Monday 17 December 2018

'Drive-by valuations' blamed for additional NAMA loan discounts

Previous 30pc estimate for 'haircut' facing banks now looks low

Anglo Irish Bank could be the institution to suffer if additional discounts are imposed. Photo: Bloomberg News
Anglo Irish Bank could be the institution to suffer if additional discounts are imposed. Photo: Bloomberg News


The country's banks are facing additional discounts on the loans they put into NAMA because of what sources last night described as "drive-by valuations'' carried out during the period from 2005 to 2007.

At this point it is too early to say whether the discount or 'haircut' on NAMA loans will exceed the previous estimate of 30pc, but the banks were given a stern warning in recent days by NAMA staff over the security underlying the toxic loans. Anglo Irish Bank could be the institution to suffer if additional discounts are imposed.

This security is often inadequate or not supported by the correct documentation due to loans being turned around too quickly by banks. Last year the chief executive of NAMA, Brendan McDonagh, said he feared loans were supported by what he called "bespoke'' documentation and this is proving to be the case.

Loans for major clients, specifically between 2005 and 2007, were often organised and signed-off in 24 hours. The valuations put on properties are rapidly coming unstuck, leading one source to describe them as "drive-by valuations''.

Any loan not supported by property security is now carrying a discount in excess of 30pc, although the banks have the option to go to court to clarify the security attached to the loan. If they take that step, it is understood NAMA will not impose the more stringent discounts, which can reach up to 40pc in some cases.

A senior source said banks either go to court and clarify the precise security they are entitled to with each loan or they suffer a heavy discount. "They are in control of their destiny in that sense,'' said one senior source.


However, a recovery in US and UK land and property prices is offsetting the lower valuations for Irish properties, leading to speculation that a "blended'' discount of 30pc could still be the end result.

While a discount above 30pc would save the taxpayer money upfront, it would also hurt the asset side of bank balance sheets, forcing the taxpayer or private sources to cough up additional money.

The Government has opted for long-term economic value as its pricing mechanism and is not prepared to mark loans to market. Yesterday, speculation over the NAMA discount had little impact on the shares of AIB and Bank of Ireland. AIB closed down 4c at €1.37, while Bank of Ireland was almost unchanged at €1.42. Both bank stocks have been "range bound'' for several months now, with foreign institutions staying away from the shares until NAMA officially disclosed the likely discount.

NCB stockbrokers said it was possible security and valuations would be lower for the first batch of loans being transferred over to NAMA.

"It is highly probable that the first tranche incurs higher writedowns than the overall final average haircut. This would stack up with comments made by the NAMA CEO."

Irish Independent

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