Brussels, 01/03/2010 (Agence Europe) - On Friday 26 February, the European Commission gave the go-ahead to the National Asset Management Agency (NAMA), an impaired asset relief scheme for financial institutions in Ireland. The Commission is satisfied that the scheme is in line with its guidelines on impaired asset relief for banks, which allow state aid to remedy a serious disturbance in a member state's economy. EU Competition Commissioner Joaquín Almunia commented: “This impaired asset measure, which is specifically targeted at real estate assets, is therefore key to cleaning up Irish banks' balance sheets. 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 purpose of NAMA is to restore stability to the Irish banking system by allowing participating financial institutions to sell to the agency assets whose declining and uncertain value is preventing the long-term shoring-up of the financial institutions' capital and, therefore, the return to a normally functioning financial market. The scheme was open to all systemically-important credit institutions established in Ireland, including subsidiaries of foreign banks, with a 60-day application window that expired on 19 February. Five institutions will participate: Anglo Irish Bank, Allied Irish Bank, Bank of Ireland, Irish Nationwide Building Society, and the Educational Building Society.
The assets targeted by the measure are all loans issued for the purchase, exploitation or development of land and associated loans. Following the bursting of the Irish real estate bubble, these constitute the riskiest parts of the participating institutions' asset portfolios. The Irish authorities anticipate that NAMA will purchase land and development loans as well as associated commercial loans with a nominal value of approximately €80 billion for an estimated purchase price of € 54 billion. NAMA's main objective is to manage the assets expeditiously with a view to maximising their value and recovery prospects in the interest of the state.
The Commission has found that the establishment of NAMA constitutes state aid to the participating institutions pursuant to Article 107(1) of the TFEU, but that this aid is compatible by virtue of Article 107(3)(b).
In a press release, the Commission comments: “The scheme and intended operations of NAMA are in compliance with the guidelines set out in the Commission's communication on the treatment of impaired assets as regards disclosure and ex ante transparency, eligibility of institutions and assets and the alignment of banks' incentives with public policy objectives. In particular, the Commission has found that the scheme includes an adequate burden sharing mechanism through the payment of a transfer price which is no greater than the assets' long-term economic value, and the inclusion of an adequate remuneration for the state in the rate used to discount the assets' long term economic cash flows”. Commenting on this mechanism, Amelia Torres, spokesperson for Joaquín Almunia, told reporters on Friday that the burden will be shared by banks and, “unfortunately, also by taxpayers”.
Friday's decision only covers the NAMA scheme. The Commission will assess the compatibility (and, in particular, the actual transfer price) of the transferred assets when they are separately notified by the Irish authorities. These individual reviews will include a claw back mechanism in case of excess payments. Torres commented that the price of the transferred assets will have to reflect their real value and the Commission will be keeping a close eye on which assets are actually transferred.
The Commission adds that it “relies on a number of commitments from the Irish authorities to ensure that NAMA, whilst it performs its goal of maximising the recovery value of the purchased assets, does not lead to distortions of competition through the use of some of the specific powers, rights and exemptions granted in the NAMA Act. The Commission will also review individual restructuring plans to ensure that the participation of the financial institutions in this measure is followed up with appropriate restructuring measures to promote the return of those institutions to long term viability”.
This asset relief scheme is the second to be authorised by the European Commission, following a scheme submitted by Germany in May 2009 and approved in July 2009. (O.L./transl.fl)