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Some developers owe up to €1bn, says NAMA chief

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Dr Peter Bacon, special adviser to NAMA,the National Assets Management Agency (left), and
Brendan McDonagh,interim managing director of the agency, arriving for the Oireachtas Finance &
Public Service Committee meeting at Leinster House yesterday.

Dr Peter Bacon, special adviser to NAMA,the National Assets Management Agency (left), and Brendan McDonagh,interim managing director of the agency, arriving for the Oireachtas Finance & Public Service Committee meeting at Leinster House yesterday.

Dr Peter Bacon, special adviser to NAMA,the National Assets Management Agency (left), and Brendan McDonagh,interim managing director of the agency, arriving for the Oireachtas Finance & Public Service Committee meeting at Leinster House yesterday.

A number of major developers have property loans of up to €1bn each, it was claimed yesterday.

Brendan McDonagh, interim managing director of the National Asset Management Agency, told an Oireachtas committee that the top 50 borrowers owe at least €100m each in the six main institutions, 10 borrowers owe more than €500m and up to 1,200 property developers will owe NAMA more than €10m a piece.

Mr McDonagh confirmed that there have been instances where developers with loans from a number of institutions have offered personal guarantees to five or six lenders. But he said that such guarantees will be pursued by NAMA, if necessary.

The interim head of the agency said that trawls through banks' loan books have shown that "the majority of individual loans are bespoke and have different legal documentation."

He later went on to explain that fierce competition between lenders at the height of the boom resulted in standard applications being deviated from to provide developers with more attractive terms. This will make it all the more necessary to evaluate loans on a case-by-case basis.

Mr McDonagh said that the banks could soon start transferring their property loans to NAMA after legislation is passed. Bank of Ireland, which has dedicated 100 people to the NAMA project for the past six weeks, has indicated it could be ready to start passing over its loans within eight to 10 weeks of the legislation crossing over the line.

It is envisaged that NAMA would first start to take over the loans relating to the biggest developers.

Meanwhile, Finance Minister Brian Lenihan signalled yesterday that the banks will have no say in the level of writedowns they will have to take on property loans bound for National Asset Management Agency.

"We're not in negotiations with the banks. We'll state the valuations," Mr Lenihan told an Oireachtas committee hearing on the planned 'bad bank'. We'll have to have ultimate power."

It had been expected that there would be a massive locking of horns between both sides over valuations of the €80bn to €90bn of loans being transferred to NAMA.

NAMA, which is being established under the National Treasury Management Agency (NTMA), is expected to run for between 10 and 15 years and the Government has reserved the right to recoup any losses to the taxpayer at the end of the process through a levy.

Mr Lenihan said, however, that the levy will not be contained in the upcoming legislation, but through a future Finance Act. He said the property market is currently frozen and that NAMA will take a "long-term economic valuation" approach to establish the level of writedowns. Mr McDonagh, interim managing director of NAMA, said each loan will have to be assessed and valued individually, in accordance with EU guidelines.

The minister reiterated that all borrowers will be required to meet their full legal obligations for repayment and there "will be a hardening of the approach to these borrowers -- taxpayers' money is at stake".

It is planned that NAMA would be staffed by between 30 to 40 people, mainly senior asset managers, corporate finance and legal specialists. However, the loans will continue to be administered by the banks through specially created companies.

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"This makes sense, as there is tremendous knowledge in institutions at local level about the individual borrowers and loans, which NAMA could never replicate," Mr McDonagh said.

"This does not mean that the same people who gave out the loan will be dealing with the same loan under NAMA -- and we will insist that there will be staff rotation within the financial institutions to prevent this," he said.

Economist Peter Bacon, the architect of the NAMA plan, told the meeting that his proposal to set up the agency, rather than go down the UK route of insurance for the toxic assets in its banking system, was based on three key reasons.

Firstly, he said the international markets were already finding it difficult to grapple with ongoing liabilities from the State by the €440bn guarantee scheme without adding the contingent risks of an asset insurance plan.

Secondly, he said NAMA "offered the prospects of putting a disinterested party between borrowers and lenders". Thirdly, he said the agency could bring in equity from outside investors to "contribute significantly to the work-out of loans to the benefit of the Irish economy and original borrowers".

Some committee members expressed concerns about risks of the NAMA project to the public. However, Mr Lenihan said: "This is not about taxpayers assuming the risks. It's about ensuring the banks and developers absorb the pain."

The extent of writedowns will determine whether the main banks will need additional state capital. Mr Lenihan said, however, that Bank of Ireland, which has received €3.5bn to date "may not require fresh capital".

Mr McDonagh accepted that "nobody knows" whether the agency will end up making a loss.However, Dr Bacon appeared more optimistic that the State will be in the money at the end of the process. He based this on the facts that the loan transfers are set to take place "at close to the bottom of the market", that NAMA is taking a long-term approach, and is looking to bring in outside investment to bring some projects to fruition.


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