The Irish government announced details of its bad-bank programme, known as NAMA, on Wednesday.

From the FT:
The Irish state will pay €54bn to take over bank debt worth €77bn to cleanse the sector’s toxic assets and encourage renewed lending to businesses, Brian Lenihan, the finance minister, said yesterday.

. . .
Mr Lenihan said the market value of these loans was about €47bn, representing a 50 per cent fall in property prices since the peak in 2007. Nama was paying an average 30 per cent discount to the original value of the loans on the banks’ books, and “strikes a balance between reflecting the long-term potential of these assets while minimising any potential risk that Nama will make a loss”.

Value for money?

From the Irish Times:
However, the Minister and his advisers have taken the view that this [market] value is out of sync with the long-term averages for the markets concerned. Using long-term indices going back decades, and ignoring price rises in this market in the period from 2005, the Minister has decided to add an extra €7 billion to the value of the assets, to reflect what he and his advisers believe is a more accurate reflection of their value.

As part of a risk-sharing exercise, he has decided to introduce subordinated bonds to pay for approximately €2.7 billion of the assets to be purchased from the banks.  This means that the banks will not get paid this amount if the Nama scheme, and the property market, do not perform as it is hoped they will.

Mr Lenihan himself thinks the programme will break even if property prices rise 10 per cent.

Related links:
Do the Nama figures add up? – Ronan Lyons

This entry was posted by Tracy Alloway on Thursday, September 17th, 2009 at 16:17 and is filed under Capital markets. Tagged with Banks, Commercial property, ireland. Edit this entry.