Archive for January 9th, 2011

This coming Thursday 14th January at 11.30am will see NAMA CEO, Brendan McDonagh returning to the Committee of Public Accounts (CPA) for an uncomfortable questioning session which will focus on the responses given by Brendan at the CPA hearing on 18th November 2010. In particular he is to be quizzed on his response to Deputy Michael McGrath’s series of questions on the quality of information provided to NAMA by the banks in 2009. There was an emerging controversy just before Christmas with the CPA seeming to claim that they felt they were misled by the NAMA CEO whose responses to the Committee in November seemed to confirm that there were machinations at the banks which deserved Garda investigation. The buck-passing referred to in the title refers to the subsequent efforts by Brendan and the Financial Regulator, Matthew Elderfield to dodge responsibility for progressing a new investigation into the banks’ provision of information to NAMA.

Here’s how the buck-passing early rounds played out:

2009 – Banks provide information to NAMA on loans which informs the NAMA draft Business Plan. Banks issue press releases on NAMA discounts – this is AIB’s which includes “Based on the Minister’s estimated average industry wide discount of 30% (which as we have already stated is expected to exceed the estimated maximum for AIB)” (AIB’s is now estimated at 60%) and Bank of Ireland’s on 17th September, 2009 has seemingly been removed from its press release website but is available elsewhere from their website here which says “On the basis of these positive variations, taking into account the extensive work that has been done internally over the past year, and the illustrative methodology set out in the Supplementary Documentation published by the Department of Finance, Bank of Ireland believes that the discount applicable to Bank of Ireland loans potentially transferring to NAMA could be significantly less than the estimated aggregate discount of 30%.”

July 2010 – NAMA produces second Business Plan which shows a substantial deterioration in outlook from a Net Present Value of €4.8bn to €1bn (though there were scenarios at minus €0.8bn to plus €3.8bn).

August 2010 – NAMA Chairman, Frank Daly, criticizes the information provided by the banks

18th November, 2010 – Brendan tells the CPA “The first port of call in terms of looking at that must be the Financial Regulator, who has responsibility for supervising and knowing what goes on within the banks. We will provide whatever assistance we can to anybody. I can assure the Deputy that we have established the facts and will make that information available to any regulatory authority, if appropriate. This is where we are now. Other people have questions to answer on what was done in the past.”

24th November, 2010 – CPA writes to Matthew apprising him of Committee proceedings and Brendan’s responses. This letter does not appear to be in the public domain.

26th November, 2010 – Matthew writes to the CPA acknowledging their letter and stating “My office expects that Mr McDonagh will contact the Central Bank with information which substantiates a claim that NAMA was provided with false or misleading information by the banks”

6th December, 2010 – Matthew writes to the CPA again and states “It is a matter for NAMA to determine, following a consideration of its obligations, both the requirement to report and the relevant authority to which the report is made..” The letter suggests that Matthew has not received information from NAMA on which he can act.

17th December, 2010 – Although not yet available on the CPA’s document website, there was a report in the Irish Times that Matthew wrote a third letter to the CPA which reportedly said “We received a response from Mr McDonagh this week. Nama’s letter does not refer any matter to us in respect of the conduct of any regulated entity,” and “Further, Nama’s letter informs us that it does not have a valid basis to suspect that there has been any criminal offence or other contravention of the Nama Act.”. The CPA felt they had been misled and have ordered the NAMA CEO back to their Committee lickety-split to answer for himself and that brings us to the session scheduled for this coming Thursday.
So who is responsible for investigating possible wrongdoing by the banks in 2009 in their provision of information to NAMA (and potentially their shareholders)? Here are some statistics which are far from vital:

So in the red shirt you have Brendan McDonagh, the 42-year old management accountant who has spent his career with the ESB and the NTMA and today is reported to earn €500,000 per annum as he directly manages 100 staff (with another 50 reportedly on the way) and an army of third party service providers. Whilst not a career civil servant, he is likely to be well-schooled in the art of passing the buck.

And in the blue shirt, you have Matthew Elderfield, the former chief executive of the Bermuda Monetary Authority (BMA – the financial authority for an island group with a population of 68,000 (less than the size of Galway) and with an annual GDP of €4bn). Matthew was famously reported to have taken an awful cut in salary when he took over as our Regulator on 4th January 2010 – Matthew was reportedly being paid €340,000 a year here in March 2010 and his Bermudan salary was put at US $730,000 (€540,000) – not bad for a man who, according to the 2008 and 2009 BMA accounts, was managing 130 staff whose annual payroll costs totalled USD $23m. A recent interview in the Independent claimed Matthew had taken a pay cut of 15% after he arrived which might place his salary today at €290,000 (just below Central Bank governor Honohan on €300,000 a year). Matthew’s previous career included 8 eight years at the UK’s Financial Services Authority where he was reportedly responsible for supervising Northern Rock before its bailout in 2007. His career would suggest he is the under-dog in this buck-passing competition.

The view on here is that NAMA has protesteth far too much at the quality of information provided to it in 2009. After all, it was NAMA’s business plan and they employed, at vast expense, experts to assist them in the early days which would realistically have involved testing the assumptions and information used in the business plan. NAMA got its operating costs spectacularly wrong by 40% (€2.6bn in 10-year NPV terms in 2009 and €1.6bn in the same terms in 2010). So NAMA might have dealt with its inaccurate draft business plan in a more responsible way – yes the information from the banks was wrong but the due diligence on that information at NAMA was grossly inadequate. And the owner of the business plan is not the banks, not the developers, not the third party service providers, not the Department of Finance – the owner is NAMA and the agency should accept its responsibilities.

On Thursday next we will get to observe what should be the final in the buck-passing championship as we should find out whether it is NAMA’s or the Financial Regulator’s responsibility to progress any new investigation into any misleading or false information provided by the banks to NAMA in 2009.

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