Ciarán Lynch (Cork South Central, Labour)
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Question 76: To ask the Minister for Finance his views on the €64 million loss incurred by the National Asset Management Agency in the three months to end June 2010 on the mark-to-market negative movement on hedging derivatives and foreign exchange movements; the nature of these derivative operations; the total nominal exposure of NAMA to derivative products; if he will provide a breakdown of this exposure by product type; and if he will make a statement on the matter. [41632/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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NAMA advise that in terms of the €64m valuation movement reported in the second quarterly report of NAMA, it is most important to note that this is a mark-to-market movement on the derivative valuations in accordance with international accounting standards and these figures will, over time, increase and decrease in line with market movements in interest rates. As such, this is not a permanent loss or, indeed, a cash loss for the period. I am informed by NAMA that it must transact derivatives to manage both the exposures arising from the transfer of debtor derivatives from participating institutions and to manage the interest rate and foreign exchange risk in the NAMA Balance Sheet.

In terms of debtor derivatives transferring to NAMA, the total nominal value expected to transfer is just over €14bn, with €6.4bn having transferred by June 30th 2010. NAMA only pays for performing derivatives (€184m to June 30th 2010); non-performing derivatives are acquired at no consideration. Apart from one inflation-indexed swap, the remaining products are interest rate derivatives: 95% are plain vanilla interest rate swaps and 5% are interest rate options. Over €7bn of the transferred debtor derivatives are due to mature by the end of December 2011.

Apart from transactions executed in order to manage the interest rate risk arising on these debtor derivatives, NAMA additionally entered into a number of interest rate swaps to hedge (fix) the variable interest rate it pays on a portion of the NAMA bonds issued to participating institutions as payment for the loan assets acquired. These swaps are used to protect NAMA from rising interest rates. With regard to foreign currency, NAMA hedges the consideration paid for foreign currency assets; the currency risk arises from the fact that NAMA only issues euro-denominated bonds for such assets.

I am advised by NAMA that in view of its commercial remit, it would not be appropriate to disclose full details to the market regarding each derivative position at this point. However, the Deputy should note that comprehensive information about NAMA's hedging activities will be published in the Agency's annual accounts due for release in 2011.