Q&A

Today is the first day in a series of reckonings for Nama. Here is an overview of what is involved

So what is going to happen today with the banks?

The National Asset Management Agency (Nama) is going to announce at 4.30pm today that it has started buying the first tranche of loans from Irish Nationwide Building Society and EBS building society, and that it will buy the first loans from Bank of Ireland at the end of this week.

It will reveal the discount paid on a total of about €3.25 billion in loans bought from the three – about €900 million from Irish Nationwide in the first tranche, €150 million from EBS and about €2.2 billion from Bank of Ireland.

In a subsequent statement, the Financial Regulator will reveal the higher capital thresholds that the banks must reach by the end of this year to absorb losses incurred from the Nama transfers as well as the expected stress-case losses on their non-Nama loans.

Minister for Finance Brian Lenihan will then tell the Dáil at 6pm how much capital each of the five financial institutions participating in Nama – State-owned Anglo Irish Bank, Allied Irish Banks (AIB), Bank of Ireland, Irish Nationwide and EBS – will require and the level of ownership the State will take in the ones it does not already own in full.

So how much capital will the banks need?

It depends on the losses incurred on Nama, the expected losses on the non-Nama loans at the banks – including mortgages, business loans and personal loans – and how much they need to reach the regulator’s capital thresholds.

Estimates vary from €16 billion to €18 billion. This is on top of €11 billion already invested in Anglo, AIB and Bank of Ireland. This would bring the running cost of the capital bailouts for the banks to more than €27 billion.

Will the new capital injections lead to the State effectively nationalising more institutions?

Probably. Given the higher-than-expected “haircuts” on Nama loans at AIB and Irish Nationwide, the State could in effect take control of the two institutions. The State may end up taking a significant majority stake in AIB and a larger minority in Bank of Ireland, as well as effective control of EBS.

Will the injections lead to the Government’s aim of getting the banks lending more?

This remains to be seen. The Government will be adamant that it will, as it believes properly recapitalised banks can offer more loans to households and companies as they will not have to hoard capital any longer.

The Minister and the regulator would argue that, by recapitalising the banks in full, they will be able to borrow more in the international wholesale markets at lower rates. This would in turn make the banks healthier by generating higher profits as they would not have to keep paying over the odds for deposits and wholesale money.

The Government would also argue that, with the banks recapitalised to a level that will inspire greater confidence, the institutions will be able to raise more money without relying on the expensive State bank guarantee. This would help wean them off State support, reducing taxpayers’ exposure to the banks.

What happens now?

Once the first tranche of loans start moving into the agency this week from Irish Nationwide, EBS and Bank of Ireland, Nama will turn its attention to AIB and State-owned Anglo Irish, which are moving the largest loans in the first transfers – €3 billion and close to €10 billion respectively. Some €17 billion out of €81 billion will transfer in the first tranche.

We won’t know until all the loans are moved by the end of this year whether the 30 per cent average discount estimated is correct or whether it will be higher. Nama will start writing to the top 10 developers this week asking them for business plans. They will have 30 days to submit plans and the agency will decide to support them or foreclose.