Making sense of the NAMA appearance before the Oireachtas

If Brendan McDonagh is ever looking for a new career, he might consider being the auctioneer in our local mart. Such was the pace of delivery of his opening statement to the Oireachtas Joint Committee on Finance and the Public Service. Along with John Corrigan from the NTMA, the duo were grilled for three hours by a cross party group of deputies and senators and after the opening statements, it was clear that the NAMA CEO’s confidence grew. You can see the rough draft of what was said here. The full transcript of the hearing is now available from the Oireachtas website.

In terms of froth, we got to hear Arthur Morgan asking when NAMA was going to tell the banks, who are delaying in providing documentation, to “piss off”. To which the surprising answer was that NAMA had already issued a formal direction in respect of the second tranche. It was also hilarious to see Joan Burton mix up the effect of the rate on NAMA’s bonds (6 month Euribor) and think NAMA were now paying more on these bonds. Liam Twomey’s wife apparently bought a hairdressers during the boom and it was now worth less than 50% and Liam wanted to know if NAMA was overpaying for assets. There were a few hooks cast by the Opposition fishing for a story on salaries or conflicts of interest or developers disposing of assets to avoid repayments.

However, once the froth is blown off, the main points to arise from the hearing in respect of NAMA were:

1. NAMA will not produce a business plan until June 2010 and was not even willing to speculate on what the intelligence gathered from the first tranche or the last 6 months would mean for that business plan. Although increasingly pressed for overall numbers, the NAMA CEO was not yielding. That is a worry and the vacuum will be filled by speculation.

2. In terms of the first tranche the rolled-up interest was €2.4bn approx (15%) included in the €16bn total. Anglo is not disproportionately affected by rolled-up interest and NAMA will not allow developers to defer judgement day by continuing to roll up interest unless it is in the loan contract.

3. NAMA will spend in the order of €43bn compared with €54bn in the draft business plan (referred to as being “for illustrative purposes” by the NAMA CEO).

4. In respect of the first tranche 33% of loans are performing in respect to paying interest cf 40% in the draft plan. 25% of the first tranche valuations by the banks’ valuers were rejected by NAMA (what does that say about the duty of the banks’ valuers to NAMA?)

5. NAMA is containing costs within the draft plan parameters, significantly so in the first year.

6. NAMA was continually referred to as a 7-10 year project, compared with the 15 years talked about by Brian Lenihan last week.

7. There will be 15 tranches and 3 of the 5 institutions should be complete by Q3, 2010.

8. The difference between LEV Property and consideration in the first tranche is the 5% enforcement and 0.25% due diligence and the NAMA discount rate referred to in the NAMA LEV Regs plus the risk premium calculation. Consideration paid = LEV of the loan. This area is still confused and a worked example would have helped.

9. NAMA will carefully consider spending the €5bn. However it appears that NAMA will be a match-maker between borrowers and investors and in some cases there may be shotgun marriages.

10. The language used by the NAMA CEO was tough in respect of the banks and the developers. Time will tell whether it translates into constructive management of the project.

The NAMA/NTMA roadshow will be in Belfast in May 2010 at the Belfast Chamber of Commerce though apparently the event is sold out. Many people will welcome the briefing from NAMA but a few of the questions that remained unanswered.

1. Have any first tranche valuations been referred to the “long” dispute procedure? Has the EU agreed the first tranche?

2. How is the 5% subordinated debt consideration working?

3. If NAMA is paying the banks 6 months Euribor on its bonds and receiving 6 month Euribor plus an average of 2% on loans transferred and 80% of loans will be repaid in full then why does the draft business plan show interest receivable at €12bn and interest payable at €16bn?

4. Although it might not be of interest what the banks are doing with the NAMA bonds from the NAMA CEO’s point of view, it should be of importance to the NTMA. Are they being exchanged and used for lending to homes and businesses?

5. Can NAMA change the valuation date for future tranches? They have set it at 30 November 2009 when the market was clearly still diving.

6. What is NAMA doing to stop leaks to selective media outlets?

7. Does NAMA consider the constraint of being prevented from using data from sources post 10^th January, 2010 to be hampering it in producing accurate property LEVs.?

8. Does NAMA consider population projections from the DoEHLG and CSO from 2009 and 2008 respectively to be realistic?