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Banking on NAMA: The Fall of
the Celtic Tiger?
17th Annual ERES Conference
Milano
June 2010
Jim Berry
Terry Grissom
Martin Haran
Stanley McGreal
University of Ulster
Irish Response to the Banking Crisis
• Unprecedented Government intervention
• Irish Government underwrite deposits
• National Asset Management Agency (NAMA)
• NAMA is not a ‘toxic bank’
• EU Commission Approval Secured – Feb 2010
NAMA Ownership Structure
49%
51%
Private
Public
The NAMA Model
Bank sells Borrower A’s €100m loan
to NAMA
BANK
NAMA
NAMA Pays bank with Government
Guaranteed Securities*
Borrower A continues to owe €100m to NAMA, who assume responsibility
for the loan until it is paid.
*Amount determined by the value of underlying Assets of the participating institutions
NAMA Loan Portfolio
•
€81bn Loan Transfers (March 2010)
• €62bn Loans are Performing
• Property and Associated Loans
Circa €35bn Land
Circa €21bn Development
Circa €25bn Associated Loans
• €47bn Estimated Value of Underlying Assets
€30
Financial Institutions – Loan Distribution
€25
12.1
€20
7.1
€15
5.5
€10
17
16.3
2.7
€5
10
0.3
€0
AIB
Anglo
L&D Loans
BOI
Associated Loans
0.5
EBS
5.6
INBS
€60
Geographic Distribution of Loans €bn
€50
18.4
€40
€30
€20
33.1
5.6
€10
1.5
10.3
0.7
1.6
Great Britain
1.4
USA
1.2
Other
3.3
€0
Ireland
Northern Ireland
L&D Loans
Associated Loans
12000
10000
10,000
8000
6000
5000
4000
3290
2000
1930
1880
1260
0
AIB
Anglo
Book Value (€mn)
BOI
670 280
140 90
INBS
EBS
Value of Securities (€mn)
6
€
Distribution of Securities Exchanged for Loans
5.5
5
€bn
4
3
2
1.3
1
0.8
0.5
0.4
0
Investment
Property
Land (<30%
complete)
Hotels
Development
(>30% complete)
Residential
NAMA DEBT WOROUT (€bn)
10
4.8
0
1
2
3
4
5
6
7
8
9
10
-8.5
-10
-15
-20
-21.5
-28
-30
-34.5
-40
-41
-47.5
-50
-54
-60
11
-54
-54
.4
Ireland: IPD Return and Change in GDP
.3
IPD Return
Return
.2
.1
.0
%GDP
-.1
-.2
1985
1990
1995
2000
2005
2010
Yield Input Illustration of Cash Flow and IRR Inputs for Normal Market
Appreciation
£95,000
£17,000
£78,000
Ve
£37,598
£19,500
£19,500
Ve(t)
$58,500
£1,098
Vo
£58,500
Vm
£57,402
amortization
-£10,000
NOI
DS
EFC
Equity Build-up,
1
2
3
4
5
£7,410 £7,781 £8,170 £8,578 £9,007
£6,175 £6,175 £6,175 £6,175 £6,175
£1,235 £1,606 £1,995 £2,403 £2,832
Vm(t)
A Key Problem issue: Mortgage Balance Exceeds
Collateral value - Only Direct Experience if need to
sale
Property
Value
Loss
£78,000
Ve
£19,500
£19,500
Vo
£58,500
£57,402
Vm
Cash Flow ?
Issue is solvency – can cash flow cover
obligations?
Equity
Eroded
EBU
£1,098
Value
Vm(t) loss
below
Debt,
say :
£30,000
Aggregate Asset and Debt Analysis
• {[A(1+git)]dt+(1- )[A(1+git)]}MP1/snYe
• Vm-DS-B
Aggregate Debt to Collateral Situation
Value
Cash Flow
from
Mortgage
Pool and
Securities
Property
Value
(Vo)
Equity
growth
in Vo|d
Mortgage
Value
Diminished
Value (Vo|d)
Time
Case of Distressed Land Assets
Value
VL (1+tx+i)
Land Value
Requirements:
growth at tax rate
(tx) and
opportunity cost
(i)
Land value
forecast
growth with
development
assumed
Drop in VL
trend
Problem: Windfall Tax
Impact : VL (1+tx+i)
Wtx=0.80
Time