Nama strategy backed by Moody's ratings agency

The National Asset Management Agency (Nama) has been backed by a major international ratings agency, which has described it as an "ingenious mechanism".

Moody’s said today successful precedents using this mechanism to address impaired loans had been set in other countries.

“After the transfers, the banks will have much healthier balance sheets, albeit at the cost of substantial Government ownership,” senior analyst Dietmar Hornung said.

“Moody’s has interpreted the Nama idea rather favourably for the Government as well as the banks. It is a way for the Government to protect the asset side of its balance sheet (ie its power to tax, which is predicated on the rebound of the economy) and to accelerate the restoration of the credit channel, although at the price of greatly increasing its gross liabilities.”

Moody's cut the Republic’s credit rating from “AAA”, the highest possible, to “Aa1” in July, as the State's exchequer deficit rose.

The agency this morning said the State's debt trajectory had become clearer, and it was closer to deciding the level within the “Aa” range the its rating would settle.

Anglo Irish Bank yesterday announced record losses of €12.7 billion, and said the cost of bailing out the State-owned Anglo could rise above the projected €22 billion.

It was suggested this morning that Irish taxpayers could be face an even larger bill for Anglo’s toxic loans.

Speaking on Newstalk this morning economist Peter Bacon described Anglo as "a Celtic Chernobyl".

He said it held a large property investment portfolio that is not eligible to go into Nama. "I think that Anglo story is going to continue," he said.

However, Dr Bacon said he was still supporting the overall Nama proposal. "I'm more convinced it was the right thing to do," he said. "You couldn't get credit flowing again without this kind of measure. Banks can't lend if they don't have capital."

But he said Nama, and the massive State recapitalisation of the banks, would not mean that banks would immediately begin lending again.

"I don't believe they will rush out and lend. Why? Because I don't think they have the skill to manage the risk. I think that's going to be the biggest obstacle going forward, that if they ever had the skill, they lost it in the years when lending got concentrated entirely on the property market," he said.

Central Bank governor Patrick Honohan said today he expects Nama to spend between €40 billion and €50 billion, below the Government's initial €54 billion projection.

"The loans are being bought at quite deeply discounted rates, reflecting the sharp fall in property prices since the biggest and most problematic of the loans were made some years ago at the height of the bubble," Mr Honohan said in an interview published in today's Financial Times.

"The pricing has been designed with the objective of enabling Nama to recover its substantial outlays - between €40 billion and €50 billion - over the coming decade."

At the lower end of the spectrum mentioned by Mr Honohan, Nama would be paying less than half the book value of the €81 billion of assets it is taking over.

Bank of Ireland yesterday said it was confident that it could raise the €2.7 billion it needs to recapitalise the bank, with the Government’s interest in the company to remain a minority stake.

The State is expected to take a minority stake in AIB.

Additional reporting - Reuters