NAMA moves to lock stable doors after solicitor controversy

Following the revelation on Monday that a solicitor, whose firm has been appointed to a NAMA panel of legal advisers, was being pursued by Bank of Ireland over a €69m debt, NAMA has moved quickly to put on record that (a) although Brian O’Donnell’s firm has been appointed to the NAMA legal panel that no work was in fact given to that firm by NAMA and (b) NAMA is to introduce additional screening procedures for third party firms so that they will declare the full extent of their property loans before being hired by the agency.

It should be said that Brian O’Donnell who founded a successful legal practice in 1999, is claiming an arguable defence against Bank of Ireland’s claim and that further, he says that his assets are worth €1.1bn with loans of just €0.8bn. Vico Capital, the company owned by Brian and his wife Mary Pat, has built up an impressive portfolio of property which includes an office building on Pennsylvania Avenue just down from the White House in Washington, a substantial office building in the centre of Stockholm as well as blue-chip properties in London. Much of the portfolio appears to have been acquired after 2005 which may not augur well for future overall prospects because an implication is that the property was acquired at peak values.

This is the second episode where NAMA-appointed lawyers has stirred up controversy through involvement in property. In February 2010, one of NAMA’s original 65-member legal panel, Dermot G O’Donovan, resigned from the panel following revelations of property dealings by partners in that firm.

This latest episode prompts a re-visit to one of the core concerns about NAMA employing people and companies that were involved, centrally or peripherally, in the property boom and bubble. NAMA says that Ireland is a small pond and it is inevitable that it will employ some of those who were involved in property – NAMA say that whilst they have recruited from overseas in some instances, familiarity with Irish processes and people is necessary for the agency to effectively fulfil its role. The alternative, employing those not involved in Irish property, means that we have unfamiliar newbies, learning on the job as they manage €90bn of loans which is a worse outcome.

I must say that in my opinion, Brian O’Donnell’s selection for appointment to the NAMA panel is not surprising. His law practice is successful and the man personally brings a huge wealth of experience in property. What is concerning is the possibility, or potential, for conflicts of interest, particularly given the the claim that Brian’s property is worth €1.1bn with loans of €0.8bn. Even if his firm didn’t act on his own property, there would appear to me to exist the potential for more general conflicts of interest with respect to banks that might elsewhere be lending to Vico and procedural practice. NAMA now say that they “will” institute procedures to capture relevant property exposure information. But what does this mean? In respect of Brian O’Donnell Solicitors, does that mean the partner(s) must make declarations, what about their jobbing solicitors, the paralegals, what about support staff? NAMA say they *will* institute these new disclosure requirements before offering work but what about the existing standing army of engagements, will NAMA seek additional disclosure from historical appointments?

A related concern to potential conflicts of interest is tax compliance. NAMA seek tax clearance certificates from third party appointments but NAMA’s appointment of firms whose principals have been forced into settlements with the Revenue Commissioners is controversial. In September 2010, the Irish Times reported that “O’Sullivan Associates/Cathal O’Sullivan, solicitor, Herbert Street, Dublin” had made tax settlements of €209,322 and €790,681 respectively – this, some nine months after that firm had been appointed to NAMA’s legal panel. And the Mail on Sunday reported in February 2010 on two other NAMA panel members, Callan Tansey Solicitors and McKeever Taylor Solicitors whose principals had coloured histories – in the case of Damien Tansey there was a tax settlement of €177,650 in 2007 and in the case of Robert Taylor “he agreed to pay €10,000 to charity after he was found by the High Court to have misled it about the notes of client meetings in a dispute over a €2m property deal”

 

A third area of concern is that NAMA is furthering the crony system in its hiring processes and that it is paying too much for third party services. According to the NAMA CEO at the Oireachtas Finance and Public Service Committee in April 2010  “we are subject to proper procurement rules and for procurement competitions we use the services of an external process auditor. The external process auditor who sat in on all our assessments of all the tenders was Maurice O’Connell, the former Governor of the Central Bank. He signed off on the competitions for the board of NAMA to indicate they were run in a fair and transparent manner, which is very important” and in November, 2010 the Comptroller and Auditor General appeared to give NAMA’s procurement processes a clean bill of health. So that concern may not be justified.

NAMA is planning to pay huge sums to third party firms – an estimated ~€200m a year in both 2010 and 2011 though as NAMA completes its acquisition of loans, these payments will decline and over a 10 year period NAMA is planning to spend €1.6bn on operating costs (expressed in Net Present Value terms according to the June 2010 Business Plan and which includes the ~€30m a year NAMA pays for its own staff and related expenses) – you should ignore the €260m a year claimed in Dearbhail McDonald’s piece in today’s Independent which seems to be derived from the draft NAMA Business Plan in October 2009 . With such a colossal engagement with third parties, an odd scandal is inevitable. It is regrettable though that NAMA is only now seeking disclosure on property exposures and it is to be hoped that the acquisition of loans was not compromised by conflicted third party service providers.