Pillar banks to benefit as NAMA bonds are paid off
AIB and Bank of Ireland are set to get an early boost to their balance sheets worth hundreds of millions of euro as the National Asset Management Agency speeds up bond redemptions and interest payments.
NAMA chairman Frank Daly confirmed yesterday that the agency is to make interest payments on so-called junior bonds for the first time and announced a dramatic accelerated schedule for paying off his agency's start-up costs.
The move comes because cash is now flowing into NAMA at a rapid pace, including €1bn received so far this year. The agency has €4.5bn of Irish assets up for sale, he said.
NAMA will pay off €3bn of senior bonds in the next two weeks, with a further €3bn to be repaid by the end of the year, Mr Daly said in speech to the Institute of Directors in Dublin.
That means NAMA will have paid back around half of its €32bn start-up costs by the end of this year, Mr Daly said.
An €84m interest payment on junior bonds will also be made. NAMA only has to repay the junior debt if it breaks even over its lifetime, so the decision to switch to interest payments is a sign managers believe that will happen.
"A year ago (breaking even) would have been a really ambitious target for NAMA. Today I personally believe we will deliver a surplus," Mr Daly said.
He said he expects the agency to have broken even before its 2020 deadline to be shut down.
"The news is very positive for the banks," according to Merrion Capital analyst Ciaran Callaghan.
NAMA used bonds to finance its acquisition of property loans from the banks so when bonds are redeemed the cash goes to the lenders.
There is now no reason not to value junior NAMA bonds at their full face value – a big boost for AIB, in particular, Mr Callaghan said.
AIB holds €471m of the so-called junior bonds at a conservative 10 cent in the euro valuation on its balance sheet; Bank of Ireland holds its €279m share at a 44 cent in the euro valuation.
Revaluing the asset at 100pc of face value would mean a €423m "write-up" for AIB and a €156m boost for Bank of Ireland.
The NAMA chairman said the decision to speed up its debt paydown was "coincidental" to a request from Michael Noonan to examine a faster shutdown as part of a review of the agency.
Regardless of what is behind the decision, the main banks will benefit as senior NAMA bonds are paid off.
Ultimately, the NAMA cash will go towards cutting banks' remaining ECB debts.
AIB is by far the biggest holder of the senior bonds.
The IOUs were originally handed to AIB, Bank of Ireland, Anglo Irish Bank and Irish Nationwide in exchange for loans transferred to NAMA.
Permanent TSB is not a "NAMA bank" but holds a €2bn share of the bonds as part of a deal it did to accept former Irish Nationwide Building Society (INBS) deposits.
The banks used the bonds as collateral for European Central Bank loans – in part because unlike some other lenders it accepted the assets, which have an unattractively low interest rate, as security.