# NAMA - Good & Bad Debts



## annet (25 Jul 2009)

NAMA will purchase both the good and bad property debts of banks - at what price - nobody knows as yet.  We are seeing a multitude of banks bringing cases against property developers through the commericial court for repayment of debts and their personal guarantees on loans.  This may seem a stupid question - its something just occurred to me - when the good and bad loans are transferred to NAMA, are they vis a vis the State going to have to pursue the developers for repayment of these bad loans through the commercial court - and if yes - will the State - and not the banks - be the ones that will be financial liable for taking these cases to the commercial court?


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## z109 (25 Jul 2009)

Yes.

But it is mainly ACC you are seeing taking people to court. The banks that are going to offload to NAMA are playing very softly-softly with the big developers (anyone with loans over 5 mn). Anything that threatens price discovery is bad. Anything that suggests a loan is really non-performing when it is booked as performing (because the interest roll-up period has been reset) is a no-no. Anything that might cause one of our darling awn-trup-inners to fail is out of bounds.

All the tough talk on both sides is phony war. The maximum discount that NAMA can force on the banks and still have the banks not be majority state owned is 15-20% Anything different from that and the 'plan' has gone horribly wrong or someone has grown a set...


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## Shawady (27 Jul 2009)

yoganmahew said:


> Yes.
> 
> But it is mainly ACC you are seeing taking people to court. The banks that are going to offload to NAMA are playing very softly-softly with the big developers (anyone with loans over 5 mn). Anything that threatens price discovery is bad. Anything that suggests a loan is really non-performing when it is booked as performing (because the interest roll-up period has been reset) is a no-no. Anything that might cause one of our darling awn-trup-inners to fail is out of bounds.
> 
> All the tough talk on both sides is phony war. The maximum discount that NAMA can force on the banks and still have the banks not be majority state owned is 15-20% Anything different from that and the 'plan' has gone horribly wrong or someone has grown a set...


 
Yoga, so if the banks have €90 billion of bad debts on their books, they are guaranteed to get €72 - 77 billion for them , even though the market value will probably be substanially less?


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## z109 (27 Jul 2009)

Shawady said:


> Yoga, so if the banks have €90 billion of bad debts on their books, they are guaranteed to get €72 - 77 billion for them , even though the market value will probably be substanially less?


Well, we don't know the purchase price and not all the €90 bn is bad debts (we don't know what proportion currently is). The current market value is for sure less, the future market value? Who knows. It is a guessing game to say that prices will recover to boom levels.

But yes, the substantive point is that the banks will get an amount for their loans plus interest every year - since the amount will be in government debt that pays a coupon.

Say it is 72 bn. Say the coupon is 6% for ten year bonds. The state will then be paying 4.32 bn to the banks every year through NAMA. The loans that NAMA has taken on board will have to return 6% on average for NAMA to break even on the bonds, never mind the additional expenses that NAMA has (running it, for example!). Say about 360 mn for admin costs (0.5% of assets). The mere existence of NAMA (whether it is counted as National Debt or not) will increase the cost of the rest of the national debt (in fact, the guarantee has already done this). Add in another billion or so every year (1% of 100 bn). 

So the total annual cost of NAMA is going to be about 5.68 bn a year. Requiring a 7.9% yield. This is a pretty exception return to be aiming for just to break even...


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## dingbat (29 Jul 2009)

I really dont get NAMA, I dont see how saddeling us with 90 Billion of debt is going to put the country in good standing with the rest of the world, apart from the markets, who are quite happy to loan us money at high interest rates. These banks should have ben allowed to fail and the property market should be allowed to find it's correct level, I hope ACC manage to topple O'carroll in the courts and the correction happens before NAMA can get their hands on all this overpriced rubbish on our behalf (Feel better now)


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