Extra cash call Nama will make on taxpayers still not revealed

Over the last two years, we have painfully learned that accounting and banks are notoriously opaque. The annual reports left shareholders, governments, regulators and taxpayers in the dark about bankers' risky lending. The arithmetic of buying out the bad commercial property loans from five Dublin banks should now have been clearly laid out. However, this is not the case. We now know for certain the average discount the bad bank, the National Asset Management Agency (Nama), will pay for the haul of the bad loans but we still do not know the most important number: how much extra cash taxpayers will be required to inject into the banks to take account of the discount. Last week Nama confirmed it would pay an average price of 30 per cent less for a large chunk of the bad property loans festering on the books of the five Irish banks. This means the government agency will pay €54bn for €77bn of the souring loans in AIB, Bank of Ireland, Anglo Irish, Irish Nationwide and EBS. At 30 per cent, the size of the discount looks larger than the 25 per cent figure forecast by most banking analysts who are close to the banks. Their forecast is probably correct, too, because stockbrokers are focused on the two remaining stock market-listed banks and AIB and Bank of Ireland will need to be paid less for their loans than the other three Nama-ed banks. The €77bn in loans the agency will buy is also slightly smaller than many believed. In April, at the time of the launch of Nama, the amount of the bad property loans was said to be around €87bn. By July, the official estimate of the bad loans still on the five banks' books had fallen to between €80bn and €90bn because the big lenders had, by then, written off from their own reserves about €7bn worth of bad loans. It appears that by the end of the summer the banks have written off a bit more - helping to lower the bad loan figure to the €77bn announced last week. The average discount taxpayers will pay the five banks for their loans is known. But the big euro number missing from last week's announcement was the extra cash, the so-called recapitalisation, taxpayers will have to pay into the banks to make good the discount. The Government parties did a very impressive job last week in announcing the discount to be paid to the Irish banks without making clear the amount of capitalisation cash that the banks will require. Minister for Finance Brian Lenihan managed to separate the two issues. Convincing the electorate and, more immediately, Green Party members, that Nama is a costly but necessary step to ensure economic recovery would have been more difficult if the additional demands on taxpayers had also been made clear. The best guide to how much the discount will cost taxpayers in additional cash comes from the International Monetary Funds (IMF) which estimated that the Irish banks would together lose €35bn from their lending frenzy and, significantly, need to raise extra funds to make good these losses equivalent of between 12 per cent and 15 per cent of GDP. In translation, the IMF was saying that the Irish banks would need to raise, from external public and private sources, the equivalent of between €21bn and €26bn to provide for writing off the losses. The amount of additional cash the banks need is the most important figure. Despite renewed talk of private investors, taxpayers will still be expected to find the bulk of the remaining recapitalisation funds that the banks require. By mid-summer, the banks had already tapped taxpayers for €11bn; AIB and Bank of Ireland had received €3.5bn each and Anglo Irish had got €3bn, with expectations it would receive €1bn more. The banks raised a few billion euro by buying back - in a sort of private Nama scheme - some of their own bonds at a discount. They had already written off a slice of their bad loans from their own reserves. Calculating from the authoritative IMF figures, the total extra cash required by the banks after the Nama discount falls to about €6bn. That's still a lot of money that the banks will seek, mostly, from the public purse. Last week, AIB muddied the waters. It left the impression in a press release that it would be able to raise private funds. Last month, Canadian bank CIBC confirmed it would be interested in buying into AIB. However, it would be stretching credulity to believe that a bank the stock market valued this week at €2.78bn would be able to raise a few billions from private sources alone, even if it were to sell off its near 25 per cent stake in M&T Bank in the US. For its part, Bank of Ireland has indicated that its commercial property loan book is in better shape than other big lenders and that Nama is likely to apply a discount of less than 25 per cent to its loans. Nonetheless, post-Nama, AIB and Bank of Ireland will still likely need €3bn in extra cash between them. If private investors step in, the bill the taxpayer needs pay may be reduced by €1bn. The requirement at the other three Nama-ed banks, post-Nama, will be greater - and the taxpayer will probably be called on to inject another €4bn into Anglo Irish, Irish Nationwide and EBS. Between the five lenders, the taxpayer may need to inject an extra €6bn into the Dublin banks on top of the €11bn in public funds already committed. Minister Lenihan will come under increasing pressure in the coming days to reveal the individual capitalisation figures for each lender. It is, after all, the one big number that really matters to taxpayers.