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Barclays former bankers like helping struggling institutions. Three years ago a group of them enabled their ex-employer to tidy its balance sheet when they acquired $12.3-billion (U.S.) of nasty structured credit gunk through their controversial Protium fund. Now the same team is offering assistance to Irish taxpayers, taking a 17 per cent stake in the National Asset Management Agency, Ireland's bad bank. Protium extracted a pound of flesh from Barclays, and it's not clear why Walbrook Capital, as the latest venture is known, wouldn't do the same.

In both cases, the bankers did a small deal that solved a big problem. Three years ago Barclays wanted to avoid mark to market gyrations on its toxic assets, and did so by effectively swapping structured-credit securities for something more stable – a 10-year $12.6-billion loan to Protium, which in turn took ownership of the troublesome portfolio. Today, Ireland needs to replace the recently nationalised Irish Life insurer as one of the three private holders of 51 per cent of NAMA's holding company – otherwise Eurostat rules would require the bad bank to be added to the country's national debt.

The bankers got fantastic terms from Barclays: Protium stood to benefit from gains on the securities, but the U.K. bank's loan was to take the bulk of any losses. By contrast, the NAMA deal looks like it genuinely transfers risk to Walbrook. If NAMA cannot sell its huge heap of property loans above the €31.8-billion it paid for them by 2020, Walbrook, along with other shareholders, could take the hit. Protium's "heads-I-win-tails-you-lose" structure isn't repeated.

At first glance, the deal looks pretty pedestrian. Walbrook inherited unfavourable terms that went with Irish Life's stake: a dividend capped at Ireland's prevailing 10-year bond yield, and upside (if there is any capital appreciation by 2020) capped at a 10 per cent premium to the value of its stake. So if Walbrook partners pay €17-million for the stake and fund it entirely with equity, the total value of nine years of dividends plus a €1.7-million capital gain would only yield an internal rate of return of 6 per cent, according to Reuters Breakingviews' calculations.

Even in this low return world, it's hard to see why Walbrook would be tempted. But now assume Ireland sells the stake at a 10 per cent discount – not impossible, given that the state now owns Irish Life and it needed a buyer. And Walbrook funds half of its purchase with debt costing 5 per cent annually. The return leaps to 14 per cent. It's still risky. But it might explain why Protium's alumni have taken the plunge.

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