The relationship between NAMA and the National Treasury Management Agency (NTMA) has become a little confused in recent times. NAMA was always touted as operating “under the aegis” of the NTMA. In addition to NAMA, the NTMA claims to have three other agencies under its “aegis”
(1) The National Pension Reserve Fund
(3) The National Development Finance Agency
And up until recently (certainly April this year when the NAMA CEO and NTMA CEO appeared together at the Oireachtas Joint Committee on Finance and the Public Service) we would have had the impression that NAMA CEO, Brendan McDonagh had a reporting line to John Corrigan. It seems not looking at NAMA’s view of itself recently presented in Tralee, Galway and the UK and reproduced below:
Now it seems that NAMA still depends on the NTMA for some functional assistance in terms of accounting, HR and presumably accommodation and IT. In terms of salary the NTMA CEO revealed yesterday that his salary was €490,000 plus a bonus (of up to 80% of salary giving a theoretical maximum of €882,000). The Tribune reported earlier this year that both the NAMA and NTMA CEOs were paid €500k+ (table see below). The NTMA organization chart still shows John C. Corrigan as the chief executive with a board of directors that includes Brendan McDonagh. I wonder if that accurately shows the relationship.
And of course NAMA may have more assets under management than the NTMA and may have a more significant role in the life of the State for the next 10 years. So I wonder what the NAMA CEO will have made of the NTMA CEO’s statements at the “Confidence in Media” conference in Dublin yesterday reported by the Independent and Reuters where he claimed NAMA needed to sell of assets now. “Feck off John and keep your nose out of my business, you have enough on your plate yourself” might be one reaction from the NAMA CEO in reference to the difficulties confronted by the NTMA in selling Irish debt at non-ridiculous prices at the moment.
NAMA of course appears to be selling property as suggested on here during the week, both in the State and in the UK.
Below is the information produced by the Sunday Tribune in June 2010 which claimed to show the 68 public servants (ie the 27 shown below plus six other Supreme Court judges plus 35 High Court judges) earning more than the Taoiseach (€228,466). The list is incomplete though it is not clear how incomplete – the Financial Regulator and Central Bank Governor for example are better paid than the Taoiseach.
NAMA Wine Lake 
Nama will be evaluated by three criteria:
(1) how quickly they can dispose of the assets under their control;
(2) how the price received for the asset relates to the (newly written down) value of the asset; and
(3) whether the bailout will cost more than budgeted.
Nama has acquired assets that have been written down aggressively and therefore theoretically, these assets are capable of being sold easily at attractive prices. Aggressively writing down the value of assets causes expectations for those assets to be low. And low expectations are always easier to meet than high expectations, thereby resulting in quicker sales.
The other problem that has not been faced properly relates to finding the appropriate personnel to deal with asset management and disposal.
One of the principle strategic advantages to employing a bad bank strategy (which is Nama) is that the human capital skills necessary to manage and resolve the problems associated with troubled assets are entirely different than the human capital skills that bankers must possess to deal with performing loans.
The justification for using the Nama strategy was to move bad assets into a structure where qualified people who specialised in managing bad assets can deploy their skills. However, for this strategy to succeed, people with appropriate industry-specific asset management skills must be recruited to manage the bad assets.
This has been fudged and is only happening in the case of the biggest one hundred developers. The rest are being left with bank executives, who have difficulty deciding if they are Arthur or Martha (i.e they don’t know whether they work for the bank or Nama) in the “participating institutions”. Nama merely fulfills a top tier “credit committee role in the case of 95% of its newly acquired debtors.
Of course, finding such qualified, specialized personnel to work in Nama cannot be easy – even nigh impossible. The problem of attracting and recruiting suitable personnel, if Nama is successful in converting the toxic assets into cash expeditiously and efficiently, would mean that Nama could be dismantled proportionately relatively quickly.
Indeed, as stated previously, one of the measures (although by no means the only measure) of how whether Nama will be viewed as successful or not, will be how quickly it is able to convert non-performing loans into cash so that it can be dismantled. Non-performing assets have high maintenance and carrying costs. Eliminating these costs would immediately improve the position of Nama.
It is the availability of specialised talent and the necessity and ability to recruit them that forms the core economic justification for establishing Nama. Absent such qualified personnel with industry specific expertise, and given further major reliance on the bank lending executives that caused the problem in the first place, it is not obvious that the principle of the Nama “bad bank” will succeed.
While I’m at it – one further point that needs careful monitoring is whether it is possible to establish an
independent, entrepreneurial organization empowered to dispose of assets of significant value without the problem of corruption destroying any, or much of, the added value that might be derived from its activities.
History tells us to be vigilant. In the case of Securum (the Swedish bad bank) the dealings on approximately half of the loan files were subject to “criticism”. Of course, you will be relieved to know that fraud was proven in only a limited number of cases.
The Swedes are well known for their honesty….. just like the Irish!
You raise a very good point as to the quantity of NAMA’s expertise in disposing of property – certainly John Mulcahy is very experienced, but when you consider that NAMA engaged a panel of 32 companies to value NAMA loans, it seems utterly incredible that John and his small team will be ably resourced to dispose of assets. And this is an area where there should be economies of scale – pooling contact books (for buyers, intermediaries not to mention provisional services required to maintain assets), developing an overall strategy, developing procedures to enhance and maintain values in the short term. All of these would benefit from economies of scale and as you say if banks are resolving their loans themselves (and only occasionally referring back to NAMA), it’s likely we get suboptimal results not to mention expanding the group of people that can potentially use underhand methods to NAMA’s disadvantage.
It seems that NAMA is doing a decent job of acquiring the assets in the sense that 20% of the loans have been acquired with the EU’s approval. Has it given enough attention to the more important part of the process – the disposals?
“The Swedes are well known for their honesty….. just like the Irish!” :lol: :lol:
To state the obvious, Nama now ranks as one of Europe’s largest property owners and marks a possibly foolish, bold and controversial Irish copycat of an idea that was pioneered in America with Mellon Bank Corp.’s Grant Street National Bank.
The problem with a bad bank strategy like Nama in a relatively tiny country like Ireland is that Ireland’s smaller and less liquid capital markets make the crucial task of selling off secondary or toxic assets well nigh impossible in its current depressed state.
At its present rate of asset disposal, Nama is likely to use up a substantial part of its capital in its first twelve months of operation alone.
The scale of the problem is evident in Nama’s 20,000 individual properties. Its task is to manage its vast holdings well enough to find buyers for them in the open market.
To hasten its sales program, Nama needs to cluster its assets into units rather than attempting to sell them off piecemeal.
Nama’s foreign portfolio is likely the least of its headaches. In the UK, the USA, Germany, France and elsewhere, the property market still exists, but in Ireland sellers still vastly outnumber buyers and property values have been more than halved. It could be argued that to sell out at the moment would make the real estate market fall even more, as there is just no liquidity whatsoever in the form of debt finance to support the only buyers for these properties – the Irish themselves.
One of the other thorny problems that Nama will face is how to motivate its staff in a company that all parties concerned would like to see cease to exist as soon as possible.
In my opinion, the best approach is to tell John Mulcahy’s managers that success will be rewarded not by working themselves out of a job, but by compensation systems that reflect success in managing the troubled assets for Nama’s account. Those who manage a greater return on assets should also earn more.
With a properly functioning incentive based pay system, managerial performance should improve. This was certainly the case with Securum in Sweden. There, generous incentivised compensation packages contributed to the success of the organisation. Of course, such compensation packages are more easily defended in private firms than in semi-government entities. But if we don’t get some form of incentive performance package, we are just going to get more civil service stagnation, no incentive to market the properties…. just string the job out until retirement comes with a nice fat pension.
One question:
does anyone know exactly where NAMA ranks as far as the biggest property owners globally goes?
and
a quick back of the classroom comment:
as far as clustering NAMA’s assets goes, some day some bright spark politician will propose a Good NAMA /Bad NAMA arrangement. Then she will tell us that a Bad NAMA is like a double negative, and therefore a positive.
I saw a slide from Reading University earlier this year which suggested that NAMA was going to be the biggest property management fund in the world. I think No 2 was GE. However NAMA was showing with €80m of assets and you could argue it only has €40bn because that’s what it’s paying even if the par value is €80bn. So NAMA is huge by global standards and others have pointed out that having 100 staff to (ultimately) manage such a volume of assets is incredible. Remember that NAMA does use staff at banks and Capita to help manage the loans but I think we will shortly see what many already suspect – that NAMA is under-resourced to deal with this volume of assets.
Sadly a (bad) bad bank is likely to be an even worse bank, rather than a good bank!