News & Events

Ireland Tackles Banking Difficulties with Establishment of NAMA

30 July 2009

Draft legislation (the "Bill") to effect the establishment of the National Asset Management Agency (or NAMA, the acronym by which it is generally known) was published today.

NAMA will purchase, at a discount, an estimated €90 billion worth of property loans and property-backed exposures from banks with a view to relieving the banks' balance sheets of the loans at most risk. 

NAMA has been established, broadly speaking, in the model of Securum, the Swedish asset management agency established in 1992 following a property crash.  However, NAMA is very different in terms of its vastly larger scale and comparative relevance to GDP (bearing in mind Ireland's approximately €182bn GDP in 2008), the worldwide environment in which it will operate, the fact that it will deal with non-nationalised banks and the valuation of assets methodology to be used.

What is NAMA?

NAMA will be a separate independent statutory body with its own Board appointed by the Minister for Finance.  Staffing resources and management services will be provided by the Irish National Treasury Management Agency (the agency charged with responsibility for management of Ireland's sovereign debt). The Bill explains the purpose of NAMA, being to acquire, manage and realise assets and facilitate restructuring of financial institutions, all with a view to addressing a threat to Ireland's economy and the stability of its credit institutions. It is intended to have all necessary powers to discharge this function and achieve this purpose.

Which Banks’ Assets will be Acquired by NAMA?

Any credit institution, including foreign owned ones, may within 28 days of the commencement of operations of NAMA, apply for it and its subsidiaries to be designated as "participating institutions". The Minister for Finance may, after consultation with NAMA and other agencies, designate an applying credit institution and its subsidiaries as participating institutions where he is satisfied that it is systemically important and it is necessary to do so to achieve the purposes of the NAMA legislation.

The Minister for Finance, again after consultation, may prescribe classes of bank assets as subject to acquisition by NAMA.  NAMA will then prescribe a schedule and timetable for acquisition of specified assets from participating institutions.  A limited appeal mechanism is provided for. 

Foreign Assets

The Bill makes specific provision for the acquisition of foreign assets by NAMA. Where NAMA proposes to acquire a foreign asset of a participating institution, the transfer will be valid and binding in all respects if the law governing the transfer of the foreign asset is the law of Ireland. If the law governing the transfer of the foreign asset is a foreign law and that law permits the transfer of the asset, the participating institution is obliged to do everything necessary to give effect to such transfer. However, if the foreign law does not permit the transfer of the foreign asset, the participating institution is obliged to do all that it is permitted to do under the relevant foreign law to transfer to NAMA the greatest interest possible in the foreign asset, including the full beneficial interest. In this scenario, the participating institution is obliged to undertake such duties, obligations and liabilities as nearly as possible corresponding to those of a trustee in relation to that foreign asset, and to hold that asset for the benefit of NAMA.

 Powers of NAMA

NAMA will be granted extensive powers under this proposed legislation.

After it acquires a bank asset, NAMA has and may exercise all the rights and powers and is subject to all of the obligations that the participating institution had. It may transfer, assign, sell or otherwise dispose of any acquired assets to any person, despite certain specified restrictions on disposal. If the asset is secured by a charge, but the charge is a second or subsequent charge, NAMA may redeem or discharge any prior charge in accordance with its terms. It may appoint a statutory receiver of property where specified defaults arise. It may apply to compulsorily acquire land or a relevant right in adjoining lands.

Valuation

One of the most eagerly awaited aspects of NAMA is the valuation it will attribute to the relevant portfolios of assets.  Not surprisingly, the Bill does not set out the actual valuation methodology rather it sets out the principles to be followed for the purposes of conducting asset valuations.  The Minister will make detailed regulations at a later date setting out valuation methodology.

NAMA will determine valuation of assets to be acquired by reference to current market value, long term economic value, regulations to be published by the Minister and EU State aid rules. It can determine that current market value or up to, but not more than, the long term economic value will be paid.

It is likely that in many cases, the long-term economic value will be significantly less than the outstanding loan extended to the borrower.  Also, each loan will be valued separately and the actual amount of the discount applied will depend on the quality of the underlying portfolio and other collateral.   A limited valuation appeal is provided for.

Conclusion

On first impressions, the Bill is very ambitious in scope. It seems at least possible that certain of the wide-ranging powers proposed to be granted to NAMA may be open to constitutional challenge, including those relating to compulsory acquisition of privately owned assets, restrictions on dealings with lands not subject to NAMA participating institutional borrowings and the manner in which the Bill imposes limitations on legal remedies.

What is unusual about the Bill is that it has been published for the purposes of public consultation rather than for immediate presentation to the Dáil (Irish Parliament).  It will, no doubt, undergo intense scrutiny over the coming weeks and is scheduled to be published in final form at the end of August and debated by the Dáil on 16 September 2009. 

For more information, please contact Fionán Breathnach, head of Mason Hayes & Curran's investment funds and regulatory unit at or + 353 1 614 5000.

The content of this news piece is provided for information purposes only and does not constitute legal or other advice.  Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York. 

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