Nama to buy €77bn in loans at 30% discount - Lenihan

The Government’s proposed National Asset Management Agency (Nama) will buy loans of €77 billion at a discount of 30 per cent, Minister for Finance Brian Lenihan has said.

Mr Lenihan told the Dáil this afternoon Nama would pay approximately €54 billion for loans it takes over from Irish banks. Nama is intended to stimulate bank lending by removing impaired and underperforming loans from the balance sheets of Irish banks to allow them to resume lending.

He said the amount to be paid was an estimate based on the long-term economic value of the assets against which the loans were secured.

The current market value of these loans was estimated at €47 million, assuming an average fall of 50 per cent in property values since a peak in 2007. This means the allowance for long-term economic value based on today's estimates was €7 billion, Mr Lenihan said.

Mr Lenihan said this provision could be "de-risked" because the proposed Nama legislation provided for the transference of assets in return for subordinated bonds “which place the banks at risk if Nama were to lose money”. The proportion of subordinated debt will be 5 per cent.

According to the Government's estimates the assets behind the loans being bought by Nama will have to appreciate by less than 10 per cent over the next ten years for it to break even.

The Minister said that would be achieved if property asset values keep pace with general consumer price inflation.

Mr Lenihan said the majority of loans will have been valued and transferred to Nama by the middle of next year.

He said AIB will sell €24 billion worth of loans to Nama, Bank of Ireland sell €16 billion in loans and nationalised Anglo Irish Bank will transfer €28 billion in loans. These loans will be swapped for bonds from Nama which the banks will be able to exchange for cash with the European Central Bank.

EBS will transfer €1 billion and Irish Nationwide Building Society a further €8 billion in loans, he said.

Broken down by asset class he said around 36 per cent of the assets was land, 28 per cent were development property and 36 per cent in commercial loans. About 40 per cent of these loans were generating cash flow that which Mr Lenihan said “will be sufficient to cover interest payments on the Nama bonds and operating costs.

The Minister said two-thirds of the loans to be taken over by Nama related to properties in the Republic, about 20 per cent are in the UK and 6 per cent are in Northern Ireland.

He told TDs it was “impossible to overstate” the importance of resolving the crisis in Irish banks, saying this would involve a risk a "that the private sector will not take”. He said a greater risk to the taxpayer would be “paralysis and delay”.

The Minister referred to a 1.5 percentage point fall in the Government’s cost of borrowing on the international money markets since the Nama proposal was announced as evidence that the proposal was working.

He also said the Nama proposals had received international approval, with international agencies such as the International Monetary Fund and the European Central Bank had “commented favourably” on the Nama proposal.

Bank shares rose slightly on the Iseq as the Minister outlined the detail of the proposal to the Dáil but the two largest lenders in the State, Bank of Ireland and AIB closed down between 1 and 2 per cent at €2.74 and €2.63 respectively this evening.

Mr Lenihan told the Dáil the public was "rightly appalled" by the behaviour of some in the banking world and “are also angry with the Government” and asking why money was being put into the banks. “But the public also knows that we need to fix the banks,” and adding that the “banks in the country were on the brink of financial collapse” one year ago.

He said the damage done by some individuals to the reputation of the country would take time to repair.

Mr Lenihan said banks should be “extremely grateful” for the support being provided by the taxpayer. He said credit remains the lifeblood of any economy and said the only way to restore the flow of credit was through cleaning up the banking system and that was the rationale behind Nama.

He also denied Nama was a bailout for developers, stressing in the Dáil that it would pursue borrowers over their debts and had the power to seize personal assets secured against the loans.

Fine Gael finance spokesman Richard Bruton said the taxpayer was "being asked not just to buy impaired loans from the banks. We are being asked to pay billions more than the market value for them”. He said the payment of €54 billion for the loans amounted to “€30,000 for every household in the State”.

Labour's Joan Burton described the summary positions of the five banks – read out by the Minister – as a "page of shame".

“We still don’t know who needs capital and who doesn’t,” said Oliver Gilvarry, head of research at Dolmen Securities in Dublin, referring to the need for the banks to raised additional funds.