Archive for July 10th, 2010

Yes, I’d understand if there is widespread fatigue with the NAMA Business Plan published on 6th July at 5pm, but in the context of the Plan now forecasting a €1bn NPV, down from €4.8bn last October, 2009 – a drop of €3.8bn which is more than the budget cuts in November 2009 and indeed more than the predicted cuts in November 2010’s budget – in the context of the nation being €3.8bn less well off, you will find the intensity of political exchanges in the Oireachtas on the NAMA Business Plan surprising. So surprising in fact that this entry will reproduce verbatim every single question, answer and comment in the Oireachtas in this week that related to NAMA – this week of course being the last in which the Oireachtas sits until the end of September 2010 (though there should be committee hearings – more about that towards the end of this entry).

You would conclude by reading the exchanges that Oireachtas oversight of NAMA was practically non-existent. Questions in particular by Joan Burton and Kevin O’Donnell simply went unanswered. The NAMA CEO appeared before the Oireachtas Finance and Public Service Committee on April 13th, 2010. It is to be hoped that he is called there promptly to deal with the wall of unanswered questions in respect of the latest Business Plan.

Now before the week started, the FG leader had made a plea for specific time to discusss the NAMA Business Plan. Here is that exchange:

Deputy Enda Kenny: With regard to NAMA, is it intended that the Dáil will have an opportunity next week to discuss the quarterly report submitted to the Minister for Finance, Deputy Brian Lenihan, and the changes to the NAMA business plan that have been introduced? We now know that developers have been looking for €1.5 billion in working capital from NAMA, loan covenants have been waived by NAMA and developers have sought to transfer assets outside the jurisdiction. We need to discuss these and many other issues of critical importance so the people know exactly what is going on. Will we have an opportunity next week to hear what are the changes in the revised NAMA business plan and to have a discussion on the quarterly report that was submitted?”

Deputy Mary Coughlan: I am not sure we will have time available next week to discuss the NAMA business plan on the basis that a number of pieces of legislation must go through the House.

And so to this week when the Oireachtas sat on 6th, 7th and 8th and remember the NAMA Business Plan was published at 5pm on the 6th

6th July, 2010

Deputy Enda Kenny: It is clear from the report [mortgage arrears assistance report] that there will be no NAMA for those in negative equity and no sweetheart deals for those in either mortgage arrears or negative equity. This is a clear and deliberate contrast from the treatment meted out by the Government to both Anglo Irish Bank and NAMA itself. Greed and incompetence drove a situation where two independent banking reports indicate that 75% of our problems were caused by mismanagement and incompetence at home by Government.

In view of the fact that 250,000 people are faced with negative equity and over 30,000 are in mortgage arrears and in view of the fact that last week the Taoiseach admitted that over €20 billion pumped into Anglo Irish Bank has gone into a black hole and will never be seen again and that, apparently, this will be followed by a further €6 billion, €8 billion or as yet undetermined amount, will he confirm that there will be no further moneys pumped into Anglo Irish Bank? In respect of NAMA – which the Minister for Finance said would provide a wall of cash for business and provide a profit of €4.8 billion – what is the Government’s estimate now of the hundreds of millions of losses that may well accrue from it?

Deputy Brian Cowen [in reply]:  Deputy Kenny misrepresents the position. There are no sweetheart deals with regard to the National Asset Management Agency. The dealings are on a loan by loan basis and they have been aggressively valued. We were the first country to do that and there is every prospect that will be recognised. There is no question of imposing a national asset management style approach to residential customers. We do not propose – as the Deputy seems to – to take the assets and sell them, because that is what NAMA will do. I cannot understand from where the Deputy’s fuzzy thinking comes on NAMA.

The Deputy’s line is a nice line to throw out, but if he thinks about it he will see it has the very opposite effect of what he claims he is trying to do. The Deputy should not put out his little by-lines and then expect they will not be referred to in the response. There is no question of doing that…..

In regard to the NAMA situation, the central projection has been brought forward and that report will be published today or tomorrow. The central projection suggests there will be some profit made by NAMA. It also sets out other scenarios, some of which would see a higher profit for NAMA in certain circumstances and, given that we are dealing with a ten-year projection, it also refers to a lesser case scenario of some losses. Any such losses will be levyable as a surcharge on banks in any event. The portrayal of the report as showing that NAMA will be loss-making is not correct. The central projection sets out a profit over that period based on the data it has now, and those data relate to the information it has received as a result of the engagement it has had since last autumn with the banks. The draft plan stated very clearly in its first sentence that it relates to information that was then being furnished by the banks. There has been a rigorous and aggressive assessment of all loans on a loan-by-loan basis, and what has emerged is set out in the annual report today.

Deputy Enda Kenny [follow-up]: There is no fuzzy thinking here. The Taoiseach said the taxpayer would not be at a loss because of the injection into Anglo Irish Bank. We now have a situation where he admits that more than €20 billion is lost forever down a black hole. Think of what could be done in our country if that type of money were being pumped into construction, infrastructure or jobs.

Second, the Taoiseach was wrong when he and his Minister said that NAMA would provide a wall of cash. More than 800 businesses have gone to the wall since the start of the year. Some 452,000 people are out of work and thousands more are facing an uncertain future because of the reckless mismanagement of the economy by the Government.

Third, the Taoiseach was wrong when he said there would be no sweetheart deals. Am I to understand that on a loan-by-loan basis, NAMA has already made particular conditions for one very large developer who is unable to comply with the loan conditions granted in the first instance? There are no sweetheart deals for those in negative equity. There are no sweetheart deals for those who cannot pay their mortgages. Yet it appears the same old circle comes around again for Fianna Fáil in government whereby particular operators can be given sweetheart deals.

The Taoiseach also said – and he was wrong on this – that NAMA would provide a profit of €4.8 billion. Yet the Minister for Finance himself – not anybody on this side of the House – spelled out a situation where, he said, hundreds of millions of euro could potentially be lost. If the Taoiseach is saying the Minister’s thinking is fuzzy in this regard, he should take that up with the Minister.

The Taoiseach was wrong in respect of the wall of cash; he was wrong in respect of the sweetheart deals; he was wrong in respect of credit for business; and he was wrong in his assessment of how this process would help the economy to pick up. Will he at least take his courage in his hands, as the leader of the worst Government in the history of this State, and go to the country in order to let the people decide what they want in terms of government for the future?…

Deputy Brian Cowen [in reply]: I will try to deal with that stream of consciousness as best I can.

First, the Leader of the Opposition decides to attack the integrity of the board of NAMA which has a statutory authority from this House to operate independently of anyone else based on the provisions laid out in the relevant Act. He is suggesting that the integrity of those individuals should now be impugned.

Deputy Enda Kenny [follow-up]: The Taoiseach said there would be no sweetheart deals.

Deputy Brian Cowen [in reply]: That is ridiculous. If that is the level of debate we are going to have, it is just a joke.

The scenario outlined in the draft plan for the National Asset Management Agency of a profit of €4.8 billion was based, as stated in the first sentence of that report, on the information being provided by the banks at the time. The agency has now produced its quarterly report, as required under the Act, and is setting out its central projection based on current asset valuations, projecting forward for the next ten years. The board is making the point that the agency should emerge with a profit, as it sees it. The report sets out other scenarios where the agency might make a higher profit or else make some losses. If losses do emerge, they will be levyable on the financial institutions concerned.

That is what the board of NAMA is saying, but the Deputy is misrepresenting that. He is trying to suggest that I am saying one thing and the Minister is saying another. The National Asset Management Agency is making the assessment on the basis of the detailed data it now has which are based on the loans it has brought over from the balance sheets of the banks. The purpose of the agency is to provide for a viable banking system and to provide the prospect of credit. The Deputy is suggesting he has the right policies, but his policy in this regard was to default. The European monetary system is prepared to bring forward provision in the order of €750 billion to protect the currency on the basis that it does not wish to see any default. The Deputy, however, is bringing forward the idea that we in this country we can have a default mechanism.


Deputy Eamon Gilmore: I too have been reading the report from the Government dealing with the problems mortgage holders are having in repaying their loans. The report includes 41 recommendations. There will be a lot of letters written back and forth between lenders and borrowers but the only firm recommendation I can see is that the one-year moratorium on legal action by lenders cannot be extended. That stands in stark contrast to what we are learning now about the real situation in NAMA.

Yesterday there were two newspaper articles, one in The Irish Times and the other in the Irish Independent, both of which seem to be based on fairly well informed briefings, both stating that what we were told in the original business plan for NAMA turns out not to be the case at all. The original plan told us that 40% of the loans that would be transferred to NAMA would be performing loans which would be cash flow generating. It turns out, if the newspaper reports are accurate, that this applies not to 40% but to 25% of loans and that, as a consequence, the projections made for NAMA will not now be fulfilled. The Minister for Finance came into the House when he was proposing the NAMA legislation and told us all that NAMA would not only wash its face but would make a profit of €4.8 billion. If these reports are accurate, there could instead turn out to be a loss of several hundred millions of euro.

Is it true that only 25%, not 40%, of loans are performing based on the case-by-case analysis that has been done by NAMA? If that is true, can the Taoiseach explain to us why the original business plan for NAMA that was presented to the House has turned out be a bit of a financial fairy tale? Will the Taoiseach confirm that when the Minister for Finance came before us and asked us to approve NAMA, that he did so on the basis of projections which now turn out not to be accurate? If it is the case that they are not accurate, can the Taoiseach inform us why this is the case? Is it because the banks lied in providing the original information on which the 40% estimate was made?

Or, is it the case that the developers were messing in the period between the time NAMA was first announced and when the first loan was transferred to NAMA? Was there a situation whereby after NAMA was announced a certain amount of financial hanky panky took place and people decided that if the taxpayer were to end up taking on this burden, then perhaps a given loan did not have to be repaid at all? Is there evidence of growing non-repayment from the time NAMA was announced? This is all based on newspaper reports. Has the Government received this report from NAMA? If so, when will it be published?

Deputy Brian Cowen [in reply]: There has been some misunderstanding of the plan in advance of its publication. It is not true to say that NAMA now expects to make a loss. There are three scenarios set out in the plan. Under the central scenario, based on current expected asset recovery values NAMA is projected to make a profit. There are two other scenarios which are variations on the central projection, one in which NAMA makes a larger profit and one in which it makes a loss.

Deputy Joan Burton [chipping in]: One would not get a loan in a bank based on that.

Deputy Brian Cowen [in reply continuing]: The whole purpose of a business plan is to estimate the outcome under different assumptions. We have had an argument in the past regarding whether risk assessments were put in place.

Deputy Joan Burton [chipping in]: Who made the assumptions?

Deputy Brian Cowen [in reply continuing]: At issue is the draft plan brought forward in October, the first line of which states it is based on information provided by the banks. As the House is aware, there was much surprise in the banking system as to the aggressive nature of the writedowns with which NAMA came up. NAMA has decided, based on the data it has, what the value of those loans is and has paid accordingly. That is the reason.

I refer to the performance of loans. Some 25% of the loans are performing, but that does not change the value of collateral and present asset projections. That they cannot be paid by the borrower does not take away from the fact of the value of the underlying asset and the collateral which applies to it.

Everything set out by NAMA confirms the aggressive nature of what it was doing to ensure we got a proper read on where we are at. This was done by NAMA and it has brought forward its central projection today which suggests that it still believes, based on the present asset values at the present time, that it will make a profit. With regard to whether it ends up with a loss, that would be addressed by a levy on the banks as the legislation provides for.

Deputy Eamon Gilmore [follow-up]: The draft plan, as the Taoiseach calls it, is beginning to read more and more like a daft plan. The Taoiseach’s Minister for Finance stated 40% of loans were performing in the draft or daft plan that was presented to us for NAMA. The Taoiseach is now acknowledging that it is 25%. Originally, we were told the discount applied would be 30%. Of course, it turned out that when NAMA got to work on it, more aggressively it appears than anyone in Government, the discount is significantly more. The real situation is that what the Taoiseach has presented to us and what has been presented to us repeatedly by Government in respect of NAMA has turned out in the cold light of day not to be accurate. The Taoiseach has been way off. He was way off on the numbers of performing loans.

He was way off on the discounts.

The Taoiseach was way off in respect of where NAMA will end up and whether it will make a profit. The Taoiseach is now suggesting two scenarios in which it might make a profit or a loss.

Deputy Brian Cowen [in reply]: There are three scenarios.

Deputy Eamon Gilmore [follow-up]: It seems the reality is that the Taoiseach does not know from one month to the next where he is going with this and where it will end up, other than that the taxpayer of this country will, for decades to come, have to shoulder the burden of the mess he has created and allowed to continue….

The Taoiseach stated that he expects NAMA will still make a profit. Will he indicate his estimate of the profit NAMA will make?

Deputy Brian Cowen [in reply]: It is not my estimate. NAMA is making these reports as required under the Acts. Some of the amendments discussed and accepted by the Minister at the time enable NAMA to bring forward in a transparent way on a quarterly basis what the arrangements are. Deputy Burton seems to know. Perhaps she could brief her leader.

Deputy Joan Burton [chipping in]: There are some bizarre amendments.

Deputy Eamon Gilmore [follow-up]: We would not get to know the information at all otherwise.

Deputy Brian Cowen [in reply]: That is not the case at all. The Minister has been committed to dealing with the matter in an up-front way at all times. The central projection that NAMA has set out based on the up-to-date situation is that it will make a profit of something of the order of €1 billion. That is the central projection. It is set out over a ten year projection period based on current expected asset recovery values. During the next ten years issues will arise in terms of values and the recovery of the economy etc. This will all be dealt with on a case by case basis. It proves the wisdom of the NAMA approach of dealing with every loan on a case-by-case basis. It also disproves the idea put forward by the Opposition at the time that in some way there was some padding going on between the banks, those clients and NAMA as regards what the value would be.

Deputy Pat Rabbitte, Deputy Joe Costello [chipping in]: The banks were lying.

Deputy Brian Cowen [in reply continuing]: I hold no brief for that. The point I am making relates to the policy response to the banking crisis. The asset management agency set up will enable us to obtain a viable banking system. The proposal at the time from the Labour Party was to temporarily nationalise all the banks. If one nationalised all the banks one would be allowing the taxpayers to fund arrangements of all those banks and all the capital required….

This report will be published. It will set out the situation and the central projection. I am outlining the factual position and the other scenarios. The report is simply making those scenarios available to the public so that people can see over the next ten years what the variation in projections will be. The important thing for taxpayers to know in respect of the NAMA operations is that were any losses to emerge after this ten year process, these issues are subject to levy and there will be a surcharge on the banks. That will go back on the banks’ liability as far as we are concerned.


Deputy Joan Burton: During the consideration of the NAMA legislation, when the Minister for Finance very graciously accepted a number of Labour Party amendments, we were promised that when the revised NAMA business plan was available – it was submitted to the Government last week – it would be published and made available to Opposition spokespersons. Before we all go away on what I hope will be happy holidays, could the Opposition see the revised NAMA business plan?

The Taoiseach: The whole idea is to be transparent and to ensure everyone is up to date on the full facts of the situation…

The plans will be published. The board must sign off on or approve them. It will be published this week, if not today.


Deputy Richard Bruton:  Today’s announcement with more information about the Government’s banking policy rubs salt in the wound for people. Many Members on this side of the House are not surprised to find that NAMA in its amended business plan has revised by 80% the projected profit it hoped to make. It was to be €5 billion but now it is down to €1 billion, yet officials have only examined 20% of the loans it will take on. They are saying their hoped-for profits from this operation will be down 80%. What will this be like when the full extent of the loans is made known?


Deputy Tom Sheahan: Thousands of people are applying for the family income supplement. Some €4 billion was taken from last year’s budget and we believe €3 billion will be taken from this year’s budget. We will pay €1 billion in interest on NAMA and next year we will repay €1 billion to NAMA, costing the State €1 billion. In 2012, NAMA will cost us €7 billion. I put it to the Minister of State that the Minister for Finance is merely putting out fires as they flare up around him on a day-to-day basis.


Deputy Martin Mansergh: The main policy initiatives have been the bank guarantee in order to secure the liquidity of the banking system, the establishment of NAMA in order to clear up the balance sheets of banks, the recapitalisation of banks and restructuring of the banking system and reform of the regulatory system….

In addition, the Credit Review Office was established by statutory instrument under the NAMA legislation to ensure that banks continue lending to viable businesses.


Deputy Joan Bruton: This afternoon saw the formal publication in the Dáil of the revised NAMA business plan. In the context of this Fine Gael motion on the economy, the NAMA business plan is appalling news for taxpayers. It shows that, in the nine months since the draft business plan was published, the people in NAMA have revised their estimate of it making a profit of €4.8 billion over its life to a worst case scenario of losses of €800 million, a turnaround in nine months of more than €5 billion in extra losses. Clearly, the first NAMA draft plan was a fantasy. It is difficult to believe the revised plan except in so far as it means more pain and no gain for taxpayers.

While NAMA has transferred large bad assets from banks to the taxpayer, the banks, which have been the recipients of this largesse, are still effectively closed for credit. We have a credit famine for small and medium-sized enterprises, SMEs, and indigenous businesses that rely on the guaranteed banks. This alone is continuing to cost tens of thousands of jobs as small businesses yield to the inevitable and close up shop or reduce their employee numbers. Other SMEs never get off the starting blocks.

Today’s business plan again confirms that Fianna Fáil in Government remains mesmerised by the banks and the developers and simply cannot turn its gaze or attention to the real economy, employment, job retention and job growth. Even in the best case scenario where NAMA recovers the long-term economic value of the assets plus 10%, the revised profit figure would be €3.9 billion, a drop of €1 billion. This scenario B, as set out in the plan, requires NAMA’s assets to rise in value from their takeover values to 21%, representing 11% of an uplift plus 10% over the so-called long-term economic value. This is a highly unlikely scenario.

The business plan makes it clear that NAMA is definitely an asset management company and not a bad bank. Assets with a value of €81 billion are being acquired from the eligible institutions, those being, AIB, Bank of Ireland, Anglo Irish Bank and Irish Nationwide. Nine months ago, we were going to acquire assets worth only €77 billion. The House must bear in mind that we are taking no assets valued at less than €5 million, which will stay with the banks. Every scenario that this wretched Government comes up with regarding our economy is much worse than even it could have forecast. One might call it bad luck for the Taoiseach, but such a deterioration in a nine-month period is unbelievable.

According to a note on the first page of the new draft business plan, the State is to acquire derivate transactions with a nominal value of more than €14 billion. When I asked about these during the debate on NAMA, I was told not to worry my little head about them and that everything would be fine. We are now being told that a substantial number of these derivatives are non-performing and underwater. We are also told that NAMA will pay nil consideration for them. We will get non-performing derivatives for nothing, but what we do not know is what cost implications they and other acquired derivatives will have for taxpayers. That information does not even figure in the plan.

Almost everything about this plan is worse than was forecast. Far from NAMA loans “washing their face”, as claimed by the Minister and his economic adviser in the debate, taxpayers will be left wiping egg off their faces from this rotten deal, which aims to bail out bankers and developers. We were told over and over that the good assets being transferred into NAMA would yield significant returns. When the bundle went to NAMA, there were to be good and bad assets. Some would be underwater, but others would be earning their keep. Today’s report confirms that, at most, only 24% of loans are generating any income, that is, repayments or interest payments. In this climate, loans that are generating neither capital repayments nor interest payments are goners. This is reflected in the fact that some of the NAMA good assets were, for example, shopping centres. Retailers cannot pay the fantasy rents – based on upward-only rent reviews – that the developers want to charge for the banks in order to keep the property value of their non-performing shopping centres up for the purposes of NAMA. This is an exercise in smoke and mirrors and the only people being taken to the cleaners are ordinary citizens and taxpayers.

It is not clear what the floating rate on the NAMA bonds will be. One of the key assumptions used was that this would be at a low level, which was always likely to prove to be a fantasy in the long run. The European Central Bank, ECB, has set interest rates at an historically low level in order to pump money into real economies. We are pumping money into NAMA, the exact purpose for which the ECB’s low interest stimulus package is not meant.

NAMA is coming in with expected administration costs, slightly behind those outlined in the draft business plan. This is about the only positive in what is a deeply depressing business plan. As a consequence of the plan and the extra €5 billion in losses to be loaded onto the taxpayer, the Government is redrawing the national development plan. Key road and rail projects are to be axed as the money for them runs out because we are transferring that money to NAMA. Technically, NAMA’s debt burden is off the balance sheet, but it is on all of our shoulders. As a consequence, an extensive list of more than 30 road projects, not to mention Luas and metro projects, will not proceed. In September, little children starting school will pass through school gates. Although they will be skipping along, their parents might not be skipping behind them. If parents have problems repaying their mortgages, there will be no NAMA for them. There is not even an extension from one year to two years in the work-out period for mortgages in difficulty. Doing this would not be difficult, as it is only a framework to give people two years to try to recover their jobs and family incomes. However, it was not even mentioned in today’s report.


Deputy Arthur Morgan: If we had in place a properly run State bank, it would not have got involved in the whacky race to the bottom which occurred in the commercial sector. I am not saying we should in any way diminish the commercial sector. All we should do is govern it in such a way that it is practical and functions, so that it cannot get away with the carry-on in which it was engaged. I am talking about loans circulating to the golden circle, without any guarantees whatsoever, and loans washing in and out of various banks as their AGMs approached. It beggars belief that such carry-on could have happened in this State. Then, of course, there was the whole issue of the auditors. Where were the auditors in these companies because, after all, they are corporate entities? They were obliged to submit audit reports and they did. Those auditors were totally blind in relation to activities in the banks. Some of them ended up working for NAMA. Rather than being turfed out and never getting work with anything to do with the State again, they have been rewarded and are helping NAMA to value loans. Is this something we should be tolerating? We are a very passive society….

NAMA admitted to the finance committee just three weeks ago that the banks were still not coming clean, even at this late stage in the game. NAMA has told us it is going to get quite cross with the banks because it is fed up with how they are behaving. In terms of whether the country is “out of recession”, talk to people in any of the constituencies involved in this House and ask them. I do not know whether that is meant to be humorous or if it is just encouraging people to be scornful of the whole setup of politics here. Certainly, I believe politics has got a bad name, particularly on foot of what the Government policies have been, to bail out the bankers and speculators. We are letting down all those unfortunate people who cannot meet their mortgage repayments through no fault of their own, because they have been made unemployed. Just this afternoon we learn that the Minister for Social Protection is increasing the mortgage interest relief to banks. That will not gain one red cent for their poor unfortunates in their homes, but it will put extra taxpayers’ money into the coffers of the banks, and that is scandalous.


7th July, 2010

Deputy Bernard Allen: We need extra powers for dealing with NAMA and the Dublin Docklands Authority. The Comptroller and Auditor General also needs extra resources. The pay review done in his office points to serious lack of resources to deal with the issues.

An Ceann Comhairle: The Deputy will have the opportunity at some other stage to raise this.

Deputy Bernard Allen: There is no point in Ministers sending stuff off to committees if the committees do not have the powers to deal with them.


Deputy Paul Connaughton: Whether we are for or against NAMA, there is no point wasting time on the matter this evening. It is in place. Every time there is an assessment or an evaluation of NAMA there is a different answer. We were informed by the Minister some months ago that, over ten years, NAMA would realise and make a profit of almost €5 billion. Yesterday, Frank Daly, a man for whom I have great respect, stated this figure would be approximately €1 billion. This is code to inform the people that they are in for one of the largest losses ever witnessed. We have no idea where it will finish up but we can rest assured it will not make a profit.


Deputy Brian Lenihan: We set up the National Asset Management Agency to clean up the banks’ balance sheets. NAMA went into the banks and discovered the real picture. We realised progress could not be made unless there was a separate, independent, statutory valuation of banking assets.

Where would be today had we followed the proposals of the parties opposite? When the NAMA Bill was introduced in Dáil Éireann, all Deputy Kenny could do was parrot a proposal from the financier, Dermot Desmond, published in a newspaper article that morning. His plan was to leave the banks to value and work out their own impaired assets while benefiting from a State guarantee. The idea was to split the banks in two, default on those providing badly needed funds to the banks and then leave the banks to their own devices. Where would the banks be now had we followed that policy? Our first bank to emerge from this crisis with new private sector investment was Bank of Ireland. Had we followed Fine Gael’s recommendation last September, it would still be mired in crisis, critically under-capitalised and short of funds. What would have happened had we taken it over and nationalised it as the Labour Party wanted to do? Would it now resemble Anglo Irish Bank? What has happened to Fine Gael’s proposal for a national recovery bank? This seems to have gone by the wayside, although I accept there was never a credible plan for the bank to raise funds. Likewise, there was no such credible plan for the Labour Party’s strategic investment bank because funding for these institutions would reduce the amount and increase the cost of funding for the existing banks and the State.


Deputy Michael Noonan: There is no confidence in the banks. After the investment of €22 billion in Anglo Irish Bank, the investment in Bank of Ireland and AIB, the establishment of the National Asset Management Agency, NAMA, and the transfer of the impaired assets, we still do not have a functioning banking system that is providing credit lines to business and householders. The Minister’s reputation is at risk because of this.

Tomorrow we will debate the terms of reference of the commission of inquiry into banking. I thank the Minister for extending the period under scrutiny to include the period from the night of the guarantee at the end of September 2008 to 15 January 2009, when Anglo Irish Bank was nationalised. I am glad he has done that. However, he should allow the commission to scrutinise the advice the Minister was given as well. I believe the Minister was in a situation where he took decisions without full information. I do not believe he knew the extent of the indebtedness of Anglo Irish Bank on 29 September, when he extended the guarantee to all its liabilities, or its full indebtedness when it was nationalised on 15 January 2009. I do not believe the Minister knew what was happening in the valuation the banks were putting on the assets that transferred to NAMA. I believe he was as surprised as anybody else by the second business plan for NAMA which we received yesterday.

What has happened is extraordinary. The banks’ advice to the Department should be subject to the examination. Otherwise, as frequently happens in this country, the political head of the Department will be left holding the can when, in my view, he is blameless on the issue. He worked on the basis of the advice before him. It is in the Minister’s and everybody’s interest to have this area illuminated as well and to have the truth of the advice brought forward.


8th July, 2010

Deputy James Reilly:  We need to see real action and a commitment from the Government side of the House that section 7 of the NAMA Act, which provides for jail terms of five years and fines of up to €5 million for an individual and €20 million for a bank who have been found to mislead NAMA and the Government, will be acted upon. Action must be taken. People must be held accountable and people must go to jail. That is what people want to see. People found guilty have committed an offence and must pay the penalty, or else this commission is just more window dressing by the Government.

[not strictly a comment on NAMA, his focus is on the banking Inquiry]


Deputy Kieran O’Donnell: NAMA’s revised business plan is inadequate in that it has no profit and loss accounts or cash flow projections. When the draft business plan was debated, the Minister did not state from where the information had come. He now informs the House that it came directly from the banks. In late 2008, he commissioned PricewaterhouseCoopers, PWC, to carry out due diligence reviews of the various institutions and their loans. Those PWC reports need to be disclosed in full so that we can know what advice was available to the Minister while NAMA’s draft business plan was being proposed. Anything less and there would not be proper disclosure….The PWC due diligence reports started in August or September of 2008. Commissioned by the Minister, they should have fed into the NAMA process. It is not good enough to say that –

Deputy Brian Lenihan [in reply]: They did

Deputy Kieran O’Donnell [follow-up]: They should have, but why did they not?

Deputy Brian Lenihan [in reply]: They did.

Deputy Kieran O’Donnell [follow-up]: In which case, why are the figures in the draft business plan that was laid before the House during our discussion on the NAMA legislation so far off those in the revised business plan? We need more detail on the plan.

Deputy Brian Lenihan [in reply]: I will deal with that in my reply.

Deputy Brian Lenihan [in reply]: Deputy O’Donnell raised the issue in the context of the recent operations of NAMA and the business plan now approved by the board. That is the business plan of NAMA. The one advantage NAMA had as against its predecessors was that it was building on the work PriceWaterhouse Coopers had done, on the work of the due diligence exercises which took place prior to the capitalisation of Bank of Ireland and Allied Irish Bank and the abortive capitalisation of Anglo Irish Bank. In effect the due diligence led to the nationalisation rather than the capitalisation of Anglo Irish Bank. NAMA had the advantage of that work already being done and has been able to bore deeper as a result. It has also, of course, had the advantage of a statutory mandate and of statutory provisions in respect of disclosure by the institutions themselves.

Deputy Kieran O’Donnell [follow-up]: What about the draft business plan?

Deputy Brian Lenihan [in reply]: Let us be clear. The draft business plan that was submitted to the House last autumn was just a draft, prepared by the interim NAMA executive. At that stage, NAMA was far more dependent on information voluntarily supplied by financial institutions, including the PriceWaterhouse Coopers’ report, than it was in its more recent exercise.

Deputy Kieran O’Donnell [follow-up]: Why are there such discrepancies?

Deputy Brian Lenihan [in reply]: his is not Question Time. I am trying to reply on the issues that were raised.

An Leas-Cheann Comhairle [ending the exchange between Deputy O’Donnell and Deputy Lenihan]: There is only a limited time for the Minister to reply to the many points made.


Deputy Joan Burton: The most extraordinary aspect of the revised NAMA business plan is the board’s admission of a deterioration in its original estimates with losses of €5 billion now predicted. The House has got so used to talking in billions that the value of money has lost its meaning. The outcome, however, of these decisions has left people with an extraordinary debt overhang. While I never contested the banking problem would cost much money, if the Labour Party’s proposals – even variations of them – had been accepted, we would have some functioning banks now with only half of what the Government spent.

NAMA’s revised business plan contained one line stating derivatives worth €14 billion were being taken off the banks’ balance sheets and taken on by the taxpayer. During the crisis, we were repeatedly given the Lehman Brothers defence which Regling, Watson and Honohan blew out of the water by pointing out that the Lehman collapse was irrelevant as the crisis was homemade. We were also told constantly that there was no problem with complex financial instruments affecting our banks.

Yet, now in the revised NAMA business plan up pops €14 billion of derivatives with a note saying a considerable amount of these have no value. The business plan states:

Derivative transactions with a nominal value of €14bn (principally interest rate swaps) will also be transferred. A substantial number of these derivatives are nonperforming and NAMA will pay nil consideration to acquire them.

Deputy Brian Lenihan [in reply]: The point is NAMA will not pay for them.

Deputy Joan Burton [follow-up]: The problem is we are taking on the contingent liability that goes with these derivatives. They are interest-rate swaps – the very products that did for Lehman Brothers and many other financial institutions.

Economic governance is so poor in this country that this revised business plan does not even set out the likely level of the liability that may arise. When the State guarantee was introduced, the Government said over and over again the banks did not have fancy financial instruments. In the last days before the empire went down, did someone in Anglo Irish Bank buy and sell interest-rate swaps? How much of these €14 billion derivatives and their contingent liability stem from Anglo Irish Bank?

Deputy Brian Lenihan [in reply]: [no reference to NAMA whatsoever]


Deputy Arthur Morgan: One of our jobs is to examine economic policy. Since 2003 to the banking crisis it was misjudged, to put it mildly. Current government economic policy is equally misjudged in that it does not recognise the need for a State bank. The chief executive officer of NAMA, Mr. Brendan McDonagh told the Oireachtas committee on finance three weeks ago [Deputy Morgan refers to an appearance by the NAMA CEO “three weeks ago” a number of times but the record of the Finance and Public Service Committee hearings says that it was three months ago and was widely covered in the media] that the banks were not giving him the accurate information he required or co-operating as fully as he would have expected. Although there is provision in legislation for NAMA to pursue institutions or bank executives, it is not happening.

This is creating the perception among many that a golden circle of untouchables exists. Mr. Frank Daly, chairman of the NAMA board, told the committee he was surprised at some of the atrocious findings made when examining toxic accounts in several banks. Why Mr. Daly would be surprised is beyond me because he was chair of the auditing committee and a director of NAMA for some considerable time.

Deputy Brian Lenihan [in reply]: Because it is a circle of incompetence rather than untouchability.

Deputy Arthur Morgan [follow-up]: Well, it has been untouchable up to now. I agree that it has been a circle of incompetence, but perhaps to describe these people as incompetent is to let them off the hook. Some would say they are particularly competent but have their eyes on something else – enriching themselves and their friends. Let us hope some of this will come out in the inquiry.

The bottom line is that if institutions are not co-operating with NAMA in the way they are expected to, why have prosecutions not arisen from this? It is bizarre in the extreme. A substantial in-depth investigation is needed. The major surprise for me was that Mr. Daly was surprised at all. I thought that having held a position in the most toxic bank of all, he would have had an insight into what was going on. Thus, it is quite telling that he says he is surprised at the level of deceit that had continued up to recently with regard to the extent of toxic loans.

The absence of specific and detailed figures, projections and so on leaves the business plan quite weak. The principle of long-term economic value is still being applied by NAMA, and we do not know where it will stop. One can calculate long-term economic value on the back of a cigarette packet and one’s guess will be as good as anyone’s. Why are we not talking about current market value when discussing these toxic loans? In that case we would all know what we were talking about. It certainly will not be the 50% of the total value that NAMA has been paying to date; it is more likely to be of the order of 20% or 25%. We know this from the Carroll High Court proceedings. The business plan mentions a worst-case scenario of a loss of €800 million, but I am concerned that it may go well beyond that.

Deputy Brian Lenihan [in reply]: [no reference to NAMA whatsoever]


And there you have it – practically no examination of the Business Plan at all and where there were questions, there were effectively no answers. Contrast this with the debate and examination of budgets which will have a lesser impact on Ireland’s economy. It is a disturbing commentary on our political system and it is to be hoped that the NAMA CEO will be summoned promptly to the Finance and Public Service Committee which will continue to sit in July and September.


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