gallenalliance Solicitors Business Centre No. 1 Lower Mayor Street International Financial Services Centre Dublin 1 Irelan...
A credit institution can apply to the Minister to be Once NAMA has identified the eligible bank
review the total portfolio acquisition value damages owing to third parties as a result of a
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NAMA Status Update November 2009

Published on: Mar 3, 2016
Published in: Economy & Finance      Business      

Transcripts - NAMA Status Update November 2009

  • 1. gallenalliance Solicitors Business Centre No. 1 Lower Mayor Street International Financial Services Centre Dublin 1 Ireland t: +353 (0)1 6903200 This document is a general outline only and is not a complete or conclusive statement of the law. Specific legal advice should be sought before any action is taken. NAMA will purchase the riskiest loans from the BANKING AND FINANCIAL SERVICES GROUP BRIEFING banks in order to free up the bank’s capital and ensure their capabilities to lend to consumers and business. NAMA: Status Update The amount NAMA pays for these loans will be November 2009 significantly lower than the book value currently held by the banks on these assets. In his most recent comments, the Minister said on average he 1. Introduction expects the loans will be discounted by 30% but analysts believe this could vary from 17% to 38% The legislation (the Bill) establishing the National for individual banks. Payment will be made in Asset Management Agency (NAMA) was government or government backed bonds to be published on the 10th September 2009 by the issued by NAMA. Irish Minister for Finance (the Minister). The Bill was the outcome of a consultation process that NAMA will have a duty to manage the loans in took place after the draft legislation was published such a way as to achieve the best return. It will in July. It has now been passed by both the Dáil also collect interest due and pursue debts in order and the Seanad and is due to be signed into law to ensure a constant income stream and to recoup this week. When and how NAMA is to come into the government investment. motion both legally and in real terms, however, remains unclear. 5. Risk Sharing 2. Purpose The Bill provides for some of the bonds issued by NAMA to be in the form of subordinated debt. The purpose of NAMA remains unchanged. Its aim is to take high risk land and property Where assets are paid for using subordinated development loans off the books of the country’s bonds, NAMA will be entitled to hold back full banks in an attempt to free up their balance payment if the assets purchased do not perform sheets making them more attractive to investors satisfactorily. The issue of subordinated debt is and restoring the flow of credit to business and viewed by the government as a mechanism for consumers. sharing the risk between NAMA and the banks. 3. Book Value of Assets to be Transferred The view is that by partly paying the banks in subordinated bonds and suspending payment in It was previously anticipated that NAMA would the event that the assets purchased with such acquire bank assets with an estimated book value bonds do not meet NAMA’s projected forecasts, of approximately €90 billion. This number has the banks will effectively be held partly since been reduced to €77 billion. responsible thus reducing the risk to the taxpayer. At a high level, it is now projected that 36% of the One downside to the sharing arrangement is the assets acquired will be land, 28% development much higher rate of interest that subordinated property and 36% associated commercial loans. bonds will attract because of the risk associated with the debt. This has been quoted by the 4. Main Provisions Minister as the reason only a small percentage of the bonds issued will be subordinated. (It is currently anticipated that 5% of the bonds issued These are essentially unchanged: by NAMA will be in the form of subordinated debt, a proportion that has been criticised by some for NAMA will be a separate statutory body and will being too small). have all the necessary commercial powers of a financial asset management company. 6. Who are the Participating Banks? 1
  • 2. A credit institution can apply to the Minister to be Once NAMA has identified the eligible bank designated as a participating institution. The assets that it proposes to acquire and has application must be made within 28 days of the determined the acquisition value for each of those establishment date to be set for NAMA. The bank assets, NAMA will serve on the institution, Minister will make his decision after consultation an acquisition schedule setting out the details of with the Central Bank and Financial Regulator the acquisition. based on, inter alia, the systematic importance of the credit institution to the financial system or the NAMA will inherit all interest in the acquired acquisition of the institution’s assets to fulfilling the assets and all obligations of the participating bank purpose of the legislation. subject to any obligations or liabilities that are excluded from the acquisition schedule. It is currently anticipated that the following institutions will be designated as participating The Bill also provides that the assets acquired by institutions: NAMA will “over-reach” any equitable interest in the land. This ensures that NAMA will acquire the  Allied Irish Banks, p.l.c.; assets free of any unregistered charges or burdens, regardless of whether or not the  Anglo Irish Bank Corporation Limited; purchaser has notice of it.  Bank of Ireland; 8. Valuation of Eligible Assets  The Educational Building Society; and Each participating bank’s loan book will be examined on a loan by loan basis to determine whether the loan is to transfer into NAMA and, if  The Irish Nationwide Building Society. so, at what value. 7. The Acquisition of Assets by NAMA NAMA will, according to a methodology that has not yet been fully settled, take into account market The participating institutions are subject to a duty value and long-term economic value and place an of utmost good faith. This duty creates a high acquisition value on each eligible bank asset. onus of responsibility on the institutions to make full disclosure to NAMA of all relevant matters The concept of “long-term economic value” concerning their loan assets. NAMA will then (LTEV) has been the cause of much debate and decide which of these assets it will acquire. controversy. Under the Bill, the LTEV has been defined as the value that the property can: The assets which may be acquired by NAMA are reasonably be expected to attain in a stable extremely broad and could potentially extend financial system when “current crisis conditions” beyond development loans and other related prevailing at the time of passing of the legislation security. The potential categories of assets are ameliorated. Unfortunately, “current crisis include: conditions” have not been defined in the Bill and it is feared that this will lead to difficulties in  loans, whether wholly or partly funding the determining future values and may give rise to development of land; litigation in the interpretation of same.  loans where any element of the security The Bill prov i d e s that the LTEV is to be consists of an interest in development land; determined by reference to the following factors:  classes of loans where the overall  the current market value of the underlying indebtedness is such that, in the opinion of the property security; Minister, their acquisition is necessary for the purposes of the legislation; and  the current market value of the bank asset; and  any other type of credit or financial accommodation and any related rights  the LTEV of the underlying property. designated by the Minister. A participating institution may, in certain Any loan created after 31 December 2008 will not circumstances, object to the valuation given to a be eligible for acquisition by NAMA. However, group of assets by NAMA. If eligible for refinanced or renegotiated loans which were consideration, the objection will be transferred to originally made available prior to that date can be NAMA’s valuation panel (the Panel) for review. acquired. The valuation panel is to comprise a maximum of 12 persons appointed by the Minister. Its role is to 2
  • 3. review the total portfolio acquisition value damages owing to third parties as a result of a specified for an acquired portfolio by NAMA. wrongful transfer of assets. The Panel will have 90 days to review a loan 12. Current Status value and advise the Minister as to whether the valuation is correct or not. Such an objection will The Bill has been passed by the Dáil and the not prevent the asset transfer going ahead. If a Seanad and is now due to be signed into law by valuation is to be adjusted, the bank will be paid or President Mary McAleese, unless the Bill is a refund will be received by NAMA. referred to the Supreme Court for testing (which is not currently expected). 9. Foreign Property The Minister has indicated that lenders will The Bill introduces special provisions to deal with formally confirm plans to participate in NAMA by the significant portion of bank assets which are the year-end with loans to start being transferred governed by laws other than those of Ireland. from January 2010. There is some doubt surrounding this proposed timetable, however, If the law governing the transfer of assets is especially given the fact that the Christmas foreign law and that law permits the transfer, the holidays are fast-approaching and in light of participating institution is obliged to do everything reports of a continued decline in the rental sector necessary to effect the transfer. of the property market. If the foreign law does not permit the transfer, the Another factor to consider in any assessment of participating institution is obliged to do all that is how and when NAMA will come into play is the permitted under the foreign law to transfer the requirement for the European Commission’s (the greatest possible interest in the asset to NAMA. Commission) final approval on the entire NAMA plan. The Minister, however, has stated that he does not believe Brussels will delay the process. 10. Regulation of Participating Institutions This is the view of many others also, based on the fact that the Commission has been involved The Bill grants extensive powers to the Financial throughout the drafting of the Bill. Regulator in restricting the conduct of the participating banks. The Financial Regulator may, Ireland therefore continues to await the launch of with the approval of the Minister, give a direction NAMA which may or may not take place this side to the participating institution in order to achieve of 2010. the purposes of the legislation. Such directions can restrict balance sheet growth, require balance sheet reduction and restrict or require If you would like to discuss the implications of the consolidation and merger of participating above on your business or any other aspect of institutions. banking and financial services law, please contact:- Furthermore, the Bill provides that the Minister may direct the participating banks to draw up or Claire Trinder amend a restructuring plan to ensure compliance Tel: 01 6903200 with the purposes of the legislation. Where the Financial Regulator is of the opinion or any of your usual gallenalliance contacts. that a participating institution has not complied with a direction, he may apply to the Court for such order to compel compliance with the direction. 11. Sanctions The Bill provides for sanctions in the event of unauthorised disclosure of confidential information, any failure of the participating institutions to act in utmost good faith (an obligation which places a high standard of conduct on such institutions). Non-compliance with the rules giving rise to the sanctions may leave the offending institution liable in damages to NAMA. The Bill also requires that the banks must agree to indemnify NAMA or the NAMA group entity for 3

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