This morning at 11.30am in Committee Room 1 (you will be able to view proceedings live here – remember Committee Room 1) NAMA will be quizzed again by the Committee of Public Accounts. You’ll remember that NAMA was last before the Committee on 18th November, 2010 and the specific reason the agency is being brought back is to answer follow-up questions on the issue of information provided to NAMA by the banks in 2009 – before Christmas there was a flurry of activity in this area with reports of Garda involvement and exchanges between NAMA, the Financial Regulator and the Committee which led to the Committee feeling it had been misled by some responses from the NAMA CEO, Brendan McDonagh in November.
So expect some fireworks this morning. The Committee may take advantage of the session to ask other questions of NAMA separate to the core issue of the banks’ provision of information in 2009. There will be reporting and analysis here later.
Here’s the summary of the three hour hearing. A transcript will be posted when it becomes available.
(1) With respect to the banks misleading NAMA, it seems that NAMA has won the buck-passing competition with the Financial Regulator. NAMA referred to a letter received yesterday at 5pm (and NAMA repeated the 5pm timing a few times to emphasise the action by the Financial Regulator late in the day and against a scheduled Committee hearing today). It seems that the Financial Regulator is seeking information from NAMA and will be taking the lead in progressing any investigation into misleading information being provided to the agency or more particularly to the stock exchange.
(2) NAMA claim that they can only act on information received after the NAMA Act came into law in November 2009. For acts before then, NAMA just doesn’t have the locus standi. If NAMA had accepted the loans at the values suggested by the banks in August 2009 then NAMA would have overpaid by €20bn. Also if the true scale of losses was known there might have been a different policy response though the claim was that Peter Bacon’s earlier report recommended an asset management solution without quantification.
(3) Whilst banks may have misled the Stock Exchange that is a matter for the Financial Regulator it seems. If banks sought to mislead the government so as to remain independent then that, also, is not a matter for NAMA. It seems game, set and match to NAMA in passing the buck to the Financial Regulator.
(4) Personally I thought NAMA got away very lightly because NAMA had previously claimed it was effectively misled with information which formed the basis of its draft Business Plan. And there was no challenging of NAMA’s due diligence of that draft Business Plan. So in that respect the Committee was lightweight. And NAMA might breathe a sigh of relief.
(5) Whilst declining property values, the finalisation of the NAMA valuation methodology and additional equity release may have increased the Loan-to-Value metrics between August 2009 and when NAMA valued the loans, it was the NAMA CEO’s view that these aside the LTVs should have been in the order of 100%, rather than 77% as claimed by the banks. NAMA provided the detail of the LTVs provided by the banks as follows:
(a) AIB 70%
(b) Anglo, 66-69% for land, 65-70% for development and 75-80% for investment
(c) BoI 66-70% (BoI apparently referred to a 69% LTV in its stock exchange release)
(d) EBS, 69% for land, 100% for development and 68% for associated lending
(e) INBS, 94% for land, 98% for development and 89% for associated
The NAMA CEO’s view was that the weighted average LTV should in fact have been 100%
(6) To the end of December 2010, NAMA had absorbed €71.2bn of loans at par value. In addition Paddy McKillen’s loans amount to €3bn (up from previous estimates of €2.1bn) and in addition there will be some €13bn of €0-20m exposures to absorb (not €16bn). It was not clear from the answers if there will be additional loans which are presently being contested by the banks.
(7) The average haircuts to the end of December 2010 were a little below previous estimates (in brackets) with AIB at 54% (60%), BoI at 42% (42%), Anglo 62% (67%), EBS 60% (60%) and INBS at 64% (70%). Additional tranches may alter these haircuts.
(8) NAMA has reviewed 30 business plans and 13/14 “have moved” to the Memorandum of Understanding Stage. The Committee did not really get to grips with whether any MoUs had been signed by both NAMA and developers. After the MoU stage, there will be Heads of Terms and then a Legal Agreement. So it seems that NAMA is still some way off having agreed business plans despite absorbing the first tranche of loans over eight months ago on 10th May, 2010.
(6) With respect to spouse transfers, NAMA can use four legislative tools (a) section 211 of the NAMA Act for transfers after 21st December, 2009 (b) the 2009 Land and Conveyancing Reform Act for transfers after 1st December, 2009 (c) the 1634 Conveyancing Act which allows NAMA to go back indefinitely (and certainly the “dozen years” that will be relevant here) and (d) if the developer is bankrupt there are provisions in the bankruptcy legislation to have transfers set aside. The NAMA Act is the easiest tool for NAMA as they don’t need show intent – the other Acts require NAMA to prove the developer was insolvent and an intent to defraud creditors.
(9) NAMA has taken legal action against one developer to void transfers and the details of that action will come into the public domain on Monday next, 17th January.
(10) It seems that Brendan McDonagh might have had some media training or else he has been studying Tony Blair’s handling of difficulty questions. If I had a euro for every time he responded to a question with “all I can say to you” (in other words he may not agree with the questioner’s question or answer it comprehensively but he will set out his narrower understanding) I think I would have about €20.
(11) The Committee were not happy that some of the contents of a letter received by it on Monday 10th January, 2010 were featured in the Sunday Business Post which ran an exclusive on the NAMA CEO’s salary (€430,000 + 60% max bonus). NAMA hasn’t paid bonuses *yet* for 2010 and the NAMA pension scheme provides 1/80th of final salary for each year of service.
(12) The section 2 penalties in the NAMA Act for developers providing deliberately incorrect information (€5m and or up to 5 years imprisonment) might not be adequate to prevent developers taking a punt on NAMA not finding out about transfers given the value of developer properties.
(13) Developer Michael O’Flynn might have some questions to answer in respect of personal guarantees on his loans. NAMA claim that *all* of the Top 10 developers (not named but there has been widespread speculation that the Top 10 includes Michael O’Flynn) have given personal guarantees on *some* of their loans. The NAMA CEO was careful to state that he was not referring to any individual developer when making that statement. But if Michael O’Flynn has given personal guarantees then why does he still have the AgustaWestland helicopter. Of course it might be that Michael O’Flynn’s loans are all performing or the helicopter is ringfenced in a limited company or he mightn’t be in the Top 10.
(14) NAMA’s Head of Lending, Graham Emmet’s comments about NAMA being a liquidation vehicle do not reflect NAMA’s position. Brendan McDonagh had a word with him…
UPDATE: 21st January, 2011. Cork Developer and NAMA Top 10 borrower in Tranche 1, Michael O’Flynn is reported to have written to the CPA to assert that his loans are not subject to personal guarantees as claimed by the NAMA CEO. This letter of Michael O’Flynn’s seems to have generated further correspondence from the CPA to NAMA asking for comments on Michael’s claims and the response printed in today’s Irish Times is “nevertheless, Mr McDonagh chose his words carefully when addressing the committee on this issue [personal guarantees] and he stands over those comments now”. Let’s remind ourselves of the words used by the NAMA CEO which are now available from the Oireachtas transcript.
Mr. Brendan McDonagh: I have to be very careful in what I say here. I used the words carefully when I said that every single borrower provided some form of personal guarantees. If an individual says otherwise – I am not referring to any individual – I cannot control that.
Chairman: If it is the situation that less than 100% of the loans in tranche 1 was covered by personal guarantees, can Mr. McDonagh give the committee a figure of what percentage of the loans was covered?
Mr. Brendan McDonagh: No. What I said, Chairman, was that every single borrower gave some form of personal guarantees and that is absolutely the case. Every single loan is not covered by a personal guarantee but borrowers would have had some loans with personal guarantees and some loans where they did not give personal guarantees but they did give some form of personal guarantees.
Mr. Brendan McDonagh: No, I never said that. I said every single one of the borrowers gave some form of a personal guarantee. I did not say they gave a guarantee for 100% of every single loan and I apologise if—–