NAMA to turn €5.5bn profit by 2020, says Government

The Bill containing the legislation to set up the new agency was passed on a second stage vote by 77 to 73.

A draft business plan for the new National Asset Management Agency (NAMA) was also published yesterday evening by the Department of Finance, adding more flesh to the bones of the proposed new agency.

What is new about the plan is it gives more detail about how NAMA will operate and provides some estimates about how much of the loans will be repaid and how much, if any, of a profit the new agency is expected to turn.

Turning a profit
Under this plan, the Minister for Finance Brian Lenihan TD estimates that the new agency will do more than break even at the end of 10 years. He is predicting that NAMA will turn a profit of €5.5bn by 2020.

According to the business plan, NAMA will emerge at the end of a decade with net cash of €5.5bn or a ‘net present value’ of €4.8bn.

This profit figure is based on an estimate that 20pc of loans, some €15bn, taken over by NAMA will default, which means that of the €77bn in total loans the new agency is taking over, €62bn will be repaid.

The €4.8bn profit figure is also predicated on an assumption that 40pc of the loans NAMA takes over will generate cash of €12bn over 10 years.

The draft business plan also offers a firmer timeframe for the transfer of the banks’ loans to NAMA.

The top 10 biggest loans, which total €16bn, are due to be transferred to the new agency by December 2009. By February 2010, 100 borrowers, with a value of €38bn, will have moved across. By May 2010, the agency’s interim team is estimating that the tally will have risen to 1,200 (€70bn), with the final 1,500-2,000 exposures transferred by July 2020 (€77bn).

Health warning
However, the new figures and predictions on NAMA’s potential profits come with a hefty health warning.

All the fresh figures and predictions offered in the NAMA business plan are worked out on aggregate data provided by various different institutions. However, crucially, NAMA did not have access to the individual loan files from the banks and so has not yet performed its own due diligence on those files.

Risky business
The business plan, while suggesting that NAMA will be in the black after 10 years of operation, also highlights a number of key risks it believes the new agency faces.

These include the risk that the transfer of loans to NAMA will take longer than expected due to a drawn-out process of valuing the loans.         

There is also the risk that the loans are valued at a different price than current expectations.

Another big risk to the NAMA plan is that economic growth in Ireland will remain sluggish for a protracted period of time. NAMA is relying on an economic pick-up in order to stimulate the demand for commercial, retail and residential property.

This risk would be compounded if the main European economies were to experience strong economic growth over the coming two/three years and the Irish economy was to remain weak. Under such a scenario, interest rates at the European Central Bank would rise at a time when the Irish economy might be poorly placed to absorb their impact.

Interest rate risk is also a worry as NAMA will have dealings with properties abroad, such as those in the UK and US.

The current working assumption is that the NAMA Bill will be enacted in early November 2009.

NAMA recruitment
Over 2,000 CVs have been received to date from a diverse range of applicants interested in joining NAMA, the Department of Finance said.

The draft plan outlined how, during October 2009, after the legislation is introduced into the Oireachtas, interim NAMA will move quickly to identify suitable candidates to head its five business divisions - the Head of Portfolio Management, Head of Banking/Lending, Head of Credit and Risk, Head of Business Services and Head of Legal and Tax.

It is expected that all NAMA recruitment will have been completed by March 2010, but it is intended that the initial 30 positions, including the senior positions, should be in place before the end of 2009.

To read the draft NAMA business plan in full, visit www.finance.gov.ie

NAMA as credible as Tooth Fairy
The Opposition parties have condemned the new draft NAMA business plan as being about as credible as the Tooth Fairy.

The Labour Party’s Joan Burton said Christmas had come early for the top developers and their bankers, while Fine Gael finance spokesperson Richard Bruton TD said the Government was relying on hope that the banks will lend money into the economy under the NAMA plan.

“The business plan provides no more evidence on how this portfolio of toxic assets is worth €54bn. There is no analysis and no depth of information on how the rather extraordinary assumptions were arrived at," Bruton said in a statement issued earlier today.

“Given Government's track record to date in predicting the future it shouldn't come as a surprise when I say that the tooth fairy, the Easter Bunny and the Loch Ness monster are more credible propositions than the NAMA projections.”

The Opposition is calling for the Comptroller and Auditor General to provide his assessment of the draft plan before any taxpayer money is sunk into the scheme.