BLOXHAM STOCKBROKERS estimates Nama will pay €65 billion for toxic bank loans with a face value of €85 million, representing a discount of 23 per cent.
Kevin McConnell, analyst at Bloxham, said the discount represented a 42 per cent “peak-to-trough” decline in property prices.
Full nationalisation, which has been proposed by the Labour Party, was the “most risky option”, he said, and estimated that it would cost the State €21.5 billion.
This includes a €7 billion capital injection into the banks and €12 billion due to higher borrowing costs associated with the increased risk.
The cost of full nationalisation “seems to be totally put to one side” in the political debate about alternatives to Nama, he said.
Nama was “the best option”, he said, but the creation of a national recovery bank – as proposed by Fine Gael – “might not be the worst idea” but only after Nama was up and running.
Mr McConnell said total loans across 11 financial institutions in the Irish banking system would shrink by 25 per cent from €532 billion in line with past banking crises in Finland and Sweden. A third of loans in the system are provided by foreign-owned lenders and these will contract as Irish units of foreign banks shrink their loan books.
The creation of a “third force” in banking would be positive, he said. It should not just focus on mortgages but also on personal loans and credit for small and medium-sized businesses.
Mr McConnell said the idea of sharing the risks on the purchase of toxic loans by staggering Nama payments to the banks over time was “not necessarily a good idea”.
Nama aimed to create “clean propositions” in banking and the agency created “the most clean story for the Irish banks”.
Withholding part of the Nama payment, pending an uplift in property values, would mean that the banks would lose some income due on good loans being acquired and some of the liquidity due to the banks would be “lost”, he said.
Bloxham estimated that Nama-bound loans are generating €775 million at AIB and Bank of Ireland.
Mr McConnell said without significant new sources of deposits into Ireland, the total loan book across the banking sector would have to shrink by €190 billion and by €120 billion for domestic banks.
Liquidity from Nama, which, he said, would inject €60 billion to €65 billion, was “badly needed”.
The current 1.95 loans-to-deposits ratio, a key measure of reliance on wholesale and central bank funding, across the banks was “totally unsustainable” and needed to reach 1.2-1.25 times. This will fall to 1.4 for domestic lenders post-Nama, said Bloxham.
Mr McConnell estimates that AIB would need €670 million in additional capital after transferring loans with a face value of €25 billion to Nama, while Bank of Ireland will require up to €400 million after selling loans with a book value of €18 billion to the agency.
