Joseph Belanger might not be a household name but he is a senior consultant with the Brattle Group and prior to that he had a 32-year career in commercial lending, risk-based businesses and fund administration businesses mostly with State Street. Funnily enough one of the most vocal critics of NAMA in Ireland has been Willie Slattery, managing director of State Street Ireland, who has called NAMA “crazy”. Mr Belanger is no stranger to managing client relationships of high net worth individuals and examining loan applications. His expert opinion is that the transfer of Paddy’s loans to NAMA will result in “immediate and lasting adverse economic consequences” to Paddy. His is one of the longer witness statements running to 15-odd pages excluding introduction and recitals. He addresses four main issues:
(1) Paddy’s loans will continue to be serviced and he will meet his debts and BoI have affirmed a good relationship with Paddy. BoI have indicated that expired loans would have been renewed were it not for NAMA. Although there may have been technical default in the sense that expired loans have not been repaid, practice would be to renew these or commence a dialogue between lender and borrower. Payment defaults on the other hand are serious when interest or principal is not paid in accordance with the loan agreement. No formal notice of default has apparently been issued by either Anglo or BoI and it is argued that both institutions would understand the consequence of not issuing such formal notices of default which is tantamount to a waiver or consent. Their action furthermore in not issuing formal notices of default signifies a satisfactory relationship which has lasted 20-30 years.
What confused me about Mr Belanger’s statement was reconciling the claim by AG Paul Gallagher for NAMA that Paddy had not paid expired loans with the claim by Mr Belanger that Paddy was only in technical default. Surely if he hadn’t paid a loan that had expired, he would be in payment default? It seems that the absence of a formal notice of default is what makes Paddy’s loans only technically in default but as I say, I remain confused on that point.
(2) NAMA is not a bank, doesn’t lend or manage relationships and is a work-out vehicle (accelerate payments and terminate relationships) and has extraordinary non-commercial powers. NAMA’s 25% aggregate loan paydown by 2013 is again referenced as is its tough approach to developers as outlined by NAMA. NAMA’s 7-10 year lifespan cannot serve as a substitute for a long term banking relationship. NAMA’s “extraordinary” non-commercial powers claims Mr Belanger include being able to unilaterally modify a loan agreement, “request” personal tax information, sell foreclosed assets to other government agencies based on NAMA’s valuation without offering the assets for sale to the public and NAMA can claw back from the Participating Institutions a sum of money if circumstances come to light after NAMA has received the transfer of the loan. NAMA, it is claimed, has powers beyond a lender referred to in the original loan agreement.
(3) Paddy’s reputation will suffer if his loans go to NAMA because the industry will take adverse connotations from a relationship with NAMA. A lender sees a borrower in terms of their ability and willingness to repay. Ability alone isn’t enough and reputation particularly colours the impression of willingness to repay. And for good measure Mr Belanger reproduces an exchange between JP Morgan (the man) before the Puji Congressional Committee examining the crash of 1907.
Untermyer: is not commercial credit not primarily based on money and property?
Morgan: No sir, the first thing is character.
Untermyer: Before money or property?
Morgan: Before money or anything else. Money can not buy it…a man I do not trust could not get money on all the bonds in Christendom.
A long term satisfactory relationship, Mr Belanger claims, enables easier lending conditions. Furthermore NAMA’s “bad bank” status and the fact that it has been acquiring loans at highly discounted rates reflecting generally poor quality loans, hurts Paddy because the market might think Paddy “belongs there”. Also NAMA is not motivated to maintain a good reputation in the market place so is not constrained in how it deals with Paddy’s loans unlike a normal lending relationship.
(4) Tenants will act up if they know Paddy’s loans are going to NAMA with a consequential adverse affect on Paddy’s property values. Tenants will try to strike harder bargains if they think Paddy’s in trouble. Paddy will also need devote more management time to refinancing which will detract from the management of his businesses.
