FAQ – Frequently Asked Questions

Q:  Will NAMA Work?

NAMA is very unlikely to work. It depends on assumptions that are questionable to say the least.
Q:  How will NAMA work?

NAMA will take loans (assets) from the banks worth an estimated 47 billion and in exchange will give the banks government bonds worth 54 billion euro.

Q: Will NAMA have to pay interest to the banks

Yes! After giving the bonds to the banks NAMA will also have to pay interest to the banks on these bonds.

Q: What interest rate will NAMA pay to the banks every year

NAMA will pay at an interest rate of ECB + 0.5. In the first year this will be an interest rate of 1.5%. However the ECB rate will rise over the next few years so the interest bill will also rise dramatically

Q: How much interest will NAMA pay every year?

In the first year this is likely to be in the order of 800 million. In subsequent years it is likely to rise to 2.3 Billion euro or more as the interest rate rises.

Q: How much money will NAMA make from the interest on the loans it takes over

60% of the loans being taken by NAMA are non-performing – these will pay no interest at all. The remaining 40% are currently paying interest. Brian Lenihan claims that the 40% of loans that are paying interest will cover the 800 million above.

Q: Will the amount of interest coming in to NAMA increase or decrease?

It is likely to decrease. Some of the currently performing loans are likely to go into default as EU interest rates rise. Much of the commercial lending that comprises 30% of the NAMA loans is on the edge of going into default. A recent report from Retail Excellence stated that trading conditions in all but two of 58 shopping centres were suffering (the Dundrum Centre being one of the two) and that very large rent reductions were occurring.

Q: If the interest bill to NAMA rises while the takings decrease who will fund the difference

The taxpayer. It is likely that the taxpayer will be funding NAMA to the tune of billions every year within a couple of years.

Q:  Will NAMA be able to support the property market

NAMA may slow the fall in property prices in the near future by preventing developers from being wound up as quickly as they would otherwise be. However in the medium term property prices will still fall simply because so much money has to be taken out of the economy. In the long term NAMA will result in lower property prices than otherwise because property prices depend on the economy and NAMA will be deleterious to the economy because it puts a large amount of resources into unproductive hands.
Q: Is NAMA buying properties or loans?

NAMA is buying loans (called assets). The properties associated with NAMA are the collateral underlying the loans.

Q: How much more will NAMA pay for the loans than they are currently worth

NAMA will pay 7 billion Euro above the current market value (CMV) of the properties underlying the loans. The government refer to this as paying long term economic value (LTEV).

Q: Why is NAMA paying more for the loans than they are worth

The banks are currently close to bankruptcy and need the extra seven billion in order to continue their operations.

Q: Is there another way to give the banks the extra seven billion?

Yes the government could give the banks the extra seven billion in exchange for a major shareholding (recapitalisation). The state would then benefit from any upturn in the value of the banks.

Current Market Value

Q:  Have other countries paid LTEV or recapitalised their banks

There is no known instance of another country paying LTEV. Most countries have recapitalised their banks.
Q:  What are the external opinions of paying more than CMV for the banks assets

The ECB has clearly signaled that it doesn’t agree with paying more than CMV for the assets.

Joseph Stiglitz, Nobel Prize winning economist has said that paying more that CMV is “Criminal”. (Primetime Tuesday 6th Oct).

Q: Why would the government pay LTEV if it is so widely condemned

Their motives are hard to understand.

There is a dubious argument made by John Gormley that recapitalisation would necessitate higher interest charges as we would need to issue ordinary government bonds which pay a higher interest charge than NAMA bonds. This argument seems largely fallacious and even if true the interest difference would be less than 100 Million Euro which is very small in comparison to value of the bank shareholding that the taxpayer would own through recapitalisation.

It seems much more likely that the real reason is to keep the banks in private hands at all costs and to protect Fianna Fail’s “Golden Circle” of shareholders and bondholders.

Q: Will the government have to pay back the banks the 54 billion euro in bonds

Yes over a ten year period it will have to pay the money back.

Q: Where will it get the money from?

Some of the money will come form the repayments of the capital on the minority of performing loans. For the majority of non-performing loans the underlying properties will have to be sold and the sale price used to repay the bonds.

Q: Is the sale price of the properties likely to be enough to repay the bonds

It will only be enough if the price of property rises by 10% from its current level over the next 10 years.
NAMA Losses

Q:  Are Irish property prices likely to rise by 10% over the next 10 yearsAbsolutely not. Irish property is still way overvalued according to long term trends, according to yields and salary multiples.

Q:  How big is the shortfall likely to be?

Independant economists have estimated the shortfall at nearly 50% – approximately 27 billion euro.Q:  If NAMA can’t retrieve this money from its properties how will it pay the banks back

It will have to pay the banks back using taxpayers money.

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2 Responses to “FAQ – Frequently Asked Questions”

  1. anne costello Says:

    I would like to support the Greens Against NAMA campaign. We are relying on the Green Party to prevent Fianna Fail from legislating for this ridiculous bail out for banks and bond holders.

    Well done to all concerned

    Anne

  2. realworldesign Says:

    glad to see there is a green resistance to this whole thing. pity about the party leadership. whatever happened to the party we voted for?


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