all jurisdictions.

Bank of Ireland’s published annual reports and other relevant public disclosures made by the bank in relation to the costs of participation in NAMA included the costs of due diligence on loans sold to NAMA, within the overall costs of selling such loans to NAMA which costs, also included amongst other things, discount to the face value paid by NAMA. The cost of due diligence on loans sold to NAMA has not been separately disclosed by Bank of Ireland.”

It should be noted that the final due diligence and valuation work is not completed, so the above costs could rise, but you would hope any increase would be modest. Remember also that this will exclude direct costs incurred by NAMA on its own staff etc.

So for Spain, it may want to examine the cost of gaining transparency on loans that might be acquired by any El NAMA. In Ireland’s case, the costs have been meaty. Those who suspected NAMA would be a gravy train for professionals can probably draw some support from this week’s revelations. Others might want to know why AIB incurred more costs than Anglo remembering Anglo transferred €36bn of loans, nearly twice the value of those transferred by AIB. We own 99% of AIB, so it is us that have footed this bill.

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