Nama’s focus should be to protect taxpayer
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Finally, the legislation to establish the National Asset Management Agency (Nama) is passed. We now need Nama to get up and running as quickly as possible. Yet, despite amendments to the legislation and some improvements, a number of vital questions remain. Transparency and accountability in Nama’s operation is vital if these concerns are to be addressed. Further key policy decisions remain for our finance minister in dealing with the banking sector.
The most important issue is the price to be paid for the loans. Here the main question does not relate to the premium which is to be offered to the banks above current market value. Instead, the key issue is how this current market value is assessed, loan by loan, as Nama goes through the books of the banks. There is a big risk here - that is that the banks will seek to offload property to Nama based on an inflated market value. This would expose the taxpayer to considerable risk in the years to come. For this reason, it must not happen.
The problem for the government is that, if the bank loans turn out to be worth even less than the original estimate written into the Nama business plan, then the write offs for the banks will be even greater than expected. In turn, their need for capital will be higher and the state - already hard pressed for cash - may come under pressure to provide this capital. Yet, for taxpayers, taking a bank shareholding by investing new capital would be a better deal than paying vastly over the odds for commercial and development property.
The shares may be worth more in years to come - but over-priced property may never regain its value.
The problem for the government is that, if the bank loans turn out to be worth even less than the original estimate written into the Nama business plan, then the write offs for the banks will be even greater than expected. In turn, their need for capital will be higher and the state - already hard pressed for cash - may come under pressure to provide this capital. Yet, for taxpayers, taking a bank shareholding by investing new capital would be a better deal than paying vastly over the odds for commercial and development property.
The shares may be worth more in years to come - but over-priced property may never regain its value.