Dáil Éireann Debate, Tuesday - 14 July 2015
275. Deputy Mick Wallace asked the Minister for Finance his views on the €200 million loss made on the sale of the National Asset Management Agency's Northern Ireland loan portfolio; if he was aware of such a loss before the sale was made; and if he will make a statement on the matter. [28600/15]
View answer285. Deputy Michael McGrath asked the Minister for Finance the reason the National Asset Management Agency's €5.6 billion loan book sold in Northern Ireland was sold as a single block, thus excluding smaller investors, six years before the agency’s wind-up date; and if he will make a statement on the matter. [28786/15]
View answerI propose to take Questions Nos. 275 and 285 together.
The timing of loan and asset sales is a matter for the NAMA Board by reference to its statutory independent commercial mandate, in accordance with Section 10 of the NAMA Act, passed by the Houses of the Oireachtas, to obtain the best achievable financial return for the State and to do so expeditiously.
The NAMA Chief Executive, in his opening address to the Public Accounts Committee on 9th July 2015, which is available on the NAMA website (https://www.nama.ie/about-us/publications/speeches/ ), clearly sets out the Board of NAMA's commercial rationale for both the timing and format of its Northern Ireland loan portfolio. These included the portfolio's heavy concentration in provincial and secondary property markets and the limited evidence at the time of the sale of any prospect of a sustained recovery in those markets over the medium term. The NAMA CEO specifically stated that the asset portfolio securing NAMA loans was very granular and had few major assets which might have been of interest to purchasers if NAMA had decided to proceed to sell the assets on an asset-by-asset basis.
Taking these factors into account, I am advised that NAMA set a reserve minimum sales price which equated to the net present value of its projected cashflows from this portfolio over the medium-term, and only agreed to sell the portfolio when that minimum price was obtained. The portfolio sold for what it was worth at the time.
Though I am not specifically made aware of the detailed outcome of each sales process such as level of proceeds, gains or losses, as was the case with Project Eagle, I am realistic in recognising that NAMA will, in some instances, recognise a loss on the sale of some of its loans and assets.
However, I would like to point out that losses recognised on NAMA sales stem from poor underwriting at the time these loans were issued and from the significant deterioration in property values securing these loans. The decline in asset values prior to November 2009 was reflected in the purchase price at which NAMA acquired these loans from the banks at steep discounts to the amounts borrowed. The further decline in asset values after November 2009 was reflected in NAMA's books through impairment provisions meaning that the amount NAMA expected to recover from these loans continued to fall with prices. At the time of the portfolio sale a further impairment was recognised. I am informed that given the nature of the portfolio there is no reason to believe that this impairment would not have been recognised by NAMA in subsequent financial statements if it had not sold the portfolio. The portfolio sold for what it was worth at the time. The NAMA Board believes it did achieve best value for the portfolio.
On the more general point, the Deputy will also note that NAMA is obliged to repay its senior debt. That debt is guaranteed by the Irish Government and therefore is a contingent liability for Irish taxpayer. During 2014 NAMA repaid €9.1 billion of senior debt for which the proceeds of this portfolio made a significant contribution. NAMA has to sell loans and assets to enable it to repay its debt and this requires the NAMA Board to make commercial decisions, based on the best available information, on the sale of loans and assets.
The Deputy will note that, to date, NAMA has redeemed €19.35 billion of the €30.2 billion it issued in senior debt. The significant progress it has made in terms of senior debt redemption has been a major factor in prompting credit ratings agencies to upgrade Ireland's creditworthiness. These upgrades have, in turn, contributed to significant reductions in Ireland's borrowing costs. I agreed with the NAMA Board as part of my 2014 Section 227 review that NAMA would aim to repay 80 per cent of its senior debt by end 2016.
Profit or loss on loan sales is accounted for in NAMA's Annual Report and Financial Statements and Section 55 Quarterly Report and Accounts published by NAMA for the relevant period. These reports are available from NAMA's website: https://www.nama.ie/about-us/publications/
