Business Irish

Tuesday 20 August 2019

Private investors are walloped despite €4bn Nama surplus

Flux: The European Central Bank has driven the bond market swings. Photo: Martin Leissl/Bloomberg
Flux: The European Central Bank has driven the bond market swings. Photo: Martin Leissl/Bloomberg
Donal O'Donovan

Donal O'Donovan

Private investors who took out a stake in Nama when the 'bad bank' was set up have been walloped by swings on the bond market largely driven by the European Central Bank (ECB).

The dividend paid out to private Nama investors was €5m in 2011 but has fallen to just €272,000 this year, the latest financial details from the agency show.

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The investors, which include a pension pot for Church of Ireland clergy, have seen their returns collapse even though the agency has defied early sceptics and is on course to return €4bn to taxpayers over the next two years.

Ironically, if the investors who bought the Nama stake had instead bought 10-year Irish Government bonds they would have reaped dramatically bigger returns.

Private shareholders put €51m into Nama when it was created in return for a 51pc shareholding under a deal to keep the agency's then vast debts off the State's book.

The structure did not give private investors control of the agency or rights over its billions in assets, but did promise a regular dividend and a possible 10pc extra recovery - worth €5m - at the end of Nama's existence depending on it meeting targets.

But the 2019 dividend is a dire investment return on the €51m still invested.

It is the result of the annual payout being capped at the yield on the Irish Government's 10-year bonds.

For reasons that have nothing to do with Nama, and relatively little to do with the State, the yield on 10-year Irish Government bonds has plunged to an all-time low this year.

The fall, which saw the yield approaching zero at one stage this month, arose because of distortions linked to the ECB's quantitative-easing programme.

It has flooded the market with cash, driving up asset prices and down return, at a time when nervous investors have piled into what are seen as low-risk bonds.

It is bad news for Nama's private shareholders, whose 2019 dividend was based on a bond yield of 0.068 on March 19 this year. That could have been worse as the yield on 10-year bonds approached zero this month - even threatening to turn negative as other eurozone bonds have done.

The 2019 dividend on the so-called Nama B shares is the lowest since an initial shareholder payment was made in 2011. In 2018 the dividend was €454,000. It was a hefty €5m in 2011 and €3.5m in 2012 reflecting dramatic yields on the markets during the euro crisis.

In total, private Nama investors had been paid €14m up to the start of this year, according to information from the Department of Finance.

In 2009, three investors; Irish Life, New Ireland Assurance and Percy Nominees held all the shares, but some have since been sold on.

New Ireland retains a stake, while money managers including funds that handle money for the Church of Ireland, UK investor Nortrust and US-based BNY Custodial now also hold shares.

Nama has just over €5bn of assets left and remaining debts of about €1bn. The bulk of the difference will be paid to taxpayers.

Irish Independent

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