Archive for March 15th, 2010

There is much public concern and scepticism about NAMA’s process for valuing assets and indeed according to NAMA’s over-riding objective, to protect taxpayers’ investment in NAMA, that concern should not stop at the doors of Treasury Buildings.

This blog entry tries to tie together the NAMA process flow outlined in the NAMA draft business plan in October 2009 (last page, 35) and what we are learning from snippets in select media outlets. There is no official confirmation that the workflow below is complete or accurate but then again NAMA doesn’t do public briefings.

There would appear to be 5 or 6 levels of different valuation before an asset is irrevocably valued in NAMA’s books.

1. The banks engage their own valuers to value the assets

2NAMA has a panel of valuers (and possibly as important legal due diligence experts) who will examine the banks’ valuation and produce their own valuation.

3. Within NAMA there is a “NAMA audit co-ordinator” (IDENTITY UNKNOWN) which the draft business plan states will audit the Long Term Economic Values and Market Values, check (valuation) assumptions and methodology and it is they who will prepare the asset acquisition schedule.

4. If the banks do not agree with the NAMA valuations then the valuation is referred to the Dept of Finance and indeed Mr Lenihan himself who is to avail himself of the services of a “NAMA Expert Reviewer” (IDENTITY UNKNOWN)

5. In all circumstances the Financial Regulator together with Ernst and Young who will audit the valuations on behalf of the EU.

6. Finally the EU has indicated it will engage an investment bank (IDENTITY UNKNOWN) to audit the valuations.

On the face of it, there would appear to be a very robust valuation process flow and the professional indemnity insurances of the professional valuers may be an addition source of comfort. However we are considering a long time horizon (10 years) and an economic environment which truly is GUBU, as a State we have had 15 years of solid population increases including almost 500,000 net migrant inflows though 2010 may well see the first population drop for 20 years (a proposition alluded to in a recent UCD study on vacant housing, page 9 middle) and examined in the original blog entry here. Our international competitiveness is under threat and we are starting from a point where our transport and communications infrastructure is average at best in an European context. Our 12.5% corporation tax rate may come under pressure, both from the point of view of European harmonisation and foreign governments taking steps to crack down on tax avoidance. We have a well-regarded workforce with a high number of graduates and internationally we are good networkers. We keep much information secret such as rental prices, land transaction prices, number of transactions, commercial rent levels, vacant property. In the next 2-4 years we are likely to see further wage reductions as the economy seeks to improve competitiveness and the government implements savings of €3bn from the 2010 Budget and a further €6.5bn in 2011-2014 to bring our deficit back within our European commitments. In addition there will be the unknown unknowns that always crop up. To what extent can we call on the professional indemnity insurance of the valuers in the NAMA process? Impossible to say though I would doubt it would pick up 100% of any substantial shortfall from valuations over a 10-year period. However if I was on NAMA’s procurement committee I would ensure those PI certificates were kept up to date.

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