Nama’s Project Eagle really landed nicely for Cerberus
WHILE the Government figures out how to hold a Nama inquiry, Cerberus, the US private equity firm that bought the €6bn Nama Northern loan book for €1.6bn, is getting on with working its way through the properties.
Cerberus has been busy doing deals with property developers in the North who now owe Cerberus the money and not Nama. It has been allowing some developers to refinance their debts with other lenders and basically move on with developing the assets. This is good for the Northern property market and the Northern economy — but probably not great news for Southern taxpayers.
For example, Nama sold €6bn worth of loans to Cerberus for €1.6bn. It was a mixed bag of good properties, not-so-good properties and a lot of undeveloped land.
Nama lost money on the deal. It bought these loans from the banks for around €2.3bn. It took an impairment charge after it had bought them of around €600m. It then sold them for €1.6bn.
Let’s say a developer owed the banks €100m. Nama might have valued his loans at €30m when it bought them. This was impaired and written down to €25m after it bought them. Cerberus might have paid €24m for those loans — a fraction under Nama’s book value, as happened with the portfolio as a whole. The developer was not allowed buy his loans back from Nama, but he can buy them back from Cerberus. So he borrows €28m from somebody else and pays Cerberus €28m. Cerberus has made a profit of €4m. The developer can carry on with new bankers on his old property — but instead of owing €100m he owes €28m. The Irish taxpayer takes a hit of €76m.
Of course, much of that loss had already happened when the property market collapsed, but could more of it have been clawed back? Nama doesn’t think so. The Comptroller and Auditor General does.
Nama still has loans that originally amounted to €39bn on its books. The agency values them at just €6.6bn. These loans will be a lot more difficult to sell. With the closure of the Section 110 loophole, which added a further incentive for vulture funds, we may see fewer overseas buyers for these less attractive assets.
That means we could see more Irish buyers but at even greater knockdown prices. Many developers have been effectively trapped in Nama since 2009. They can’t move on and they can’t move out. The cleanest, most valuable and easiest-to-sell loans have been flogged off.
Between the investigations and the poorer quality of remaining assets, Nama’s final phase could be even more colourful than the story up to now.