“There has been some comment that the consequence of this objective is that NAMA, having recovered its outlay, will then absolve borrowers of their further obligations. This is absolutely not the case. Borrowers, as both I and NAMA’s CEO Brendan McDonagh have already said on a number of occasions, will continue to be liable for the debts that they have incurred.” NAMA chairman Frank Daly speaking in June 2010.
The re-igniting of the personal debt forgiveness debate last week by Professor Morgan Kelly, has led some to compare and contrast the predicament faced by ordinary people in shouldering unsustainable debt, with the perception of the light treatment of developers at NAMA. Professor Kelly indicated that €5-6bn of funding would solve many of problems faced by ordinary people in dealing with mortgage debt; it didn’t take long for the suggestion of blanket debt forgiveness to be shot down by ministers, first by junior minister Brian Hayes and then by the Tanaiste, Eamon Gilmore. In contrast last weekend, Ireland’s Sunday Times suggested that NAMA was in fact forgiving €37bn of developer debt. This understandably generated unease and in certain quarters, outrage – there seemed to be one standard for developers and another for ordinary people; the Government was apparently forgiving €37bn of 850 developers’ debts yet refusing to consider a relatively measly €6bn for tens of thousands of ordinary people. The sense of injustice is compounded by the recent, but unrelated, disclosure that NAMA is offering incentive payments to developers, and of course that comes on the back of reporting that NAMA is offering salaries of €200,000 a year to developers.
The accusations in the pages of the Sunday Times are not new; there was a feature entry on here last year which examined the issues, after Alan Ruddock’s last article for the Independent. This entry examines NAMA’s policies in dealing with debtors.
In overview NAMA has acquired approximately €72bn worth of loans at book value and paid €31bn for them. The book value of a loan is what was actually originally given to developers by the banks plus accumulated interest, less any interest and principal repayments. NAMA paid €31bn for these loans after a rigorous valuation and due diligence process. The difference between the €31bn and the €72bn book value was the discount, or haircut, imposed by NAMA. The banks incurred a simple loss on the loans of €41bn.
Amazingly, it appears to be the case that most loans in NAMA have some form of personal guarantee attached. It’s almost a joke in NAMA that developers went to the trouble of creating elaborate corporate structures with offshore embellishments thrown in, all to limit liability and then the same developers turned around and gave personal guarantees to the banks, rendering the elaborate corporate structures largely useless. So much of the lending, even if to a limited company, is backed by personal guarantees though NAMA has not disclosed the value of personal guarantees – the total might be €5bn, €30bn or €72bn, we don’t know.
To go back to when NAMA was created in 2009, a concern on the part of many was that NAMA would be a bailout for developers. At its worst, the concern was that politically-connected insider developers would have their debts written off (or more accurately paid off by ordinary people) and that developers would escape with their wealth, the Bentleys and private planes and, using their insider connections, buy back their property for a song at a later date. These notions understandably inspired suspicion and antipathy towards NAMA, and I think it is fair to say the agency has had a continuous public relations battle to disprove these notions.
From the start, the official claim was that NAMA would pursue developers for every red cent owed, not just the price NAMA paid for the loans, but the full book value of the loans. So a developer who owed €100m to the banks would be pursued for that sum, even if NAMA bought the loan for €40m from the bank.
What muddied the water were statements from NAMA itself, where the chairman and CEO separately and on several occasions referred to NAMA’s “core objective” of recovering what NAMA paid for the loan, plus any new advances made by NAMA. This was interpreted to mean that NAMA was writing off or forgiving the difference between what NAMA paid and the book value. Those from the accounting profession noted that NAMA was not apparently accounting in its financial statements for the book value of the loans, but the price NAMA paid for the loans. So suspicions arose about blanket debt forgiveness, and in the end, the NAMA chairman was forced to make it clear that NAMA was pursuing the book value, and not just the price paid for the loans.
Before dealing with NAMA’s approach to developers, it is worth reminding ourselves of the difference between limited company debts and personal debts. In this country, as in all other developed countries I know, we allow companies with limited liability to operate. The “limited liability” refers to the fact that if you are a shareholder in such a company, your liability is limited to what you paid for the shares. So for example, bondholders in Anglo Irish Bank can’t pursue individual shareholders for debts and equally NAMA can’t legally pursue shareholders in developer limited liability companies beyond what assets are actually in the company. The above isn’t meant to be patronising to readers on here, it’s just that we sometimes seem to forget that some debts mightn’t be recoverable from individuals because the debts were not incurred by the individuals themselves, but by a limited liability company. So let’s say Developer A borrowed all his loans through a limited company, A Limited, and he now owes €100m but the value of the company’s assets is only €40m, then that €40m is all NAMA can legally recover. NAMA is not “forgiving” A Limited €60m, it will pursue it to the maximum extent feasible but if A Limited doesn’t have any more assets, then you can’t get blood out of a stone. There was an entry here last year which highlighted the problems NAMA would have with recovering such loans.
Having said the above in respect of limited companies, it may be the case that some limited companies have a portfolio of assets and projects, and some may not be as impaired as the NAMA assets so NAMA will pursue the other assets in the company to help offset losses.
But aside from company liability, developers can have personal liability. This might be because they gave personal guarantees or maybe they borrowed in their capacity as individuals or as part of an unlimited partnership. Now this personal liability places developers in pretty much the same boat as ordinary people. So how does the treatment by NAMA of this personal liability on the part of developers compare with the treatment by banks of ordinary people who can’t pay their mortgages?
For ordinary people, it should be said that there are very few personal bankruptcies in this country – just nine in 2005, 17 in 2009 and 30 in 2010. For a developed country with a population of 4.6m, we practically don’t do personal bankruptcy; either deals are cut between creditor and debtor, or as generally happens there is a kicking of the can down the road, so the creditor doesn’t enforce or forgive. NAMA says that it will pursue debts in certain cases, on a cost/benefit analysis basis, up to and including making a developer bankrupt.
NAMA is cutting deals, entering into agreements with debtors for their personal liability to NAMA, and you might say there is some debt forgiveness implicit in these agreements.
NAMA will only reach agreement on personal debt where the debtor is “fully co-operating”. To prove the point, NAMA has already sought orders against Paddy Shovlin, Tony and Patrick Fitzpatrick, Ray and Danny Grehan and the directors of Capel Developments, Edward Keegan, John O’Connor and Liam Kelly. NAMA also secured an injunction against the Joyces in respect of the proceeds from a sale of a property on Kings Road in London (reported here in January 2011). So there is no blanket debt forgiveness for all developers and some developers may be bankrupted.
In terms of NAMA’s agreement with developers, any underlying property which secured the debt must be disposed of during the term of the agreement between NAMA and the developer. So if Developer A had secured the €100m loan on Property A, then Property A must be disposed of during the term of the agreement with NAMA. NAMA says this is to ensure the developer doesn’t benefit from an uplift in the market in the coming years. This may seem an odd position for NAMA to take, but the agency seems to be at pains to promote the fact that it is not bailing out developers.
The developer must use all their assets to “support their agreement” with NAMA. Or to put it another way, they have to sell the cars, helicopters, art collections. Or the wife must buy them, or more practically must give NAMA the money for the assets. Either way the value of the assets must be used to pay back the loan or work-out the asset. NAMA has claimed that it has already forced the sale of second homes, paintings, share portfolios and cars. In addition to surrendering existing assets, NAMA says that a contribution from the ongoing salary being paid to developers may be sought to support the workout. So part of the €200,000 may have to go back into the work-out of the loans.
In reaching an agreement with NAMA, developers are required to submit sworn affidavits in support of their disclosure of assets. NAMA says it has inserted additional clauses in to agreements, prohibiting debtors from engaging in certain activities; although NAMA has not specified what activities it has proscribed, they are understood to include the use of private helicopters and planes for personal use. So NAMA might claim that it is being more draconian than a creditor dealing with ordinary people. Ordinary people might say “Bah! We would never have the use of private helicopters and planes anyway” but I think NAMA is trying to clean up the image of some developers with which it has agreements, so those developers don’t continue to be portrayed as profligate hedonists benefiting from state help.
At the end of the agreement period, be that five or seven years or whatever, NAMA will assess compliance by the developer with the agreement and will only then “forgive” the outstanding personal guarantee or personal liability. If the developer is judged not to have delivered on their side, then NAMA may seek to enforce the guarantee or liability at the end of the agreement period.
So is there debt forgiveness at NAMA? Yes indeed, but only after the developer surrenders their personal assets (or the value thereof) and the developer may need contribute part of their ongoing salary to the loan work-out, and the developer must deliver on the agreement in the work-out of an asset. Otherwise the full personal liability may be pursued by NAMA. NAMA demands a sworn affidavit of personal assets and if a developer is found to have misled NAMA, there will be repercussions. The debt forgiveness is not universal and if a developer doesn’t co-operate with NAMA, then NAMA will pursue the developer for the debt, potentially to bankruptcy.
As described by NAMA, the approach above seems reasonable enough. With receivers costing more than €200 per hour, it seems economical to employ a developer at €200,000 a year, if they’re competent and they bring skills and experience to the job at hand. The possibility of part of the €200,000 being contributed by the developer to the repayment of the loan only enhances NAMA’s approach. The incentivisation plan makes sense if the incentive is appropriately pitched, in other words if the target is too low, then NAMA is gifting a benefit to developers and if it’s too high then developers will naturally focus on more lucrative projects.
The debt forgiveness process looks reasonable and indeed appears to be similar to the bankruptcy process (see table at the top). Like the bankruptcy process, it is open to all sorts of abuse. Will the developer make a full disclosure of assets? Will NAMA get the valuation of personal assets right? It will be for those who audit and oversee NAMA to ensure NAMA complies with its own procedures. The debt forgiveness process at NAMA is akin to a bankruptcy, and wouldn’t at all appear to be akin to the debt forgiveness called for by Professor Kelly last week. NAMA might give some thought to how it can promote the transparency of its processes with developers, to dispel the lingering suspicions.
Why does NAMA exist at all? According to Alan Dukes recently, it is the most expensive administrative structure imaginable. How on earth can such a structure be justified when the country is insolvent and effectively operating under the strictures of the MOU. This is not about pursuing developers and selling a few token works of art and impounding cars to keep the public happy, it has gone way beyond such obfusciation. This is all about making sure the NAMA gravy train and NAMA jobs continue indefinitely. Who owns the Treasury buildings? Developers in work-out? Why are we still paying rent and very large salaries to those who are supposed to be broke? Is this still not a great little country where you can be smashed broke and insolvent but will still be given a salary, barristers, money to complete projects as long as you keep your helicopter trips and your mercedes trips below the radar screen? At the same time you can still lease buildings and conference centers to NAMA?
What if the money borrowed by NAMA and poured into private debts with private banks had been diverted instead to the real economy, not to a few hundred people who owed private banks private money. This borrowing capacity should have been used to try and grow the economy by way of jobs creation and job support? Is it not the case that the NAMA strategy pursued by the late Brian Lehihan and the DoF has contributed hugely to our loss of economic sovereignty? NAMA + the bank guarantee = transfer of private debt to sovereign debt ergo loss of our financial sovereignty which amounts to loss of sovereignty full stop. How many jobs has NAMA created? NAMA was sold as being necessary to save the private banks from being nationalised? Did it achieve this? It was to get credit flowing, has it achieved this? Now they are getting involved in negative equity mortgages themselves? How bizarre. The structure of NAMA with 190 or so workers is only the tip of a very large iceberg, with professional fees being creamed off and duplicated over and over as Dukes has intimated.
Can I or anybody else go online and see who is receiving what fees for what contracts. I have herd Frank Daly talking on RTE “Miriam Meets” talking about his altruism in working for NAMA AND regretfully having to deal with the same accountancy firms that were stuck in every aspect of inflating the bubble. These regrets, the SPV architecture of NAMA and the lack of transparency ring worse than hollow.
TD Peter Matthews tells us that the real work is being done within the divisions of the nationalised banks and that we don’t need NAMA. Mr Gurdgiev also agrees that it should be wound up.
I can not even begin to explain the damage NAMA has done to national cohesiveness and morale in terms of dispelling the “we are all in this together” myth. We most certainly are not and the corrosive effects of NAMA legitimizes the single minded pursuit by anti water protesters anti tax on property protesters and trade unions, which run counter to national survival and avoiding an unstructured default or ignominious exit from the Euro. indeed, it is hard to blame any group, for not pursuing to the bitter end, their own agendas when they have to look no further than NAMA for legitimate and mind blowing example of waste, monopoly and fees being reefed from the national corpse. Arguing whether NAMA is doing “debt forgiveness” is to miss the point that NAMA us a quango that has failed and that most of us know it can only get worse. Having benefitted under PCAR and PLAR the banks need to quickly find the mechanism to ‘forgive’ loans for which they already have been compensated by liquidation of NPRF and bailout money.
@robert browne – excellent comment- Nama should be abolished, it has caused the economy to become grid locked. Artificial mechanisms to prop up the economy will not work. Just more money wasted. Instead of allowing the market to take the hit and adjust, they created a monster. The ultimate irony is NAMA paying rent to Treasury Holdings.
@NWL
I was one of those who expressed concern that about possible different standards of forgiveness for ordinary debtors and Nama clients (Irish Times letters page on 23rd August).
You presented the following example of Nama debt forgiveness:
“So let’s say Developer A borrowed all his loans through a limited company, A Limited, and he now owes €100m but the value of the company’s assets is only €40m, then that €40m is all NAMA can legally recover. NAMA is not “forgiving” A Limited €60m, it will pursue it to the maximum extent feasible but if A Limited doesn’t have any more assets, then you can’t get blood out of a stone.” In these circumstances, would it not be best for Developer A to declare himself bankrupt (under a new, more streamlined procedure as you have advocated) and maybe seek a job helping to manage A Limited development?
But take this example:
So let’s say Developer B borrowed *some of* his loans through a limited company, A Limited, and he now owes €100m but the value of the company’s assets is only €40m, then that €40m is all NAMA can legally recover. However, while Developer B may have extensive personal guarantees linked to the loans in A Limited, he also owns B Limited which has substantial net assets. In these circumstances, I would expect Nama to pursue the personal guarantees by demanding realisation of Company B’s worth ASAP. If this is not the case, we are looking at a blatant bailout.
The analogy in the second example would be a defaulting householder forced to sell a debt-free holiday home ASAP to help reduce overall indebtedness.
@Brian F, in the above example, the company B Limited would be regarded as an unencumbered asset by NAMA and its value would need be tossed into the pot by the developer. If the developer refuses then NAMA regard that non-co-operation apparently. NAMA’s approach seems pretty robust in theory, but there seems to opportunity for shenanigans (as there is in any normal bankruptcy) but because it’s our money now, NAMA should deliver more transparency.
This ignores the proverbial elephant in the room. A number of developers have moved assets to their wives. Also a number of wives seem to have very large pensions funded from the property madness.
I’d have no problem with bankruptcy if I could shift my assets to my wife.
(This does of course require a level of confidence that ones spouse will take the loot and vanish!)
There is no indication that NAMA is going to pursue this issue. It can be pursued if it can be shown that asset transfers were made to avoid liability.
This may seem like a dog in the manger attitude but seems very convenient that the rules are flexible for the well connected but rigid for ordinary folk.
Anybody want to bet on NAMA taking this on?
This process seems quite odd to me. Given the amounts of money involved here, it is a stretch to say that these wives are simply acting in their spousal capacity. It seems to me that they are partners in every sense, including business, with their husbands and that they are party and privy to all of their husbands dealings in the matter as they would be in any other arrangement.
I can’t see why Nama cannot pursue assets which have been transferred to spouses. There are probably umpteen precedents that would support it.
@OMF, NAMA can legally pursue wives in certain instances – there is a blogpost on the applicable laws here
http://namawinelake.wordpress.com/2010/10/17/developers%E2%80%99-wives-is-nama-now-taking-action/
But remember, it is perfectly legal for people to transfer assets to spouses or to give spouses gifts or a share of income, as long as the intention isn’t to deprive creditors. So a teacher taking home €35,000 a year from a €60k salary (basic illustration, ignore the tax/PRSI/pension) may give their spouse who mightn’t be working, an allowance for running the house and also an additional allowance to share the family’s income. If the spouse decides to spend that money on expensive jewellery then if, a few years down the road, the teacher is made bankrupt then the spouse’s jewellery which they bought with their own allowance can’t be touched. That’s the principle, and that’s why some spousal transfers can’t be touched. Others can, and NAMA says it is pursuing those, though curiously it hasn’t given any recent progress update and there is no application before the courts.
By the way the above example isn’t gender specific and the jewellery might just as well be cufflinks as earrings.
Re: Teachers jewellery:
NWL I’m a little surprised and disappointed at your teacher jewellery analogy. It seems strange that when we are discussing blatant attempts to legally dodge millions in obligations you choose a public sector employee as an example.
If all we were taking about was transfers of less than €35,000 what a happy country we would be!
Given the scale of the developers pensions the analogy is bogus and misleading.
It has a smell of PR spin for the poor developers while taking a whack at the public sector. Blaming the public sector for our problems is a standard diversionary tactic of the free market cheerleaders who got us into this mess.
There is certainly an argument for getting the developers involved if only to get rid of the voracious professionals but we need to get the dodgy transfers out the way.
@Paddy, I deliberately chose what might be accepted as a wholesome profession to exaggerate the point (to my mind teaching is one of the most trusted and admired professions). But the illustration of the point with teachers also applies to any other family situation, even those of the very rich, and that’s the point I was making.
All that’s different in a NAMA developer’s situation is that the transfers to spouses are likely to have been far more than would be supported by a teacher’s salary. But the law doesn’t differentiate based on quantum.
Of course if the transfers were made to deprive creditors, then that is a different matter and the law allows creditors to reverse those transactions, regardless of whether they were done by teachers or developers.
@Brian:
I’m surprised! of course NAMA have recourse to the shareholding in company B under the personal guarantees. That’s a fundamental “given”.
Just double-checking!
What will happen to those PGs when the bankruptcy has been discharged by the UK courts.
@WSTT
A given? If as the facts were explained yes. But suppose back in 2005/6/7/8, the developer had moved his performing assets (eg office blocks etc), onto wives, family members and trust funds.
AT that point the performing assets, with little debt are ouside the clutches of creditors, including NAMA. What is left is a bust developer and his non performing companies overloaded with debt.
We need to look at the full structure of these. Lets start with Treasury for instance.
Interesting table NWL. Slip in another one showing the UK bankruptcy route as an alternative and the answer will quickly become obvious to any developer.
@Vincent
“What will happen to those PGs when the bankruptcy has been discharged by the UK courts?”
They are gone. Unavailable to any former creditor.
In the UK PGs expire after, I think, 6 years – not sure about Ireland.
Quite a few of the PGs are defective due to bad drafting and/or not having been actually signed.
@DCB, I understand that the UK bankruptcy period is typically 12 months and that a PG is a debt like any other, declared at the initial bankruptcy hearing and discharged like any other debt. I stand to be corrected on that.
We have had one prominent developer, John Fleming pursue bankruptcy in the UK. There is some discussion of the Fleming case here.
http://namawinelake.wordpress.com/2011/01/01/northern-ireland%E2%80%99s-bankruptcy-rate-per-100000-of-population-is-350x-higher-than-the-republic%E2%80%99s-and-the-us%E2%80%99s-is-2000x-higher-why-are-we-so-different/
His bankruptcy documentation is available here
http://thestory.ie/2011/08/05/john-fleming-bankruptcy-documents/
regarding the transfer of assets to spouses, the Supreme Court observed in recent years that personal constitutional rights can be set aside with the ‘common good’ is at stake, including the respect for justice itself in a country……
@ namawinelake
‘ NAMA might give some thought to how it can promote the transparency of its processes with developers, to dispel the lingering suspicions’
You run a great blog, but you are surely jesting. What goes on in NAMA would never stand the light of day. The jiggery pokery with spouses, family menbers and associates is endemic. As for the professionals who are papering over it all….
@ robert browne
+ 1 You articulate the sentiments of many outside the property sector
@Paul, remembering our obligations to be responsible in commenting on individuals on here, what evidence have you for saying
“The jiggery pokery with spouses, family menbers and associates is endemic.”
I would be shocked if there wasn’t at least some jiggery pokery amongst the 850 debtors (which when you include the controlling shareholders of companies and spouses, you may well be talking about 1,000s of individuals). But what evidence is there that it is endemic? The Irish media delivering the modern-day equivalent of bear-baiting, with insinuations of wrong-doing?
Unless we are going to change laws retrospectively, people are going to have to get used to the fact that some developers will be left substantially with the same lifestyle as previously even if NAMA takes enforcement action, because of lawful spousal wealth.
You think Ireland is alone in this? Have a read of David Drumm’s bankruptcy in Boston. Practically all developed countries I know allow spouses to partake in family income and wealth and if one spouse is subsequently faced with debt recovery, usually the other spouse is protected. That’s part-and-parcel of the law here just like the US and any other developed country I know.
Creditors are entitled to have fraudulent transfers set aside and voided. And there needs to be clear evidence that the transfer was done at a time when there was a so-called real and present danger to one spouse’s wealth.
If you happen to know of a fraudulent transfer then I’m sure NAMA would love to hear from you. But what evidence have you that there has been widespread jiggery pokery?
If NAMA sells a loan or a portfolio of loans, wouldn’t the associated PG go with the sale? In that case, NAMA wouldn’t be able to recover more than the sale price even if the borrower had excess assets.
@nwl one quick example……..REO defaulted on its BPS loan requiring an extension-in negotiating that loan extension on a loan in DEFAULT did it NOT occur to anyone at Nama that this would be the perfect and most opportune time to STOP REO paying OUTRAGEOUS fees to Treasuary holdings. The accounts are a matter of public record over 10,000,000 yep TEN MILLION in fees was APPROVED and PAID by REO to Treasury holdings according to latest accounts-where did that money come from ?????
REO can not service it debts but paid 250,000 in directors fees in latest accounts at least its down from the almost 300,000 paid year before pg63.
But we cant find out how much Nama has advanced/loaned/wasted on REO !!
Its a national disgrace and whoever at Nama is in charge of the Treasury file is incompetent and should ask for help or have the file reassigned immediately.
@John, it is indeed the case that REO paid millions in fees to Treasury but isn’t Treasury also in NAMA. And approximately 35% of REO is not owned by Treasury. So wasn’t the payment of fees which were presumably agreed at arms-length not something which enhances NAMA’s prospects for recovering debt?
@nwl-’Treasury’ or ‘Treasury Holdings’ or ‘Treasury Inc.” is Treasury China included ?
Pg.18-Treasury Holdings 50.75% ownership in REO.
REO a public company has TWO pages of subsidiaries pg 75 and 76.
Not following how does REO which owes 829,000,000 to the Irish taxpayer paying “Treasury” over 10 million in fess enhance debt recovery prospects ?
@John,
“Not following how does REO which owes 829,000,000 to the Irish taxpayer paying “Treasury” over 10 million in fess enhance debt recovery prospects ?”
Yes REO, which from recollection is about 65% owned by Treasury Holdings does indeed owe NAMA a considerable sum and it also owes Lloyds and one of the original sellers of BPS, Victor Hwang. But Treasury is also understood to owe NAMA on other loans.
So by taking millions in fees out of REO, fees which might otherwise by claimed by 35% non-Treasury shareholders or Lloyds or Victor Hwang or others, and placing those fees in another entity which is also understood to owe NAMA and the other entity is controlled by Messrs Ronan and Barrett, and is established in Ireland, all I’m saying is that the transfer of the fees may enhance NAMA’s recoveries on the Treasury Holdings loans.
As regards REO China, I understand that is completely unconnected with NAMA.
It a byzantine structure with subsidiaries etc etc
Why does REO not list assets owned in its annual report ?
@nwl REO is effectively insolvent by any measurement its not like their are millions just sitting around waiting to be distributed or claimed REO can not service existing debt but pays 250,000 in directors fees.. so this is all part of some Nama ‘master plan’ they fund REO with Irish taxpayers money which then pays some “Treasury” entity fees which then enhances Irish taxpayer debt recovery prospects ??
@John, directors fees are different to management fees. Do you expect REO to function without directors or do you think the fees too high?
All I am saying is that just because REO pays Treasury Holdings millions in management fees, that doesn’t mean those fees are being pushed beyond NAMA’s reach because Treasury Holdings is also understood to be in NAMA.
@nwl based on where REO is TODAY they need a receiver not a board of directors charging 250,000 to rubber stamp decisions made by Treasury.
REO is dysfunctional not functioning at all as they cant pay their debts close the whole thing down before it costs the Irish taxpayer more money.
@John, given the forebearance by Lloyds and NAMA to date, the assumption must be that the lenders saw more potential in allowing REO’s projects to progress. Remember REO also has an Irish base of assets as well as the Battersea Power Station. Maybe it is time for a receiver to be appointed, maybe Ernst and Young will examine that option in their ongoing review of the extension of facilities by NAMA and Lloyds. But maybe the lenders will decide to continue with their forebearance.
@nwl they bought into the BS that planning permission would somehow enhance the value of BPS and Nama HAS to have funded the costs associated with achieving this-of course we are not allowed find that out-does anyone really think that achieving PP for a site that already had PP was going to be a ‘value enhancer’ will the new ‘buyer’ proceed with REO’s plans that the Irish taxpayer funded or is it more good money chasing bad money.
Trying to define REO Irish base but cant find a definite list of REO owned assets reviewed the Opera CMBS they have a first position on 14 of REO’s Irish base again cant find a definite list of assets !!!!!
@John,
“does anyone really think that achieving PP for a site that already had PP was going to be a ‘value enhancer’ ”
You’ve lost me. I understood that the BPS secured full planning permission (including the approval by Minister Eric Pickles in February 2011).
@nwl the site HAD Planning Permission when REO purchased it they have spent millions and millions paying ‘Treasury’ fees and years securing PP for a development they will NEVER build-does Nama think another set of owners will proceed with the REO Plans and as such continue funding this insanity-or is Nama planning on funding this development on behalf of the Irish taxpayer-what exactly are they doing here with the Irish taxpayers money?
The only explanation for continuing funding this money pit is that REO/Treasury convinced Nama that BPS is more ‘valuable’ with new planning permission in place and should continue paying “Treasury” million and millions in fees.
Its 100million B of I loan Nama should take 50% from Lloyds if they can get it and run away from this any concept what the ‘burn’ rate on owning BPS would be to the Irish taxpayer ?
“it should be said that there are very few personal bankruptcies in this country – just nine in 2005, 17 in 2009 and 30 in 2010. For a developed country with a population of 4.6m, we practically don’t do personal bankruptcy”
Well we practically don’t do white collar crime either.
@john gallaher +1 you should apply for CEO of NAMA there may be a vacancy shortly.
Treasury and others operate through a myriad of companies and difficult to follow the trail. It should be possible to sequester the income from related profitable companies for the benefit of the tax payer. The Battersea project has no support now either in England or China and Nama should cut their losses. If the IMF give this deal the once over it will be terminated and the Irish tax payer can breath a sigh of relief .
We all know companies in the boom which operated on borrowed money and bet on flipping over the deal. They never actually developed anything. The boys in suits should realise now the flipping is OVER . They are giving the chancers (not treasury who are a highly reputable Company) time to to gather money and move it away.
@ namawinelake
I appreciate your measured response, and I reiterate my respect for your unflagging efforts. If this country has a future at all, it will be in large part because of people like you.
I haven’t followed the Drumm bankruptcy, but I assume that the man went to the US on good advice. It’s called having your cake and eating it I suppose. Yves Smith’s Econned provides a good account of the shenanigans in the US financial sector, so not much would surprise me there. Anti-social, grasping behaviour made respectable. No wonder the US is a declining power.
No one who knows anything about history could imagine that Ireland is unique in its governance problems. For what it is worth, we score reasonably well on the World Bank indices of corruption. IMHO, that’s because we are, unlike the Italians, fairly expert at the professional foul. To put it in another way, some of the stuff our professionals get up to is extraordinarily irresponsible.
Professions are given the freedom to be self regulating. Where property and finance matters are concerned, the evidence is that our professionals have abused that freedom massively. If they had not snorted so much property fees up their patrician noses, the nation would not be in the straits it is today.
The secrecy which surrounds NAMA has, of course, some legitimate basis.
Our constitution rightly protects private property and business interests. The dogs on the street, however, know that there is an entire landfill of defective paperwork, conflicts of interests, and dodgy transactions dating from the bubble era. Those indiscretions go far beyond the Fianna Fail/developer connection, to the heart of our leafy suburbs. Keeping the skeletons in the closet is, I suspect, what the big fees are all about.
So let’s please start from objective reality. Our bankers and developers gambled away our domestic economy while the regulator polished his spectacles. Our government mortgaged the future of the country to rescue them from their egregious errors. Our civil servants and professional classes have been tacitly complicit in it all. Heads down and mums the word.
IMHO, our respected professions are not deserving of our respect. We are foolish to believe their assurances, or to imagine that everything will be fine if we leave matters to them. Our mistake was to believe that they could be trusted to defend the public interest. We accept their reassurances at out peril. As the old saying goes, fool me once shame on you, fool me twice shame on me.
@Frank
“If NAMA sells a loan or a portfolio of loans, wouldn’t the associated PG go with the sale?”
Yes, if they are transferable. That is if the PG states that it is for the benefit of the bank’s “successors in title and/or assigns”
@Joseph Ryan
“A given? If as the facts were explained yes. But suppose back in 2005/6/7/8, the developer had moved his performing assets (eg office blocks etc), onto wives, family members and trust funds.”
If these transfers were made in good faith and not to defraud creditors, then they are legally effective.
@ wstt
Oh what a tangled web we weave…………..
@paul quigley:
Indeed we do… But when we lay blame on who screwed the domestic economy and spread the cost to the taxpayer, one needs to look to a night in September 2008 at the Department of Finance for the main culprit.
By the way, while everyone wants to decapitate developers financially, it is worth remembering that most of them suffered from “sunk costs” attachment. Their ability to react to cyclical and structural change was hampered by their attachment to the costs which they had already put into a project.
They stuck with investments and projects that were losing their value and escalated their commitment believing that just a bit more investment would allow them to achieve their goal. It never happened. And as NAMA is finding out as developers produce their statements of affairs, most of them have limited personal resources left. Their Personal Guarantees are next to worthless.
Which is probably why NAMA only paid the banks €1 for them anyway.
@wstt
“But when we lay blame on who screwed the domestic economy and spread the cost to the taxpayer, one needs to look to a night in September 2008 at the Department of Finance for the main culprit.”
You keep trotting out this line. It was the actions of the developers and bankers which created the problem in the first instance – overborrowed, overlent and overexposed to a self-made and self-serving bubble. Sept 08 didn’t help but I think you are in denial if you persist in saying that the DoF was the main culprit.
Hi Brian,
The debt was a private matter between the developers and the banks and the chips should have been left to fall “where they may”. In other words, the banks and the developers should have been left to sort it out between themselves and allowed to go broke if they couldn’t.
We are left with no properly functioning banks after spending a sh*tload of money. If we had let them go, we would not be in any worse position. We wouldn’t have NAMA and we would have new banks and a rebased economy. We would also have some brand new generation developers, instead of being the biggest employers of zombie developers (or just plain vanilla developers) since time began.
The debt should never have been socialised. The government did that and placed the burden on the taxpayer. They have also created NAMA, which is the nationalisation of the property, construction, banking and service section of the economy.
The decision initiated in September 2008 has caused the ongoing stagnation of the economy. It was a disastrous decision.
@ wstt
Disastrous hardly describes it, but nihil de mortuis nisi bonum. I would be inclined to see that decision as having been baked into prior backroom deals between politicians, developers, accountants and bankers over decades. Matt Cooper and Shane Ross are enlightening on our cozy cabals, but it would take a team of expert genealogists, sociologists and accountants to expose the breath and depth of vested interests in our state structure. I wonder what Joe Lee thinks of it all now.
I submit that the big players always understood, at least tacitly, that the resources of the state would be brought in play as a backstop, in the (supposedly unlikely) event of a problem. What they didn’t anticipate, when they were hopping on the bandwagon, is how many others were hopping on behind them, and how many other bandwagons were rolling. They say the 60s were promiscuous, but the Noughties took swinging to a whole new level.
It’s the usual tragedy of the commons. No one defended the general interest. And also a bit like Minsky’s model.
http://en.wikipedia.org/wiki/Financial_crisis#Minsky.27s_theory
If a few people are pulling off a scam, they have to keep it pretty dark. When the word about the ‘sure thing’ gets out, the scam becomes redefined as an ’investment’ and the pillars of the community start filling their boots. Then we have the professional advisers solemnly endorsing it. We end up with taxi drivers telling people they would be ‘mad’ not to get in. That’s when Joe and Jane Public get fleeced. Galbraith has it all in the The Great Crash.
I recommend Pierre Bourdieu on problems of power and social order. His theories fit beautifully with the Chartalist point of view that money cannot be considered separately from the powers of the state.
Notwithstanding Krugman’s view that economics is not a morality play, the handling of developer debts is a political issue, and therefore a moral and social issue, as much as it is an economic and financial one.
As Morgan Kelly said of our banking reports, they are written in the ‘past exonerative’ tense. No one can be held accountable because the whole thing was carried out under the noses of the DoF and with the connivance of the government.
The current government has continued the policy of concealment and exculpation. I won’t call it a kleptocracy, because we have a democratic constitution, and I won’t pretend that other economic sectors don’t have their own skeletons. I am not saying either that developers should be singled out for special sanction, but something is rotten in the state of NAMA.
@Paul Quigley
Excellent posts.
“I submit that the big players always understood, at least tacitly, that the resources of the state would be brought in play as a backstop..”
L’etat c’est nous.
And how right they were. Even Le Roi Soleil would not have appreciated the full extent to which they were the State. And still are the State.
@PauI Quigley
I’m not sure that the big players had enough intelligence to think or understand anything.
Leaving aside the appalling political reactions to our present predicament which have only made matters worse, I believe that the factors which have strongly contributed to our current penurious indebtedness were caused by:
1) the low interest rates introduced in the euro market (expansionary monetary policy) which stimulated the aggressive growth of the credit industry (mortgage lending) and fed the unsustainable growth of the property industry;
2) the high level of leverage of both the Irish citizens (consumer credit/mortgage lending) and the Irish banks.
3) the “credit euphoria” of both mortgage lenders and borrowers in the Irish market, generated by the low interest rates and the more relaxed credit origination terms applied by banks, facilitated the level of credit risk increase in particular in the secondary property segment. (It also allowed in the short term Irish GNP growth and a delusional improved position in the fiscal balance sheet);
4) the profitability incentives/objectives of the management of the Irish banks. This combined with low interest rates and rapid mortgage and property portfolio growth that fed on itself, encouraged the speculative behaviour of bankers to pursue aggressively and increase their own personal short-term financial benefits.
In essence, and in my opinion, this financial crisis was in large part due to the lack of ethical values and behaviour of many players involved in the lending area.
As a result, our inheritance is mortgage borrowers with high risk profiles and a high probability of credit default or bankruptcy. These borrowers have also an increased likelihood of losing either their jobs or their mortgaged homes and will, sooner or later, have a very hard time reimbursing any type of credit exposure.
According to the lessons of the “Chicago School” economists, there is no better and fairer judge than the market to punish or reward “good” and “bad” players in the marketplace. Government intervention is always inefficient compared to free market. And they DID interfere, by rewarding the banks. They should have been let fall. They deserved the judgement of the market and the consequences of their actions.
We need two things to get growth back into the economy, which is a prerequisite to any recovery: a rebasing of the property market and credit. The government’s creation, NAMA and our remaining zombie banks have been unable to provide either.
When there is no credit, everyone defaults. There is a simple parable to illustrate the importance of credit to an economy – one that’s easily understood. It’s done the rounds, but worth recounting:
“It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.
The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
The hotel proprietor then places the €100 note back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.”
Everyone got paid. The whole town is now out of debt and looking to the future with a lot more optimism.
In real life of course, the seed money the guest provided would have come at a cost and the transactions (well almost all) would have been taxed!
Our moral responsibility as a society is to live, share, develop, enrich and hand-over the Ireland that we have inherited from our parents and ancestors to the new generations as a better Ireland than the one we received.
The jury is still out, but the portents are not good. We have singularly failed to breed a new generation of business and political leaders who can pursue their goals and ambitions in the best interest of the whole society and not just satisfy their own greed, selfishness, and short-term speculative goals.
Not a Statesman (or woman) in sight with some commercial “nous” when we need them. Maybe we just have to skip a generation and start with the kids. A good beginning might be to hire some decent maths teachers.
Yeah, but at least the French revolted. The Irish are more like the Slavs, who in the ninth century invited the Vikings to rule them.
@ wstt
Agree with much of that, but don’t think many will believe that big developers are or were dumb. They may not have been up to speed on the economics, but they were expert wheeler dealers. People with that sort of clout cannot claim to have been mere pawns of the banks, or vicitms of an unstoppable credit boom.
In fairness, they are not claiming that. They have very little to say, because it’s quite obvious that they surfed the credit boom all the way, and they’d still be surfing it if it hadn’t come crashing down. Most citizens, i think, would regard all of the big players, such as politicos, DoF seniors, bankers, developers and property-related professionals, as equally responsible for the shambles.
There were sound systemic reasons why the banks like Anglo couldn’t be let go. The balance sheet contagion channel would have threatened core EZ banks. The domestic political contagion channel was also serious, as the banks had burrowed into the state deep enough to bring down the goverment with them. ‘I made him an offer he could not refuse’ is the apt phrase I think.
People want markets, but they don’t like rigged markets, monopolies, cartels or the funny stuff that goes on in big business circles. They know, that any relief which his offered to Joe Soap is likely to be exploited in spades by those with the smart advisers. As you say, statespersons and genuine entrepreneurs are in short supply. Ochon agus ochon o.
We do need a rebasing of property, but the Powers that Be seem to believe that the area needs to be made safe first. I suppose it takes years for the big stakeholders to extract themseves from underneath it all. In the meantime, the scaffolding stays. Like the UORR, festina lente is the watchword. Thats what you do when you are firmly impaled on the horns of a dilemma.
@paul quigley:
The Nyberg report for which we, the citizens, paid almost €1.5 million, cited “a tendency to group think” resulting in “contrarian views” being “ignored or suppressed”. “Large parts of Irish society were willing to let the good times roll on until the very last minute”. The main cause of the financial crisis was “unhindered expansion of the property bubble” and was aided by loose Government policies and light touch regulation.
‘Irrational forces” along with “a national speculative mania… centred on the sale and acquistion of property” was also blamed, with “culpability” for the collapse laid at the door of politicians, regulators, banks and the media (who were the cheerleaders) and… wait for it… investors. But….. wait for it again ,,,,,,,, Nowhere in the whole report were developers blamed. Not once.
Now, while I don’t exactly subscribe to Peter Nyberg’s conclusions, and I know some of those on his panel (and I certainly wouldn’t have them on any panel advising me), it does give credence to your argument regarding the closing of ranks at the higher echelons of the State as not one culprit was named. A complete waste of another €1.5 million. But, hey… who’s counting!
BTW, I don’t accept the premise that any of our banks were systemic. They were all busted flushes, total basket cases. And they still are. In truth I do not fully comprehend “systemic” in relation to the Irish banks and would like it defined more fully.
IMHO, leaving AIB, Anglo, INBS and the rest of them on the “bad boys’ step” to sort it out with their developer borrowers and spending 20% of the money to capitalise a new clean bank would have been a much better option.
@Brian F: Are you on holidays? We haven’t crossed swords hardly at all this weekend. I’m feeling rejected! :-)
@wstt
“Are you on holidays? We haven’t crossed swords hardly at all this weekend. I’m feeling rejected! :-)”.
Here alright. I agree 100% with your comments about Nyberg. It ranks right up there with the Wycherley Report on Bloody Sunday. So, no crossed swords today!
I assume that once the constitutional change for Dail committees is passed in October, the Government will announce a new enquiry into the banking crisis. This might cover the ground that should have been covered by Nyberg in terms of finding out what actually happened and who did (not) do what. I just hope the committee members are trained to ask direct short questions and not make speeches to ensure that the answers are secured and that the chair adapts the approach of seeking immediate answers to questions. The stacking of questions for bulk answering has been totally ineffective in the past. There will be a lot more pain around when the enquiry is operating as my head tells me that matters are going to get a much, much tougher (even though my heart hopes otherwise) and being on live TV there will be a very large angry audience seeking to see the truth exposed.
@ wstt
Here’s my tuppence worth.
Systemic in the banking sense refers to whether the bank involved plays a major role in the payment or credit mechanisms of the country concerned. We are talking retail and money transactions lending by and large, although the big players are into a lot of other activities besides.
The US FDIC was established in the Depression times to provide resolution proceedings for smaller regional banks which get into an insolvent position. Depositors are protected, but the bank shareholders, management and staff get the bullet.
It was, I think always understood that megabanks like BoA or Citibank would be rescued, rather than resolved, because of their central role in US corporate and household finance. They had a defacto permanent state guarantee, but they paid for it with regulatory oversight, which seems fair enough
The shock in 2008 was the size of the ‘shadow banking’ system, and its associated derivatives market, which was illustrated when Lehman Bros was allowed to collapse. The other shock was that the big commercial banks were up to their necks in the mess.
A judgement was made by the Fed and The treasury that the Wall St investment houses or shadow banks, were also systemic, in that the counterparty risks which they had generated were potentially lethal to the big commercial banks and the global financial system.
The shadow banks had been, and still are, running a casino, and the
mainstream banking system had been sucked into placing big bets with them. The 1999 repeal of the Glass Stegall Act, as part of global financial deregulation, had allowed commercial banks to engage in speculation once more. CEOs ran riot, and the term ‘banksters ’was born.
Turning to Ireland, its clear that AIB and BoI are systemic in the domestic economy. Notwithstanding the presence of new entrants from abroad, they represent the historical mainstream in terms of our ordinary transactions.
Shane Ross conveys the BoI ambience nicely in one of his books. It’s the bank of the old landed elite, with its HQ in our 18th c parliament building, across the road from Trinity College. Old money, old school tie, loans for properties in the leafy suburbs, and a Board of management called the Court. This is a private business which regards itself not just as a bank but as a national heritage. It has enough friends in high places to make sure that message is heard.
AIB, and its earlier components, rose and prospered along with the native Irish state. It has been at the heart of household and business lending for a good many decades, and is deeply entrenched in the institutional political system. AIB simply had to be nationalized when push came to shove. It would have been politically unthinkable and culturally unacceptable to let it go, even if it’s a zombie. Dead or alive, it’s a core native institution and evokes cultural and political loyalties.
Anglo was an investment bank, but it has much more in common with the Wall St variety than with the traditional conservative European or British investment bank. In retrospect, it was our slice of Wall St, a property-centred casino, with a massive supply of Euro-chips. The share dealing saga is indicative of the corporate ethos, if such a term can even be applied to an enterprise which lacked all governance and whicgh had the effect of corroding the governance standards of every bank in the country.
Unlike AIB and BoI, Anglo was never systemic in the ordinary life of the domestic economy. It was, however, systemic because it had borrowed massively from European banks, with the tacit (or possibly explicit) collusion of the MoF and CBI, and so had a potential to cause serious balance sheet contagion. It was also at the heart of the FF/developer funding nexus, and so had the potential to cause catastrophic embarrassment to a whole range of our institutions.
The collapse of Anglo was rightly judged a subversive threat to the existing social order. Realpolitik is never pretty.
It was in the vital interests of the Euro banks, and the government, that Anglo be rescued also. The dodgy deals done with the developers, and the shabby conduct of the associated professionals, simply had to be buried. Hence NAMA and it secrecy. Like Chernobyl, a lot of concrete has been poured in, but the stink hasn’t gone away.
Stagnation of the domestic economy is the price for preserving a primitive political and social order. FF is taking the hit, but our other institutions, and many of their leaders, have so far been unscathed.
Forgiving/hiding developer debts is just the symptom of our inability to reform our political system. If we continue, as so many times before, to put our collective heads in the sand, a breakdown in civil society is the only possible outcome.
@Paul
Great summary IMHO. Worth more than tuppence. Agree that without wholesale reform, we might not have any functioning political system in 2-3 years time.
@ paul quigley
Pity this thread has almost run it’s course. This is a very good and usable summary. I agree with you 99% especially your last two paragraphs which are really important. When this crisis was in full swing I rang someone who’s knowledge of banking and banks is second to none. No definitely not PH. She used to work as a programmer writing banking systems software for a US multinational, she did some work for the NTMA on security issues in their software for printing treasury bonds. The woman has an innate skill for complex and layer problem solving. Naturally she is still in the private sector, in any event I suspect the way our government works is anathema to her. Her male colleagues had to kowtow to her phenomenal analytical skills, they used to call her Dr. xx even though she did not hold a doctorate as she was too busy making a living in the real world. To continue, the answer to my query, which was about how many banks “we needed” was a definite Ireland could easily get by with just one functioning bank, plus the rump of the international banks still here. It was madness to pretend otherwise. You don’t ring the usual ‘experts’ when you want to find out the real answers because they will be the people that have an agenda. The approach taken after the crisis broke has cost us our sovereignty and the worst is yet to come. The way the crisis is panning out in Germany our government will soon be “forced” to confront all the problems they ran from, because pretty soon there will not be any place to hide. To use one of Steve Jobs expressions, “you are already naked”. Soon they will be naked on our TV screens and that will not be a pretty sight.