There was an odd story in the Irish Times this morning where Simon Carswell reported that NAMA had donated to our National Gallery a painting by Irish painter, John Lavery. NAMA’s largesse came after it took possession of Top 10 developer, Derek Quinlan’s assets following foreclosure action last month. There is a lack of clarity in the article – on one hand, it seems to be the case that NAMA is bartering the donation in return for curatorship services provided by the National Gallery in respect of the remainder of Derek Quinlan’s art collection and on the other there is a suggestion that the donation is (to quote the Irish Times citing a NAMA spokesman) “a goodwill gesture to the National Gallery and to the Irish people to offer the National Gallery one piece of art from the collection for free given the fact that they advised it was of importance to the heritage of Ireland”. The painting to be donated is called “The Return from Market” and according to Bourne Fine Art dealers in Scotland, it was painted in the 1880s and then passed through inheritance to a certain Lady Sempill and then sold to Sotheby’s in 1970 who sold it to the Fine Art Society in London, it was then in a private collection until 2001 when apparently it was acquired by our own Derek Quinlan.
The painting is said to be worth €300,000 now though it was apparently valued at GBP £465,000 in 2001 – €530,000 at today’s exchange rate. I found the report this morning extremely troubling.
NAMA has two codes of practice with which it complies when making disposals – one is for disposing of loans which doesn’t concern us here. But the other is for the disposal of real property; NAMA says it complies with the Code of Practice for the Governance of State Agencies 2009. That says (from page 20)
“The disposal of assets of State bodies or the granting of access to property or infrastructure for commercial arrangements e.g. joint ventures with third parties, with an anticipated value at or above a threshold level of €150,000 should be by auction or competitive tendering process, other than in exceptional circumstances (such as a sale to a charitable body). The method used should be both transparent and likely to achieve a fair market-related price. The anticipated value may be determined either by a reserve price recorded in advance in the State body’s records or by a formal sign-off by the Board on the advice of the Chief Financial Officer (CFO) or, if delegated by the Board, sign-off by the CFO or the Board Audit Committee, that, in its view, the anticipated value is likely to be less or greater than €150,000. In determining market value, regard should be had to accounting standards best practice inIreland. NAMA was asked for comment on the reported donation, and has not as yet responded.”
There doesn’t seem to any dispute that the donated painting is worth more than €150,000. The painting is not being sold to a charitable body in that this is reportedly a donation and I don’t believe the National Gallery is a charity. Even if it was a charity why should NAMA be able to select it for its largesse? So where is the auction or tendering process?
There must be a serious concern if NAMA has acted in the way suggested by the Irish Times today. Surely the agency should be maximizing the value of the painting for the taxpayer. If the value of the painting is €300,000 and NAMA is receiving €300,000 of curatorship services in return, then the donation would be consistent with the objectives of NAMA as set out in the NAMA Act. I’m no expert on art storage fees but in terms of providing insurance, security and the proper environmental conditions, €300,000 would get you a lot if you were seeking car storage for example. It seems unlikely that it is an equal barter. So has NAMA broken the code?
UPDATE: 7th July, 2011. The painting finally went on show at the National Gallery yesterday and is reported here by the Irish Times who also add a quote from the NAMA chairman, Frank Daly “We are grateful that the National Gallery continues to store a number of pieces of work on our behalf while we finalise preparations for their disposal by public auction”
UPDATE (1): 3rd August, 2011, The painting referred to above can be seen in situ at the National Gallery here.
UPDATE (2): 3rd August, 2011. On 27th July, 2011, it was reported that NAMA had sold a Jack B Yeats painting “National Airs/Patriotic Airs” for €175,000 to the National Gallery.
UPDATE: 11th December, 2011. It has been reported in today’s Sunday Independent that the Lavery painting donated to the National Gallery was bought by Derek Quinlan for “over €800,000” in 2001.
NAMA Wine Lake 
Well, one serious complication is the fact that NAMA and the National Gallery are both state agencies. Let’s not beat around the bush here; Quinlan was in debt to the state, and his assets have become state property. To my mind, whether they are held my NAMA, the National Gallery, or Cavan Country Council is in theory immaterial. Accountancy-wise however, this kind of slipshod management of assets will probably cause headaches later on.
There’s also another issue; the value of the painting. Is it really worth €300,000? I’m willing to dispute this figure for two important reasons: firstly, as an Irish painting by and Irish artist, the Irish commentariat is going in inflate the worth of the painting somewhat; secondly, the art world being the as fickle as it is, and credit in this country being so scant, I find it questionable whether a painting like this would raise the stated amount in an international auction. Factor in the fees, time, and hassle, and I think NAMA is better off simply bartering the painting with the National Gallery for storage space.
This all raises a good question though. Is NAMA going to store all the art it seizes with the National Gallery? Maybe one good thing that will come out of this great financial farce is a windfall of artistic and cultural works for the benefit of the general public. Perhaps some previously “lost” paintings, etc, will be recovered by NAMA over the next few years.
Depends on what the NGI has to do for it. But I can virtually guarantee you that any agent outside of a State agency would have £ $ é spining at hearing NAMA is looking for professional aid.
Honestly I think it’s best to keep it in the family when you can, as it were..
I don’t think it has broken it’s code of practice: The National Gallery has charity status, and under the codes of practice it allows for “..disposal of assets…[..}…in exceptional circumstances (such as a sale to a charitable body)”.. so whether sold or donated it probably fits.
Personally I think that they are also reacting to some of the negative publicity recently, like the recent article by Frank McDonald on the RHA’s criticism of NAMA for not looking after “protected structures” in their loan books, where they compared the Hume Street Hospital to a valuable piece of art which should be properly cared for and NAMA denied owning it and any responsibility for it’s care.
I know they only own the loan in the Hume Street Hospital case and in the Painting’s case they foreclosed last month. But what if Quinlan had left his paintings in an open shed for the past few years ?
Apparently the paintings were in the the National Gallery’s care before Quinlan was foreclosed … why was that if NAMA didn’t “own” them yet ?
Hume Street is a valuable part of our nations heritage shouldn’t it be respected and cared for like the painting.
I don’t much care for Lavery as a painter, but that’s another matter.
From the Irish Times article: …A spokesman for Nama said yesterday it had “decided as a goodwill gesture to the National Gallery and to the Irish people…
Unless NAMA employees have used their own money to pay for this, it isn’t a ‘goodwill gesture’. It’s a little concerning if NAMA doesn’t understand this. Although the sum involved is small, NAMA employees would do well remember that the Irish people are paying for this gesture.
____________________
This ‘gesture’ also highlights the great unknown of how NAMA deals with maximising recoveries and the degree of debt forgiveness that might be on offer.
In this case, I’d expect NAMA would need to set an indisputable value on Derek Quinlan’s art collection which can then be offset against the amount owed. The best way to do this is through court approved auction processes. Otherwise it’s open to abuse or legal challenge. For example; “The painting is said to be worth €300,000” – is this the amount that NAMA has reduced Quinlan’s debt by? Maybe they’ve assigned a €1,000,000 value against the debt? Or if NAMA set a low amount, will Quinlan challenge it?
This, in turn, leads to the thorny issue of debt forgiveness. And the potential that certain individuals may remain quite wealthy due to NAMA. The ‘NAMA approving business plans’ raises serious questions. NAMA has taken little time to establish itself as a patron of the Arts. Let’s hope their largesse doesn’t extend beyond this because it’s you and me paying the bill.
I do think that they should have at least discussed it with government and Michael Noonan. Shows that they really are a law unto themselves. A bit like a private state operating within the state and with our money too.
Are NAMA just giving away the painting? Are they going to credit the borrower with the value of the painting? Looks like General Franko is losing the run of himself. What next? Sponsoring dog races in Shelbourne Park. A tent at Galway Races!
This story is troublesome. NAMA should, in all cases, act with a strict commercial remit. Lady Lavery was on our old pound notes for years and there would be much international interest in paintings by a noted Irish artist such as Sir John Lavery. Someone like Coolmore’s John Magnier, a major collector of Irish art, would surely have been interested. It would be interesting to know how much of Quinlan’s debt was written off through the donation of the painting to the National Gallery.
This is a disgrace. It’s proof that NAMA is the final FF quango. Typical Irish solution to a banking crisis – create a gray train, jobs for the boys, etc.
How can NAMA have the expertise to maximize the value of the loan book for the taxpayer? They’re civil servants! Real estate development is a skill that takes years to learn. My prediction – they’ll seize as many assets as they can, fail to maximize the potential of the less savvy developer’s portfolios, and drive the capable and solvent developers out of business or out of the country.
Why don’t the law firms, accounting firms, and auctioneers on the NAMA gravy train donate their services? They made a fortune during the boom and it would show a little patriotism. Sorry, I forgot – “an Irishman’s heart is nothing but his imagination.”
PS, it smacks of hubris.
It confirms everything about them that I have posted. Hubris is too mild a word. The arrogance of suggesting that NAMA is donating the painting to the Irish people – it belongs to the Irish people!
NAMA have lost the plot when it comes to disposing of assets for maximum value. As I have said here, from my observations to date the policy is one of expediency. And that includes the sale of the London assets, where the suave London agents are running rings around the inexperienced bogtrotters from NAMA.
The best developers have already gone. They are making new lives and buying property in London, New York, Los Angeles, Sydney, Beijing and Toronto. There are banks and markets in these cities.
The market in the USA believes that delinquent commercial real estate loans are worth about 40% of par value and that loans current on payments are worth 80% of par value. That price point has held steady, and is reflected in published prices from traders like DebtX, a clearinghouse for many private loan sales.
Since the FDIC began selling loans, prices have rarely traded below those levels and liquidity has returned. This rebound has even driven investors to venture back into the business of unsecured financing.
Funding and investment transactions in the USA and the UK today once again include mezzanine debt and other unsecured portions of structured financing. For example, in Washington, MetLife recently provided a first mortgage to investor Dweck Properties to refinance America’s Square, a 461,484 sq. ft. office complex. A mezzanine loan from First Potomac Realty Trust was included in the structured deal to minimise leverage of the asset while providing maximum proceeds.
Opportunistic funds, managers that make or buy high-risk loans such as mezzanine loans and distressed debt, generated an average return of 24.3% to their investors in 2010, according to the US National Council of Real Estate Investment Fiduciaries and the Townsend Group.
In the first quarter of 2011, Blackstone Group’s earnings jumped 58% over the same period in 2010. It was Blackstone’s best quarterly earnings since going public in 2007. Surprisingly, its big profits for the period came not from its traditional leveraged buyout business, but rather from its real estate division.
According to Blackstone, the traditional leveraged buyout business currently isn’t as attractive as the property business.
Ironically, the very lending structure that led to froth in real estate in the first place — unsecured supplemental financing — may at least be at the core of this leg of the recovery in the rest of the world.
So while the niceties of all this research may not be fully appreciated by the Irish developers, they smell the loosening of the purse strings in world markets, have packed their bags and are leaving.
Good riddance? We’ll see. But NAMA’s pursuit of them in order to put heads on stakes is an impotent one; and it is one that may yet come back to haunt NAMA and the Irish market.
Apologies, NWl. I drifted ‘way off topic in that post. It’s just that after spending the last two weeks on Wall Street, the solution to the stagnant real estate market in Ireland hits you in the face like a brick (no pun intended). But that’s for another link.
@WSTT, the subject deserves a post of its own and will look at that, it needed to be said that other markets are moving on whilst we’re still in crisis-mode. In the meantime, Blackstone had a very provocative take on our crisis last year “you want to wait until there’s really blood in the streets.”
https://namawinelake.wordpress.com/2010/12/09/%e2%80%9cwe%e2%80%99re-basically-waiting-to-see-how-beaten-up-people%e2%80%99s-psyches-get-and-where-they%e2%80%99re-willing-to-sell-assets%e2%80%9d-%e2%80%93-blackstone-ceo-and-co-founder-steve-sch/
Don’t sell the painting. Borrow the money the sale would have raised from overseas then get the loan written off because it “cannot” be repaid.
Be sucked up to by all the cultured wealthy set that think Irish paintings remaining in Ireland is really important – but want someone else to fund it. Opens doors to directorships and dinner parties that., at taxpayers, or better still, foreign taxpayers’ expense.
good idea Grumpy – rather than donate to the gallery – a philantrophic funding drive to buy certain paintings for the Nation collection. Anyone who donates artwork to the NG can right it off against tax anyway. It is nice for the NG to have the painting, but the book keepers in NAMA aren’t thinking very creatively.
Who-shot-the-tiger has it right guys. NAMA’s demonising of their top borrowers will all come back to roost. What developer would ever want to take a risk in Ireland again and fail and be bullied and harried by a bunch of property amateurs / civil servants as most of the NAMA “professionals” were the guys who were second and third tier in their last jobs. Of course, the top borrowers made mistakes and have learned very valuable lessons but as – one by one – they realise that working with NAMA is a recipe for their complete wipeout they will ALL leave Ireland and apply their expertise on other shores where failure in business can be a badge of honour and proof that you have learned lessons. NAMA’s moralising is a complete disaster and only serves the politicians and the regulators who are desperate to blame anyone but themselves. Sean Dunne was right when he said; “the guys with money have no balls and the guys with balls have no money”. It is time to leave Ireland … to NAMA.
@MyNama
“the top borrowers made mistakes and have learned very valuable lessons”.
I am very relieved to hear that they have learnt valuable lessons (albeit at a cost of tens of billions to taxpayers). I hope that when they leave Ireland these lessons will ensure that won’t help destroy their new country of residence. As you imply, their Irish CVs indicating prospective write offs of billions should make great references.
@Brian;
Hi Brian, While being no apologist for the developers, The losses were not socialised by them The losses should have been left with them and the banks to sort out as happens in every other country.
We, or rather our government and their advisors, spread those losses to the people. That was neither the choice nor the decision of the developers, who along with the banks, and many home and property buyers played the market and lost. Many of them had no idea what they were doing, couldn’t do simple arithmetic and bought property on the basis that, “If the bank is willing to lend on it and the auctioneer says that it is worth it, then it must be OK especially as Johnny Reilly down the road is after it and he made a killing last year on that old field beside him.”
Everyone wanted to be a developer.
It will be interesting to see how the situation plays out in Spain where the banks have maybe – maybe – written down their housing-related losses 10%. It should be more like 40%, which would make most Spanish banks insolvent, so they won’t write them down. Unemployment is over 20% and rising. Like Ireland, they allowed their housing market to get away from them. They, like the Irish banks and developers, believed that someone was going to buy all those homes that they were building.
The biggest bubble in history is the bubble of government debt. It is a bubble in a world full of pins. Before it pops, it will wreak havoc on the financial system and markets of the world; not just Ireland or Europe.
No country save Britain at the height of its empire has ever recovered from a debt-to-GDP ratio of over 150% without a default. None.
And the reason is simple arithmetic. Even a nominal interest rate of 6% means that it takes 10% of your national income just to pay the interest. Not 10% of tax revenues; 10% of your total domestic production. That is a huge burden on any country. It sucks up half your tax revenues (or more), leaving not enough to pay for ordinary government services.
We, the people of Ireland, our developers and banks, are a part of it, but neither McNamara or Sean Dunne were responsible for its creation, nor for spreading the contagion.
@WSTT
“The losses should have been left with them and the banks to sort out as happens in every other country.”
This couldn’t have been done as the losses racked up by the main developers and bankers were so massive that they would have destroyed the entire banking and financial system with consequences far more destructive than we have experienced to date. It is clear that neither the developers not their banking buddies were able to recognise a massive bubble, let alone sort the resultant problem out between them. Effectively, they blew up the economy with the help of regulators, politicians and public administrators. I haven’t agreed with the Government’s solutions – blanket guarantee and Nama – but accept that something had to be done. The developers and bankers may not be responsible for actual contagion but, by goodness, it was their greed and incompetence which caused the problem in the first instance so you cannot use this to absolve them from having been primary responsibility.
“No country save Britain at the height of its empire has ever recovered from a debt-to-GDP ratio of over 150% without a default.”
Agreed. It looks somewhere between grim and awful. Here is what I said in an email earlier this week to TDs (hope you don’t mind me quoting myself but it is relevant):
“To see what I mean, look at the Summary of Economic and Fiscal Outlook accompanying the Jobs Initiative. It indicates that General Government Debt will peak at 118% of GDP in 2013. If we rebase this to the much more appropriate GNP, the rate rises to 144% (based on GNP and GDP relationship for 2010 as per Quarterly National Accounts). Even if we inflate GNP to take account of corporation tax paid by multinationals on their profits, the rate hits 139%. This is completely off the scale and default is almost certain.”
Full message is at: http://www.planware.org/briansblog/2011/05/i-am-very-concerned-that.html#more
Hi Brian.
“The developers and bankers may not be responsible for actual contagion but, by goodness, it was their greed and incompetence which caused the problem in the first instance so you cannot use this to absolve them from having been primary responsibility.”
We are back to the “blame game” and hopefully someone other than our Finnish friend, Peter Nyberg, will actually shed some light on how we arrived in this mess.
Meanwhile, we pore over who who was responsible as an ancient Greek priest might examine entrails, and carefully allocate blame like an Egyptian vizier allocating slaves.
Who had primary responsibility? Does it go back to Greenspan who in order to fight a recession in the USA needed to create a housing bubble to replace the Nasdaq bubble? Or, was it the banks, who suddenly aware that they had access to unlimited funds in the wholesale market, realised that they could create unlimited profits if they could lend the money on?
Or was it the developers, who were the easy targets for these funds?
When small men have large shadows, it means the sun is setting.
Greek two-year bonds are now paying 25%. The past is not yet over, but the sun is setting.
@WSTT
“Or, was it the banks, who suddenly aware that they had access to unlimited funds in the wholesale market, realised that they could create unlimited profits if they could lend the money on?”
I would add ‘Or, was it the developers, who suddenly aware that they had access to unlimited funds from the banks, realised that they could create unlimited profits if they could borrow this money?’
You make out that developers were innocents abroad and deserve sympathy.
I don’t think people are really interested in simply assigning responsibility for the bust, or revenge or retaliation or retribution for that matter. What they want is simply recovery and repayment of loans to the maximum extent that is legally and morally possible and without long drawn out ducking and weaving behind artificial legal barriers and slithering away from guarantees etc.
When you look at the situation and the scale of the damage done, it is really amazing that no one has been prosecuted, forfeited fat pensions, pursued for reckless trading etc. We certainly don’t want a witch hunt or McCartyism but taxpayers are entitled to see moral hazard being applied.
@Brian: “What they want is simply recovery and repayment of loans to the maximum extent that is legally and morally possible and without long drawn out ducking and weaving behind artificial legal barriers and slithering away from guarantees etc.”
Do you not think that someone should tell that to AIB (aka “the taxpayer”) who just reneged on €2 billion of bonds last week?
BTW, the developers are not innocents and do not deserve sympathy. But I was unaware that they were looking for it?
That’s the problem in Ireland – everyone personalises the issue. I have watched what they have done in the USA. They took a commercial view and moved on. The sooner we privatise NAMA properly and emulate the Americans the better.
As NWL, say Blackstone is waiting in the wings like a predator to do it for us when we realise that we have screwed up – again.
Interesting report today in the Irish Independent that Blackstone (see above) and Wells Fargo are buying a USD $1bn AIB portfolio of loans at discounts of only 7-15%.
http://www.independent.ie/business/irish/aib-sells-on-1bn-of-us-commercial-loans-to-wells-fargo-and-blackstone-2658138.html
There is no confirmation of the story from the parties apparently, and it does seem a high price to pay, especially considering the hawkish Blackstone pronouncements on Euro area distressed debt and assets.
The Wall Street Journal has a more expansive piece of the sale of the AIB loan portfolio. Interesting that it included a loan on the Sofitel, where Dominique Strauss-Kahn was staying two weeks ago in a USD $3,000 (discounted to USD $800) a night suite.
http://online.wsj.com/article/SB10001424052702303654804576343591808184336.html
“The tentative sale, at roughly a 7% to 15% discount off face value, comes as the Bank of Ireland, another troubled lender, announced this month that it is selling its $1.5 billion in holdings of U.S. commercial real-estate loans.”
Actually NWL, you published all of this first. I wrote about 3 weeks ago that Wall Street was abuzz with talk of the Irish banks’ sales, the levels being paid and the amount of interest that they were attracting. Can’t remember which thread though :-)
When the developers borrowed they did not borrow from the State or from the tax payer. They borrowed from private banks. The developers did not socialise the problem. The government decided to do this. All I am saying is there are layers of culpability and destroying the developers may not be as clever as it is satisfying.