Institutions expect Nama discount of less than 25%

A MAJORITY of institutional investors expect a discount of less than 25 per cent to be applied to toxic loans moving to the National Asset Management Agency (Nama), according to a survey by stockbroker Bloxham.

The survey of 462 investors found that 73 per cent of institutional investors believe the discount will be lower than 25 per cent, with one third believing it will be below 20 per cent. On the other hand, 60 per cent of private investors say it will be greater than 20 per cent.

Taoiseach Brian Cowen said yesterday that Nama will protect taxpayers more than investors in the banks’ shares or bonds when it prices development loans and collateral with a book value of €80 billion in the Irish lenders.

“We’ll use a valuation that . . . will see that the first people who take the hit are the shareholders, next the people who have the debt and the next people who take the hit are the taxpayers,” Mr Cowen said in an interview with Newstalk.

According to Bloxham’s survey, the largest group of institutional investors (some 40.5 per cent) said the discount would total between 20 per cent and 24 per cent on loans being acquired from AIB and Bank of Ireland. Among private investors, 39.7 per cent say the discount will be greater than 25 per cent.

Some 87 per cent of investors believe AIB will have to raise additional equity, compared with 76 per cent for Bank of Ireland.

A greater proportion of institutional investors believe a rights issue is likely in both banks.

Support among shareholders for a rights issue was greater than 70 per cent, for AIB and Bank of Ireland, though the risk of a failed rights issue was higher for AIB.

Private investors account for about 50 per cent of the shareholders in the two main banks.

Kevin McConnell, head of research at Bloxham, said that the survey showed that investors believed the haircut would be greater than the discount of 15-20 per cent suggested initially.

He said that institutional investors would need a clear idea of the discount if they were to participate in a rights issue this year.

“You need clarity around the haircut if you are to get institutional investors involved,” he said.

Some 92 per cent of investors do not see a recovery in the economy until the second half of 2010; most believe house prices will fall a further 5 to 10 per cent.