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Ireland’s ‘bad bank’ to pay last slice of €30bn debt

Ireland’s ‘bad bank’ to pay last slice of €30bn debt

October 13
01:24 2017

Ireland’s recovery from the crash that led to an international bailout has reached a symbolic turning point as the country’s “bad bank” pays off the final slice of the €30.2bn senior debt it borrowed to clean up the financial system.

Nama, the national asset management agency, has signalled it will redeem the final €500m of the government-guaranteed debt this month, three years ahead of the target set at the outset of its work in 2009.

The redemption eliminates a contingent liability on the Irish state that dates from the height of a financial crisis that led to nationalisation of the country’s banks and a bailout from the IMF and the EU.

“It’s a main objective achieved,” said Frank Daly, Nama’s chairman. “It’s not just important to Nama, it’s important for confidence in the state, confidence among rating agencies, confidence among the European Commission.”

Ireland’s economy is growing strongly again — and Dublin has taken advantage of investor sentiment to sell bonds at negative yields. But Nama’s establishment harks back to the worst days of the crisis, when the agency was set up to take toxic commercial property debt from five privately owned banks.

Nama ultimately acquired €74bn in loans at an upfront cost of €31.8bn, crystallising huge losses for the lenders. The direct cost to the Irish state of recapitalising the lenders reached €64bn but Nama provided a further €5.6bn in state aid by overpaying for the loans. The resulting strain on public finances — at a time when bond markets were questioning the viability of the euro — contributed to the tensions that led to the bailout.

Brendan McDonagh, chief executive, said Nama now expected to deliver a €3bn surplus to the government in March 2020 when it completes the disposal of the remaining €4bn in loan assets on its book, most of which are in Ireland. At that point, the agency will also repay €1.6bn in subordinated debt on its first call date.

Frank Daly, chairman of Nama

The government asked Nama this week to advise a new state body that will finance housebuilding for private developers, but this will not affect the scheduled wind-down of agency operations in 2020. At the same time, Nama is providing development finance to its debtors as part of a plan to deliver 20,000 new homes by 2020, 5,600 of which will have been completed by the end of this year.

The early redemption follows an acceleration in the company’s disposal strategy in 2012 after Mario Draghi, European Central Bank president, said he would do everything possible to defend the single currency.

“We recognised straight away that it was going to be good for real assets — which was property, underlying our loans,” Mr McDonagh. “[We knew that] as quantitative easing kicked in, bond yields would fall and people would look for alternative investments and we just took full advantage of that.”

Nama started out with €12bn in UK loan assets, mostly on London property, that were held by the Irish banks. But Mr McDonagh said the sale of most of these assets meant the agency had very little exposure to Brexit-related market volatility. “We’re down to less than €500m by the end of the year, so we’re done and dusted there in a very uncertain environment going forward.”

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