Have I got Nama right? (how it works)

kraggy

Aib are owed 100 million by a developer.

Nama pay Aib 40 million for that loan.

Nama chase developer for 100 million, hoping to get 40 million plus. Any plus = profit.

Is that right?

Squall19

Aib are owed 100 million by developer.

Nama pay Aib 70 million for that property/loan, because 40 million would leave them short changed.

Nama chase developer for money, he has nothing.

They put property on Market for 80 million, they have been shafted as property isn't even worth 20 million.

No one wants it, so they wait and wait and wait for a better offer, nothing comes.

They dont sell it for the 20 million it's worth, they let it sit there and let the taxpayers pay for it all over again with another bailout in 2014.

That's my understanding anyway.

KenHy

Yes Kraggy, you pretty much have it. The idea was to get these bad loans of the banks books to aid it's recovery and get it back to normal lending which should kick off the economy again.

It's not quite worked out like that due to many other factors, but for now NAMA has quite a lot of poorly performing loans which are effectivly in negitive equity. They will try sit on things and hope that in the long term that they will be able to sell at a profit.

Squall takes a very negitive view on the future, NAMA can sit on assets for a long time to make sure it makes a profit and is not going to need a bailout!

kraggy

Ok thanks lads.

I though the figure that Nama were paying the banks was around 40-50%.

Anyway, the percentage that Nama has been giving the banks for the loan books, is that the billions that we hear about in news reports about bailing out the banks. Or is that money separate?

Surely it must be, otherwise, in my example, the banks balance sheets would be looking very healthy after getting 40 million in this instance from Nama?

SBWife

On average you are correct with your 40-50% figure, but there is a huge range in the actual discounts applied to the loans. For example a loan secured on development land outside of Carrick on Shannon would have a 90% discount where a loan on a prime hotel or retail property in London might only have a 10 or 15% discount.

The banks have received two sources of Government money:

From NAMA they've received money in exchange for loans.
From Government directly they've received money in exchange for ownership (equity).

KenHy

NAMA was just part of the bailout, In buying up shares "equity capital" in the banks (almost 100% in all bar Bank of Ireland) the goverment gave the banks Billions more again.

SBWife

kraggy wrote: »

Surely it must be, otherwise, in my example, the banks balance sheets would be looking very healthy after getting 40 million in this instance from Nama?

This would make the bank balance sheet unhealthy.

Bank starts with an asset on its books at €100m (the original loan - it in essence purchased this asset by paying the developer €100m in cash).

NAMA buys this for €40m - bank receives €40m in cash. Books a loss of €60m which reduces equity by this amount.

Bank has turned it's original €100m in cash into €40m in cash - not a great way of doing business.

kraggy

SBWife wrote: »

This would make the bank balance sheet unhealthy.

Bank starts with an asset on its books at €100m (the original loan - it in essence purchased this asset by paying the developer €100m in cash).

NAMA buys this for €40m - bank receives €40m in cash. Books a loss of €60m which reduces equity by this amount.

Bank has turned it's original €100m in cash into €40m in cash - not a great way of doing business.

Ok, so Nama is now down 40m, then goes chasing the developer for as much as possible, say 60 million, therefore makes a profit of 20 million?