National Asset Management Agency
The National Asset Management Agency is a body created by the Government of Ireland in late 2009 in response to the Irish financial crisis and the deflation of the Irish property bubble.
NAMA functions as a bad bank, acquiring property development loans from Irish banks in return for government purple debts bonds, ostensibly with a view to improving the availability of credit in the Irish economy. The original book value of these loans was €77 billion, and the original asset values to which the loans related was €88bn, with there being an average Loan To Value of 77% and the current market value is estimated at €47 billion.
NAMA is controversial, with politicians
and some economists criticising the approach, including Nobel Prize-winning economist Joseph Stiglitz who has said that the Irish government was "squandering" public money with its plan to bail out the banks.
One year after NAMA's establishment, the Irish government was compelled for other, but similar, reasons to seek a European Union-International Monetary Fund bailout in November 2010, the outcome of which will have considerable effects on NAMA's future operations.
Despite this early criticism, as of year end 2018, NAMA had recovered €37.4bn from its owned assets and projected that it would eventually generate a net surplus of €4bn. As of December 2024, NAMA had delivered a total surplus of €4.69bn to the Department of Finance, and projected that its final net surplus would be more than €5.2bn.
Background
As a result of the collapse of the Irish property market, Irish banks have property development loan assets secured on property with a market value significantly below the amount owed. Many loans are now non-performing due to debtors experiencing acute financial difficulties. Both factors have led to a sharp drop in the value of these loan assets.If the banks were to recognise the true value of these loans on their balance sheets, they would no longer meet their statutory capital requirements. The banks, therefore, need to raise further capital; however, given the uncertainty around the true value of their assets, their stock is in too little demand for a general share issuance to be a viable option.
The banks are also suffering a liquidity crisis due, in part, to their lack of suitable collateral for European Central Bank repo loans. Along with their capital requirement problems, this is limiting the banks' ability to offer credit to their customers and, in turn, contributing to the lack of growth in the Irish economy.
NAMA's operations
The National Asset Management Agency Bill, in its current format, applies to the six financial institutions which were covered by the Irish government's deposit guarantee scheme. Those institutions were Bank of Ireland, Allied Irish Banks, Anglo Irish Bank, EBS, Permanent TSB and Irish Nationwide. Other institutions, such as Ulster Bank, which are not covered, had the option to join the scheme. Ulster Bank eventually decided not to do so; its parent company Royal Bank of Scotland having joined the analogous UK scheme earlier in 2009.Then-Minister for Finance, Brian Lenihan said the banks would have to assume significant losses when the loans, largely made to property developers, are removed from their books. If such losses resulted in the banks needing more capital, then the government would insist on taking an equity stake in the lenders. Economist Peter Bacon, who was appointed by the government to advise on solutions to the banking crisis, said the new agency had potential to bring a better economic solution to the banking crisis and was preferable to nationalising the banks.
The assets were to be purchased by using government bonds, which led to a significant increase in Ireland's gross national debt.
The Bill provided for NAMA to be established on a statutory basis as a separate body corporate with its own Board appointed by the Minister for Finance and with management services provided by the National Treasury Management Agency.
The Bill envisaged that NAMA would arrange and supervise the identification and valuation of property-backed loans on the books of qualifying financial institutions in Ireland, but would delegate the purchase and management of these loans to a separately created Special Purpose Vehicle.
Master Special Purpose Vehicle
In a letter from the Central Statistics Office of Ireland to Eurostat, dated 22 September 2009, details are provided on the suggested creation by NAMA of a Master Special Purpose Vehicle known as National Asset Management Ltd and controlled by the holding company National Asset Management Agency Investment Ltd. The CSO sought guidance from Eurostat on how NAMA and the SPV would be classified in national accounts.NAMA arranged and supervised the identification and valuation of property-backed loans on the books of qualifying financial institutions in Ireland, but the purchase and management of these loans were the responsibility of the SPV. The SPV has a majority of private equity. It funds the purchase of the loan books from financial institutions by issuing securities, most of which are backed by a guarantee from the Irish Government.
According to the details provided to Eurostat, the Master SPV is a separate legal entity and is jointly owned by private investors, who would own 51% of its equity and therefore have the majority vote, and by NAMA, which would hold the remaining 49%. The subscribed capital of the Master SPV would be €100m. Although the SPV has its own Board, NAMA retains a veto over all decisions of the Board that could affect the interests of NAMA or of the Irish government. The Master SPV is run with the objective of making a profit on the purchase and management of the assets it purchases.
The private investors in the Master SPV are entitled to the following economic return: the equity investors will receive an annual dividend linked to the performance of the Master SPV; On winding up of the Master SPV, the equity investors would only be repaid their capital if the Master SPV has the resources; they would receive a further equity bonus of 10% of the capital if the Master SPV makes a profit; All other profits and gains of the Master SPV would accrue to NAMA.
Former Finance Minister, the late Brian Lenihan believed that pension funds could be the most appropriate investors in the SPV. The annual dividend, should one be paid, is to be capped at the 10-year Irish Government bond yield at the time the dividend is declared. Lenihan said he was confident that the €51m could be found from suitable investors because of the similarity of the SPV investment to a government bond.
In its analysis, the Central Statistics Office requested that NAMA be classified as a Government Entity and the Master SPV as a Financial Institution; the likely impact of this classification could be that the debt issued by the SPV, guaranteed by the Irish government, would not be classified as part of the national debt of Ireland by Eurostat.
In a letter dated 16 October 2009, Eurostat gave a preliminary view. The letter stated that NAMA is to be treated as part of the government sector, the type of assets to be purchased cannot be expanded without the approval of the European Commission, that it be a temporary scheme and that the size of potential losses be small relative to the total liabilities. Eurostat noted that the Minister for Finance will examine at the end of 2012 whether NAMA has met its objectives and decide if its continuation is justified. It suggested that a detailed analysis has to be carried out, especially of the guarantee arrangements. It made no judgement on the draft NAMA business plan but stated that the presence of market investors is reassuring to it. Their preliminary conclusion is that the Master SPV may be classified as a financial corporation. However, this is a preliminary view and is subject to revision.
NAMA's private investors
The three investors owning 51% of the SPV were revealed by the Minister of Finance in April 2010, and in NAMA's June 2010 business plan:- Irish Life Investment Managers, a part of Permanent TSB;
- New Ireland Assurance, a part of Bank of Ireland;
- Clients of Allied Irish Banks Investment Managers, a part of Allied Irish Banks
The purpose of NAMA's quasi-independent legal status is to remove its debts from general Irish government debt. This is the position of the government, the International Monetary Fund and Eurostat.
But, as the three private investors are bank-run pension fund managers, whose parent or major-shareholder companies had been all but nationalised by 2011, and as the 2010 Credit Institutions Act allows the government powers to apply to the courts to restructure any financial body in any way in secret at any time, and as a general guarantee to protect the parent banks remains in place, the international rating agencies consider NAMA's debts to be a part of Irish government debt. Besides, NAMA's directors on the SPV board "will maintain a veto over all decisions of the Board that could affect the interests of NAMA or of the Irish government."