EU Approves Nama Property Bond Plan
The European Union recently approved the Irish Government plan for the National Assets Management Agency (Nama) to commence buying loans from the Irish banking system. The EU will however, still need to scrutinise individual transactions to ensure that excessive state aid is not being provided to Irish banks. In the long run, this additional level of oversight may possibly reduce the cost to the Irish taxpayer if Nama overpays the banks on the true value of the bad loans.
The Government has stated that, before the end of March, Nama will take control of not less than €17 billion in assets. By the end of 2010, Nama should have issued bonds to the banks in exchange for a total of more than €54 billion for so called toxic assets.
In granting approval for the Nama go ahead, the European Competition Commissioner Joaquin Almunia has stated:
"This is an important step towards the overall restructuring of the sector and its return to a normal and responsible functioning of the market. The scheme will help address the issue of asset quality in the Irish Banking system and promote a normally functioning financial market."
The commissioners also stated that "We took great care to ensure that there was an adequate burden sharing mechanism through first of all the transfer price, which cannot be higher than the long term economic value of these assets."
The correct level of valuation on property during a recession is a very difficult thing to measure and only time will tell if Nama is correct in this vital aspect of its remit.
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