Brendan Burgess
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- Messages
- 52,264
Legislation published
- Thread starter Brendan Burgess
- Start date
Brendan Burgess
Founder
- Messages
- 52,264
From the Minister's statement
How will NAMA work?
Step 1
NAMA will buy loans from the participating banks at a significant discount( discount to what?) – these loans will be from the riskiest part of the bank portfolios, the land and development loans, as well as certain associated loans.
This will take these riskier loan classes away from the balance sheets of the banks concerned and make the banks safer and more secure for depositors and investors.
Step 2
NAMA will pay the banks concerned for these loans. It will do so on the basis of valuations carried out by experts and in accordance with pre-defined valuation methodology. The banks’ book value of the loans will not be a factor and the banks will have to recognise a loss on their books at the time of the transfer for the difference between the book value and the amount paid by NAMA.
The payment for the loans will be in the form of Government securities and/or guaranteed securities, and the principles of the valuation methodology are set out in the draft legislation and the Minister will be making detailed regulations based on these principles. The valuation methodology along with all other State aid aspects of the NAMA initiative will be subject to approval of the EU commission.
This method of payment will ease pressures on the banks arising from the tighter liquidity conditions that have prevailed for the past year or so, giving them access to cash or near-cash assets in place of the much less liquid property loan assets they had before. Again, this will make for more stable and secure financial institutions, better able to lend and support the domestic economy
Step 3
NAMA will manage these loans, either directly or indirectly, so as to obtain the best achievable return from them. In the meanwhile, it will collect interest due and pursue debts so as to ensure its own income stream and to recoup the Government investment over time.
NAMA in effect puts itself in the place of the bank that originated the loan, and will have all the same rights to pursue debts, where necessary. Borrowers who continue to meet their contractual obligations, of course, have no reason to worry – their rights are fully protected.
What will NAMA look like?
It is intended that NAMA will be a separate body with its own Board appointed by the Minister for Finance, with staffing resources and management services provided by the National Treasury Management Agency (NTMA). It will have all necessary commercial powers of a financial asset management company to establish subsidiaries, to operate through agents, to buy and sell assets, to manage loans and work with borrowers, and to take full and determined action in relation to debts owed.
NAMA itself will maintain a streamlined organisational structure and will outsource work as appropriate. However, it will have complete control of the assets and will make all the major decisions in regard to them.
How much assets will be transferred?
A lot of preparatory work has been taking place in regard to NAMA, and the indications are that the level of assets which will have to transfer is in the range indicated in the Supplementary Budget in April. Until the valuations are actually carried out we will not have final information on the exact amount that NAMA will pay, but there will be significant discounts on the book values at which these assets are carried on the banks’ Balance Sheets.
What are the next steps?
The legislation will be brought to the Oireachtas in September with a view to ensuring a proper debate and an expeditious passage of the legislation. In the interim, close collaboration will continue with the European Commission in relation to State Aid approval. Consultations will also be undertaken with the European Central Bank.
At a practical level, preparations will continue in relation to preparing the organisational and legal structure of NAMA, and ensuring that all the necessary steps are taken for the commencement of asset transfers later this year. It is intended that assets will transfer in tranches, starting with the loans of the largest borrowers.
Will this have broader implications for the banking sector?
The Minister noted that it is clear that an intervention of this scale in the banking market is bound to have considerable implications both for the institutions individually and for the broader structure of the banking system. The Minister said that these implications are being considered and may, as indicated earlier, include implications for capital requirements. These matters will form part of the broader context in which the NAMA legislation will be discussed and debated in September. The Minister added that “the next few weeks will give market participants, public representatives and the public themselves an opportunity to digest the very detailed and comprehensive legislation that I have had prepared over the recent months. I intend that there will be a well-informed, broad-ranging debate on the financial system in September, that will aim to set the tone and direction for public policy for the coming years. I expect that all who participate in that debate will do so in a balanced and thoughtful way, having regard to the scale of our national difficulties and the necessity to address them carefully and comprehensively.”
What are the principal features of the draft Bill?
The principal features of the draft Bill include:
Participating Institutions
Institutions may apply to the Minister to be designated as participating institutions. The draft text includes objective and non-discriminatory criteria which must be taken account of for designation and these include systemic importance to the State, other State supports available to the institution, maintenance of financial stability and facilitating the flow of credit to the economy. In volunteering for participation, an institution will be required to confirm that it will accept the designation of eligible assets by NAMA and will accept the NAMA valuation of those assets.
Eligible Loan Assets
Eligible assets for transfer to NAMA will include the land and development books and associated loans. Associated loans will be those loans which are not in the land and development category but which are held by individuals/companies that also have land and development exposures or the borrower may be a systemic risk to the financial system. Associated loans will take account of cross collateralisation and other associated loan exposures of borrowers.
Valuation
Valuations by NAMA will be consistent with EU Commission guidelines and will be based on the current market value of the underlying collateral, adjusted to reflect a longer term economic value which the underlying asset could reasonably be expected to attain. Detailed regulations on how the long term economic value is to be calculated are being drawn up by the Minister and will be published in September. The principal factors to be taken into account in the Regulations are provided for in the draft legislation. There will be an opportunity for institutions to seek a review of the price paid, and any review will be carried out by a valuation panel which will report to the Minister. But NAMA will not be required to take any asset and if appropriate it can refuse to take assets.
How will NAMA work?
Step 1
NAMA will buy loans from the participating banks at a significant discount( discount to what?) – these loans will be from the riskiest part of the bank portfolios, the land and development loans, as well as certain associated loans.
This will take these riskier loan classes away from the balance sheets of the banks concerned and make the banks safer and more secure for depositors and investors.
Step 2
NAMA will pay the banks concerned for these loans. It will do so on the basis of valuations carried out by experts and in accordance with pre-defined valuation methodology. The banks’ book value of the loans will not be a factor and the banks will have to recognise a loss on their books at the time of the transfer for the difference between the book value and the amount paid by NAMA.
The payment for the loans will be in the form of Government securities and/or guaranteed securities, and the principles of the valuation methodology are set out in the draft legislation and the Minister will be making detailed regulations based on these principles. The valuation methodology along with all other State aid aspects of the NAMA initiative will be subject to approval of the EU commission.
This method of payment will ease pressures on the banks arising from the tighter liquidity conditions that have prevailed for the past year or so, giving them access to cash or near-cash assets in place of the much less liquid property loan assets they had before. Again, this will make for more stable and secure financial institutions, better able to lend and support the domestic economy
Step 3
NAMA will manage these loans, either directly or indirectly, so as to obtain the best achievable return from them. In the meanwhile, it will collect interest due and pursue debts so as to ensure its own income stream and to recoup the Government investment over time.
NAMA in effect puts itself in the place of the bank that originated the loan, and will have all the same rights to pursue debts, where necessary. Borrowers who continue to meet their contractual obligations, of course, have no reason to worry – their rights are fully protected.
What will NAMA look like?
It is intended that NAMA will be a separate body with its own Board appointed by the Minister for Finance, with staffing resources and management services provided by the National Treasury Management Agency (NTMA). It will have all necessary commercial powers of a financial asset management company to establish subsidiaries, to operate through agents, to buy and sell assets, to manage loans and work with borrowers, and to take full and determined action in relation to debts owed.
NAMA itself will maintain a streamlined organisational structure and will outsource work as appropriate. However, it will have complete control of the assets and will make all the major decisions in regard to them.
How much assets will be transferred?
A lot of preparatory work has been taking place in regard to NAMA, and the indications are that the level of assets which will have to transfer is in the range indicated in the Supplementary Budget in April. Until the valuations are actually carried out we will not have final information on the exact amount that NAMA will pay, but there will be significant discounts on the book values at which these assets are carried on the banks’ Balance Sheets.
What are the next steps?
The legislation will be brought to the Oireachtas in September with a view to ensuring a proper debate and an expeditious passage of the legislation. In the interim, close collaboration will continue with the European Commission in relation to State Aid approval. Consultations will also be undertaken with the European Central Bank.
At a practical level, preparations will continue in relation to preparing the organisational and legal structure of NAMA, and ensuring that all the necessary steps are taken for the commencement of asset transfers later this year. It is intended that assets will transfer in tranches, starting with the loans of the largest borrowers.
Will this have broader implications for the banking sector?
The Minister noted that it is clear that an intervention of this scale in the banking market is bound to have considerable implications both for the institutions individually and for the broader structure of the banking system. The Minister said that these implications are being considered and may, as indicated earlier, include implications for capital requirements. These matters will form part of the broader context in which the NAMA legislation will be discussed and debated in September. The Minister added that “the next few weeks will give market participants, public representatives and the public themselves an opportunity to digest the very detailed and comprehensive legislation that I have had prepared over the recent months. I intend that there will be a well-informed, broad-ranging debate on the financial system in September, that will aim to set the tone and direction for public policy for the coming years. I expect that all who participate in that debate will do so in a balanced and thoughtful way, having regard to the scale of our national difficulties and the necessity to address them carefully and comprehensively.”
What are the principal features of the draft Bill?
The principal features of the draft Bill include:
- NAMA will buy the appropriate assets of the participating institutions. The price will not be the book value of the loans but will include an appropriate write down which the participating institutions will have to reflect in their books.
- NAMA will purchase the assets through the issue to the banks of Government securities and/or guaranteed securities issued by NAMA. The replacing of property related loans with Government bonds will strengthen the balance sheets of the banks and this will increase their capacity to access liquidity in the financial markets and, if necessary, through Eurosystem liquidity operations.
- The principles of the valuation methodology are set out in the draft legislation and the Minister will be making detailed regulations based on these principles. The methodology will recognise that the current market for property backed loans and the underlying assets are very illiquid and will not require the banks to accept ‘fire-sale’ values. But nor will it be guided in its pricing by the property prices and expectations regarding property prices that underpinned the original lending decision. It will aim to set a reasonable price having regard to a longer term perspective on the property market. The valuation methodology and indeed the scheme as a whole will require EU State Aid approval.
- NAMA will set the price it is prepared to pay for assets.
- In acquiring loans, NAMA will have all necessary powers to carry out full due diligence and acquire all necessary information.
- Participating institutions are obliged to act in good faith and comply with appropriate directions from NAMA.
- NAMA will have all the powers necessary to purchase, hold, and dispose of assets and if necessary complete developments with a view to achieving an optimum return to the State.
- NAMA will be accountable to the Oireachtas in the usual manner. The agency will report to the Minister and reports will be laid before the Oireachtas. NAMA accounts will be subject to audit by the C&AG.
- Various legislative exemptions and variances have been provided to enable NAMA to complete its work as efficiently as possible.
- To deal with the danger that persons might seek to impede NAMA’s operations in particular ways NAMA has been provided with very limited powers to obtain property or interests compulsorily.
- Where litigation arises in respect of NAMA’s operations, provisions have been made to ensure this does not unduly obstruct NAMA’s efficient operations and such litigation proceeds without delay.
- NAMA will be provided with powers necessary to enforce the security on loans, including the appointment of statutory receivers and to be vested with ownership of the underlying asset where appropriate.
- The issue of the set off of tax by the banks against losses will be addressed by the Minister in the publication of the Bill in September.
Participating Institutions
Institutions may apply to the Minister to be designated as participating institutions. The draft text includes objective and non-discriminatory criteria which must be taken account of for designation and these include systemic importance to the State, other State supports available to the institution, maintenance of financial stability and facilitating the flow of credit to the economy. In volunteering for participation, an institution will be required to confirm that it will accept the designation of eligible assets by NAMA and will accept the NAMA valuation of those assets.
Eligible Loan Assets
Eligible assets for transfer to NAMA will include the land and development books and associated loans. Associated loans will be those loans which are not in the land and development category but which are held by individuals/companies that also have land and development exposures or the borrower may be a systemic risk to the financial system. Associated loans will take account of cross collateralisation and other associated loan exposures of borrowers.
Valuation
Valuations by NAMA will be consistent with EU Commission guidelines and will be based on the current market value of the underlying collateral, adjusted to reflect a longer term economic value which the underlying asset could reasonably be expected to attain. Detailed regulations on how the long term economic value is to be calculated are being drawn up by the Minister and will be published in September. The principal factors to be taken into account in the Regulations are provided for in the draft legislation. There will be an opportunity for institutions to seek a review of the price paid, and any review will be carried out by a valuation panel which will report to the Minister. But NAMA will not be required to take any asset and if appropriate it can refuse to take assets.
Brendan Burgess
Founder
- Messages
- 52,264
This doesn't really tell us anything new.
Brendan Burgess
Founder
- Messages
- 52,264
Long post - sections dealing with Valuation
Determination of acquisition values—valuation methodology.
58.—(1) In this section—
(a) a reference to the current market value of the property comprised in the security for a credit facility that is a bank asset is a reference to the estimated amount that would be paid between a willing buyer and a willing seller in an arm’slength transaction where both parties acted knowledgeably, prudently and without compulsion,
(b) a reference to the current market value of a bank asset is a reference to the estimated amount that would be paid between a willing buyer and a willing seller in an arm’s-length transaction where both parties acted knowledgeably, prudently and without compulsion,
(c) a reference to the long-term economic value of the property comprised in the security for a credit facility that is a bank asset is a reference to the value that the property can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated and in which a future price or yield of the asset is consistent with reasonable expectations having regard to the long-term historical average, and
(d) a reference to the long-term economic value of a bank asset is a reference to the value that it can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated.
(2) Subject to subsection (4), the acquisition value of a bank asset is its long-term economic value as determined by NAMA.
(3) NAMA shall determine the long-term economic value of a bank asset by reference to the following:
(a) the current market value of the property comprised in the security for the credit facility that is the bank asset at a date specified by NAMA;
(b) the current market value of the bank asset, at a date specified by NAMA, by reference to market rates and accepted market methodology;
(c) the long-term economic value of the property referred to in paragraph (a) at the date referred to in that paragraph,
in accordance with—
(i) subsection (6),
(ii) the regulations made by the Minister under section 59, and
(iii) the rules in relation to State aid made by the Commission of the European
Communities.
(4) NAMA may, and subject to any regulations made by the Minister under subsection (5), having regard to—
(a) the purposes of this Act,
(b) the expected date of acquisition of the bank asset concerned,
(c) the type of bank asset,
(d) the rules in relation to State aid made by the Commission of the European
Communities, and
(e) any other relevant matter affecting valuation,
determine that the acquisition value to be assigned to particular bank assets or class of bank assets shall be—
(i) their current market value, or
(ii) a greater value (not exceeding their long-term economic value) that NAMA
considers appropriate in the circumstances.
(5) The Minister may make regulations for the purposes of the application of subsection (4). For that purpose the Minister shall have regard to—
(a) the purposes of this Act,
(b) the expected dates of acquisition of bank assets,
(c) the type of bank assets,
(d) the rules in relation to State aid made by the Commission of the European
Communities, and
(e) any other relevant matter that affects valuation.
(6) In determining the acquisition value of a bank asset under subsection (2) or (4), NAMA
shall have regard to the following:
(a) any value that the participating institution concerned submits as being, in its
opinion, the current market value of the property comprised in the security for
the credit facility that is the bank asset;
(b) the acquisition value already determined in accordance with the valuation
methodology of another similar bank asset;
(c) the credit worthiness of the debtor or obligor concerned;
(d) the performance history of the debtor or obligor in respect of that asset;
(e) any reports furnished to NAMA in relation to the matters specified in subsection (7) whether prepared before or after the commencement of this Act.
(7) The Minister may make regulations providing for the taking into account by NAMA, in determining the acquisition value of a bank asset, of any report of an expert (whether prepared before or after the commencement of this Act) concerning factors or matters relevant to the determination of the value of property or property of a particular type or in specific locations or with specific features or benefits, including—
(a) zoning,
(b) availability of utilities,
(c) availability of similar property in similar locations,
(d) historic value of property in particular locations, and
(e) recent valuations of similar property in similar locations.
Regulations as to adjustment factors, etc.
59.—(1) The Minister may make regulations providing for the adjustment factors to be taken into account in determining the long-term economic value of a bank asset and the property comprised in the security for a credit facility that is a bank asset.
(2) In making regulations under subsection (1), the Minister may have regard—
(a) to the rules in relation to State aid and any relevant guidance issued by the Commission of the European Communities, and
(b) in relation to the determination of the long-term economic value of the property comprised in the credit facility that is a bank asset, to—
(i) the extent to which the price or yield of the asset has deviated from the long-term historical average,
(ii) supply and demand projections by reference to the type of asset and its location,
(iii) macroeconomic projections for growth in the gross domestic product and for inflation,
(iv) demographic projections,
(v) land and planning considerations (including national, regional or local
authority development or spatial plans) that may exert an influence on the future value of the asset concerned,
(vi) analyses presented by the Minister of the Environment, Heritage and Local Government on the extent to which existing land zoning and
planning permissions granted and in force meet or exceed projected growth requirements, and
(vii) analyses presented by the Dublin Transport Office and the National
Transport Authority of existing and future transport planning and the
associated supply and demand projections for land use.
(c) in relation to the determination of the long term economic value of bank assets, to—
(i) the long-term economic value of the property comprised in the security
for a credit facility that is a bank asset,
(ii) the net present value of the anticipated income stream associated with
the loan asset,
(iii) in the case of rental property, current and projected vacancy rates,
(iv) loan margins,
(v) an appropriate discount rate to reflect NAMA’s cost of funds plus a
margin that represents an adequate remuneration to the State that takes
account of the risk in relation to the bank assets acquired by NAMA,
(vi) the mark-to-market value of any derivative contracts associated with the
bank asset,
(vii) any ancillary security such as personal guarantees and corporate assets,
and (viii) fees reflecting the costs of loan operation, maintenance and enforcement,
and (d) any other matter that he or she considers relevant.
Determination of acquisition values—valuation methodology.
58.—(1) In this section—
(a) a reference to the current market value of the property comprised in the security for a credit facility that is a bank asset is a reference to the estimated amount that would be paid between a willing buyer and a willing seller in an arm’slength transaction where both parties acted knowledgeably, prudently and without compulsion,
(b) a reference to the current market value of a bank asset is a reference to the estimated amount that would be paid between a willing buyer and a willing seller in an arm’s-length transaction where both parties acted knowledgeably, prudently and without compulsion,
(c) a reference to the long-term economic value of the property comprised in the security for a credit facility that is a bank asset is a reference to the value that the property can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated and in which a future price or yield of the asset is consistent with reasonable expectations having regard to the long-term historical average, and
(d) a reference to the long-term economic value of a bank asset is a reference to the value that it can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated.
(2) Subject to subsection (4), the acquisition value of a bank asset is its long-term economic value as determined by NAMA.
(3) NAMA shall determine the long-term economic value of a bank asset by reference to the following:
(a) the current market value of the property comprised in the security for the credit facility that is the bank asset at a date specified by NAMA;
(b) the current market value of the bank asset, at a date specified by NAMA, by reference to market rates and accepted market methodology;
(c) the long-term economic value of the property referred to in paragraph (a) at the date referred to in that paragraph,
in accordance with—
(i) subsection (6),
(ii) the regulations made by the Minister under section 59, and
(iii) the rules in relation to State aid made by the Commission of the European
Communities.
(4) NAMA may, and subject to any regulations made by the Minister under subsection (5), having regard to—
(a) the purposes of this Act,
(b) the expected date of acquisition of the bank asset concerned,
(c) the type of bank asset,
(d) the rules in relation to State aid made by the Commission of the European
Communities, and
(e) any other relevant matter affecting valuation,
determine that the acquisition value to be assigned to particular bank assets or class of bank assets shall be—
(i) their current market value, or
(ii) a greater value (not exceeding their long-term economic value) that NAMA
considers appropriate in the circumstances.
(5) The Minister may make regulations for the purposes of the application of subsection (4). For that purpose the Minister shall have regard to—
(a) the purposes of this Act,
(b) the expected dates of acquisition of bank assets,
(c) the type of bank assets,
(d) the rules in relation to State aid made by the Commission of the European
Communities, and
(e) any other relevant matter that affects valuation.
(6) In determining the acquisition value of a bank asset under subsection (2) or (4), NAMA
shall have regard to the following:
(a) any value that the participating institution concerned submits as being, in its
opinion, the current market value of the property comprised in the security for
the credit facility that is the bank asset;
(b) the acquisition value already determined in accordance with the valuation
methodology of another similar bank asset;
(c) the credit worthiness of the debtor or obligor concerned;
(d) the performance history of the debtor or obligor in respect of that asset;
(e) any reports furnished to NAMA in relation to the matters specified in subsection (7) whether prepared before or after the commencement of this Act.
(7) The Minister may make regulations providing for the taking into account by NAMA, in determining the acquisition value of a bank asset, of any report of an expert (whether prepared before or after the commencement of this Act) concerning factors or matters relevant to the determination of the value of property or property of a particular type or in specific locations or with specific features or benefits, including—
(a) zoning,
(b) availability of utilities,
(c) availability of similar property in similar locations,
(d) historic value of property in particular locations, and
(e) recent valuations of similar property in similar locations.
Regulations as to adjustment factors, etc.
59.—(1) The Minister may make regulations providing for the adjustment factors to be taken into account in determining the long-term economic value of a bank asset and the property comprised in the security for a credit facility that is a bank asset.
(2) In making regulations under subsection (1), the Minister may have regard—
(a) to the rules in relation to State aid and any relevant guidance issued by the Commission of the European Communities, and
(b) in relation to the determination of the long-term economic value of the property comprised in the credit facility that is a bank asset, to—
(i) the extent to which the price or yield of the asset has deviated from the long-term historical average,
(ii) supply and demand projections by reference to the type of asset and its location,
(iii) macroeconomic projections for growth in the gross domestic product and for inflation,
(iv) demographic projections,
(v) land and planning considerations (including national, regional or local
authority development or spatial plans) that may exert an influence on the future value of the asset concerned,
(vi) analyses presented by the Minister of the Environment, Heritage and Local Government on the extent to which existing land zoning and
planning permissions granted and in force meet or exceed projected growth requirements, and
(vii) analyses presented by the Dublin Transport Office and the National
Transport Authority of existing and future transport planning and the
associated supply and demand projections for land use.
(c) in relation to the determination of the long term economic value of bank assets, to—
(i) the long-term economic value of the property comprised in the security
for a credit facility that is a bank asset,
(ii) the net present value of the anticipated income stream associated with
the loan asset,
(iii) in the case of rental property, current and projected vacancy rates,
(iv) loan margins,
(v) an appropriate discount rate to reflect NAMA’s cost of funds plus a
margin that represents an adequate remuneration to the State that takes
account of the risk in relation to the bank assets acquired by NAMA,
(vi) the mark-to-market value of any derivative contracts associated with the
bank asset,
(vii) any ancillary security such as personal guarantees and corporate assets,
and (viii) fees reflecting the costs of loan operation, maintenance and enforcement,
and (d) any other matter that he or she considers relevant.