Press Release - National Asset Management Agency - Progress Report 2010 - 2012

The Comptroller and Auditor General has carried out a review of the extent to which the National Asset Management Agency (NAMA) has made progress in achieving its overall objectives.

The report on the findings of the review has been presented to the Houses of the Oireachtas today, 20 May 2014.

Main Findings

Loan acquisition

One of NAMA's statutory purposes is to acquire property-related loans from banks and thereby contribute to the removal of uncertainty about the valuation of such assets.

NAMA acquired over 15,000 loans at a cost of €31.8 billion from the five banks that participated in the NAMA scheme. The face value of the loans and associated financial derivatives acquired was €74.4 billion. The transfer crystallised losses in the banks of €42.6 billion or 57% of the amount owed by borrowers.

Ultimately, NAMA acquired 90% of the identified eligible loans, and the transfer for almost all the loans was completed by the end of 2010. The major uncertainty regarding the value of these loans was removed from the books of the banks. This was a significant achievement by NAMA in a relatively short time-span, given the scale of the task as well as the inadequate documentation and processes that it found in the banks.

Some residual uncertainty remains about the value to the banks of the €1.6 billion in NAMA subordinated bonds which they received as part payment for the loans that were transferred.

Redeeming the senior debt

One of the key commercial objectives set by the NAMA Board is, at a minimum, to redeem the senior debt issued, and to meet all costs incurred by NAMA by the time it is wound up in 2020. Intermediate debt redemption targets were also set, for end 2013 and end 2016.

By the end of 2013, NAMA had met its first intermediate debt redemption target of €7.5 billion. In addition to meeting the target, it held almost €4 billion in cash and other liquid assets at that date.

Each year, NAMA prepares detailed estimates of its expected future debtor cash flows. These estimates project a more favourable outcome than the minimum debt redemption objective set by the Board. At the end of 2012, NAMA estimated it would generate sufficient cash over its life to redeem all debt (senior and subordinated) and have a final surplus of around €300 million — a cash outturn around €1.9 billion better than the minimum target set. On that basis, it appears that, unless there is a further significant economic downturn in the next few years, NAMA will meet its minimum debt redemption objective.

Realised value of assets

A second key commercial objective set by the NAMA Board is to optimise the realised value of assets.

By the end of 2013, NAMA had realised around €10.5 billion from loan and property disposals. 75% of the disposals related to assets in Great Britain, with the bulk of these in London. Around 15% of the disposals related to assets in Ireland.

The disposal process for 144 properties with gross proceeds of about €1 billion was examined as part of this review. Overall, the examination found evidence that almost all property disposals reviewed had been sold through an open competitive process, or with testing of disposal prices against market valuation. This provides reasonable assurance that the prices obtained by NAMA were the best on offer in the market at the time property was sold.

Rental return on property assets

NAMA has taken steps to ensure that debtors remit rental and other income to NAMA. In the three years to end-2012, NAMA realised €3.2 billion in rental and other non-disposal receipts. Almost €1.5 billion was received in 2012. It received around a further €800 million in 2013.

The expected gross rental yield from completed properties of NAMA-managed debtors is around 6.9%. Property-related costs reduce this by almost 30%, giving an average net rental yield of 5%.

The NAMA Board does not set benchmarks against which to measure its performance with respect to the rental yields that its debtors’ assets are achieving.

Investing to enhance properties

NAMA provides funding to develop or enhance properties. It had directly advanced around €1 billion to debtors by the end of 2012. NAMA had also approved debtors to retain a further €0.6 billion from rental income and property disposals. However, the extent to which the amounts approved for retention were applied by debtors is not known.

NAMA has set a minimum expected return of 15% on cost before it will invest in a project. The expected return is an overall cash return over the project life, and not an annual expected rate of return.

Rates of return

The NAMA Act requires NAMA to obtain the best achievable financial return for the State from the assets acquired.

Because NAMA has not set expected or target rates of return on its investments, the examination could not conclude on the extent to which NAMA has, to date, obtained the best achievable financial return.

In order to enable it to better measure its performance, the report recommends that the Board should set key target financial return measures:

  • an expected or target rate of return against which to measure overall performance
  • a target rate of return on disposals and on property held by debtors and insolvency practitioners.

Debtor performance

By the end of 2012, the amount owed by debtors amounted to €26 billion before impairment charges. Cumulative impairment amounted to almost €3.3 billion or 12% of the debt.

About 15% (by value) of NAMA debtors are managed on its behalf by the participating banks. NAMA made the assumption that the profile of the property collateral held by those debtors, and the associated cash flows, are broadly similar to those of debtors that it manages directly. However, this assumption may no longer be appropriate given the apparent inverse relationship between the size of a borrower's debt and the level of impairment. NAMA has commenced a detailed review of the portfolios managed by participating banks, and this will be supplemented by its semi-annual impairment review in June 2014.

Managing property assets

At end-2012, NAMA projected that it would realise €22.9 billion in disposal receipts between 2013 and 2016. Disposal receipts in 2013 amounted to €3.7 billion, leaving a further €19.2 billion to be achieved in the three years from 2014 to 2016. A significantly lower level of disposal will still allow NAMA to meet its intermediate debt redemption target it set for 2016.

At the end of 2013, NAMA had disposed of over 60% of its London property. Future sales will need to come mainly from other markets — principally Ireland. Over 70% of the Irish portfolio NAMA acquired is scheduled for disposal between 2014 and 2016. The projected disposal values for those assets depend on significant recovery in Irish property values. This timing of disposal receipts may be difficult to achieve in that timeframe.

    Notes for Editors

    The purposes and functions of NAMA are specified in the National Asset Management Agency Act 2009. This Act requires the Comptroller and Auditor General to assess every three years the extent to which NAMA has made progress in achieving its overall objectives. This is the report of the first of those examinations.