Belfast Telegraph

Wednesday 16 April 2014

£4bn of 'toxic' debts in Northern Ireland

The extent of Northern Ireland developers’ involvement in the Republic’s “toxic bank” has been revealed.

Up to 150 developers from the province are to have something like £4bn of loans taken out during the property boom transferred into Nama — set up by the Irish government to buy and manage debt held by Dublin-based banks after house prices crashed.

The local investors could be held personally liable for the money and possibly bankrupted.

A number of Northern Ireland developers owe Nama in the region of £100m each.

It is believed that some land or partially developed properties could be sold by NAMA for a fraction of what buyers paid.

But Nama executives have admitted that they still do not have the full picture on their land and property assets in Northern Ireland as they are still working through a massive catalogue of huge debts.

The key facts for Northern Ireland included:

  • €5bn (£4bn) of the total €81bn (£70bn) in debts going into NAMA are from north of the border.
  • Some 150 of the 1,500 borrowers with toxic loans taken on by NAMA are from here.
  • A small number of developers here are in the top 100 debtors, all of which owe €100m or more.
  • Some land or partially developed properties could be sold for a fraction of what buyers paid.
  • The developers could be held personally liable for the money and possibly bankrupted.
  • It aims to sell or develop all assets within 10 years.
  • Developers with NAMA loans will have 30 days to produce a credible business plan for repaying the loans.

Addressing more than 300 business leaders at Belfast’s Hilton Hotel yesterday, NAMA bosses said they will treat loans from Northern Ireland exactly the same as those from the Republic.

However, they admitted they still don’t have a clear idea of what its land or property assets in Northern Ireland are because it is still working through the mass of complicated debts of its 10 biggest debtors from the Republic.

“At this stage we haven’t even evaluated the business plans of the top 10,” NAMA chairman Frank Daly told the Belfast Telegraph.

NAMA was set up to remove €81bn worth of loans, mostly secured on property developments, from five Irish banks in order to get them lending again.

Around €5bn is from Northern Ireland.

While it will help developers complete commercially viable developments, the agency has warned it may have to “send in the bulldozers” to some half-finished developments or “ghost estates” in the Republic that would cost too much to complete.

But Mr Daly said this would not happen to the same extent in Northern Ireland.

“Sending in the bulldozers is a colourful phase, but I’m not so sure whether it will be necessary in the North. But some development land will go back to being agricultural land,” he said.

NAMA won’t provide names of developers they are dealing with, citing client confidentiality.

Its executives said most Northern Ireland borrowers in the scheme hold loans of €20m (£17m) or less.

But chief executive Brendan McDonagh said there were “at least a few” local developers who owe €100m or more.

A massive €16bn (£13.5bn) of loans linked to the top 10 borrowers have been transferred and a second tranche worth €13bn (£11bn) will go in by mid-June, including the first of the Northern Ireland loans held by Anglo Irish, Allied Irish, Bank of Ireland, ESB and Irish Nationwide.

Peter Stewart, of NAMA’s Northern Ireland advisory committee, assured businesses there would be no firesale of assets that could drag down local property prices.

“It will be in the best interest of all of us that the underlying assets be disposed of in a phased and orderly manner and, where necessary, we will take whatever steps we consider necessary, and are within our power, to facilitate the return of an efficient market to the whole of this island.

“We at NAMA have no interest in either flooding any sector of the market with property assets or in hoarding assets, which would be equally damaging,” he said.

Irish taxpayers, he added, were now paying a high price for the “uncontrolled financial gluttony” of banks who lent too much to property tycoons.

Questions and answers

Why it could now make sense for NAMA to start knocking down houses. . . NAMA boss Brendan McDonagh had bad news recently when he told an Oireachtas Committee in Dublin that borrowers were paying interest on a far lower proportion of its loans than had previously been thought. So what do these latest NAMA developments mean? Dan White explains.

Q. Even more bad news from NAMA?

Unfortunately so. NAMA boss Brendan McDonagh told the Joint Oireachtas Committee on Finance and the Public Service that borrowers were only paying interest on 33% of the bad loans it had purchased from the banks — not the 40% which had been previously estimated.

Q. Why does this matter?

According to McDonagh, |borrowers are only paying |interest on €27bn, rather than €32bn, of the €81bn of bad loans it is purchasing from the banks. Even on a 4% average interest rate this will force NAMA to find another €200m per year, further driving up the cost of the state's ‘bad bank' to the taxpayer.

Q. Does this mean that the banks' loan books are in even worse condition than previously imagined?

Yes. McDonagh hinted as much yesterday when he intimated that the NAMA may have to insist on an even more severe haircut than the previously-announced 50% on the €36bn of bad loans it is purchasing from the nationalised Anglo Irish Bank.

Q. What does this mean in money terms for NAMA?

In its business plan, which was submitted last October, NAMA projected making an eventual €5bn profit over its estimated 10-year period of operations, and that eventually only 20% of borrowers would default on their loans. Both of these predictions are now looking heroically optimistic.

Q. With NAMA increasingly looking like a bottomless pit for the taxpayer, will the organisation pursue property developers who refuse to pay their debts?

McDonagh was adamant yesterday that, just because NAMA was purchasing their loans at a discount, his organisation was determined to pursue property developers for every cent they owed. He pledged to “go after them tooth and nail” and promised that NAMA would be ready to foreclose on bankrupt developers by September.

Q. So does this mean that NAMA is the ‘least bad' way of dealing with the banks' bad property loans?

Not necessarily. Willie Slattery, the boss of State Street — one of the largest employers in the IFSC — who previously spent 20 years with the Central Bank, was scathing in his criticism of NAMA. He described it as “crazy” and warned that it could potentially waste up to €15bn.

Q. Higher discounts and fewer borrowers repaying their loans. Where does NAMA go from here?

It is now very clear that Ireland is massively over-built, with almost 250,000 new houses and apartments built in the three years from 2006 to 2008 alone. The result has been a proliferation of ‘ghost estates' around virtually every city and town. And it's not just residential property. An incredible three million square metres of new retail floorspace was added over the past decade, while Dublin's docklands is chock-full of half-finished office buildings.

McDonagh concedes that it |might make sense for NAMA to demolish some of these ‘ghost estates'.

Q. Why does demolishing ‘ghost estates' make sense?

Many of them are situated in poor locations, such as Dublin's outer commuter belt or towns and villages in the Upper Shannon region. This means that, even when the demand for new houses recovers, there will be few takers for these properties. As a |result, it makes no sense for NAMA to provide the extra finance needed to complete these poorly located estates and then to spend more money securing them against vandalism for the next eight or 10 years.

Q. Is that all the bad news?

Almost certainly not. Recently, the Republic’s High Court was told of a site outside Athlone which was valued at €31m as recently as 2006, but was now worth a mere €600,000, a fall in value of over 98%.