The National Asset Management Agency (NAMA) was established in 2009 as one of a number of initiatives taken by the Government to address the serious crisis in Irish banking which had become increasingly evident over the course of 2008 and early 2009.
The Irish banking system had engaged in excessive lending to the property sector and, with the significant decline in the Irish property market from 2007 onwards, loan impairments had begun to rise substantially. This caused a rapid depletion in bank regulatory capital and required appropriate remedial action to remove uncertainty and to repair the balance sheets of a number of financial institutions of systemic importance to the Irish economy.
The Minister for Finance, in his Budget Statement of April 2009, announced the proposed creation of an asset management agency that would acquire loans linked to land and development from a number of key institutions. Draft legislation was published in September 2009 and the National Asset Management Agency Act, 2009, one of the most complex pieces of legislation ever to be placed before the Irish legislature, was passed into law in November 2009. NAMA was formally established on 21 December 2009 and its Board was appointed on the following day.
Five institutions (and their subsidiaries) applied to join the NAMA scheme and were designated as participating institutions in February 2010: Allied Irish Banks; Bank of Ireland; Anglo Irish Bank; Irish Nationwide Building Society; and EBS Building Society.
European Commission approval
The laws of the European Union prohibit the provision of any state aid which could have the effect of giving favourable treatment to certain entities and thereby distorting competition throughout the Union. Among the exemptions to the prohibition is aid designed to remedy a serious disturbance in the economy of a Member State; however, any aid contemplated under this exemption must first be given advance approval by the European Commission.
In February 2009, the Commission issued guidance about the design and implementation of asset relief schemes. This guidance informed discussions which took place with the Commission throughout much of 2009 and in the early part of 2010 about the design of the NAMA scheme and the level of state aid permissible under State Aid rules. The Commission evaluated the scheme and its implications in great detail and suggested changes to proposals in order to calibrate the level of state aid which it considered to be permissible.
On 26 February 2010, the Commission gave its formal approval to the NAMA scheme, following which, in early March 2010, the Minister for Finance published revised valuation regulations which gave effect to the valuation methodology which had been approved by the Commission. The first trancheA group of loans of different debtors, which transfer to NAMA at a specific point in time. The transfer of assets from Participating Institutions to the Group occurs in tranches. of loans was acquired by NAMA later in the same month.
The first phase of NAMA’s operation involved the acquisition and transfer of over €71 billion in loan assets involving 850 debtors and more than 11,000 individual loans collateralised by 16,000 individual properties. Approximately two-thirds of the assets backing those loans are located in Ireland and most of the remainder is located in the UK with smaller concentrations in the US and throughout continental Europe. In exchange for these loans NAMA issued Government-guaranteed securities to the five participating financial institutions.
The main factor which determined the price paid by NAMA for acquired loans was the current market valueThe estimated amount for which a property would exchange between a willing buyer and seller in an arm’s-length transaction. of the collateralA borrower’s pledge of specific property to a lender, to be forfeited in the event of default. (mainly property) securing the loans. Other factors included the adequacy or otherwise of loan documentation, the value of any pledged assets other than property (shares, cash, works of art, etc) and any deficiencies in loan securityIncludes (a) a Charge, (b) a guarantee, indemnity or Surety, (c) a right of set-off, (d) a debenture, (e) a bill of exchange, (f) a promissory note, (g) collateral, (h) any other means of securing—(i) the payment of a debt, or (ii) the discharge or performance of an obligation or liability, and (i) any other agreement or arrangement having a similar effect. identified as part of the due diligenceA comprehensive appraisal of a business especially to establish the value of its assets and liabilities. There are two types of due diligence carried out by the Group, Legal and Property due diligence. process. Taking all factors into account, the consideration paid by NAMA for loans acquired in 2010 was approximately 42% of nominal loan balances, representing an average discount of 58%.
NAMA is an unusual corporate entity in that it begins its life with a very large balance sheet and has been given the task of managing that balance sheet down to zero as soon as it commercially practicable. It must recoup at a minimum all of the expenditure incurred by it on acquiring loans, on advancing working capital and on its own costs. In doing so, it will pursue all debts owed by its debtors to the greatest extent feasible.
Governance and accountability
NAMA was established as a separate statutory body with its own Board and CEO appointed by the Minister for Finance. It operates under the aegis of the National Treasury Management Agency (NTMA) which provides it with staff and business support services.
The Board of NAMA must carry out its functions independently but is closely guided by its obligations under the NAMA Act and is subject to a high level of public accountability. The CEO and the Chairman must attend and give evidence whenever required to do so by the Committee of Public Accounts or by other committees of the Oireachtas. In addition to publishing a detailed set of annual accounts, NAMA must also submit quarterly reports to the Minister on its activities, including information about its loans, its financing arrangements and its income and expenditure. These Reports are published on this website once they have been laid before the Houses of the Oireachtas.