THE NATIONAL Asset Management Agency (Nama) will pay about €54 billion to the banks for property-related loans which have a face value of about €77 billion.
The banks will have to absorb the difference and have been told to raise private investment to offset the resulting losses.
The Government has indicated that if the banks cannot raise the money themselves, it will invest the capital. This could lead to the State taking up to 70 per cent of Allied Irish Banks (AIB) and 30 per cent of Bank of Ireland.
But market sources said the bank might be able to avoid further Government investment by raising money from private investors or through the sales of assets. Shares in both Bank of Ireland and AIB rose strongly last night on the New York Stock Exchange, after the Irish markets closed. AIB was up 26 per cent and Bank of Ireland rose 19 per cent.
Minister for Finance Brian Lenihan told the Dáil yesterday that the State would on average pay 30 per cent less than the face value of the bank loans.
However, last night Fine Gael and Labour claimed the main banks, AIB and Bank of Ireland, would escape with a significantly lower discount because of the scale of the problem at the nationalised Anglo Irish Bank skews the average figure provided by the Minister.
Figures provided by Davy stockbrokers, a former subsidiary of Bank of Ireland, supported the Opposition parties’ claims last night. The firm estimated that the discount applied to Bank of Ireland could be as low as 24 per cent, while AIB would face a discount of 29 per cent.
AIB said in a statement that it expected its discount to be less than the aggregate figure of 30 per cent.
The Minister said that Nama would purchase €28 billion in loans from Anglo Irish, €24 billion from AIB, €16 billion from Bank of Ireland, €8 billion from Irish Nationwide and €1 billion from the EBS.
The Government estimated the current market value of the loans to be €47 billion, representing an over-payment of €7 billion, which Mr Lenihan said was an allowance covering the long-term economic value.
Nama would need a rise in property prices of less than 10 per cent from current levels over 10 years to break even, he said. In that case property prices would still be 45 per cent below their value in late 2006.
“There is no assumption in our work that peak property prices must and will be repeated,” he said.
The Government also revealed details of its mechanism to spread the risk of part of the overpayment from the taxpayer to the banks and building societies. The lenders will only receive €2.7 billion of the €54 billion payment for the loans if the agency makes a profit over time.
The full extent of bank forbearance with large property borrowers was revealed for the first time when the Minister disclosed that the loans Nama will acquire include €9 billion in overdue interest payments.
In addition, the Government has proposed extending the State bank guarantee by up to five years to allow them to access longer-term debt.
He said Nama was necessary to facilitate the speedy removal of higher-risk property assets which were clogging up the banks’ balance sheets and hampering their ability to lend to businesses and households.
“In all our actions over the past year our sole concern has been the interests of the wider economy. The simple fact is that credit remains the lifeblood of the economy,” he said.
Two-thirds of the properties are in the Republic, 21 per cent are in Britain, 6 per cent are in Northern Ireland, 3 per cent are in the US and 4 per cent are in Europe. The Minister suggested alternative approaches would end up costing the taxpayer more, with the Labour nationalisation plan requiring an extra €10 billion to €14 billion to recapitalise the banks.
Green Party Minister Eamon Ryan said last night that a lot of work remained to be done before his party would be happy to give the Nama legislation its full support.“We need further improvements in our banking system out of this; we need further improvements in our social infrastructure, how we build it with Nama,” said Mr Ryan.
Opposition parties criticised the Minister’s approach and last night Fine Gael and Labour claimed the 30 per cent average discount disguised the fact that a lower discount would be applied to the main banks.
“It is very likely that this figure is being bloated by the discount being applied to Anglo, which has already been nationalised,” said the Labour Party in a statement.
Nama: the main points
Nama will pay €54 billion for €77 billion worth of property-related loans held by AIB, Bank of Ireland, Anglo Irish Bank, EBS and Irish Nationwide.
Nama will pay €7 billion more than the market value of €47 billion to reflect long-term economic value.
A fraction of the money, €2.7 billion, will be paid in the form of subordinated bonds that will only pay out if Nama makes money.
Property prices will have to recover by 1 per cent a year over 10 years for Nama to make money.
Nama valuations of banks' property-related loans are based on the assumption that prices have fallen 50 per cent since 2007 and are now close to the bottom.
No new measures to ensure that banks lend on the money they receive from Nama.
Banks will be given time to find new investors or else the State will take equity stakes.
Bank guarantee scheme will be revised and extended.
Windfall tax on land speculation will be introduced at committee stage.
Anglo Irish Bank is the largest participant and will sell loans of €28 billion to Nama.