Minster Noel Dempsey TD - Minister for Transport

Draft Nama Legislation

Download Draft Nama Legislation (pdf)

Why?

Our banking system is not working, as it should. This was caused by the downturn in the global and the domestic economy, events in the international financial markets and excessive lending during the property boom at home. The result is a financial system that is not working. Banks unable to supply the credit necessary for business, mortgages etc.

This cannot be allowed to continue. A resolution requires concerted, determined and ambitious action by the Government. We must ensure the protection of our economy and the welfare of our people by ensuring that the credit required by the economy is provided and that people’s savings are protected.

What is it?

NAMA is an asset management company, which separates the developers from the bankers and acts in the taxpayer’s interest.

How will it work?

NAMA will buy loans from the participating banks at a significant discount. These loans will be largely land and development loans as well as associated loans. The idea is to take the riskier loan classes away from the balance sheet of the banks concerned to make the banks safer and more secure for depositors and investors.

NAMA will pay the banks concerned for these loans but will do so on the basis of independent valuations carried out by experts. The rules for doing the valuation will be outlined in the NAMA Bill.

The price paid will not be the book value of the loans but will include an appropriate write down on the values of the loans to reflect the current market. The assets will be purchased through the issue of government bonds to the banks. The banks can then use these bonds as collateral to raise money from the European Central Bank (ECB). This will provide them with the necessary cash to allow them to get back to their normal lending and credit flow and to restore the lifeblood of the economy.

Following this, NAMA will manage these loans either directly or indirectly so as to obtain the best achievable return from them. NAMA will collect interest due and pursue debts so as to ensure that the money the Government has invested will be repaid over time.

Will NAMA pay over the odds for assets?

It is certain that NAMA will not be paying prices for the loans based on their original prices, ie on recent “bubble property prices”. Each loan will be valued separately and the amount of discount applied will depend on the quality of the property and other collateral.

What safeguards are in place to ensure assets are not overvalued?

• The valuations will be carried out by independent outside experts.
• NAMA will act as an independent body.
• NAMA will have to act in accordance with EU Commission rules in relation to asset management agencies.
• NAMA will be subject to Oireachtas scrutiny and will have to report to the Minister for Finance.
• The Chairperson and CEO will be accountable to the Oireachtas through the PAC Committee.
• NAMA will be audited by the C & AG.

Are developers escaping their loan obligations at the expense of the taxpayer?

No, developers whose loans are transferred to NAMA (even at a discounted rate) continue to be liable for the entire face value of their loan obligations. There is no discount for developers. For example, Developer A has a loan of €75 million from Bank B. NAMA takes over the loan from the Bank at a cost to them of €50 million. Developer A still has to pay NAMA €75 million to clear his debt. In this example, it is clear that the bank and the developer are taking a hit and the taxpayer is protected.

What about other solutions?

The only other attempts at a solution to resolve the current crisis have been Labour’s proposal to nationalise the banks and Fine Gael’s proposal to create a bad bank called a National Recovery Bank. The Labour solution is the one followed by Iceland. Read a little about the chaos and collapse that that caused and make your own judgement about whether or not it’s a good idea! Nationalisation creates significant risk of undermining the capacity of banks to raise funds internationally for domestic lending. Generally the international monetary markets are not favourably disposed towards Government owned banking systems. Nationalisation generally means higher interest rates and less credit available for the banks.
Fine Gael claim to oppose the NAMA concept and have proposed a National Recovery Bank. Despite the supposed opposition of Fine Gael to NAMA, there are significant elements in the National Recovery Bank proposal which borrow from the NAMA concept. For example, Fine Gael proposes to acquire assets through the issuing of Government Bonds – this is what NAMA will do.
Fine Gael proposes to use Government Bonds to acquire the assets of equivalent value. Again this is the same proposal as NAMA.
The Fine Gael proposal not to deal with bad property loans until October 2010 is not sustainable. That would mean a further tightening of credit conditions facing the small and medium enterprises and businesses in this country. It would continue the current difficulties where there is not sufficient credit in the system to allow businesses to survive and develop.

Surely there are risks involved in setting up NAMA?

Yes, there are some risks but doing nothing in the current situation is not an option. Doing nothing leaves us facing the certainty of continued tightening of credit, rising unemployment, failure of many businesses and postponing economic recovery into the future. NAMA is being put in place to ensure that credit begins to flow again into the Irish economy, protecting jobs, protecting savings, protecting deposits and ensuring that we get the best value for the taxpayer in the current situation.

Articles

NAMA Supplementary Documentation

Download NAMA Supplementary Documentation (pdf)

Links

Speech by Minister Lenihan on NAMA Bill 2009 in the Dail
RTE coverage on NAMA Bill 2009 ( Opens in a new window RTE site )
Interview with Alan Ahearne, advisor to the Minister of Finance ( Opens in a new window RTE site )
http://nama.ie/