The transcript of the entire hearing is now available from the Oireachtas here. NAMA has now made available the brief opening statements by the NAMA Chairman and CEO. Senior NAMA personnel were today quizzed by the Oireachtas Committee on Public Accounts (PCA) for some four hours and we received probably the most detailed assessment of the state of the agency with quite a few surprises. NAMA was represented by its CEO, Brendan McDonagh, its Chairman, Frank Daly, its Head of Portfolio Management, John Mulcahy and Head of Legal and Tax, Aideen O’Reilly. The PCA has cross party representation and I think it fair to say that the questioning was challenging and in some cases combative. So here’s what we learned:
(1) To 11th November, NAMA has absorbed €53bn of loans at par value for a consideration of €23bn. By the end of the year NAMA expects to absorb a final total of €73bn of loans at par value for a consideration of €31bn.
(2) Full due diligence and valuation has been undertaken in respect of 5,500 out of the final total of 11,000 loans and the loans presently being transferred under the accelerated programme will be subjected to final due diligence in the first quarter of 2011 and if there is any underpayment or overpayment then that will be balanced with the PI. NAMA don’t expect the final tallies to be materially different to the results from the accelerated programme.
(3) NAMA expects to have some control over some 140 hotels with 90 in the State, 40 in the UK, 5 in Germany, 2 in the Czech Republic. This is considerably more than had been indicated by the Tourism Minister just a few weeks ago. In terms of the State, the estimate was that each hotel had 120-150 rooms so that would mean NAMA would control over 10,000 of the 60,000 rooms available. NAMA’s control in the sector may be dwarfed by the control of Bank of Scotland.
(4) Costs of converting hotels to nursing homes/hospitals might be prohibitively high and NAMA has established communication channels with the HSE. NAMA is not supporting zombie hotels but is trying to ensure effective management practices are adhered to. There may well be hotel closures in the State but these closures may be non-NAMA hotels.
(5) NAMA will directly manage 170 developers worth €58bn with the remaining 680 being managed at the PIs, either directly or through Capita. About 40 developers will also be prominent construction companies.
(6) NAMA’s estimate of NPV is still around €1bn – unchanged from its central scenario in the June 2010 Business Plan.
(7) NAMA maintains it is one of the most transparent organisations with onerous reporting obligations – however it will still closely guard commercial confidentiality and it refused to name NAMA developers, even the Top 10. It claims that transparency of commercial transactions would jeopardise its objective of maximising income and may also see NAMA landed in the High Court for breach of confidentiality under s202 of the NAMA Act.
(8) NAMA claims that its primary objective is to recover the sum NAMA pays for the loan plus any additional advances made by NAMA. Its secondary objective is to recover the entire par value of the loan.
(9) On the developer business plans, by the end of today NAMA expects 12 plans to have been approved by the NAMA board. So far there are five Business Plans which have been approved, something which requires a contractual sign-up by NAMA and the developer. There are 16 Business Plans that have passed through the NAMA Credit Committee. NAMA expects to have “reviewed” 30 Business Plans by mid-December, 2010. This was worrying in the sense that there may well be a damaging delays with the other 820 Business Plans.
(10) On performing loans, NAMA expects that by the end of the year that some 25% loans will be performing (down from 29% at the end of Q2, 2010). Importantly NAMA defines a performing loan where interest is actually being repaid in cash. This is at odds with the banks’ definition which merely allows for the loans to be performing in accordance with the loan agreement which may provide for rolled-up interest, for example.
(11) In general NAMA want to see 25% of loans repaid by 2013 and 40% by 2014.
(12) In respect of Tranche 1, 100% of lending was underpinned by personal guarantees. NAMA claims to be ruthless in getting developers to bring unencumbered assets to the table and claim that one developer declared additional assets of €50m following pressure from NAMA. There is widespread evidence of assets having been transferred (“the majority” so far) to spouses and family and NAMA is seeking to have these transfers set aside where they have the effect of disadvantaging NAMA (as opposed to their being an intent – s211 of the NAMA Act). NAMA claim that they will pursue outstanding debts to the maximum extent “feasible”.
(13) NAMA says that under the NAMA Act they are forbidden from selling assets back to the same developer as the original borrower and that in the case of limited companies, they are aware of the spirit of the legislation and will try to comply with it but cannot give a 100% guarantee.
(14) Loans in Northern Ireland and the State are expected to suffer the same level of discount. The UK, US and elsewhere in Europe will have lower discounts. That was interesting to me because I would have thought that NI would be closer to mainland UK in terms of property performance but NAMA claim NI is closer to the State.
(15) With respect to salaries at NAMA, they still produce the same old guff about confidentiality. However NAMA said that it expects that of the €25m overhead payment to the NTMA that 70%+ (perhaps even 90%) will relate to the salaries of some 102 staff. I took the €25m to be a full year – wasn’t clear. However at 102 staff and for €17.5m, that equates to a per head cost of some €175,000 per annum. However it was unclear if €25m was for one year, whether 70% or 90% was salary and whether it related to 87 staff employed today or the 102 NAMA expects to have at full strength.
(16) NAMA doesn’t acquire performance bonds from the banks. These are insurance policies that banks had with developers that the banks would need pay development levies to local authorities if the developer was unable too (for example the developer went bust). NAMA didn’t acquire these and there must be a question as to these liabilities in the banks.
(17) NAMA was asked if they held concerns about any “landmines” at the banks in respect of derivatives. NAMA referred the questioner to the Financial Regulator, Matthew Elderfield but the NAMA CEO said that when he was employed with the NTMA prior to his appointment to NAMA he did not observe any significant risk in bank derivatives. Nobody thought of asking NAMA about the €78m derivatives loss in the NAMA accounts in Q2.
(18) NAMA has abandoned its €5bn fundraising for now, although it is still putting the programmes in place so that it can go to the market when conditions improve. NAMA is generating positive cash flow (€650m so far) and has been able to pay interest, repay €250m capital to the DoF and €350m development spend (of which €47m had been spent to the end of Q2).
(19) So far NAMA has overseen the sale of €250m of assets (sales completed and cash received). Another €350m is in the pipeline to conclude by year end but some of this might fall through. Lending syndicates in which NAMA is involved (eg with Ulster Bank) have sold €1bn of property but only a part of this will affect NAMA. Sales have been of overseas properties.
(20) Disposals will be accelerating “soon”. NAMA will bring some property to the market at teaser rates to test the bottom. John Mulcahy claims that “most commentators” say we’re either at the bottom or close to it. Really, John?
(21) It was probably just the way he articulated it but Brendan McDonagh was asked about non-NAMA lending losses and he replied that “if Mr Elderfield has said he’s done his PCAR” then Brendan McDonagh would have no reason to dispute that the banks are recognising (for the purposes of their capital raising) loans losses adequately.
(22) Willie O’Dea can stop agonising about contacting NAMA about the fierce state of an estate in his constituency. As long as he isn’t lobbying NAMA, then NAMA welcome communication from public representatives about health hazards from property that may now belong to NAMA.
(23) The CPA asked NAMA to write to the Financial Regulator with any evidence of fraud in the figures provided by the banks last year and that the Gardai be involved as appropriate.
(24) Property has declined in value by 9% in the State since last November 2009 (NAMA’s valuation date) and increased by 6% in the UK so rule of thumb NAMA’s portfolio of €31bn will be worth 3% less today, that is a paper loss of €0.9bn though since the 5% subordinated debt is not payable unless NAMA breaks eve, arguably there is no loss. I would have said the loss was greater.
(25) As far as NAMA is concerned NAMA bonds are still exchangeable at the ECB, and there is no restriction on their exchangeability.
(26) The majority of the €5-20m exposures at AIB and BoI excluded by the Minister in September from NAMA’s ambit are in the State.
(27) Although NAMA paid €5m for legal due diligence in the first Tranche, this resulted in a reduction in the sums paid to the banks of €250m.
(28) Enforcement proceedings have been approved in 18 cases and an additional 15 were recommended by the banks but rejected by NAMA. A small proportion of the 18 cases will go to court because NAMA feel that once the developers get notification of court proceedings they will start picking up the phone and engaging with NAMA.
(29) NAMA has been contacted by a lot of “bottom feeders”. NAMA will not be exploited by vulture funds.
(30) The Comptroller and Auditor General will produce a report on NAMA’s year end accounts (to 31st December, 2010) and on NAMA’s processes to manage loans by April 2011. I can’t wait! Particularly if it is of the same dreadful quality as the report on the acquisition process.
(31) NAMA is still trotting out that line from the Economist magazine in August 2010 that Ireland’s response to the financial crisis is the right one. It’s a little disheartening that no-one is really saying anything positive about the agency which after all has transferred a huge loan portfolio. Presumably once NAMA starts to manage the business plans and make more disposals that position may change.
(32) The LTV on acquired loans is closer to 100% than 77% last August 2009 and this reflects the continuing downturn in prices and also the equity release practices in banks. The final average discount is likely to 58% being 30% in the Draft Business Plan, 23% worse LTV’s and 5% for poor loan documentation.
(33) NAMA will change the market for insolvency in Ireland and is keen to implement the UK practice of having property insolvency practitioners which are distinct (and far cheaper) than corporate insolvency practitioners.
(34) EU approval of Tranche 2 is expected “shortly”
(35) NAMA is receiving an average of Euribor + 2.5% on its lending to developers.
Overall the NAMA team gave a robust and in Frank Daly’s case a polished performance. Brendan McDonagh exuded an air of competence and quiet confidence – let’s hope that continues with the next (and most important) phase – management of the loans and disposals. The overall quality of the questioning by deputies was dreadful – “if NAMA had secured €54bn of funds at 1%, could they not lend to the rest of the economy” – that type of thing. Credit to the NAMA for its patience in responding fully to most questions.
NAMA Wine Lake 
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“(8) NAMA claims that its primary objective is to recover the sum NAMA pays for the loan plus any additional advances made by NAMA. Its secondary objective is to recover the entire par value of the loan.”
Surely the secondary objective should be to make a profit on its total costs? The objective of recovering the entire par value is wishful thinking except in the most exceptional of cases
“(13) NAMA says that under the NAMA Act they are forbidden from selling assets back to the same developer as the original borrower and that in the case of limited companies, they are aware of the spirit of the legislation and will try to comply with it but cannot give a 100% guarantee.”
That’s a surreal statement. So they will sell a developer someone else’s loan but not their own? Where is the logic in that? It’s the old story of the same political spin that replaces logic and got us to where we are today.
“(6) NAMA’s estimate of NPV is still around €1bn – unchanged from its central scenario in the June 2010 Business Plan.”
Dream on! Not when their new masters, the IMF tell them to get their finger out with regard to the disposals and get the cash in.
(5) NAMA will directly manage 170 developers worth €58bn with the remaining 680 being managed at the PIs, either directly or through Capita. About 40 developers will also be prominent construction companies.
This is humanly impossible with Nama’s limited resources. Lack of management will be the downfall of Nama or reason why it underperforms. Last year, I emailed all TDs about this saying “such an approach is penny wise and pounds foolish and is equivalent to sending a boy on a man’s errant. Accordingly, the management resources and expertise within Nama must be appropriate to managing one of the largest property portfolios in the world even if this entails much higher operating costs than envisaged to date.”
(8) NAMA claims that its primary objective is to recover the sum NAMA pays for the loan plus any additional advances made by NAMA. Its secondary objective is to recover the entire par value of the loan.
I know that the first objective is the legal one but surely the secondary objective should be the primary one. To WSTS, I agree that 100% recovery of par value is unrealistic but what about seeking 605, 70% whatever? Remember that each 10% is worth about €7.3 billion to the Exchequer. This links back to management resources – spending a few million on additional resources could pay for itself in spades.
There is an article in todays Irish Times by Simon Carswell arguing the case for the disposal of Anglo’s US Loan Book. This follows comments in the Indo yesterday that under any EU/IMF bailout AIB and IL&P would be forced to shed their overseas books possibly with a guarantee on losses provided by the EU/IMF. I do not see under these circumstances how NAMA will not be “encouraged” to do the same with their overseas assets. I believe we will see a sell-off of most of the overseas loan books in H1 2011. I do not believe in most cases that NAMA will pursue their secondary objectives outside the top 30 borrowers. NAMA is now in a forced liquidation of realisable assets no matter what spin they put on it. Estimate total losses over it’s 10 year life will be in and around €12bn.
Toothless committee that told Peter Matthews “sorry we have to vacate this room in 5 minutes” in the middle of him giving them the real figures for the economy, bailouts and NAMA.
They could not even deal with “Ivor” so how can we expect them to”question” NAMA. They can question all they like but it will not make a blind bit of difference.
I agree 100% with each of the above comments. We will need a NAMA 2 to deal with the losses that NAMA will incur because Receiver sales will now be forced, not to achieve best possible value, but just to make a sale at whatever can be achieved in the quickest time possible, thereby leaving the profits behind for the funds.
In relation to Brian’s comments. I concur. Whilst, the probability of achieving 100% on the par value of the loans taken as a whole is zero, good loan management should aim for the maximum return. That needs skilled property professionals. With the very limited exception of the likes of John Mulcahy and Mary Bermingham, NAMA just don’t have them.
Box tickers, civil servants, the odd ex estate agent, fund manager or ex bank manager… yes; Knowledgeable property negotiators, project managers and facilitators … no.
I’m afraid we are left with the reshuffled bank managers in the PIs who lent to the rubbish originally and the receivers who will play this for all that it’s worth and for as long as possible.
WSTT
“That needs skilled property professionals.”
Sure but we also need a team of extremely tough commercial lawyers who have no affiliations with any professionals in the State either on the other side of chinese walls, partner dining rooms, golf clubs, schools etc. Last December, I blogged “These would include some really tough, nasty lawyer-types who cut their teeth on Wall Street and would be more than a match for any of the “locals”. Of course, appointments of this type could put the “cat amongst the pigeons” and this isn’t what the Minister for Finance is seeking at board level given his role in shaping and running Nama.”
We now have confirmation that NAMA is indeed a liquidation and debt collection agency and not a funding partner. At least, with the admission that they can’t raise the €5 billion this fallacy in the NAMA legislation is laid to rest.
BTW, a NAMA representative admitted to me last week that they are totally overwhelmed and just could not cope with the amount of loans that they are supposed to handle. He said that it was impossible to get or make decisions as nobody knew who in the office was supposed to deal with any of the huge multiplicity of accounts that had arrived and were piled on their desks. They just don’t know where to begin.
As Ollie would say to Stan “Here’s another nice mess…..
I can’t say I’m surprised by what I’ve read above.
It’s a shocking state of more mismanagement that we’ll all end up paying for.
I will be asking every single candidate what are you going to do about NAMA and if the answer is not “we will wind it up immediately” I will tell them get lost!
Mark the assets to market prices and get rid of them. Auction the lot, if they have to. The state had no business entering the gambling arena, it should have no mandate to remain at the casino, it must get out of there as quickly as possible. NAMA has holed the ship of state below the water line and is now taking in water itself. It has achieved the opposite to its stated purpose. If you invented something and it turned out to be the opposite to what you had in mind what would you do? If you were a normal person you would admit failure, scrap the “invention’ and cut your losses.
The property market, the building industry must be allowed to find its own level of complete and utter stagnation and decay. It will probably last about 3 to 4 years or less before the jackels come in and start to extract value from the “best” of the mistakes. The system must be left to find its own equilibrium. If not, we will have Frank Daly a revenue inspector and his ilk deciding the future of property in this country. Thanks but no thanks, the developer class were bad enough but retired revenue inspectors? That is to sad to contemplate.
According to some that I know who have had verbal intercourse with the AIB in the past couple of weeks, it is squirreling away and hiding performing loans from NAMA “en masse”. AIB has become very selective, wants to hold the best and send the rubbish to NAMA who, because it is so overloaded, is totally incapable of monitoring this scam.
Not a great harbinger for the future, NAMA appears easily duped and a “mark” for the thugs in Bankcentre. Dead in its tracks before it has even taken a step.