The National Asset Management Agency (NAMA) has today published its Quarterly Report and Accounts (The Report) for the Third Quarter 2010 (1st July to 30th September 2010). The documents were laid before each House of the Oireachtas by the Minister for Finance earlier today.

The Report represents NAMA’s position as at 30th September of last year (2010). By that date, the Agency had acquired €27.3 billion in loans from the five participating institutions. NAMA had purchased these loans for an amount of €13 billion. As of today (2nd March), the Agency has acquired €71.2 billion of loans for a consideration of €30.2 billion – a discount of 58%.

Some of the key points from the Report are set out below:

• NAMA had cash balances of €623.3 million at 30th September. This represented an increase of €143 million during the quarter. NAMA ended 2010 with cash balances in excess of €800m. The Agency confirmed last month that current cash balances are in excess of €1 billion.
• NAMA generated €278 million net cash from operating activities in quarter 3.
• NAMA earned income of €89.5 million in the third quarter on a loan portfolio that had increased to approximately €27 billion. Total operating income was reduced by a number of factors including interest due on NAMA securities [€28.5m], interest on hedging derivatives [€31.2m], other loan interest [€2.3m], expenses [€21.4m], a negative mark to market movement on derivatives [€26.8m] and foreign exchange movements [€14.6m]. Derivative movements are marked to market against prevailing interest and exchange rates at the end of each quarter in line with accounting standards but this does not represent a permanent or indeed a cash loss for the period. Indeed the derivatives’ losses reported here were reversed by the end of 2010 as a result of increasing market interest rates and exchange rate fluctuations in the fourth quarter.
• NAMA advanced €126 million to borrowers to complete projects and fund working capital during the quarter. These advances were subject to individual credit assessment and were judged to protect and enhance the value of the NAMA portfolio. The Agency confirmed last month that it has approved a total of €592 million in working capital up to the middle of February last.
• 25% of the loans [by nominal value] which the Agency acquired were deemed to be performing as at 30th September 2010 [by performing NAMA means loans which are not in arrears for more than 30 days by reference to the contractual obligations of the loan facility].
• In October 2010, NAMA repaid the €250 million plus interest which the Exchequer advanced to the Agency in May 2010. More recently the Agency confirmed that it has also repaid separate borrowings of €49 million to the Department of Finance early this year.

Comments by Chairman Frank Daly

NAMA Chairman Frank Daly said; “Quarter 3 was exceptionally busy as the Agency began detailed consideration and planning for the management of the largest debtors whose loans were acquired and for the acquisition of the final loans which were transferred in the last quarter of the year. By the end of December 2010, we had successfully acquired almost all the loans originally envisaged for NAMA.

Currently we are focused on the next phase of our operations and actively managing out the loan portfolios which we have acquired. We have completed the examination of Business Plans from the 30 top debtors representing €27 billion in loan value and 40% of NAMA’s portfolio. We have signed, or are close to signing, Memoranda of Understanding with twelve of these and a number of others are at an advanced stage. We are also preparing for the bulk acquisition of sub-€20 million land and development loans from AIB and BoI in line with the terms of agreement reached with the IMF and the EU at the end of November last. These will be subject to the enactment of legislation amending the NAMA Act. And we have recently repurchased €250 million of NAMA bonds from the participating institutions.”

Note to Editors

NAMA utilises currency and interest rate derivatives to manage the foreign exchange and interest rate exposures arising from the transfer of assets from participating institutions.

Currency derivatives are used to hedge the foreign exchange exposure which arises when NAMA purchases foreign currency loans but pays consideration in the form of Euro-denominated securities. Interest rate derivatives are used to hedge interest rate risk arising on NAMA securities and debtor derivatives which have been acquired from the participating institutions. NAMA faces interest rate risk on the €29bn of senior securities issued as consideration for acquired loans. These securities pay interest at a variable interest rate (6-month Euribor) and, as protection against rising market rates, NAMA has hedged a portion of this risk at rates below 2% for an average period of four years.

In line with international accounting standards, derivatives must be marked to market at the end of each reporting period and any valuation changes caused by fluctuations in market interest rates must be reported as gains or losses in the profit and loss account. Such mark-to-market gains or losses are neither permanent nor do they crystallise as cash gains or losses. It should be noted that the derivatives’ losses reported in the Q3 accounts have since been reversed at end 2010 as a result of increasing market interest rates and exchange rate fluctuations in the fourth quarter.

In practice, gains or losses on derivatives are offset by mark to market movements in NAMA’s Balance Sheet Assets and Liabilities. However, this is not necessarily reflected in the NAMA accounts as acquired loans are subject to a different accounting treatment (loans are valued by reference to their amortised cost, not their mark to market value).

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