This morning the Department of Finance issued an impact analysis that tries to provide some detail on the IBRC scheme announced on Wednesday. The analysis leaves more questions than answers as regards the involvement of NAMA.
The impact analysis states “Payments to NAMA to cover any shortfall arising from the disposal of assets – The Minister for Finance will be required to compensate NAMA if the amount generated on the sale of assets by the Special Liquidator is insufficient to cover amounts due to NAMA. It is not possible to determine the quantum of this potential shortfall until the asset sale process is concluded”
And elsewhere in the analysis there is a line for what is called “NAMA true-up” which is apparently supposed to represent the difference between what NAMA will pay for the IBRC loans up front, and what the Special Liquidator will realize for them.
So, the scheme appears to anticipate the following sequence:
(1) Minister for Finance to issue a Direction to NAMA to acquire IBRC loans for a specific value. Eg, if IBRC still has €16bn of after-provision loans as it had at 30th June, 2012, then Minister Noonan might direct NAMA to issue €16bn of NAMA bonds to the Special Liquidator as an upfront payment for the loans.
(2) Between now and “mid-2013” the Special Liquidator sells the IBRC loans. It is not clear how the Special Liquidator will decide if the price offered for a loan is acceptable. For illustrative purposes, let’s assume that the Special Liquidator sells €13bn of after-provision loans for €12bn and that the remaining €3bn of loans will be transferred to NAMA but that NAMA values these €3bn of remaining loans at €2bn.
(3) The Special Liquidator will give NAMA €12bn which represent the proceeds from the sale of €13bn of after-provision loans. NAMA will have a shortfall of €1bn on these loans, as it will have paid €13bn but received just €12bn from the Special Liquidator and NAMA will claim that €1bn from the Government.
(4) If NAMA acquires the unsold €3bn of after-provision value loans from the Special Liquidator and pays just €2bn based on the NAMA valuation, then again there will be a shortfall, and NAMA will claim the €1bn shortfall from the Government.
(5) So in this example, NAMA will end up with €3bn of after-provision value loans for which it will pay €2bn. NAMA will temporarily issue €16bn of bonds to IBRC but in six months when it receives €12bn from the Special Liquidator and €2bn from the Government, it will redeem €14bn of the €16bn bonds.
Can the Special Liquidator dispose of anything like €12bn of loans in just six months. And given that NAMA has already appointed loan sales advisors and NAMA has an infrastructure to manage loans until 2020, then why the hell are we going through the expensive charade of allowing a Special Liquidator sell the loans for whatever he can get for them. It is understood that NAMA will acquire any IBRC loans at current market value, that is, it will not pay a premium for so-called “Long Term Economic Value”