THE GUARANTEED banks and building societies will be asked to establish subsidiary companies to administer the toxic property loans being transferred to the State’s “bad bank”, Nama.
Under plans being devised by a steering committee established by the Government to create Nama (the National Asset Management Agency), the agency will request that each financial institution create so-called special purpose vehicle (SPV) firms to work on the loans within each of the lenders.
While the day-to-day administration of the loans will remain with the financial institutions, the management of key day-to-day decisions on the assets will be transferred to Nama and the National Treasury Management Agency (NTMA), under whose auspices the State’s “bad bank” is being established.
According to sources familiar with the workings of the Nama steering committee, the agency is expected to be established initially with a core staff of between 20 and 40, as outlined by the NTMA chief executive Dr Michael Somers before the Public Accounts Committee last week.
This will preserve 3,000 to 5,000 staff currently managing the loans across the institutions.
The creation of subsidiaries within the banks to help resolve toxic loans follows similar bad bank plans in Sweden, France, the US, Malaysia and Indonesia.
The NTMA has been advised by Swedish and US bankers who worked on similar schemes.
Bank of Ireland is understood to have already begun the process to set up an SPV company to which it will move the bank’s €12.2 billion development loans and an estimated €8 billion in associated borrowings secured on investment properties provided as collateral for the development exposures.
Nama is planning to deal with the toxic loans at Bank of Ireland, Allied Irish Banks (AIB) and EBS building society.
The combined borrowings of the three institutions to be moved to Nama are estimated to be about €50.6 billion.
The Government has said that Nama will acquire at a significant discount loans with book values of €80 billion to €90 billion on the balance sheets of the six Irish institutions guaranteed by the State.
Nama may move the administration of the €527 million development loans and an additional €100 million in associated borrowings secured on collateralised assets at EBS into the SPV of either Bank of Ireland or AIB, given that the building society has a considerably smaller development loan book.
The loan books of Irish Nationwide Building Society and Irish Life Permanent will be assessed at a later date, while the Government has yet to decide whether the loans at nationalised Anglo Irish Bank will be acquired by Nama.
The banks are expected to be able to charge Nama an administration fee for tending to the loans.
Under the Nama plan, financial institutions may be offered up to 10 per cent of the value of the recovered loans as an incentive to encourage the lenders to recoup as much money from developers as possible on behalf of the State.
The Indonesian government used a similar incentive in the state bad bank, Danaharta.
The Government is expected to value the toxic loans by applying a range of discounts according to the European Commission’s guidelines on impaired assets.
This allows the Government to set an “economic” or “through the cycle” value on the loans so the State can set average long-term value on properties over the 10-15-year lifespan of the new State agency.
This enables Nama to avoid setting a distressed value on the assets at the current time when there is no market to value them.
