This morning on RTE radio, a 34-year old Fianna Fail senator, Mark Daly, an auctioneer (Irish term for a profession that frequently encompasses the roles of valuer and estate agent) alleged that he was aware of shenanigans involving loans (that is, more than one) acquired by NAMA. The one he outlined related to a property in the UK. The loan, he claimed, had a par value of €12m. NAMA paid €6m for it. A party related to the developer (“friends” according to the senator) acquired the loan for €6m from NAMA. The underlying property is today worth €9m. These were the facts relayed by the senator which, on the face of it, give rise to two concerns
(1) NAMA is selling loans for substantially less than they’re worth
(2) NAMA is selling loans to parties associated with the original borrower with the implication that the borrower is profiting from the bank crisis to the tune of €3m on this one transaction alone
A further concern was that NAMA was acquiring loans from the banks for less than they were worth, thereby imposing increased losses on the banks which are giving rise to capital holes being filled by the taxpayer. This is less of a concern on here because NAMA is valuing loans at a specified valuation date -30th November, 2009. And although property values have plummeted more than 10% in Ireland since that date, in the UK commercial values are up 10% and indeed in some micro-markets eg London West End and City there is evidence to suggest commercial values are up 20%+. There is still a difference between €7.2m and €9m but it would not be a huge concern. The other two concerns enumerated above would remain however. Here is the transcript of the interview and the ball would appear to be in Senator Daly’s court to provide details using his privilege in the Oireachtas so that the claims can be verified. If the claims are correct then NAMA will have some serious questions to answer. There will be a further commentary on the claim that NAMA is not following its own rules tomorrow.
Pat Kenny: Good morning and welcome, today is it possible that NAMA, wittingly or unwittingly, is selling assets back to the former owners at a discount (PK then introduces other stories in his radio programme). It has been claimed that people that owe hundreds of millions of euros to the banks are buying back their debt at rock-bottom prices through third parties and offshore companies. Fianna Fail senator Mark Daly whose family is in the auctioneer business claims some property is being sold back at virtually nothing to the original owners and that NAMA is not following legislation enacted by the Oireachtas. Mark daly joins me now along with the deputy Business Editor of the Irish Independent, Emmet Oliver, good morning to you both. Emmet is on the phone and Senator Mark Daly is with me in the studio. Mark Daly, exactly what are you alleging?
Mark Daly: Well it’s not so much an allegation as a fact, that under the NAMA legislation under section 23 or 25 of the Act, NAMA had to prepare a code of conduct for the disposal of bank assets within three months of the passing of the Act which it did. And within three months it did this and said that sale of properties and assets including bank loans would be governed by the Code of Conduct for the Governance of of State Bodies which was passed in 2009 and in that, section 18 said that any asset that might be sold, so all the bank loans would have to be sold by public auction or competitive tendering process.
PK: So we don’t know about it?
MD: So we don’t know about it but the competitive tendering or public auction would obviously involve a huge amount of advertising that we would see in all the property supplements but this doesn’t appear to be happening either. And what appears to be happening is that people in the know, the same people who were in the know who got us into all of this trouble are aware through the banks, through the receivers what these assets can now be bought at, the haircuts. In one particular case that I have come across in the UK the original loan was €12m, the haircut was €6m, but the asset itself was undervalued and was worth €9m really and the guy, the original borrower of the loan said to his friends “you pay the banks €6m, they’ll be happy and we’ll sell it for €9m” and they made a nice €3m profit. And that type of thing is happening wholesale because the problem is that there is no transparency –
PK: But why would NAMA want to do that, if the thing was worth €9m why wouldn’t they sell it for something approaching that?
MD: Because no-one is trying to maximise the value because once the bank get the haircut that NAMA imposed on them, the €6m –
PK: But of course if NAMA imposed a haircut and said that this asset is effectively only worth €6m but it’s actually worth €9m. If they’ve done that then they are exposing themselves to having undervalued the property which means that they’re not being very professional in what they are doing.
MD: Well there’s a lot of shady behaviour going on here and if they followed their own rules as set out in the NAMA legislation and had a competitive tendering process or public auctions then it maximises values but what is actually happening here is and the banks and receivers have admitted this to me that the banks say that “once we get what we paid for it, the haircut from NAMA, we are happy”
PK: This is utterly, utterly dishonest if that’s what NAMA are it, if NAMA and I’m only saying “if”, is applying a haircut that is greater than the haircut that the market would suggest it should have then NAMA is not doing its job properly.
MD: Well, I’ll actually blame my own profession, the auctioneers and the receivers, the banks as well. All they want to do is pay back NAMA the money that is owed. Maximising the values is not really their concern –
PK: As a tax payer it is –
MD: As a taxpayer it is our concern which is why the transparency that I am looking for. First of all the rules would be followed, the law would be followed –
PK: It would by public tender or public auction
MD: Exactly. And all the banks and the receivers would go through this process but they’re not even doing that. As you can see you are not looking at papers full of advertising saying “NAMA property for sale”.
PK: What interests me more and that is some and that is something they should be doing now that you have pointed this out and I’ll get to that in a moment or two. What is more sinister is that if they applied a haircut that is too severe rather than the medium term or long term economic value of the asset which they would be in a position to hang onto because that was the idea, they could hold it in a way which the banks couldn’t because of their balance sheets, NAMA could hold it longer but if they’re just dispatching stuff to get the cash in to show how well they’re doing for instance, how well they’re doing. But they applied too severe a haircut which means that the taxpayer had to put more money into the banks which we didn’t need to do and that is the obscenity, if it’s true?
MD: Well the obscenity of it is that on top of this is that the banks are once they’re quite happy to get the money they owe NAMA, aren’t going to go after the borrowers, the original borrowers for the balance of the money. They’re just not going to do it. And receivers talking to the banks have admitted that to me. Now the problem with this Pat is that I’m not an investigator, I’m not the Guards but then again we know of plenty of cases where it’s taken two years to take people to court for very obvious corporate governance issues –
PK: Let’s point this out carefully. NAMA, we expected to turn a profit. That’s part of the whole thing that at the end of the day, it might turn a small profit. That’s at THE END OF THE DAY. It was not expected to turn a profit in the short term. It was supposed to hang onto assets and realise their value. If it’s selling them at below market value disposing of them just to get cash in. then it’s not doing the job it was supposed to hang onto assets and realise their value. If it’s selling them at under the market value, disposing of them, just to get …
MD: Lets be clear on this. When the banks are appointing auctioneers and the receivers to realise the money, the fault lies with them in that they’re not advertising the property at a very minimum the property for sale and saying that this is what is available and this is the current bid on it . The transparency is required because first of all the citizens and the taxpayer are entitled to know that the assets that at a minimum advertising the property for sale, the assets which they currently own through NAMA are being maximised in value and that is not happening.
PK: And NAMA if it wants to, like in any commercial auction or tender, they can have a reserve. If it doesn’t meet the reserve, in other words, if they feel that they are being scammed in some way, if they think people are trying to get it for nothing, for example all potential bidders have a chat and decide to keep the tenders low –
MD: What is actually happening is the guy, the original borrowers in these cases is that the original borrowers that have been brought to my attention are arranging for their friends to put in the bids. Nobody else is aware that this place is for sale because no-one else knows that this asset is in trouble,is for sale. This is a scam of monumental proportions
PK: Before I go to Emmet Oliver, NAMA has responded to you, to the claims that you made. It says that NAMA had responded that it had addressed this extensively at the Public Accounts Committee. We would ask any other person to advise of incidents where this might be happening. A spokesman for the Agency said for our part, NAMA is keen to avoid such developments insofar as it can within the law as passed by the Oireachtas. So what’s your message to them?
MD: Now that’s not exactly encouraging is it? “please come to us with a file that we can pass to the DPP”. What we’re talking about here is the transparency that is required and they’re not even following section 25 or section 35 of the NAMA Act to say this must be open, this must be transparent but the concerning part of all of this is in the next six months the cherrypicks, the best property is going to be bought up by the scavengers and the vultures.
PK: Now you have not gone public with the particular deals that you are aware of . Have you gone to the Gardai with it?
MD: Now the problem here is that you need smoking guns you need evidence of emails, phones, cheques, money going. This is all quietly, quietly little chats in a corner over a pint. And the guy who came to me on this one was approached at a dinner party to be the third party to buy a property in the UK and he would then be given a cut. And he came to me because he was so disgusted, that the same people who got us into this trouble in the first place are now doing the same thing again.
PK: Emmet Oliver, what do you make of this contention?
Emmet Oliver: Well I have great misgivings for the transparency of NAMA myself but in a different way and I’ll come to that in a second. It’s actually on the other side of the operation where they’re actually lending out money rather than what they’re doing in relation to property that are being disposed of. Two things that come to mind based on what the senator is saying – first of all, just because you auction off property at an auction which is what he seems to be advocating doesn’t necessarily mean that you are going to get the highest price. I mean the largest office block developments in the world generally don’t get sold by auction, they get sold by private treaty sale. If someone comes along to you like a private equity company and let’s say that that’s who buys the largest property holdings they want to do that in private. They don’t want to disclose what they’re buying. They’re buying hundred, possibly thousands of properties. If they say to you “ I’ll give you €200m and you go to public auction they’re only willing to give you €150m, I don’t see what the problem is, you know, solely because you hold a public auction doesn’t necessarily mean you’re maximising the price – that’s the first thing I would say. Secondly, the problem is where are these people going to get the money to buy these assets… I don’t know what bank is going . Let’s say that developer A comes on the scene, goes to an auction and sets up a shell company or acts as a shadow director which is what the senator is trying to suggest there. I don’t know what bank is going to lend the money to these people because they’re already in massive negative equity, they’re already massively indebted and they’re breaching their loan covenants all over the place. So people are not going to advance credit to these people. So I don’t know where that happens. But there is a danger, there is a vulnerability that we’re heading into a world where smaller loans are going to start moving into NAMA. You’ll see a story that I had myself this morning that 20,000 smaller loans are going to move so I would be I ould be worried then that at the local level where you would get the kinda carved-up deals that he’s talking about. So there is a vulnerability there, there’s absolutely no doubt about that. I don’t have any evidence and unlike Mark there I don’t have the benefit of privilege in the Oireachtas to say these things. So he does have in the dying days of the Oireachtas the opportunity to put names into the pubic domain.
PK: Isn’t the whole business of NAMA somewhat flawed that the bigger the haircut applied to the loans at the banks, the smaller amount of money that they gave the banks in terms of the bonds underwritten by the ECB which means that the taxpayer has to find more cash to put in. I mean it’s a mad system really?
EO: As we said at the time the money has to put in at one end of the pipe or the other, but it has to go in. In other words, if they over-do the haircut the banks have a bigger capital hole which has to be filled . Equally if they pay too much for them, we have to pay because they won’t make a profit either. So essentially the money was going to have to be found somewhere so yes, you’re absolutely right but this debate was had extensively back last year in the Dail and this was the system decided on. That horse has unfortunately bolted.
PK: But the principle that you have to hang onto assets, that’s what they [NAMA] were told to do. Now some assets will never have a value, certainly not in this decade or even the next. But other assets would eventually, as markets improve, have significant uplifts in their value and that was the whole idea, that NAMA would hang on. And work those assets if they could and do what the banks couldn’t afford to do. But which banks do normally in better times. They don’t necessarily foreclose on everybody on their books because it would cause chaos.
EO: Yes but the problem here is that the assets here are not performing. They’re not covering the interest bill so there’s accounting rules which won’t let you sit on them and let the compound interest effect take hold. You’ll have to takle an impairment on your books. So you can’t do that.
PK: But that’s what NAMA was told it was supposed to do –
EO: No but what I mean was it was the banks that were told that they couldn’t do that. And the only other way for relieving those assets from the banks balance sheets was to put them into another vehicle which isn’t as governed by those accounting rules which make you take the write-down. That’s why the banks weren’t left to sit on them until they recovered their values. If the interest isn’t coming in, the actual asset has to be written down in value.
PK: Look, if this scandal as Mark Daly seems to believe is there. If that’s real, the people who are culpable, if these things are being sold to private equity funds or whatever, the valuers are the corrupt people because they’re saying this thing is worth €6m to NAMA and it’s being sold on at €9m?
EO: Well the problem is, I mean. Two valuers won’t agree. No valuers will agree. So I’ll go out and view an asset Pat and so will you. You’ll say “who is the tenant, how much is he paying a month, will he last, will he survive, could we get him another rent review through, and increase the rent, what is the depreciation of the property et cetera”. I don’t necessarily agree with you. So this isn’t -
PK: So it’s not an exact science?
EO: You can be out in some cases hundred of millions of euros on the larger properties. So you know there is a problem there. But the real transparency problem is actually money that’s being lent out by NAMA. People don’t think of NAMA as a bank but it does operate like a bank. It does lend out millions and millions of euro in working capital to finish off projects which it says is a better way because better finished than not finished. But we don’t know who has received what is effectively public money. And we don’t really know what the criteria are to advance that money. So I think that -
PK: Are you saying that developers who owned particular assets which are then, those loans are NAMAised, that those self-same developers are getting loans from NAMA to finish off the assets so that it will actually be worth something rather than worth nothing half-finished?
EO: Yes that’s what is happening but the problem is we need to know who is getting the money because (1) there’s a large amount of it and (2) we need to know was one case more deserving than another -
PK: In other words the criteria that they apply. I mean you can take personalities into account but that shouldn’t be the criterion. The criterion should be about maximising value for the taxpayer irrespective of whether it appears to be doing some developer or other some sort of favour. That’s not the point – the point is to maximise value for the taxpayer.
EO: Well what’s happening is Mark and myself come together if they reveal the auction results and who bought the property, guys like myself can go off and research the company who purchased the property. Equally if they revealed and published a list of who got working capital, again the company name that would be sufficient to iron out a lot of these problems and I don’t understand why they don’t do that.
MD: Yes, I agree with Emmet there but like, what he is talking about there is, and being a valuer myself in a former life, I realise that in some situations sales by private treaty would be a better way to go but that’s not the point. The legislation says that you can’t do that. You must have an auction, you must have a tendering process. And therefore it is now illegal to now be selling any asset, the disposal of all these assets, the €2bn that have been disposed so far hasn’t been done properly. That’s the first issue. And like, this practice is apparently so widespread that when I was talking with a member of an embassy staff, I had mentioned the possibility that this was going on and THEY had heard it. So I mean it is in the dinner-party circuit around Dublin and elsewhere. It is quite well known that there are developers who are cutting deals –
PK: Well that’s not good enough to stand up in court, in law. It’s not good enough for Emmet to print in his newspaper. We talk about this but we cannot really point the finger until we have chapter and verse.
MD: But the issue here is transparency and how do you get it? First of all, the rules that are there, the laws that are there, should be followed, [sales] should be done by tendering or by public auction. And secondly as Emmet has suggested, a website, the NAMA website should have all the assets and the loans that are up for sale, what they were originally bought for, what the current bid is and no asset should be sold within four weeks of it going on the website. That way, even if a guy gets the greatest bargain ever, no-one can turn around and say there was a scam, there was a deal done.
PK: So a bit like Amazon [ Ebay, Pat?] , on you go and you can see exactly what the current bid is and the closing date is the 4th March or whatever it is -
MD: And then, I agree we mightn’t maximise the price because private funds would prefer a sale by private treaty but that’s not what the law says. We can change the law if we think that’s better but at the moment, we’re not even following the law that’s there.
PK: Finally Emmet on that, irrespective of what is wise – private treaty versus public auction, to get big investors involved in these things, they don’t want to necessarily go public. But the law is the law and they’re not adhering to the law at the moment according to Senator Mark Daly –
EO: Well, I think that maximising is the key thing. If the current legislation has to be amended, so be it. All I’m interested in as a taxpayer is that we get the best price, whatever they need to do to do that. I think that the idea of a website and disclosure would be a great idea. I mean this is public money. What NAMA is saying is “oh well this is the property market and none of these things are publicised” but we’re not talking about a normal property market, we’re not talking about a normal structure. NAMA is an asset management vehicle funded by the Irish state and guaranteed by the Irish government. I think in that context it’s perfectly possible to set up NAMAbay or Ebay-type service to find out who is getting the credit because in that situation NAMA is holding all the trump cards. Because they say to Johnny Ronan or Derek Quinlan or whoever is looking to finish a project, “if it doesn’t go public you don’t get the money” and I think that would pretty rapidly solve that problem.
MD: I mean it’s public confidence is the important thing in this and if people can see what an asset was worth originally and what is being paid for it now, there can be no quibbles about it. The next six months, knowing how the property market works, they’re going to be cherry-picking and deals done and the taxpayer ultimately will be picking up the [indistinct] bill [?]
PK: In an Oireachtas Finance Committee after an election, Emmet, it might be worth a look at what exactly NAMA sold and what it turned for the third party that sold it on because I am concerned obviously that NAMA paid too little for stuff, you know that the haircut was too extreme and if that’s the case it has cost the taxpayer money and not the way that the business should have been done.
EO: No, I mean there is a danger because NAMA, Brendan McDonagh is a director of the company, he is going to be judged on the success or failure of NAMA in its own isolated way. He’s not going to be judged by how much the banks have to be recapitalised. You have a reasonable point there. He’s going to give himself a good head-start by applying a very deep discount. Having said that they do have the Comptroller and Auditor General on premises. They are an organisation that make public quarterly reports and very few other state bodies do so. So this is only going to be all revealed in time. It will be years before we know if NAMA has made a profit or not. It’s also as I said earlier a lot of argument about what the value of assets are – you’re never going to get two valuers to agree. So it is going to be difficult but I do think that NAMA could deal with the transparency point at very little cost which would give disclosures about the working capital advances and also as Mark says the sales that went on.
PK: Final word, Mark.
MD: I mean the problem with the Comptroller and Auditor General is that’s like the post mortem, this is how it went wrong. What we need to look at now is how we make sure that it doesn’t go wrong. And in the next six months the guys who caused all the trouble are still going out there and they’re going to make billions, millions, hundreds of millions, billions off the taxpayer because they’re buying property at less than the asset because they’re arranging for their buddies to put in false bids and thereby buying it for less than the market value –
PK: A number of people would say “where would they get the money, they’re supposed to be broke”
MD: Their friends, the third parties, are arranging the loans.
PK: [reading texts] they drifted the money offshore before the bust so of course they can buy back for a song, they’re not going cap-in-hand to the banks. Mark Daly should read the list of NAMA sales into the Seanad record, a windfall tax would claw back the gains made by quick buck merchants in this country, why is there a reluctance to introduce this tax? A lot of stuff wondering how the could actually afford to do it. Fair parties, pals, whatever, it may be happening. BUT we do need chapter and verse, so if there is anybody out there that can give us that we’d love to hear from you.
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