The regular audience on here will be aware of the faux concern previously shown for the legal profession, which followed the publication of the NAMA accounts for the first and second quarters of 2012 – only €23,000 was spent in Q1, 2012 on legal fees and although Q2,2012 was better for the legal fraternity with €887,000 spent on legal costs, it was still a drop in the ocean compared to the NAMA budget of €25m for legal costs in 2012.
And why has NAMA spent so little on legal costs? Doesn’t the Agency realize that hordes of Dublin solicitors and barristers might be reduced to chasing ambulances to replace expected business from NAMA, who else will pay their fees which, after Moscow’s, are the highest in Europe?
Minister for Finance Michael Noonan was asked about this worrisome state of affairs. And his reply in September 2012 was
“I am advised by NAMA that legal fees for the first quarter of 2012 are low relative to budget for a number of reasons. Some fees actually paid in the quarter related to legal work which was in progress at the end of 2011 and had been accrued in the Q4 2011 accounts. In addition, the budget of €25m for 2012 included prudent assumptions on potential litigation costs which have not to date emerged. In addition, some of the legal fees incurred by NAMA are regarded as recoverable from the debtor and do not form part of its administration expenses. NAMA’s expectation is that the outturn for legal costs in 2012 will be significantly less than the €25 million budgeted.”
However, we find out this week that NAMA has in fact been spending many millions on legal fees this year. It’s just that the Agency has not been showing these costs in what would be considered the usual place in its financial statements – the profit and loss account. No, because the Agency has in the main been spending the money on lawyers who have in turn been dealing with NAMA’s lending to developers, what NAMA has done is assumed it will be reimbursed the legal fees and NAMA has been adding the legal fees to the developers’ loans which are shown in the balance sheet. No, seriously, that’s what NAMA have been doing. Not only that, because there is no breakdown of loans in the balance sheet, we have hitherto been unable to appreciate this phenomenon, or the extent of it.
And as for Minister Noonan and his “NAMA was being prudent with its assumptions”, it seems negligent of Minister Noonan to comment on just €23,000 shown as spent by NAMA on legal fees whilst ignoring €7.766m being incurred by NAMA and added by NAMA to loans owed by its developers. The analysis of €7.766m spent to date this year by NAMA is shown below:
NAMA’s real legal costs were revealed in a response from Minister Noonan to the Sinn Fein leader Gerry Adams this week. The response isn’t online, but is contained in this letter from Minister Noonan to Deputy Adams. The letter was previously reported in the Irish Examiner, though they failed to realize the significance of the revelation in relation to NAMA’s accounting or previous reporting.