THE GOVERNMENT is considering a plan to pay the banks the current market value of Nama-bound loans upfront with State bonds, and pay for the difference between this price and any long-term economic value later.
The option is under consideration in an attempt to protect the taxpayer against overpayment on toxic development and related property loans with a book value of €90 billion.
Minister for Finance Brian Lenihan said this week that he was considering paying the banks less than the “long-term economic value” of loans to reduce the risk facing the taxpayer should the property market not recover.
Under the plan as it stands, the Government would, for example, agree to pay €5 million for a loan with a face value of €7 million in a bank.
Under the option being considered the Government would only pay the loan’s current market value, say €4 million, deferring the payment of the remaining €1 million until the market recovered.
The Government is assessing whether Nama could introduce the staggered payments on individual loans or across loan portfolios being transferred to Nama.
The withholding of part of the loan payments is also being considered as an incentive to encourage the banks to help Nama recover as much of the bad loans as possible.
Nama officials are assessing the possibility of withholding 10 per cent of the loan as an incentive following a similar example set by Indonesia’s “bad bank”.
The Green Party’s Minister for Energy, Eamon Ryan, insisted this week that the price paid for loans would be “massively discounted” .
In a report defending Nama, Davy Stockbrokers said that nationalisation, an alternative suggested by opponents of the plan, would lead to the European Central Bank injecting a further €40-€50 billion into the banks.
Deposit and wholesale funding withdrawals would be “inevitable” following nationalisation, the broker said, as the providers would limit the risks to the system.
Davy warned that the State’s funding costs would rise, development loans would remain on bank balance sheets until the assets were liquidated and that the banks would not receive the liquidity boost under the Nama plans.
The State would also have to “fill the capital hole” in the banks, the broker said.
Davy said shareholders and some bondholders in the banks had already suffered losses of €54 billion and €4 billion respectively on their investments.
