Banks tried to avoid 'haircut' on €1bn loans to NAMA
The Irish banks tried to put €1bn of property loans through NAMA without incurring any discount or "haircut'' after they cited an agreement they had with Central Bank governor John Hurley.
A document seen by the Irish Independent shows that Mr Hurley and the Financial Regulator allowed all loans from April 2009 to escape any discount (or haircut) and NAMA was forced to pay the full value on these loans despite its reservations about the policy.
The key period in question was from April 2009 to November 2009 when NAMA started valuing loans. During this period loans given out were able to avoid any discount, even though the property market was deteriorating rapidly at this time.
Brendan McDonagh, NAMA chief executive, wrote to the Finance Minister Brian Lenihan in June about the issue and said there was a danger large sums might be "irrecoverable'' as a result. The loans in question were loans to finish off projects and "fully realise'' value from various developments.
In May 2009, Mr Hurley and the Financial Regulator wrote to the banks telling them NAMA would fully reimburse such loans once they were given as part of normal banking arrangements.
However, the letter seen by the Irish Independent shows that Mr McDonagh returned to this subject in June 2010.
"There are certain monetary consequences arising from implementation of this direction,'' Mr McDonagh writes to Mr Lenihan.
"In effect NAMA had to follow the money already paid,'' Mr McDonagh writes. He points out that most of the loans in question were made by Anglo Irish Bank, which was nationalised in January 2009.
It is understood the total amount in question was €1bn, although NAMA found a way to halt about 50pc of these applications.
A spokesman for NAMA said the organisation accepted the decision reached in 2009, but was only prepared to accept these loans at full value if backed up by proper paperwork and if the loans were justified on strict commercial grounds.