1. The success or failure of Nama will ultimately come down to the likely performance of its loan assets. The revelation that €12.1bn of "associated loans'' from Anglo Irish Bank are moving over, almost twice the rate of AIB's associated loan transfers, must make one nervous about the underlying quality of the loans.
A previous report by PricewaterhouseCoopers said that Anglo's loan book is heavily dependent on sites, land and developments in north Co Dublin and south Dublin/ north Wicklow. That report suggested that the close proximity of projects and their dependence on strong economic growth meant that getting a return from them could be challenging.
2. The interest from Nama's borrowers will amount to €12bn, while the interest it will pay to the banks via its bonds will amount to €16bn.
The government says the gap will be bridged by sales of assets and additional cash flows from projects which are further developed. The agency claims 40% of the assets it is acquiring are income-producing, which is a low number.
The other problem is one of scale – while no loans below €5m are being taken into Nama from AIB or Bank of Ireland, loans of any value from Anglo Irish and Irish Nationwide can be included. Smaller loans would tend to suggest that income-producing potential is lower and collateral is likely to be more thinly spread.
3. The business plan envisages that only 20% of the €77bn in loans will default, but with commercial property prices over 50% off peak at least, this is a big leap. A default rate just below a third would entirely wipe out Nama's profitability. The damage wrought by interest-rate hikes via the ECB is considerable.
4. All of Nama's assumptions to date are based on what it calls "aggregate data". The agency, which has yet to recruit its full complement of staff, has not examined any individual transaction records or loan files.
A related problem to this is no one knows how attractive the Nama bonds will be. While some of them can be exchanged with the European Central Bank for cash, the Irish banks will also be trying to exchange them or collateralise them with counter parties and there is no guarantee they will gain wide acceptance, particularly if the Irish property market deteriorates further and the early operation of Nana is a disappointment.
There is also the chance that Nama bonds, if they got wide acceptance, could "crowd out" Irish government bonds which many institutions also hold as AA+ investments.
5. The whole Nama exercise is based on borrowers having proper realisable securities underlying their loans. But many banking analysts are concerned that "phantom equity" lurks within the individual loan documentation. In other words, the collateral Nama thinks it will get will not be there upon detailed examination.
6. Nama will directly manage the largest 100-150 borrowers in the country. Nama will not insist on any of these borrowers going into liquidation up front. Instead the borrowers will submit detailed business plans to Nama. These will be reviewed over a month-long period by Nama staff. It's possible that instead of then closing down the developer, a long process of amendments of the plan could take place, although Nama say it will manage these exposures with a sense of urgency.
7. The banks will remain in charge of all borrowers below this group of 100 to 150 borrowers. While Nama will technically have overall authority over the borrowers, it will give "delegated authority" to the banks to make what it calls routine credit decisions. Will the banks be prepared to shut down insolvent borrowers or will it try to nurse them through the recession, thereby opening up the economy to the danger of relying on zombie companies.
8. Nama will have the powers to borrow at least €5bn and it can spend this money on joint ventures, where it decides that some projects are viable, but that they simply need to be completed and enhanced and in that way they generate cash flows.
The business plan is very vague on how this process will work and how projects will be selected. There is also a danger that Nama could crowd out private-sector investment in the area of commercial development. The €5bn limit can be easily be raised by order of the minister of the day and a resolution of the Dáil.
9. At least 30% of the assets in Nama are denominated in currencies other than the euro. As a result, exchange risk is enormous for Nama, particularly when both the dollar and sterling are weakening and may weaken in the years ahead. Nama itself admits this will create "volatility" in the profit-and-loss account and will be very difficult and expensive to hedge.
10. Nama already has €9bn of interest roll-ups in the loans it is acquiring. These interest roll-ups arose from one of two ways. One is the developer was advanced a loan which allowed him or her not to pay the interest until they had a project developed and cash flow in place from tenants.
Alternatively, the interest roll-ups arose because the borrower was already in arrears and had been benefitting from forbearance from the bank which had not been collecting interest payments.
Either way, these projects must be considered as more risky compared with loans where cash flow is already in place and there are no arrears. Interest rolls-ups compose almost 12% of the market value of the loans Nama is acquiring.