NAMA will not recoup €4.8bn for taxpayer
Published 02/07/2010 | 05:00
NAMA has told the Department of Finance in a new business plan it will not recoup the €4.8bn for the taxpayer it envisaged in its original forecasts published last year.
Political sources said while last year's business plan included an estimate of being able to return €4.8bn some time after 2020 when NAMA finishes its work, the number of performing Irish loans has deteriorated further, putting this at risk. However, the plan still envisages a profit for the agency and any loss will be recovered by a levy on the banks.
A fresh business plan went to the department yesterday with a range of new assumptions about the property market and NAMA's chances of recovering money. The plan has to be reviewed by Finance Minister Brian Lenihan before being published, most likely next week.
NAMA's core assumption is that of the loans it is taking over, only 20pc of these will ultimately default. Even a 25pc default rate does not wipe out its profit of €4.8bn. However, once the default rate heads towards 30pc the agency starts to move into the red.
The interest-rate environment and NAMA's costs do play a huge part in the outcome, too, sources pointed out.
The kind of prices NAMA gets for the security underlying the defaulting loans also plays a major role. Sales of NAMA properties have already begun in Dublin and working capital has been extended to several unnamed developers, with Treasury Holdings/Real Estate Opportunities believed to be one of these.
A quarterly report outlining NAMA's first few months of operation has also been sent to the department and will also be published shortly.
The key trend going in NAMA's favour to date is that its annual costs have dropped sharply from an original estimate of €240m a year to about €180m a year after suppliers of various services cut their rates.
Whether NAMA makes a profit or a large loss comes down to a range of complicated factors.
NAMA will be able to collect loan interest, principle and also receive cash flow from asset sales generated by non-performing loans.
But reducing its profit potential are interest principal, interest payments and also its cost base, which originally was set at €240m per annum or €2.6bn over its lifetime.
The cost of enforcement could also be extremely high with several developers expected to oppose the agency in the courts, most likely via a constitutional challenge. If major developers are to face enforcement proceedings they are most likely to start in September.