There is a curious statement in the EU Commissions press release today (IP/10/198, 26th February) :

“…the inclusion of an adequate remuneration for the state in the rate used to discount the assets’ long term economic cash flows…”

The implication here is that the Commission feels that the State is proposing to discount the future value of NAMA assets at too high an interest rate, and thereby calculating a net present value (NPV) for these assets which is less than their real value. In the Commission’s view, it seems, there is a proper discount rate, which adequately reflects any risk the State is taking on, but which–if the Minister’s statement on the same matter is considered, is lower that what NAMA was proposing to use. The Minister said:

” There will however be a reduction in the interest rates used for loan discounting purposes ”

So, the initially proposed discount rate is to be lowered, at the Commission’s insistence. This is very important and, given the scale of the NAMA property values, a change of a couple of percentage points can make a difference of billions of euros.

In fact, apart from the actual calculation of value of the NAMA assets, the State is getting very many billions from NAMA, a substantial gift from the major banks’ much maligned and sometimes verbally abused shareholders- all 150,000 of them , mostly Momas and Pops who only saved and invested to top up their pensions with a few dividends.

You see, NAMA is, as we have long argued…a Loan to the Sate by the banks. The State tried to hide that fact, right from the start, spinning the story to make it look like a bail out of the banks by the State. It had- and still has- nearly all financial and economic commentators in Ireland convinced by the spin. But, ultimately, the EU Statistics Office declared it to be a loan to the State, which should be included in the National Debt. Much to the consternation and bewilderment of many. As a result the Sate is trying frantically to cover up this loan by inserting a private special purpose venicle (SPV) in front of it…but we still await details of this

Now the Commission has acknowledged in the above quotation that not only is NAMA a Loan, but it is an extra cheap loan. You see, as we have argued before, the State should be paying something in the region of 4.5% currently for this loan, but instead will only be paying 1.5%…That’s a real benefit…and have no doubt about it, but the State will be receiving real cash out if this…nearly a billion annually of cash flow to start and then whatever cash, less some ( currently greatly over-estimated) costs, is realised for each property sale.

Because we dont have the details of individual loans, or the discounts pertaining to each or any knowledge as to when the non-performing loans will be turned into cash for NAMA, we cannot estimate the benefit to the State accurately. BUT, we can take the total value, of c. €50 bn. to be returned to the banks, and take the guesstimated redemption schedule of the IOUs handed to the banks in return for their property, starting in 4 years time and then continuing for a further 6 years…and we can say that, based on that schedule and the estimated redemption payments published in the NAMA business plan, the difference between today’s value of the future repayments discounted at 1.5% and the today’s value (NPV) estimated at 4.5% is …give or take..€10 billion.

Ten billion gift to the State!! By who, exactly?..Well, that’s the opportunity cost to the banks and c. 55% of that refers to AIB/BOI property…So, lets say thanks to the Momas and Pops who own these banks and start showing some sympathy to them in their severe losses.