What is NAMA and how has it benefited the Irish economy.

Padraic Mackin

BB1

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AbstractThis report outlines what the National Asset Management Agency is and the various roles

and functions of this agency. It also highlights the benefits of this agency to Ireland.

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Table of Contents

ContentsAbstract................................................................................................................................................. ii

Table of Contents.................................................................................................................................. iii

Introduction and background................................................................................................................1

What is NAMA?.....................................................................................................................................2

Acquisition and sale of loans & assets...................................................................................................3

Acquisition of loans & assets.............................................................................................................3

Sale of loans & assets........................................................................................................................5

Project Eagle......................................................................................................................................6

Social Housing, Project Funding and Rent Abatement...........................................................................7

Social Housing....................................................................................................................................7

Project Funding..................................................................................................................................8

Rent Abatement................................................................................................................................9

Conclusion...........................................................................................................................................10

References...........................................................................................................................................11

Bibliography........................................................................................................................................12

Webliography......................................................................................................................................13

Appendix..............................................................................................................................................14

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Introduction and backgroundThe National Asset Management Agency (NAMA) was officially formed on the 21 st of

December 2009. This was eight months after it had originally been proposed by the then

Minister for Finance, Brian Lenihan. (NAMA, 2014). The National Asset Management Agency

was created as a measure to counteract the financial crisis that had struck worldwide but,

had a particularly strong impact on Ireland. It was hoped that “The creation of the NAMA

should in principle help to resolve uncertainty about future losses on banks’ balance sheets

and enable future lending on a sound footing.” (The Organisation for Economic Co-

operation and Development, 2009).

During the years 1997 – 2008 banks and building societies in Ireland engaged in extreme

lending to both households and non-financial firms. In 1997 bank lending to these two

parties as a percentage of Irelands gross domestic product was below 75%. In 2008 this

figure was almost trebled, standing just below 225%. (Kinsella, Leddin, 2010). This is

showcased below in Appendix A.

The majority of the money loaned during this time was to enable individuals to buy a house

or, to invest in the housing sector. Due to the ease of being approved for a loan, customers

started borrowing extravagantly to build huge homes and housing estates in the hope of

selling them on for a profit. When the property market crash happened in 2008 however

many people lost their jobs and were unable to pay off their loans. This then left the banks

with billions of bad debts that could not be repaid.

This is why NAMA was introduced to take these loans off banks’ balance sheets and to add

them to its own. According to NAMA’s website:

NAMA is an unusual corporate entity in that it begins its life with a very large balance sheet and has been given the task of managing that balance sheet down to zero as soon as it commercially practicable. (NAMA, 2014).

It was originally hoped that this would be by 2020 but, due to the increase in demand in the

property market it is anticipated that it will happen much sooner.

This report will elaborate on the work of NAMA and how it has benefitted the Irish

economy.

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What is NAMA? NAMA is an acronym for the National Asset Management Agency. It is a state owned agency

which was set up in December 2009. The National Asset Management Agency was formed in

collaboration with a number of plans to stabilise the Irish economy following the recession

that occurred in 2008.

NAMA was set up under the NAMA Act 2009. This was one of the most complicated bill’s to

implement in the history of the state due to the nature of NAMA’s work; and the amount of

money that would be involved in NAMA’s lifetime. This act is 167 pages long and consists of

over 241 individual sections.

NAMA operates as a sub-body of the National Treasury management agency but has its own

board and chief executive which were appointed by Brian Lenihan. All staff members are

employed by the National Treasury Management Agency but are assigned to NAMA.

Regardless of this all employees are paid by NAMA itself.

Frank Daly is currently the chairman of NAMA and is in the final year of his five year term.

Frank has experience in a chairman’s role as he was previously chairman of the Revenue

Commissioners before he retired. Brendan McDonagh is the Chief Executive Officer of

NAMA. He had previously worked for the National Treasury Management Agency from 1994

until his appointment with NAMA in 2009.

The National Asset Management Agency was established as a ‘bad bank’ in the sense that it

would acquire all the toxic loans from the participating banks and building societies. NAMA

would buy these loans at a discount rate in order to allow these institutions to return to

profitability quicker; and to allow them to start loaning to individual’s and business on a

larger scale. NAMA will then hold on to these loans and assets securing the loans until it can

find a buyer.

NAMA’s stated objectives are:

1) Acting as a key part of the solution to the current banking difficulties in Ireland; 2) Remove uncertainty about the soundness of banks’ balance sheets and free them to

concentrate on lending to and supporting businesses and households; 3) Make it easier for the banks to access funds in the international financial markets; and

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4) Generate a commercial return for the taxpayers over time. (Gurdgiev, 2011).

Acquisition and sale of loans & assets Acquisition of loans & assetsFrom the day it was officially established banks and building societies were invited to apply

to join the NAMA scheme. Six institutions in total applied to join the scheme but, only five

firms were then selected to join the scheme in February 2010. This included: Allied Irish

Banks; Bank of Ireland; Anglo Irish Bank; Irish Nationwide Building Society; and EBS Building

Society. (NAMA, 2014).

From these five institutions “over €71 billion in loan assets involving 850 debtors and more

than 11,000 individual loans collateralised by 16,000 individual properties” (NAMA, 2014).

were transferred to NAMA. The plan was that NAMA would acquire these loans over a

period of time in tranches. The five financial institutions then received debt securities in

return for these loans, 95 per cent of which the Irish Government guaranteed. (Cussen,

Lucy, 2011).

These assets are located worldwide including locations in Ireland, United Kingdom, Europe

and America. An exact percentage breakdown is located in appendix b. This allows NAMA to

sell assets in the countries were the markets allow for maximum return and hold on to

assets in under-performing markets in different countries.

The price which NAMA paid for the loans was ascertained by the market value of the

collateral safeguarding the loans and also a premium anticipating the long term market

value of these assets. In complying with legislation, NAMA valuations of the assets cannot

factor in any changes in values that took place since November 30, 2009. Under Section 73

of the NAMA Act 2009 this was the cut-off date for NAMA valuations. (Gurdgiev, 2011). The

collateral was mainly property but also included other assets such as shares. Due to the

recession there was a sharp fall in property prices and share values and this allowed NAMA

to acquire these loans at a huge discount.

By the end of 2010, NAMA had paid €30.2 billion for loans with a cost value of €71.4 billion.

The price which NAMA paid for loans which were acquired in this year was roughly 42% of

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the original loan balances. This signalled an average discount of 58%. An exact rundown on

these figures for each participating institution are available in appendix c.

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Due to the size of the loan book being acquired, NAMA had planned to acquire the loans in

a series of tranches, beginning with the loans of the 30 largest borrowers. These were

transferred in tranches 1 and 2, which were successfully completed in May and August 2010

respectively. NAMA decided to then abandon tranche 3 and put in place a new strategy for

transferring the loans. (NAMA Wine Lake, 2013). They began transferring the entire loan

book of each institution individually instead of combining them into different batches. This

eased the complexity of the transfers as NAMA was only dealing with one institution at a

time, instead of five like in the first two tranches.

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Sale of loans & assetsWith the aim of reducing their debt and meeting all repayment objectives, NAMA debtors

have arranged a plan with the company that will allow it to sell in an organised manner the

collateral that is safeguarding the loans. In its first 45 months of operation NAMA has

generated €16.5 billion. €10.6 billion of this is associated to asset sales with the remaining

€5.9 billion coming from rental income and interest received. (Newenham, 2014).

The majority of collateral securing the loans is property. Property sales are heavily affected

by the liquidity settings in the residential and commercial sectors; and also by the strength

of the markets in individual countries. Another key asset when selling property is the

attractiveness of the location to potential buyers. Just fewer than 80% of NAMA sales from

inception to the end of 2013 comprised of assets in Britain, mainly London. (NAMA, 2014).

This is due to the fact that prices have increased in London quicker than they have in other

locations and investors are expecting these increases to continue.

The National Asset Management Agency currently has in excess of €2bn worth of residential

properties and commercial units such as offices and hotels for sale in the Irish market. On

top of this the agency is also planning to sell property portfolios worth around €250 million

in each quarter of 2014. It is also in the process of speeding up a number of property and

loan sales due to increased investor interest in the Irish market and also increasing prices

which NAMA hopes to capitalize on.

NAMA has so far overseen €4 billion worth of face value loan Sales. The competition in the

loan sale market in Ireland and Britain is continuing to increase, with new international

investors expressing their interest to buy various loan portfolios. NAMA’s stance in relation

to this increased interest is that loans should be open to the whole market instead of just

private firms or individuals. In 2012 NAMA formed two committees to deal with loan sales;

one of these committees deals with loans in the United States while the other deals with

loans relating to Europe.

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Project EagleOn the fourth of April 2014 NAMA had its biggest achievement to date with the successful

sale of its entire Northern Ireland portfolio. This portfolio that was called Project Eagle was

sold to Cerberus Capital Management, one of the largest private equity firms worldwide and

has more than $25 billion under management.

The loans linked to the Northern Ireland portfolio had a face value of €5.4 billion. The loans

had a reserve price of €1.6 billion but it is expected that they sold for a higher value. The

real value obtained for the loans cannot be revealed as the terms of the deal are

"commercially sensitive and are not being disclosed". (O’Donovan, 2014)

The Project Eagle loan book consisted of 850 properties between both the North and South

of Ireland and the United Kingdom but all borrowers originated from Northern Ireland. It is

the single biggest transaction NAMA has been involved in. The sale of this portfolio

represents the huge interest that international investors have in the Irish market. It is also a

sign that confidence in Ireland is increasing as it continues its economic recovery.

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Social Housing, Project Funding and Rent AbatementSocial HousingAs part of the National Asset Management Agency scheme, the company is working in

cooperation with Phil Hogan (Minister for the Environment, Community and Local

Government) and Jan O’Sullivan (Minister of State for Housing and Planning) to provide

social housing to the different county councils. There is a serious lack of social housing in

Ireland and it is hoped that this initiative will help reduce the number of people on waiting

lists.

NAMA has so far labelled in excess of 4,300 homes and apartments as being suitable for

social housing. However demand has only been confirmed for 2,055 properties by local

authorities, but of these 2,055 units only 596 have been completed or contracted for social

housing use. (NAMA, 2014). More information on these 4,300 units is available in Appendix

D.

In the latest social housing waiting list released it was revealed that almost 90,000

households are in need of social housing. (Irish Council for Social Housing, 2014). This is 30%

higher than it was in 2008 and highlights the major need for investment by local authorities

in this section of the economy.

This is an initiative that could be hugely beneficial to Irish citizens but due to lack of action

by local authorities these properties are lying idle. NAMA has even tried to attract

authorities to act on this offer by investing €10 million to finish off these properties and

make them more suitable for use. (Raidió Teilifís Éireann, 2014).

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Project FundingNAMA is committed to providing funding for various investment projects to increase the

value of the assets securing its loans. NAMA is providing over €2 billion of funding between

the years 2012 to 2016 to complete current construction projects and to allow for new

ventures to begin.

To keep in line with its objectives when it was established, NAMA provides funding for those

projects which it considers to have the greatest chance of generating a commercial return to

the taxpayer over time.

This €2 billion will go towards the completion of various residential estates and also to

enable the construction of new houses and apartments in Dublin. In total it is estimated

4,500 new houses and apartments will be built in Dublin. This will include the completion of

Block G in The Grange housing estate in Stillorgan, Co. Dublin. This will bring the total

number of units in the estate to 451. This work is expected to be completed before the end

of 2014.

In addition to the investment in residential property NAMA will also invest in office space in

Dublin city and also various retail projects. As part of this investment construction will take

place in the Dublin Docklands and in many other urban locations around the country. One

such development is the €20 million investment in Scotch Hall Shopping Centre in Drogheda

Co. Louth. This development will see a new eight screen cinema being built along with a

food court with space for five units, a new retail complex and the addition of 300 car parking

spaces. (Drogheda Life, 2014).

This investment is a great boost for Drogheda Town Centre and is sure to attract more

visitors not only to the shopping centre itself, but to Drogheda as a whole. This will in turn

have the effect of increasing business activity within the town, which will lead to

employment opportunities for local residents.

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Rent AbatementThe National Asset Management Agency currently provides a rent abatement scheme to

small and medium businesses that were particularly hit by the financial crisis; and as a result

are having difficulties paying their rent. The main aim of this scheme is to ensure the

sustainability of these enterprises in the short term; and to help them return to profitability

in the long term which will secure employment while also boosting economic activity.

Since the launch of the scheme to the 4th of March 2013 NAMA has approved in excess of

€18 million rent abatements. NAMA has also approved over €40 million rent alleviations

over a prolonged period of time. (House of the Oireachtas, 2014). This represents the total

value of deductions that NAMA has settled to sacrifice to allow these businesses to expand.

NAMA has received 320 applications for the rent abatement scheme of which 276 have

been granted, with a further 34 being assessed. (House of the Oireachtas, 2014). This shows

NAMA’s commitment to the program and their wish to see small and medium businesses

strive and become successful. This is in NAMA’s best interests as it ensures they continue to

receive rental income from these tenants which satisfies one of its main objectives of

generating a return for the taxpayer.

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ConclusionThe National Asset Management Agency was set up to act as a “bad bank” in response to

the financial crisis that had struck worldwide. NAMA was established with four main aims

which are listed in the second section of this report. So far NAMA has achieved the first

three of these objectives and is actively working on generating a profit for taxpayers.

It is clear that there are many benefits to Ireland due to the establishment of NAMA. These

include:

1. Nearly 600 houses being delivered to local authorities to be used for social housing.

2. An investment fund of €2 billion to develop unfinished residential estates and

commercial offices in addition to enhancing existing retail infrastructure.

3. NAMA’s commitment to support small and medium businesses by reducing or

eliminating a segment of the rent they owe, in order to allow them survive.

Although many argued against the creation of NAMA, it is clear to see that NAMA has done

and is continuing to do an excellent job. This is highlighted by the recent sale of its Northern

Ireland portfolio to American investors. If the banks had been completely nationalised like

suggested this sale and many others would never have occurred.

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References

Cussen, M., Lucey, M. (2011). Treatment of Special Bank Interventions in Irish Government Statistics. Central Bank of Ireland Quarterly Bulletin: 78-92.

Drogheda Life. (2014). €20 million expansion of Scotch Hall to create over 150 jobs approved by NAMA [online], available: http://droghedalife.com/791/12590/a/article [accessed 08 April, 2014].

Gurdgiev, C. (2011). NAMA: An Institutional and Operational Failure that Keeps Expanding. [online], available: http://www.tara.tcd.ie/bitstream/2262/59212/1/Nama-%20An%20Institutional%20and%20Operational%20Failure%20that%20Keeps%20Expanding.pdf [accessed 05 April, 2014].

House of the Oireachtas, (2014). Dail Debates 2014 [online], available: http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2014030400050#WRC02900 [accessed 08 April, 2014].

Irish Council for Social Housing. (2014). Scale of waiting list figures show increased supply of new social housing essential to avoid a supply crisis - Housing Federation warns [online], available: http://www.icsh.ie/content/icsh-news/scale-waiting-list-figures-show-increased-supply-new-social-housing-essential [accessed 05 April, 2014].

Kinsella, S., Leddin, A. (2010). Understanding Ireland's Economic Crisis: Prospects for recovery. Dublin: Blackhall Publishing Ltd.

National Asset Management Agency. (2014). Home- National Asset Management Agency [online], available: http://www.nama.ie [Accessed 25 March, 2014].

NAMA Wine Lake. (2013). The Tranches [online], available: https://namawinelake.wordpress.com/the-tranches/ [accessed 30 March, 2014].

Newenham, P. (2014). NAMA generates €16.5bn in cash. The Irish Times [online], 03 January, available: http://www.irishtimes.com/business/economy/nama-generates-16-5bn-in-cash-1.1643498 [accessed 08 April, 2014].

O’Donovan, D. (2014). NAMA's €5.4bn Northern Irish sell-off is agency's biggest deal yet. The Independent [online], 04 April, available: http://www.independent.ie/business/irish/namas-54bn-northern-irish-selloff-is-agencys-biggest-deal-yet-30157121.html [accessed 04 April, 2014].

Organisation for Economic Co-operation and Development (OECD). (2009). OECD Economic Surveys: Ireland 2009. OECD Publishing.

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Raidió Teilifís Éireann, (2014). NAMA 'disappointed' over social housing take-up by local authorities [online], available: https://www.rte.ie/news/2013/1201/490262-nama-disappointed-over-social-housing-take-up/ [accessed 08 April, 2014].

Bibliography

Ireland, National Asset Management Agency Act 2009. Dublin: Office of the Attorney General.

Ross, S., Webb, N. (2010). Wasters. Penguin Group.

Stewart, J. (2010). Mutuals and Alternative Banking: A Solution to the Financial and Economic Crisis in Ireland. Carnegie Trust.

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Webliography

Department of Finance. (2014). National Asset Management Agency [online], available: http://www.finance.gov.ie/what-we-do/banking-financial-services/shareholding-management-unit/national-asset-management-agency [accessed 26 March, 2014].

Fianna Fáil. (2014). NATIONAL ASSET MANAGEMENT AGENCY (NAMA) - QUESTIONS AND ANSWERS [online], available: http://www.fiannafail.ie/content/pages/national-asset-management-agency-nama-questions-and-answers [accessed 28 March, 2014].

Flynn, M., Nowlan, K. (2011). NAMA Business Plan Version Two: Introduction and Overview. [online], available: https://www2.deloitte.com/content/dam/Deloitte/ie/Documents/Real%20estate%20and%20infrastructure/NAMA_business_plan_version_2_introduction_to_and_overview_of_NAMA_Deloitte_Ireland_Real_Estate_and_Infrastructure.pdf [accessed 30 March, 2014].

McAteer, M. (2010). Nama- An Overview. [online], available: http://www.cpaireland.ie/docs/default-source/media-and-publications/accountancy-plus/finance-management/nama---an-overview-(september).pdf?sfvrsn=0 [accessed 30 March, 2014].

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Appendix

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Appendix A

(Kinsella, Leddin. 2010).

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Appendix b

(NAMA, 2014).

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Appendix C

(NAMA, 2014).

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Appendix D

(NAMA, 2014).

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