Thursday February 04 2010

THE first tranche of toxic loans from two key lenders being transferred into the State's 'bad bank' are set to be worth up to 40pc less than their original value, the Irish Independent has learned.

And taxpayers could be hit with an even bigger bailout than originally estimated if the rest of the loans into the National Asset management Agency (NAMA) are discounted to the same extent.

Sources last night revealed impaired loans from Irish Nationwide and Anglo Irish Bank were coming out worst from the exercise.

Irish Nationwide, in particular, has found it difficult tying down security details for loans to some of the country's most embattled developers.

Anglo has brought in extra lawyers in recent days to help it complete legal due diligence on the titles of swathes of properties bankrolled by it.

Final valuations on the first batch of loans bound for NAMA will not be known until this process is completed.

NAMA officials are sticking to the line that average discounts across the sector will not differ significantly from the 30pc average outlined by Finance Minister Brian Lenihan last September.

The banks can initially only value the loans according to their market value -- in line with strict guidelines provided by NAMA.

The agency then has the power to increase the value of certain loans to reflect their so-called "long-term economic value".

However, leading credit ratings agency Standard & Poor's expects more of the loans to ultimately be valued at market price -- or what it calls "fair value" -- than the banks may have hoped.

The five banks and building societies participating in the scheme are preparing to dump an initial €19bn of risky property loans with NAMA over the coming weeks -- representing the country's top builders.

All told, NAMA is expected to take control of €80bn of loans over the course of six months.

The deeper the discounts, the bigger the holes created in the banks' balance sheets, which then have to be filled by fresh capital. In total, the banks will move more than 20,000 individual loans into NAMA.

But the clock is ticking for the European Commission to give the project the green light before the first scheduled transfers this month.

Commission sources poured cold water on reports that Brussels was delaying approval of the scheme.

Speaking in the Dail yesterday, Mr Lenihan insisted the process of valuation and transfer was well under way.

"Work in several major institutions will be finalised in respect of major lenders at the end of this month," he said.

Portfolios

However, sources close to the process have warned discounts applied to the first batch of NAMA-bound loans may not be a reliable yardstick for the rest the banks' portfolios -- or other institutions.

They said it was likely loans doled out to some of the biggest developers in the boom years would be among the most troublesome to value, given their labyrinthine company structures and now worthless personal guarantees.

NAMA officials have found some banks carried out very lax valuations on property projects during the boom. One senior source said the work by some banks amounted to little more than "drive-by valuations".

Meanwhile, NAMA has set up a raft of subsidiary companies in the last week -- including loan management, investment, and property investment firms -- as it prepares to take over the first of the troubled loans.

Source:  www.independent.ie