nama the irish experience eight years along the...
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www.nama.ie
NAMA
The Irish experience – eight years along
the road Jamie Bourke
30th October 2017
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Introduction - refresh
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NAMA was established in December 2009 by the Irish Government
Acquired €74 billion par debt from five financial institutions – 12,000 property loans
800 debtor connections – 5,000+ borrowing entities – loans secured by 60,000
properties
Created a new agency – recruited specialist staff with expertise in finance, banking,
law, property, insolvency and planning. 380 staff at peak; now circa 250
Paid €31.8 billion, including State Aid of €5.6 billion
Senior debt of €30.2 billion now almost fully paid; subordinated debt of €1.6 billion
to be paid by March 2020
NAMA has projected that it will return a surplus of €3 billion to the State when it
completes its work in 2020/2021.
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NAMA – three phases in its lifespan
- Evolving focus
Phase 1
(2010-2012)
Establishment and consolidation
• Loan acquisition
• Staff recruitment
• Systems
• Debtor Business Plan Reviews
Phase 2
(2013-2016)
Major deleveraging
• 25% of senior debt redeemed at end-2013
• 91% of senior debt redeemed by end-2016
Phase 3
(2017-2020)
Phased wind-down
• 100% senior debt (€30.2bn) redeemed
• Sub debt – first call date March 2020
• Phased transfer of surplus to Exchequer
• Complete SDZ Docklands and residential delivery programmes
Why an AMC? Why NAMA?
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Loan workouts are part and parcel of banking business but there are a number of reasons
why setting up separate AMCs becomes necessary in certain circumstances.
In the case of NAMA, these included:
The scale and systemic nature of the problem
Commercial property lending in 2008 was €160bn – same size as Ireland’s GNP.
€60bn was Land & Development lending – higher risk.
Banks tend to be slow to recognise impairment and to deal with it. Irish banking
system forced to recognise losses on commercial property loans. Banks were slow to
recognise losses on other problem loan portfolios.
The need to get an overview of total debtor exposure across the financial
institutions – many of the larger debtors had loans outstanding with a number of
NAMA institutions
The requirement for specialist skills – particularly specialist real estate and
workout skills.
Scope and critical mass
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AMCs work well for commercial property loans which can be worked out quicker; different
model required for SMEs and residential mortgages which require longer time horizons
NAMA acquired €74bn of land and development and associated loans - identified by the
market and the credit ratings agencies as the riskiest loan exposures - from five
Participating Institutions (PIs) covered by the Irish Government guarantee scheme
The consolidation of a significant volume of property loans in NAMA has yielded
significant efficiencies – debtors dealing with only one lender.
Consolidation of professional skills and resources in turn have generated cost efficiencies
and substantially better returns than would have been achieved had the banks been
directed to establish their own individual workout subsidiaries
Acquisition of bank assets
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Total acquisition price of €31.8bn reflecting long-term economic value of bank assets
(overall 57% discount to par value of loans)
Senior government guaranteed debt of €30.2 billion (now almost fully paid)
Subordinated debt (first-loss piece) of €1.6 billion to be paid by March 2020
Acquisition price included a State Aid element of €5.6bn i.e. NAMA paid at least €5.6bn
more than a private investor would have paid (reflects long-term economic value)
NAMA acquired its loans by reference to a property collateral valuation date of 30
November 2009 and, as a result, had to absorb losses arising from the impact of the 25-
30% decline in Irish property values which took place subsequently
The participating institutions (PIs) would have been paid about €22 billion by the market
(assuming that there would have been buyers) rather than the €32 billion that they
received from NAMA.
Loan acquisition
Legal due diligence, valuation, purchase and transfer of over 12,000 property-related loans with a
par value of €74 billion. Majority of loans acquired over 10 months between March 2010 and
December 2010
Building an organisational structure from scratch:
Staff: started life with just 10 staff in January 2010 (peak staff of c380)
Systems: now there is an integrated enterprise IT platform in place including integrated MIS
and GIS systems
Building a debtor/loan management platform from scratch: 800 debtor connections representing
5,000 borrowing entities and 60,000 property units
Key challenge: getting to grips with the data as quickly as possible. Everything else flows from
this, including identification of staff skillsets and strategy
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Transfer price
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What do we think the assets are really worth when normal conditions return? Intrinsic value
is key
Long-term Economic Value (LEV) of property: “the value that it [property] can
reasonably be expected to attain in a stable financial system when the crisis
conditions prevailing … are ameliorated and in which a future price or yield of the
property is consistent with reasonable expectations having regard to the long-term
historical average…” (Section 72, NAMA Act 2009)
LEV – EU Commission concept
• ‘Asset Valuation...absent the liquidity stress...reflecting underlying economic value of
the assets....relative to the likelihood of the assets producing cashflows based on its
credit fundamentals’
Realistic transfer price forces banks to crystallise their loss positions on Day 1 and allows
the AMC to operate from a rebased asset valuation level … whilst also recognising the
longer time horizon over which the AMC is has been given to work out the assets
Carrying acquired assets at their old book value leads to unrealistic expectations and could
create an unsurmountable target for the AMC
NAMA acquired its loans by reference to a property collateral valuation date of 30
November 2009 and, as a result, had to absorb losses arising from the impact of the 25%-
30% decline in Irish property values which took place subsequent
The requirement for specialist skills – particularly specialist real estate and workout
skills. The task of an AMC is to manage the underlying collateral effectively
Challenge of retaining experienced staff in a recovering economy and property market –
recognition that NAMA is winding down
Majority of staff on specified purpose contracts – no job security.
VR programme – retention payments
NAMA sunset clause – never intended to become a permanent feature on the landscape.
Staffing - challenges
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NAMA’s focus is on intensively managing debtors, insolvency practitioners and loans to maximise debt
reduction and protect and enhance the long-term recoverable value of underlying assets. NAMA obtained
initial management information (MI) by requesting and receiving Debtor Business Plans.
Debtor management
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• Intensively managed by NAMA
• Key credit decisions and relationship management carried out by NAMA multi-disciplinary teams
• Loan administration performed by Participating Institutions
200 Debtors
€61bn Par debt
Avg €305m
• Relationship management performed by the originating financial institutions (dedicated NAMA unit) through NAMA Delegated Authority
• NAMA presence in each of the banks overseeing the management of the portfolio
• Relationship management and loan administration carried out by Participating Institutions / third party servicing firms within NAMA policy and procedures
600 Debtors
€13bn par debt
Avg €22m
NAMA seeking to ensure that debtors are aligned with NAMA objectives – maximisation of
debt repayment and of residential delivery.
Preferred approach is to work consensually with debtors where possible and NAMA has
worked with the majority (by value) of its debtors on that basis to date
Consensual approach means that debtors manage the agreed property and realisation
strategy, under close monitoring by NAMA, with suitably reduced overheads adopted to the
level of activity envisaged
Consensual approach also means reversal of any transfers of assets to related parties which
may have taken place over recent years and the granting to NAMA of charges over
unencumbered assets as additional security
Rental income from investment assets are brought within NAMA’s control – rents are lodged
to bank accounts over which NAMA has imposed security
Enforcement: Where a consensual approach is not possible and loans are in default,
enforcement proceedings are initiated. 11
Emphasis on consensual approach
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Asset management
From inception NAMA has placed a major emphasis on asset management to enhance
the future disposal value of the property securing its loans
Where appropriate and commercially viable, NAMA funds the development of certain
commercial and residential sites in order to maximise the recovery value of the associated
loans. The return on investment must be shown to outweigh the costs.
Working with debtors and receivers to:
• Complete unfinished development projects
• Fund new viable commercial and residential development [for which there is growing
demand in Dublin and the country’s other key growth centres]
• Enhance planning permissions and remove other barriers to development
Assess projects by reference to a wide range of feasibility criteria, including extent of
interest from prospective purchasers and tenants
NAMA competing for investor funds with other European jurisdictions which
have NPL portfolio problems – UK, Italy, Spain and CEE countries
Competitive advantages:
Ireland’s economic outlook
Ireland’s enforcement regime
Open marketing of transactions
Professional sales processes
State aid constraints – NAMA cannot exceed original EU-approved remit and
cannot act in ways which may cause market distortions.
Creating market liquidity
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Debt recovery options
Commercial transactions - Did not entertain buyers who wanted to buy at fire sale
valuations
Aided price discovery through supply of first wave of ‘major’ transactions.
Clear signals on transactions pipeline as Irish market recovered in 2013.
Consensual agreement with debtors and receivers to dispose of assets so as to
maximise their debt repayment to NAMA
Debtors refinance their debts with other institutions
NAMA's policy is that the sale of all loans and properties by debtors and receivers
should be openly marketed to ensure that the best price available in the market is
achieved
Launched an active loan sales process in 2011
Enabling NAMA to monetise its loan portfolio and thereby reduce its balance sheet.
Completed its first major Irish loan portfolio - €800m par debt portfolio (Project
Aspen).
Sale of debtor loans as single portfolios (Project Jewel) or as part of multi-debtor
loan portfolios (Project Arrow)
Commenced asset portfolio sales in 2013
Creation and sale of property portfolios controlled by a number of debtors e.g.
Project Hazel (retail)
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Progress – Deleveraging by NAMA
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Troika Target – 25% senior debt reduction by end-2013 – achieved
Troika Exit created opportunities – international investor interest
Contingent Liability – €30.2 billion guaranteed senior debt fully repaid
Impact on Sovereign – projected surplus of €3bn
Total cash generated – over €40 billion
Impact on Banks – removed substantial liability from Irish banks
EU/IMF report – NAMA seen in positive light internationally
“the creation of NAMA…helped improve the banks’ liquidity as it replaced their
distressed loans…with…senior bonds eligible as collateral for…funding”
“NAMA…illustrates that the active or ‘factory’ model to asset disposal can contribute
towards maximising the assets’ recovery value”
“a majority privately-owned structure has allowed keeping the NAMA … senior
bonds…off the general government balance sheets”
(Source: What Makes a Good ‘Bad Bank’? The Irish, Spanish and German Experience – European Commission, Sept 2016)
NAMA strategy Clear mandate - commercial objective is primary
The NAMA legislation is very clear that NAMA’s mandate is a commercial one and all
NAMA’s operations reflect this
Section 10 of the NAMA Act 2009:
“….NAMA shall, expeditiously ….obtain the best achievable financial return for
the State…”
• Maximise cash generation.
• Enhance asset values through asset management activity and through funding
commercial and residential development of NAMA-secured assets where it is
profitable to do so
NAMA has other objectives but they are subject to the primacy of the commercial
objective.
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www.nama.ie
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NAMA
The Irish experience – eight years along
the road Jamie Bourke
30th October 2017