Cast your minds back to 2009 when the NAMA Act came into law; the Act set out the reasons for the creation of NAMA under section 2 (a) we can see that the first purpose of NAMA is
“to address the serious threat to the economy and the stability of credit institutions in the State generally and the need for the maintenance and stabilisation of the financial system in the State”
So you might have thought that this objective would always be to the fore of NAMA’s thinking, especially when it comes to big value transactions. And they don’t come much bigger than the €2bn redemption of NAMA senior debt last week – remember this is debt on which NAMA is paying interest at the 6 month Euribor rate, currently 0.9% per annum though the rate is set for NAMA every six months (29th February and 30th August) and NAMA is in fact currently paying 1.27% per annum. Still, it’s dirt-cheap.
And with NAMA sitting on €5bn and its bonds not due for redemption until 2020, you might have thought that NAMA might have found a better use for €2bn of its cash than redeeming its bonds. But at least surely NAMA considered the matter before committing to one of its biggest financial transactions to date…
Not so, it seems. On Tuesday this week, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance, Michael Noonan about the consideration given by NAMA to its primary objective, and it seems there was none. This is the full exchange:
“Deputy Pearse Doherty:To ask the Minister for Finance the consideration the National Asset Management Agency gave to its over-riding objective of addressing the serious threat to the economy caused by the banking and property crisis, before taking the decision to redeem €2bn of its senior debt, announced on 27 June, 2012..
Minister for Finance, Michael Noonan: One of the primary objectives of NAMA is the repayment of the cost of the loans acquired from the Participating Institutions and the cost of the working and development capital expenditure on the assets attached to the loans.
I am advised by NAMA that through its activities, including a phased and orderly asset disposal programme and investment in residential and commercial projects underlying its loans, it is well advanced in terms of meeting this overriding objective. The recent repayment of €2 billion of its senior debt, which brings the total redeemed to date to some €3.25 billion, is further evidence of this and the Agency has advised that it is firmly on course to meet its first major milestone of repaying €7.5 billion of Senior Bonds by the end of 2013.”
So according to Minister Noonan, NAMA has a number of primary objectives now. You might have thought the primus inter pares was to address the crisis in the Irish economy, but it seems that wasn’t even considered. And indeed it is unclear what objective was considered before NAMA handed over €2bn in cash to redeem its dirt-cheap bonds. And remember that €3bn of NAMA cash was temporarily deployed to pay the Anglo promissory note that fell due in March 2012 – read the Direction given to NAMA by Minister Noonan at the time, and you will see that NAMA has quite a wide latitude in how it uses its cash.
As for the serious threat to the economy – record 14.9% unemployment, emigration understood to be at a high level (though almost criminally this is not counted accurately on a regular basis), a double-dip recession and a generally moribund domestic economy. Serious threat, what serious threat?